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This report provides background information and issues for Congress on multiyear procurement (MYP) and block buy contracting (BBC), which are special contracting mechanisms that Congress permits the Department of Defense (DOD) to use for a limited number of defense acquisition programs. Compared to the standard or default approach of annual contracting, MYP and BBC have the potential for reducing weapon procurement costs by a few or several percent. Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP; and whether the Coast Guard should begin making use of MYP and BBC. Congress's decisions on these issues could affect defense acquisition practices, defense funding requirements, and the defense industrial base. A contract that the Air Force has for the procurement of Evolved Expendable Launch Vehicle (EELV) Launch Services (ELS) has sometimes been referred to as a block buy, but it is not an example of block buy contracting as discussed in this report. The Air Force in this instance is using the term block buy to mean something different. This report does not discuss the ELS contract. (For additional discussion, see " Terminology Alert: Block Buy Contracting vs. Block Buys " below.) In discussing MYP, BBC, and incremental funding, it can be helpful to distinguish contracting mechanisms from funding approaches. The two are often mixed together in discussions of DOD acquisition, sometimes leading to confusion. Stated briefly Funding approaches are ways that Congress can appropriate funding for weapon procurement programs, so that DOD can then put them under contract. Examples of funding approaches include traditional full funding (the standard or default approach), incremental funding, and advance appropriations. Any of these funding approaches might make use of advance procurement (AP) funding. Contracting mechanisms are ways for DOD to contract for the procurement of weapons systems, once funding for those systems has been appropriated by Congress. Examples of contracting mechanisms include annual contracting (the standard or default DOD approach), MYP, and BBC. Contracting mechanisms can materially change the total procurement cost of a ship. The use of a particular funding approach in a defense acquisition program does not dictate the use of a particular contracting mechanism. Defense acquisition programs consequently can be implemented using various combinations of funding approaches and contracting mechanisms. Most DOD weapon acquisition programs use a combination of traditional full funding and annual contracting. A few programs, particularly certain Navy shipbuilding programs, use incremental funding as their funding approach. A limited number of DOD programs use MYP as their contracting approach, and to date three Navy shipbuilding programs have used BBC as their contracting approach. The situation is summarized in Table 1 . This report focuses on the contracting approaches of MYP and BBC and how they compare to annual contracting. Other CRS reports discuss the funding approaches of traditional full funding, incremental funding, and advance appropriations. What is MYP, and how does it differ from annual contracting? MYP, also known as multiyear contracting, is an alternative to the standard or default DOD approach of annual contracting. Under annual contracting, DOD uses one or more contracts for each year's worth of procurement of a given kind of item. Under MYP, DOD instead uses a single contract for two to five years' worth of procurement of a given kind of item, without having to exercise a contract option for each year after the first year. DOD needs congressional approval for each use of MYP. To illustrate the basic difference between MYP and annual contracting, consider a hypothetical DOD program to procure 20 single-engine aircraft of a certain kind over the 5-year period FY2018-FY2022, at a rate of 4 aircraft per year: Under annual contracting , DOD would issue one or more contracts for each year's procurement of four aircraft. After Congress funds the procurement of the first four aircraft in FY2018, DOD would issue one or more contracts (or exercise a contract option) for those four aircraft. The next year, after Congress funds the procurement of the next four aircraft in FY2019, DOD would issue one or more contracts (or exercise a contract option) for those four aircraft, and so on. Under MYP , DOD would issue one contract covering all 20 aircraft to be procured during the 5-year period FY2018-FY2022. DOD would award this contract in FY2018, at the beginning of the five-year period, following congressional approval to use MYP for the program, and congressional appropriation of the FY2018 funding for the program. To continue the implementation of the contract over the next four years, DOD would request the FY2019 funding for the program as part of DOD's proposed FY2019 budget, the FY2020 funding as part of DOD's proposed FY2020 budget, and so on. How much can MYP save? Compared with estimated costs under annual contracting, estimated savings for programs being proposed for MYP have ranged from less than 5% to more than 15%, depending on the particulars of the program in question, with many estimates falling in the range of 5% to 10%. In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost growth during the execution of the contract that was caused by developments independent of the use of MYP rather than annual contracting. A February 2012 briefing by the Cost Assessment and Program Evaluation (CAPE) office within the Office of the Secretary of Defense (OSD) states that "MYP savings analysis is difficult due to the lack of actual costs on the alternative acquisition path, i.e., the path not taken." The briefing states that CAPE up to that point had assessed MYP savings for four aircraft procurement programs—F/A-18E/F strike fighters, H-60 helicopters, V-22 tilt-rotor aircraft, and CH-47F helicopters—and that CAPE's assessed savings ranged from 2% to 8%. A 2008 Government Accountability Office (GAO) report stated that DOD does not have a formal mechanism for tracking multiyear results against original expectations and makes few efforts to validate whether actual savings were achieved by multiyear procurement. It does not maintain comprehensive central records and historical information that could be used to enhance oversight and knowledge about multiyear performance to inform and improve future multiyear procurement (MYP) candidates. DOD and defense research centers officials said it is difficult to assess results because of the lack of historical information on multiyear contracts, comparable annual costs, and the dynamic acquisition environment. How does MYP potentially save money? Compared to annual contracting, using MYP can in principle reduce the cost of the weapons being procured in two primary ways: Contractor optimization of workforce and production facilities . An MYP contract gives the contractor (e.g., an airplane manufacturer or shipbuilder) confidence that a multiyear stream of business of a known volume will very likely materialize. This confidence can permit the contractor to make investments in the firm's workforce and production facilities that are intended to optimize the facility for the production of the items being procured under the contract. Such investments can include payments for retaining or training workers, or for building, expanding, or modernizing production facilities. Under annual contracting, the manufacturer might not have enough confidence about its future stream of business to make these kinds of investments, or might be unable to convince its parent firm to finance them. E conomic order quan tity (EOQ) purchases of selected long-leadtime components. Under an MYP contract, DOD is permitted to bring forward selected key components of the items to be procured under the contract and to purchase the components in batch form during the first year or two of the contract. In the hypothetical example introduced earlier, using MYP could permit DOD to purchase, say, the 20 engines for the 20 aircraft in the first year or two of the 5-year contract. Procuring selected components in this manner under an MYP contract is called an economic order quantity (EOQ) purchase. EOQ purchases can reduce the procurement cost of the weapons being procured under the MYP contract by allowing the manufacturers of components to take maximum advantage of production economies of scale that are possible with batch orders. What gives the contractor confidence that the multiyear stream of business will materialize? At least two things give the contractor confidence that DOD will not terminate an MYP contract and that the multiyear stream of business consequently will materialize: For a program to qualify for MYP, DOD must certify, among other things, that the minimum need for the items to be purchased is expected to remain substantially unchanged during the contract in terms of production rate, procurement rate, and total quantities. Perhaps more important to the contractor, MYP contracts include a cancellation penalty intended to reimburse a contractor for costs that the contractor has incurred (i.e., investments the contractor has made) in anticipation of the work covered under the MYP contract. The undesirability of paying a cancellation penalty acts as a disincentive for the government against canceling the contract. (And if the contract is canceled, the cancellation penalty helps to make the contractor whole.) Is there a permanent statute governing MYP contracting? There is a permanent statute governing MYP contracting—10 U.S.C. 2306b. The statute was created by Section 909 of the FY1982 Department of Defense Authorization Act ( S. 815 / P.L. 97-86 of December 1, 1981), revised and reorganized by Section 1022 of the Federal Acquisition Streamlining Act of 1994 ( S. 1587 / P.L. 103-355 of October 13, 1994), and further amended on several occasions since. For the text of 10 U.S.C. 2306b, see Appendix A . DOD's use of MYP contracting is further governed by DOD acquisition regulations. Under this statute, what criteria must a program meet to qualify for MYP? 10 U.S.C. 2306b(a) states that to qualify for MYP, a program must meet several criteria, including the following: Significant savings. DOD must estimate that using an MYP contract would result in "significant savings" compared with using annual contracting. Realistic cost estimates . DOD's estimates of the cost of the MYP contract and the anticipated savings must be realistic. Stable need for the items. DOD must expect that its minimum need for the items will remain substantially unchanged during the contract in terms of production rate, procurement rate, and total quantities. Stable design for the items . The design for the items to be acquired must be stable, and the technical risks associated with the items must not be excessive. 10 U.S.C. includes provisions requiring the Secretary of Defense or certain other DOD officials to find, determine, or certify that these and other statutory requirements for using MYP contracts have been met, and provisions requiring the heads of DOD agencies to provide written notifications of certain things to the congressional defense committees 30 days before awarding or initiating an MYP contract, or 10 days before terminating one. 10 U.S.C. 2306b also requires DOD MYP contracts to be fixed-price type contracts. What is meant by " significant savings"? The amount of savings required under 10 U.S.C. 2306b to qualify for using an MYP contract has changed over time; the requirement was changed from "substantial savings" to "significant savings" by Section 811 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015). The joint explanatory statement for the FY2016 National Defense Authorization Act states the following regarding Section 811: Amendment relating to multiyear contract authority for acquisition of property (sec. 811) The House bill contained a provision (sec. 806) that would strike the existing requirement that the head of an agency must determine that substantial savings would be achieved before entering into a multiyear contract. The Senate amendment contained no similar provision. The Senate recedes with an amendment that would require that significant savings would be achieved before entering into a multiyear contract. The conferees agree that the government should seek to maximize savings whenever it pursues multiyear procurement. However, the conferees also agree that significant savings (estimated to be greater than $250.0 million), and other benefits, may be achieved even if it does not equate to a minimum of 10 percent savings over the cost of an annual contract. The conferees expect a request for authority to enter into a multiyear contract will include (1) the estimated cost savings, (2) the minimum quantity needed, (3) confirmation that the design is stable and the technical risks are not excessive, and (4) any other rationale for entering into such a contract. In addition, 10 U.S.C. 2306b states the following: If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program. Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions. What is meant by "stable design"? The term "stable design" is generally understood to mean that the design for the items to be procured is not expected to change substantially during the period of the contract. Having a stable design is generally demonstrated by having already built at least a few items to that design (or in the case of a shipbuilding program, at least one ship to that design) and concluding, through testing and operation of those items, that the design does not require any substantial changes during the period of the contract. What happens if Congress does not provide the annual funding requested by DOD to continue the implementation of the contract? If Congress does not provide the funding requested by DOD to continue the implementation of an MYP contract, DOD would be required to renegotiate, suspend, or terminate the contract. Terminating the contract could require the government to pay a cancellation penalty to the contractor. Renegotiating or suspending the contract could also have a financial impact. What effect does using MYP have on flexibility for making procurement changes? A principal potential disadvantage of using MYP is that it can reduce Congress's and DOD's flexibility for making changes (especially reductions) in procurement programs in future years in response to changing strategic or budgetary circumstances, at least without incurring cancellation penalties. In general, the greater the portion of DOD's procurement account that is executed under MYP contracts, the greater the potential loss of flexibility. The use of MYP for executing some portion of the DOD procurement account means that if policymakers in future years decide to reduce procurement spending below previously planned levels, the spending reduction might fall more heavily on procurement programs that do not use MYP, which in turn might result in a less-than-optimally balanced DOD procurement effort. How does Congress approve the use of MYP? Congress approves the use of MYP on a case-by-case basis, typically in response to requests by DOD. Congressional approval for DOD MYP contracts with a value of more than $500 million must occur in two places: an annual DOD appropriations act and an act other than the annual DOD appropriations act. In annual DOD appropriations acts, the provision permitting the use of MYP for one or more defense acquisition programs is typically included in the title containing general provisions, which typically is Title VIII. As shown in Table B-2 , since FY2011, it has been Section 8010. An annual national defense authorization act (NDAA) is usually the act other than an appropriations act in which provisions granting authority for using MYP contracting on individual defense acquisition programs are included. Such provisions typically occur in Title I of the NDAA, the title covering procurement programs. Provisions in which Congress approves the use of MYP for a particular defense acquisition program may include specific conditions for that program in addition to the requirements and conditions of 10 U.S.C. 2306b. How often is MYP used? MYP is used for a limited number of DOD acquisition programs. As shown in the Appendix B , annual DOD appropriations acts since FY1990 typically have approved the use of MYP for zero to a few DOD programs each year. An August 28, 2017, press report states the following: The Pentagon's portfolio of active multiyear procurement contracts is on track to taper from $10.7 billion in fiscal year 2017—or more than 8 percent of DOD procurement spending—to $1.2 billion by FY-19, according to data recently compiled by the Pentagon comptroller for lawmakers. However, there are potential new block-buy deals in the works, including several large Navy deals. According to the Multiyear Procurement Contracts Report for FY-17, which includes data current as of June 27, seven major defense acquisition programs are being purchased through multiyear procurement contracts, collectively obligating the U.S. government to spend $16 billion across the five-year spending plan with $14.5 billion of the commitments lashed to FY-17 and FY-18. In an interview published on January 13, 2014, Sean Stackley, the Assistant Secretary of the Navy for Research, Development, and Acquisition (i.e., the Navy's acquisition executive), stated the following: What the industrial base clamors for is stability, so they can plan, invest, train their work force. It gives them the ability in working with say, the Street [Wall Street], to better predict their own performance, then meet expectations in the same fashion we try to meet our expectations with the Hill. It's emblematic of stability that we've got more multiyear programs in the Department of the Navy than the rest of the Department of Defense combined. We've been able to harvest from that significant savings, and that has been key to solving some of our budget problems. It's allowed us in certain cases to put the savings right back into other programs tied to requirements. A February 2012 briefing by the Cost Assessment and Program Evaluation (CAPE) office within the Office of the Secretary of Defense (OSD) shows that the total dollar value of DOD MYP contracts has remained more or less stable between FY2000 and FY2012 at roughly $7 billion to $13 billion per year. The briefing shows that since the total size of DOD's procurement budget has increased during this period, the portion of DOD's total procurement budget accounted for by programs using MYP contracts has declined from about 17% in FY2000 to less than 8% in FY2012. The briefing also shows that the Navy makes more use of MYP contracts than does the Army or Air Force, and that the Air Force made very little use of MYP in FY2010-FY2012. A 2008 Government Accountability Office (GAO) report stated the following: Although DOD had been entering into multiyear contracts on a limited basis prior to the 1980s, the Department of Defense Authorization Act, [for fiscal year] 1982, codified the authority for DOD to procure on a multiyear basis major weapon systems that meet certain criteria. Since that time, DOD has annually submitted various weapon systems as multiyear procurement candidates for congressional authorization. Over the past 25 years, Congress has authorized the use of multiyear procurement for approximately 140 acquisition programs, including some systems approved more than once. What is BBC, and how does it compare to MYP? BBC is similar to MYP in that it permits DOD to use a single contract for more than one year's worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. BBC is also similar to MYP in that DOD needs congressional approval for each use of BBC. BBC differs from MYP in the following ways: There is no permanent statute governing the use of BBC. There is no requirement that BBC be approved in both a DOD appropriations act and an act other than a DOD appropriations act. Programs being considered for BBC do not need to meet any legal criteria to qualify for BBC because there is no permanent statute governing the use of BBC that establishes such criteria. A BBC contract can cover more than five years of planned procurements. The BBC contracts that were used by the Navy for procuring Littoral Combat Ships (LCSs), for example, covered a period of seven years (FY2010-FY2016). Economic order quantity (EOQ) authority does not come automatically as part of BBC authority because there is no permanent statute governing the use of BBC that includes EOQ authority as an automatic feature. To provide EOQ authority as part of a BBC contract, the provision granting authority for using BBC in a program may need to state explicitly that the authority to use BBC includes the authority to use EOQ. BBC contracts are less likely to include cancellation penalties. Given the one key similarity between BBC and MYP (the use of a single contract for more than one year's worth of procurement), and the various differences between BBC and MYP, BBC might be thought of as a less formal stepchild of MYP. When and why was BBC invented? BBC was invented by Section 121(b) of the FY1998 National Defense Authorization Act ( H.R. 1119 / P.L. 105-85 of November 18, 1997), which granted the Navy the authority to use a single contract for the procurement of the first four Virginia (SSN-774) class attack submarines. The 4 boats were scheduled to be procured during the 5-year period FY1998-FY2002 in annual quantities of 1-1-0-1-1. Congress provided the authority granted in Section 121(b) at least in part to reduce the combined procurement cost of the four submarines. Using MYP was not an option for the Virginia-class program at that time because the Navy had not even begun, let alone finished, construction of the first Virginia-class submarine, and consequently could not demonstrate that it had a stable design for the program. When Section 121(b) was enacted, there was no name for the contracting authority it provided. The term block buy contracting came into use later, when observers needed a term to refer to the kind of contracting authority that Congress authorized in Section 121(b). As discussed in the next section, this can cause confusion, because the term block buy was already being used in discussions of DOD acquisition to refer to something else. What's the difference between block buy cont r acting and block buys? In discussions of defense procurement, the term "block buy" by itself (without "contracting" at the end) is sometimes used to refer to something quite different from block buy contracting—namely, the simple act of funding the procurement of more than one copy of an item in a single year, particularly when no more than one item of that kind might normally be funded in a single year. For example, when Congress funded the procurement of two aircraft carriers in FY1983, and another two in FY1988, these acts were each referred to as block buys, because aircraft carriers are normally procured one at a time, several years apart from one another. This alternate meaning of the term block buy predates by many years the emergence of the term block buy contracting. The term block buy is still used in this alternate manner, which can lead to confusion in discussions of defense procurement. For example, for FY2017, the Air Force requested funding for procuring five Evolved Expendable Launch Vehicles (EELVs) for its EELV Launch Services (ELS) program. At the same time, Navy officials sometimes refer to the use of block buy contracts for the first four Virginia-class submarines, and in the LCS program, as block buys, when they might be more specifically referred to as instances of block buy contract ing . How much can BBC save, compared with MYP? BBC can reduce the unit procurement costs of ships by amounts less than or perhaps comparable to those of MYP, if the authority granted for using BBC explicitly includes authority for making economic order quantity (EOQ) purchases of components. If the authority granted for using BBC does not explicitly include authority for making EOQ purchases, then the savings from BBC will be less. Potential savings under BBC might also be less than those under MYP if the BBC contract does not include a cancellation penalty, or includes one that is more limited than typically found in an MYP contract, because this might give the contractor less confidence than would be the case under an MYP contract that the future stream of business will materialize as planned, which in turn might reduce the amount of money the contractor invests to optimize its workforce and production facilities for producing the items to be procured under the contract. How frequently has BBC been used? Since its use at the start of the Virginia-class program, BBC has been used very rarely. The Navy did not use it again in a shipbuilding program until December 2010, when it awarded two block buy contracts, each covering 10 LCSs to be procured over the six-year period FY2010-FY2015, to the two LCS builders. (Each contract was later amended to include an 11 th ship in FY2016, making for a total of 22 ships under the two contracts.) A third example is the John Lewis (TAO-205) class oiler program, in which the Navy is using a block buy contract to procure the first six ships in the program. A fourth example, arguably, is the Air Force's KC-46 aerial refueling tanker program, which is employing a fixed price incentive fee (FPIF) development contract that includes a "back end" commitment to procure certain minimum numbers of KC-46s in certain fiscal years. When might BBC be suitable as an alternative to MYP? BBC might be particularly suitable as an alternative to MYP in cases where using a multiyear contract can reduce costs, but the program in question cannot meet all the statutory criteria needed to qualify for MYP. As shown in the case of the first four Virginia-class boats, this can occur at or near the start of a procurement program, when design stability has not been demonstrated through the production of at least a few of the items to be procured (or, for a shipbuilding program, at least one ship). What i s the difference between an MYP or block buy contract and a contract with options? The military services sometimes use contracts with options to procure multiple copies of an item that are procured over a period of several years. The Navy, for example, used a contract with options to procure Lewis and Clark (TAKE-1) class dry cargo ships that were procured over a period of several years. A contract with options can be viewed as somewhat similar to an MYP or block buy contract in that a single contract is used to procure several years' worth of procurement of a given kind of item. There is, however, a key difference between an MYP or block buy contract and a contract with options: In a contract with options, the service is under no obligation to exercise any of the options, and a service can choose to not exercise an option without having to make a penalty payment to the contractor. In contrast, in an MYP or block buy contract, the service is under an obligation to continue implementing the contract beyond the first year, provided that Congress appropriates the necessary funds. If the service chooses to terminate an MYP or block buy contract, and does so as a termination for government convenience rather than as a termination for contractor default, then the contractor can, under the contract's termination for convenience clause, seek a payment from the government for cost incurred for work that is complete or in process at the time of termination, and may include the cost of some of the investments made in anticipation of the MYP or block buy contract being fully implemented. The contractor can do this even if the MYP or block buy contract does not elsewhere include a provision for a cancellation penalty. As a result of this key difference, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC. Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; and whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP. Should MYP and BBC in the future be used more frequently, less frequently, or about as frequently as they are currently used? Supporters of using MYP and BBC more frequently in the future might argue the following: Since MYP and BBC can reduce procurement costs, making greater use of MYP and BBC can help DOD get more value out of its available procurement funding. This can be particularly important if DOD's budget in real (i.e., inflation-adjusted) terms remains flat or declines in coming years, as many observers anticipate. The risks of using MYP have been reduced by Section 811 of the FY2008 National Defense Authorization Act ( H.R. 4986 / P.L. 110-181 of January 28, 2008), which amended 10 U.S.C. 2306b to strengthen the process for ensuring that programs proposed for MYP meet certain criteria (see " Permanent Statute Governing MYP "). Since the value of MYP contracts equated to less than 8% of DOD's procurement budget in FY2012, compared to about 17% of DOD's procurement budget in FY2000, MYP likely could be used more frequently without exceeding past experience regarding the share of DOD's procurement budget accounted for by MYP contracts. Supporters of using MYP and BBC less frequently in the future, or at least no more frequently than now, might argue the following: Using MYP and BBC more frequently would further reduce Congress's and DOD's flexibility for making changes in DOD procurement programs in future years in response to changing strategic or budgetary circumstances. The risks of reducing flexibility in this regard are increased now because of uncertainties in the current strategic environment and because efforts to reduce federal budget deficits could include reducing DOD spending, which could lead to a reassessment of U.S. defense strategy and associated DOD acquisition programs. Since actual savings from using MYP and BBC rather than annual contracting can be difficult to observe or verify, it is not clear that the financial benefits of using MYP or BBC more frequently in the future would be worth the resulting further reduction in Congress's and DOD's flexibility for making changes in procurement programs in future years in response to changing strategic or budgetary circumstances. Should Congress create a permanent statute to govern the use of BBC, analogous to the permanent statute (10 U.S.C. 2306b) that governs the use of MYP? Supporters of creating a permanent statute to govern the use of BBC might argue the following: Such a statute could encourage greater use of BBC, and thereby increase savings in DOD procurement programs by giving BBC contracting a formal legal standing and by establishing a clear process for DOD program managers to use in assessing whether their programs might be considered suitable for BBC. Such a statute could make BBC more advantageous by including a provision that automatically grants EOQ authority to programs using BBC, as well as provisions establishing qualifying criteria and other conditions intended to reduce the risks of using BBC. Opponents of creating a permanent statute to govern the use of BBC might argue the following: A key advantage of BBC is that it is not governed by a permanent statute. The lack of such a statute gives DOD and Congress full flexibility in determining when and how to use BBC for programs that may not qualify for MYP, but for which a multiyear contract of some kind might produce substantial savings. Such a statute could encourage DOD program managers to pursue their programs using BBC rather than MYP. This could reduce discipline in DOD multiyear contracting if the qualifying criteria in the BBC statute are less demanding than the qualifying criteria in 10 U.S.C. 2306b. Should the Coast Guard should begin making use of MYP and BBC? Although the Coast Guard is part of the Department of Homeland Security (DHS), the Coast Guard is a military service and a branch of the U.S. Armed Forces at all times (14 U.S.C. 1), and 10 U.S.C. 2306b provides authority for using MYP not only to DOD, but also to the Coast Guard (and the National Aeronautics and Space Administration as well). In addition, Section 311 of the Frank LoBiondo Coast Guard Authorization Act of 2018 ( S. 140 / P.L. 115-282 of December 4, 2018) provides permanent authority for the Coast Guard to use block buy contracting with EOQ purchases of components in its major acquisition programs. The authority is now codified at 14 U.S.C. 1137. As discussed earlier in this report, the Navy in recent years has made extensive use of MYP and BBC in its ship and aircraft acquisition programs, reducing the collective costs of those programs, the Navy estimates, by billions of dollars. The Coast Guard, like the Navy, procures ships and aircraft. In contrast to the Navy, however, the Coast Guard has never used MYP or BBC in its ship or aircraft acquisition programs. Instead, the Coast has tended to use contracts with options. As discussed earlier, although a contract with options looks like a multiyear contract, it operates more like a series of annual contracts, and it cannot achieve the kinds of savings that are possible under MYP and BBC. CRS in recent years has testified and reported on the possibility of using BBC or MYP in Coast Guard ship acquisition programs, particularly the Coast Guard's 25-ship Offshore Patrol Cutter (OPC) program and the Coast Guard's three-ship polar icebreaker program. CRS estimates that using multiyear contracting rather than contracts with options for the entire 25-ship OPC program could reduce the cost of the OPC program by about $1 billion. The OPC program is the Coast Guard's top-priority acquisition program, and it represents a once-in-a-generation opportunity to reduce the acquisition cost of a Coast Guard acquisition program by an estimated $1 billion. CRS also estimates that using BBC for a three-ship polar icebreaker program could reduce the cost of that program by upwards of $150 million. The Coast Guard has expressed some interest in using BBC in the polar icebreaker program, but its baseline acquisition strategy for that program, like its current acquisition strategy for the OPC program, is to use a contract with options. As part of its FY2020 budget submission, the Department of Defense is proposing continued funding for implementing several MYP contracts initiated in fiscal years prior to FY2020, but it has not highlighted any requests for authority for new MYP or block buy contracts for major acquisition programs that would begin in FY2020. Appendix A. Text of 10 U.S.C. 2306b The text of 10 U.S.C. 2306b as of April 29, 2019, is as follows: §2306b. Multiyear contracts: acquisition of property (a) In General.-To the extent that funds are otherwise available for obligation, the head of an agency may enter into multiyear contracts for the purchase of property whenever the head of that agency finds each of the following: (1) That the use of such a contract will result in significant savings of the total anticipated costs of carrying out the program through annual contracts. (2) That the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, procurement rate, and total quantities. (3) That there is a reasonable expectation that throughout the contemplated contract period the head of the agency will request funding for the contract at the level required to avoid contract cancellation. (4) That there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive. (5) That the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic. (6) In the case of a purchase by the Department of Defense, that the use of such a contract will promote the national security of the United States. (7) In the case of a contract in an amount equal to or greater than $500,000,000, that the conditions required by subparagraphs (C) through (F) of subsection (i)(3) will be met, in accordance with the Secretary's certification and determination under such subsection, by such contract. (b) Regulations.-(1) Each official named in paragraph (2) shall prescribe acquisition regulations for the agency or agencies under the jurisdiction of such official to promote the use of multiyear contracting as authorized by subsection (a) in a manner that will allow the most efficient use of multiyear contracting. (2)(A) The Secretary of Defense shall prescribe the regulations applicable to the Department of Defense. (B) The Secretary of Homeland Security shall prescribe the regulations applicable to the Coast Guard, except that the regulations prescribed by the Secretary of Defense shall apply to the Coast Guard when it is operating as a service in the Navy. (C) The Administrator of the National Aeronautics and Space Administration shall prescribe the regulations applicable to the National Aeronautics and Space Administration. (c) Contract Cancellations.-The regulations may provide for cancellation provisions in multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States. The cancellation provisions may include consideration of both recurring and nonrecurring costs of the contractor associated with the production of the items to be delivered under the contract. (d) Participation by Subcontractors, Vendors, and Suppliers.-In order to broaden the defense industrial base, the regulations shall provide that, to the extent practicable- (1) multiyear contracting under subsection (a) shall be used in such a manner as to seek, retain, and promote the use under such contracts of companies that are subcontractors, vendors, or suppliers; and (2) upon accrual of any payment or other benefit under such a multiyear contract to any subcontractor, vendor, or supplier company participating in such contract, such payment or benefit shall be delivered to such company in the most expeditious manner practicable. (e) Protection of Existing Authority.-The regulations shall provide that, to the extent practicable, the administration of this section, and of the regulations prescribed under this section, shall not be carried out in a manner to preclude or curtail the existing ability of an agency- (1) to provide for competition in the production of items to be delivered under such a contract; or (2) to provide for termination of a prime contract the performance of which is deficient with respect to cost, quality, or schedule. (f) Cancellation or Termination for Insufficient Funding.-In the event funds are not made available for the continuation of a contract made under this section into a subsequent fiscal year, the contract shall be canceled or terminated. The costs of cancellation or termination may be paid from- (1) appropriations originally available for the performance of the contract concerned; (2) appropriations currently available for procurement of the type of property concerned, and not otherwise obligated; or (3) funds appropriated for those payments. (g) Contract Cancellation Ceilings Exceeding $100,000,000.-(1) Before any contract described in subsection (a) that contains a clause setting forth a cancellation ceiling in excess of $100,000,000 may be awarded, the head of the agency concerned shall give written notification of the proposed contract and of the proposed cancellation ceiling for that contract to the congressional defense committees, and such contract may not then be awarded until the end of a period of 30 days beginning on the date of such notification. (2) In the case of a contract described in subsection (a) with a cancellation ceiling described in paragraph (1), if the budget for the contract does not include proposed funding for the costs of contract cancellation up to the cancellation ceiling established in the contract, the head of the agency concerned shall, as part of the certification required by subsection (i)(1)(A),1 give written notification to the congressional defense committees of- (A) the cancellation ceiling amounts planned for each program year in the proposed multiyear procurement contract, together with the reasons for the amounts planned; (B) the extent to which costs of contract cancellation are not included in the budget for the contract; and (C) a financial risk assessment of not including budgeting for costs of contract cancellation. (h) Defense Acquisitions of Weapon Systems.-In the case of the Department of Defense, the authority under subsection (a) includes authority to enter into the following multiyear contracts in accordance with this section: (1) A multiyear contract for the purchase of a weapon system, items and services associated with a weapon system, and logistics support for a weapon system. (2) A multiyear contract for advance procurement of components, parts, and materials necessary to the manufacture of a weapon system, including a multiyear contract for such advance procurement that is entered into in order to achieve economic-lot purchases and more efficient production rates. (i) Defense Acquisitions Specifically Authorized by Law.-(1) In the case of the Department of Defense, a multiyear contract in an amount equal to or greater than $500,000,000 may not be entered into under this section unless the contract is specifically authorized by law in an Act other than an appropriations Act. (2) In submitting a request for a specific authorization by law to carry out a defense acquisition program using multiyear contract authority under this section, the Secretary of Defense shall include in the request the following: (A) A report containing preliminary findings of the agency head required in paragraphs (1) through (6) of subsection (a), together with the basis for such findings. (B) Confirmation that the preliminary findings of the agency head under subparagraph (A) were supported by a preliminary cost analysis performed by the Director of Cost Assessment and Program Evaluation. (3) A multiyear contract may not be entered into under this section for a defense acquisition program that has been specifically authorized by law to be carried out using multiyear contract authority unless the Secretary of Defense certifies in writing, not later than 30 days before entry into the contract, that each of the following conditions is satisfied: (A) The Secretary has determined that each of the requirements in paragraphs (1) through (6) of subsection (a) will be met by such contract and has provided the basis for such determination to the congressional defense committees. (B) The Secretary's determination under subparagraph (A) was made after completion of a cost analysis conducted on the basis of section 2334(e)(2) 1 of this title, and the analysis supports the determination. (C) The system being acquired pursuant to such contract has not been determined to have experienced cost growth in excess of the critical cost growth threshold pursuant to section 2433(d) of this title within 5 years prior to the date the Secretary anticipates such contract (or a contract for advance procurement entered into consistent with the authorization for such contract) will be awarded. (D) A sufficient number of end items of the system being acquired under such contract have been delivered at or within the most current estimates of the program acquisition unit cost or procurement unit cost for such system to determine that current estimates of such unit costs are realistic. (E) During the fiscal year in which such contract is to be awarded, sufficient funds will be available to perform the contract in such fiscal year, and the future-years defense program for such fiscal year will include the funding required to execute the program without cancellation. (F) The contract is a fixed price type contract. (G) The proposed multiyear contract provides for production at not less than minimum economic rates given the existing tooling and facilities. (4) If for any fiscal year a multiyear contract to be entered into under this section is authorized by law for a particular procurement program and that authorization is subject to certain conditions established by law (including a condition as to cost savings to be achieved under the multiyear contract in comparison to specified other contracts) and if it appears (after negotiations with contractors) that such savings cannot be achieved, but that significant savings could nevertheless be achieved through the use of a multiyear contract rather than specified other contracts, the President may submit to Congress a request for relief from the specified cost savings that must be achieved through multiyear contracting for that program. Any such request by the President shall include details about the request for a multiyear contract, including details about the negotiated contract terms and conditions. (5)(A) The Secretary may obligate funds for procurement of an end item under a multiyear contract for the purchase of property only for procurement of a complete and usable end item. (B) The Secretary may obligate funds appropriated for any fiscal year for advance procurement under a contract for the purchase of property only for the procurement of those long-lead items necessary in order to meet a planned delivery schedule for complete major end items that are programmed under the contract to be acquired with funds appropriated for a subsequent fiscal year (including an economic order quantity of such long-lead items when authorized by law). (6) The Secretary may make the certification under paragraph (3) notwithstanding the fact that one or more of the conditions of such certification are not met, if the Secretary determines that, due to exceptional circumstances, proceeding with a multiyear contract under this section is in the best interest of the Department of Defense and the Secretary provides the basis for such determination with the certification. (7) The Secretary may not delegate the authority to make the certification under paragraph (3) or the determination under paragraph (6) to an official below the level of Under Secretary of Defense for Acquisition, Technology, and Logistics. (j) Defense Contract Options for Varying Quantities.-The Secretary of Defense may instruct the Secretary of the military department concerned to incorporate into a proposed multiyear contract negotiated priced options for varying the quantities of end items to be procured over the period of the contract. (k) Multiyear Contract Defined.-For the purposes of this section, a multiyear contract is a contract for the purchase of property for more than one, but not more than five, program years. Such a contract may provide that performance under the contract during the second and subsequent years of the contract is contingent upon the appropriation of funds and (if it does so provide) may provide for a cancellation payment to be made to the contractor if such appropriations are not made. (l) Various Additional Requirements With Respect to Multiyear Defense Contracts.-(1)(A) The head of an agency may not initiate a contract described in subparagraph (B) unless the congressional defense committees are notified of the proposed contract at least 30 days in advance of the award of the proposed contract. (B) Subparagraph (A) applies to the following contracts: (i) A multiyear contract- (I) that employs economic order quantity procurement in excess of $20,000,000 in any one year of the contract; or (II) that includes an unfunded contingent liability in excess of $20,000,000. (ii) Any contract for advance procurement leading to a multiyear contract that employs economic order quantity procurement in excess of $20,000,000 in any one year. (2) The head of an agency may not initiate a multiyear contract for which the economic order quantity advance procurement is not funded at least to the limits of the Government's liability. (3) The head of an agency may not initiate a multiyear procurement contract for any system (or component thereof) if the value of the multiyear contract would exceed $500,000,000 unless authority for the contract is specifically provided in an appropriations Act. (4) Each report required by paragraph (5) with respect to a contract (or contract extension) shall contain the following: (A) The amount of total obligational authority under the contract (or contract extension) and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (B) The amount of total obligational authority under all multiyear procurements of the agency concerned (determined without regard to the amount of the multiyear contract (or contract extension)) under multiyear contracts in effect at the time the report is submitted and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (C) The amount equal to the sum of the amounts under subparagraphs (A) and (B), and the percentage that such amount represents of- (i) the applicable procurement account; and (ii) the agency procurement total. (D) The amount of total obligational authority under all Department of Defense multiyear procurements (determined without regard to the amount of the multiyear contract (or contract extension)), including any multiyear contract (or contract extension) that has been authorized by the Congress but not yet entered into, and the percentage that such amount represents of the procurement accounts of the Department of Defense treated in the aggregate. (5) The head of an agency may not enter into a multiyear contract (or extend an existing multiyear contract), the value of which would exceed $500,000,000 (when entered into or when extended, as the case may be), until the Secretary of Defense submits to the congressional defense committees a report containing the information described in paragraph (4) with respect to the contract (or contract extension). (6) The head of an agency may not terminate a multiyear procurement contract until 10 days after the date on which notice of the proposed termination is provided to the congressional defense committees. (7) The execution of multiyear contracting authority shall require the use of a present value analysis to determine lowest cost compared to an annual procurement. (8) This subsection does not apply to the National Aeronautics and Space Administration or to the Coast Guard. (9) In this subsection: (A) The term "applicable procurement account" means, with respect to a multiyear procurement contract (or contract extension), the appropriation account from which payments to execute the contract will be made. (B) The term "agency procurement total" means the procurement accounts of the agency entering into a multiyear procurement contract (or contract extension) treated in the aggregate. (m) Increased Funding and Reprogramming Requests.-Any request for increased funding for the procurement of a major system under a multiyear contract authorized under this section shall be accompanied by an explanation of how the request for increased funding affects the determinations made by the Secretary under subsection (i). Appendix B. Programs Approved for MYP in Annual DOD Appropriations Acts Since FY1990 This appendix presents, in two tables, programs approved for MYP in annual DOD appropriations acts since FY1990. Table B-1 covers FY2011 to the present, and Table B-2 covers FY1990 through FY2010.	[ "Multiyear procurement (MYP) and block buy contracting (BBC) are special contracting mechanisms that Congress permits the Department of Defense (DOD) to use for a limited number of defense acquisition programs. Compared to the standard or default approach of annual contracting, MYP and BBC have the potential for reducing weapon procurement costs by a few or several percent. Under annual contracting, DOD uses one or more contracts for each year's worth of procurement of a given kind of item. Under MYP, DOD instead uses a single contract for two to five years' worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. DOD needs congressional approval for each use of MYP. There is a permanent statute governing MYP contracting—10 U.S.C. 2306b. Under this statute, a program must meet several criteria to qualify for MYP. Compared with estimated costs under annual contracting, estimated savings for programs being proposed for MYP have ranged from less than 5% to more than 15%, depending on the particulars of the program in question, with many estimates falling in the range of 5% to 10%. In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost growth during the execution of the contract due to changes in the program independent of the use of MYP rather than annual contracting. BBC is similar to MYP in that it permits DOD to use a single contract for more than one year's worth of procurement of a given kind of item without having to exercise a contract option for each year after the first year. BBC is also similar to MYP in that DOD needs congressional approval for each use of BBC. BBC differs from MYP in the following ways: There is no permanent statute governing the use of BBC. There is no requirement that BBC be approved in both a DOD appropriations act and an act other than a DOD appropriations act. Programs being considered for BBC do not need to meet any legal criteria to qualify for BBC, because there is no permanent statute governing the use of BBC that establishes such criteria. A BBC contract can cover more than five years of planned procurements. Economic order quantity (EOQ) authority—the authority to bring forward selected key components of the items to be procured under the contract and purchase the components in batch form during the first year or two of the contract—does not come automatically as part of BBC authority because there is no permanent statute governing the use of BBC that includes EOQ authority as an automatic feature. BBC contracts are less likely to include cancellation penalties. Potential issues for Congress concerning MYP and BBC include whether to use MYP and BBC in the future more frequently, less frequently, or about as frequently as they are currently used; whether to create a permanent statute to govern the use of BBC, analogous to the permanent statute that governs the use of MYP; and whether the Coast Guard should begin making use of MYP and BBC." ]	8,537	gov_report	en	null	4bd6930b3b65caf89aa127d679a80294f31f9cfa7cdab703
The inventories of the selected Air Force and Navy fixed-wing aircraft in our review totaled 2,823 aircraft and required approximately $20 billion to operate and support in fiscal year 2016. The inventory, aircraft status, initial operational capability, and service life forecast for each of the 12 selected fixed-wing aircraft are shown in figure 1. Sustainment of fixed-wing aircraft and other weapon systems comprises the logistics and personnel services required to maintain and prolong operations, and DOD policy provides direction to service components on sustainment planning across the life cycle of the weapon system. Specifically, DOD policy requires the services to develop and implement a sustainment strategy, such as a Life-cycle Sustainment Plan, for sustaining its weapon systems. According to DOD’s policy, this strategy should be the basis for all sustainment efforts, including sustainment metrics mapped to key performance parameters and key system attributes, such as aircraft availability, to manage sustainment performance. The policy states that, after initial operating capability, programs should update the sustainment plan whenever there are major changes to its strategy for sustaining the weapon system, or every 5 years, whichever occurs first. The Air Force and the Navy also have guidance that implements the requirements of the DOD guidance. These services’ guidance include sustainment-planning requirements for life-cycle sustainment and assurance of affordability. There are a variety of DOD offices that have roles and responsibilities related to sustaining fixed-wing aircraft. For instance, the Under Secretary of Defense for Acquisition and Sustainment (USD ), is the principal staff assistant and advisor to the Secretary of Defense for all matters concerning acquisition and sustainment. Specifically, USD (A&S) is responsible for establishing policies for logistics, maintenance, and sustainment support for all elements of DOD, including fixed-wing aircraft. The Assistant Secretary of Defense for Logistics and Materiel Readiness (ASD ) serves as the principal staff assistant and advisor to the USD (A&S) on logistics and materiel readiness within DOD. Specifically, the ASD (L&MR) is responsible for (1) establishing DOD policies and procedures for logistics, maintenance, materiel readiness, strategic mobility, and sustainment support; (2) providing related guidance to the Secretaries of the military departments, including developing the Life- cycle Sustainment Plan outline; and (3) monitoring and reviewing programs associated with these areas, among other duties and responsibilities. For the Air Force, the Air Force Materiel Command develops, acquires, and sustains weapon systems through research, development, testing, evaluation, acquisition, maintenance, and program management of the systems and their components. This command provides acquisition and life-cycle management services and logistics support, among other things. The Air Force Life Cycle Management Center within the Air Force Materiel Command is responsible for the life-cycle management of weapon systems from inception to retirement. A Program Executive Officer—responsible for managing a specific portfolio of weapon systems—is responsible for each of the selected fixed-wing aircraft. The Program Executive Officer oversees the program office that manages each weapon system. For the Navy and Marine Corps, the Naval Air Systems Command is responsible for providing the full life-cycle support of naval aviation aircraft, weapons, and systems. This support includes research, design, development and systems engineering; acquisition; test and evaluation; training facilities and equipment; repair and modification; and in-service engineering and logistics support. As with the Air Force, Program Executive Officers oversee their assigned program managers. DOD relies on program managers to lead the development, delivery, and sustainment of individual weapon systems through their life cycles. The program managers are the designated individuals with responsibility for and authority to accomplish the program’s sustainment objectives to meet the users’ operational needs. Product support managers, who work within the program offices, are responsible for developing and implementing support strategies for weapon systems that maintain readiness and control life-cycle costs. Weapon systems are sustained under various arrangements that may include contractors, DOD organic facilities, or some combination of the two. For example, the Air Force Sustainment Center provides depot maintenance through its Air Logistics Complexes for weapon systems. Naval Air Systems Command is responsible for the Navy Fleet Readiness Centers, which provide depot-level maintenance for Navy and Marine Corps fixed-wing aircraft. Additionally, the Air Force Sustainment Center and the Navy Supply Systems Command, as well as the Defense Logistics Agency, manage inventories of repair parts, and individual weapon systems programs are typically supported by a complex supplier network that includes a prime contractor, subcontractors, and various tiers of parts suppliers. On the other hand, sustainment responsibilities—in their entirety or particular elements—may be contracted out as part of a public-private partnership or a performance-based logistics agreement, such as with the F-22 Raptor. The Air Force and Navy monitor the readiness status of selected fixed- wing aircraft through numerous performance metrics. Specifically, the Air Force measures how well a fleet is performing by calculating the availability of the fleets’ aircraft, which is the number of aircraft that are available for flight operations. The Navy measures its aircraft availability through two metrics: (1) Ready-Basic-Aircraft (RBA)—the number of aircraft that are able to safely fly—and (2) Ready-for-Tasking (RFT)—the number of aircraft that are able to conduct specific missions. Both the Air Force and Navy have established goals associated with aircraft availability. In addition to measuring the availability of the aircraft against the associated goals, the Air Force and Navy track the reasons for aircraft not being available or able to conduct missions. Specifically, the Air Force and Navy track the following: Aircraft in depot: Aircraft unavailable to conduct missions because of scheduled or unscheduled depot maintenance or modification. Not mission capable maintenance: Aircraft that are not in depot and not capable of performing any of their assigned missions because of maintenance. Not mission capable supply: Aircraft that are not in depot and not capable of performing any of their assigned missions because of the lack of a repair part. In addition to these three metrics, the Air Force also tracks the following: Not mission capable for both supply and maintenance: Aircraft that are not in depot and not capable of performing any of their assigned missions because of both maintenance and the lack of a repair part. Units possessed not reported: Aircraft that are not available for use for reasons other than depot and not mission capable status, but possessed by the squadron. There are various costs associated with operating and supporting weapon systems. DOD’s Operating and Support Cost-Estimating Guide provides direction to the service components on developing estimates to support various analyses and reviews throughout the program life cycle. According to the guide, as a program matures, it remains necessary to continue to track and assess O&S costs and trends to ensure that the program remains sustainable, affordable, and properly funded. Each military department maintains a database that collects historical data on the O&S costs for major fielded weapon systems. DOD’s Office of Cost Assessment and Program Evaluation provides policy guidance on this requirement, known as the Visibility and Management of Operating and Support Costs program; specifies the common format in which the data are to be reported; and monitors its implementation by each of the military departments. O&S costs are categorized using the following six overarching elements: unit level manpower—cost of operators, maintainers, and other support manpower assigned to operating units; unit operations—cost of unit operating materiel such as fuel, and training material, unit support services, and unit travel; maintenance—cost of system maintenance including depot- and sustaining support—cost of system support activities that are provided by organizations other than the system’s operating units; continuing system improvements—cost of system hardware and software modifications; and indirect support—cost of activities that provide general services that lack the visibility of actual support to specific force units or systems. For the selected Air Force and Navy fixed-wing aircraft in our review, aircraft availability and O&S cost trends varied over the 6-year period between fiscal years 2011 and 2016, and the aircraft generally did not meet availability goals. We found that 6 of 12 fixed-wing aircraft—3 from each service—experienced decreased aircraft availability between fiscal years 2011 and 2016. One aircraft met availability goals each year between fiscal year 2011 and 2016. Conversely, six aircraft met the goals in some years but not others, and five aircraft did not meet the goals in any year. In the latest year included in our review—fiscal year 2016—9 of 12 of the fixed-wing aircraft did not meet their associated availability goals. With respect to O&S costs, the overall O&S total for all 12 aircraft was about $20 billion annually over the 6-year period; some aircraft experienced increases while the costs to operate and support others decreased. The reasons for changes in costs included increases in maintenance costs for 8 of 12 fixed-wing aircraft. Below we summarize these trends, and the “Sustainment Quick Looks” in appendices II–XIII provide detailed information on the trends associated with each of the 12 fixed-wing aircraft and appendix XV provides additional information on operating and support cost per aircraft. Our analysis found that: between fiscal years 2011 and 2016, aircraft availability for two of five selected Air Force fixed-wing aircraft fluctuated and for three decreased; between fiscal 2011 and 2016, two aircraft met availability goals in some years, and three aircraft did not meet availability goals in any of the years; and in fiscal year 2016, four of the five aircraft did not meet availability goals. Specific details regarding aircraft availability and not mission capable status for maintenance, supply, and both maintenance and supply were omitted because DOD deemed this information as sensitive (i.e., For Official Use Only). According to officials, when aircraft availability goals are not met, training and operational missions may not be fulfilled as timely as needed. For example, F-22 squadron officials explained that the lack of available aircraft creates a shortage of trained pilots. F-22 pilots need extensive training to fulfill their air-superiority role. Further, command officials explained that when aircraft availability goals are not met, there may not be enough aircraft to respond to contingency requirements. Officials expressed concern that, given the capability and expectation of the F-22 to be available to create air superiority in any operation, missions may not be met. Additionally, E-8C program office officials stated that missions are often limited to top priority, which means supported combatant commands may not obtain all needed capabilities, such as the E-8C not being able to provide surveillance capability to particular combatant commands. From fiscal years 2011 through 2016, O&S costs for the Air Force aircraft in our review totaled about $13 billion annually. These costs decreased for the C-17, F-16, and the F-22, but increased for the B-52 and E-8C, as shown in figure 2. For example, the F-16’s total annual O&S costs decreased by about $943 million (or about 19 percent) because of decreases in all cost elements—the largest decrease being unit operations—except sustaining support. According to officials, the decrease in unit operations can be attributed to the retiring of aircraft and the consolidation of squadrons. The C-17’s and F-22’s O&S costs decreased mainly because of decreases in two cost elements: continuing system improvements and unit operations. In contrast, the B-52’s and the E-8C’s O&S costs increased, by $76 million (or about 6 percent) and $41 million (or about 6 percent), respectively. The increases occurred because two of the cost elements—continuing system improvements and maintenance costs—increased more than the other costs elements decreased. Based on our analysis of the O&S cost elements, maintenance cost generally is one of the largest portions—on average about 36 percent—of total O&S costs for each aircraft. As shown in figure 3, maintenance costs for four of the five aircraft generally have increased from fiscal years 2011 through 2016. Specifically, maintenance costs for the C-17, E-8C, and F- 22 increased because of additional depot maintenance needs. B-52 maintenance costs fluctuated year to year, but increased overall during this period. The overall maintenance costs for the F-16 decreased by approximately $140 million. According to our analysis, even though there was an increase in some of the F-16 maintenance cost elements, the fleet’s executed flying hours decreased. Therefore, the flying hour depot- level reparable costs decreased by approximately $123 million and engine repair decreased by $115 million, causing the overall maintenance cost to decrease. Our analysis found that: between fiscal years 2011 and 2016, aircraft availability increased for three of the seven Navy fixed-wing aircraft, fluctuated for one, and decreased for the remaining three aircraft; between fiscal 2011 and 2016, one aircraft met aircraft availability goals in each year, and four aircraft met goals in some years, while two aircraft did not meet goals in any of the years; and in fiscal year 2016, the Navy did not meet aircraft availability goals for five of the seven aircraft. Specific details regarding aircraft availability and not mission capable status for maintenance and supply were omitted because DOD deemed this information as sensitive (i.e., For Official Use Only). To address decreases in aircraft availability, the Navy has moved available aircraft between squadrons to help ensure deploying squadrons are fully equipped for their assigned missions. In November 2017, the Commander of Naval Air Forces testified before the House Armed Services Committee that to equip the air wings with the required number of mission capable aircraft for the deployment of three aircraft carriers in 2017, the Navy had to transfer 94 strike fighters to and from the maintenance depots or between squadrons. This transfer included pulling aircraft from fleet replacement squadrons, where the focus should be on training new aviators. The Commander of Naval Air Forces, in his November 2017 testimony, summarized the issue: “That strike fighter inventory management, or shell game, leaves non-deployed squadrons well below the number of jets required to keep aviators proficient and progressing toward their career qualifications and milestones, with detrimental impacts to both retention and future experience levels.” Furthermore, based on our analysis, F/A- 18A-D squadrons have underexecuted their flight hours by an average of 4 percent from fiscal years 2011 through 2016. According to officials, this is largely due to low aircraft availability. Additionally, placing further strain on aircraft availability, the F/A-18A-D inventory has decreased from 581 aircraft in fiscal year 2011 to 537 aircraft in fiscal year 2016. From fiscal years 2011 through 2016, O&S costs for the Navy’s seven selected fixed-wing aircraft totaled about $7 billion annually. Also, the Navy has experienced varying O&S and maintenance costs since fiscal year 2011 for these aircraft. Specifically, annual O&S costs decreased for the AV-8B, C-2A, E-2C, and F/A-18A-D, and increased for the E-2D, EA- 18G, and F/A-18E-F, as shown in figure 4. We found that O&S costs for the F/A-18A-D decreased by about 22 percent from about $3.1 billion in fiscal year 2011 to about $2.4 billion in fiscal year 2016. According to officials, this decrease can be attributed to the decrease in inventory as aircraft are retired and squadrons transition to the F-35 Joint Strike Fighter. In another example, O&S costs for the E- 2D increased from about $1.6 million in fiscal year 2012 to about $125 million in fiscal year 2016. The size of the fleet has increased by 17 aircraft—from 3 to 20 since fiscal year 2011. According to officials, this aircraft remains in production with a projected fleet size of 75; as inventory increases, so will O&S costs. Based on our analysis of the O&S cost elements, maintenance cost generally is one of the largest portions—about 42 percent—of total O&S costs for the seven aircraft in our review. Annual maintenance costs have increased for the C-2A, E-2D, EA-18G, and F/A-18E-F, and decreased for the AV-8B, E-2C, and F/A-18A-D, as shown in figure 5. We found that maintenance cost for the C-2A increased by about 7 percent from about $89 million in fiscal year 2011 to about $95 million in fiscal year 2016. According to officials, the increase in maintenance cost can be attributed to increased demand for outer wing panels, which resulted in a $16 million increase in depot-level repair costs and a more than 10 percent increase in executed flight hours, among other things. In another example, maintenance cost for the AV-8B decreased by about 9 percent from about $375 million in fiscal year 2011 to about $341 million in fiscal year 2016. According to officials, these decreases can be attributed to the AV-8B no longer being used in Operation Enduring Freedom in 2012, the loss of six aircraft, and the transition of AV-8B squadrons to the F-35 Joint Strike Fighter. The Air Force and Navy face similar sustainment challenges that relate to aging, maintenance, and supply support that affect aircraft availability and O&S costs for the 12 aircraft selected in our review, as shown in figure 6. Specifically, 10 of 12 aircraft are experiencing sustainment challenges related to aging; all 12 are experiencing challenges related to maintenance; and all 12 are also experiencing challenges related to supply support. Below is a brief overview of these challenges: Aging: A number of these aircraft are aging and operating beyond their planned service life, partly because of delays in replacement aircraft. Specifically, the Air Force and Navy plan to replace the F-16, AV-8B, and F/A-18A-D with the F-35 Joint Strike Fighter. The Navy is expected to transition the F/A-18A-D through 2030 and the Marine Corps is planning to use the F/A-18A-D beyond 2030 (although these time frames have been extended several times already). The Navy plans to retire the AV-8B in 2026. On the other hand, the Air Force is not expected to retire the F-16 until at least 2040. Because of aging, according to officials, there are parts on some aircraft that need to be repaired and replaced that were not accounted for during initial sustainment analysis. To mitigate some challenges associated with the age of the fixed-wing aircraft, the Air Force and Navy program officials have decided to extend the service life of some aircraft by repairing and overhauling airframes and components, as well as developing the engineering specifications for parts that were never planned to be repaired or replaced. Maintenance: Delays in getting aircraft into and through depot maintenance, as well as shortages of skilled maintainers, are contributing to some aircraft missing their availability goals. Both services reported losing experienced maintainers, either to retirement or to other programs such as the F-35 Joint Strike Fighter. To address maintenance challenges, program offices for the selected aircraft have improved the efficiency and speed of depot maintenance, as well as are working to ensure there are sufficient numbers of trained maintainers. Supply Support: Some aircraft are encountering supply shortages as a result of parts not being available, in some cases due to obsolescence issues or diminishing manufacturer sources. Overcoming part shortages through either searching for replacement parts or reengineering parts takes time, which can contribute to aircraft being unavailable for longer periods. To mitigate supply challenges, officials have proactively upgraded aircraft before obsolescence occurs or located available parts and reengineered parts that are no longer in production, as well as identified suitable manufacturers in advance, among other things. For more specific information on sustainment challenges related to aging aircraft, maintenance, and supply support for each of the fixed-wing aircraft, see the “Sustainment Quick Looks” in appendixes II–XIII. The Air Force has documented sustainment strategies for its five selected aircraft in our review, but the Navy has not documented sustainment strategies or updated the strategies for four of seven of its aircraft in our review. The Air Force and Navy also regularly reviewed sustainment metrics and have implemented plans to improve aircraft availability. The Air Force has documented sustainment strategies for the five selected fixed-wing aircraft and updated them in accordance with Air Force guidance. However, the Navy has not documented a sustainment strategy or updated the strategies for four of the seven aircraft in our review since 2012. See figure 7 for the year of the most recent update to the sustainment strategy for the aircraft in our review. While sustainment strategies do not guarantee successful outcomes, they serve as a tool to guide operations as well as support planning and implementation of activities through the life-cycle of the aircraft. Specifically, at a high-level the strategy is aimed at integrating requirements, product support elements, funding, and risk management to provide oversight of the aircraft. For example, these sustainment strategies can be documented in a life-cycle sustainment plan, postproduction support plan, or an in-service support plan, among other types of documented strategies. Additionally, program officials stated that an aircraft’s sustainment strategy is an important management tool for the sustainment of the aircraft by documenting requirements that are known by all stakeholders, including good practices identified in sustaining each aircraft. For example: The strategy for the Air Force B-52 has been updated several times in recent years because of several major modifications. For example, in 2014 the Air Force issued an updated sustainment plan within the life- cycle management plan to update the combat network communications technology program because the B-52’s communications system is still the original from the 1950s and has limitations related to making mission or target changes in flight. The plan addresses the testing, resource management, and numerous program performance indicators and requirements of the system. The strategy for the Air Force F-16 outlines plans for the aircraft’s service life extension and includes proactive measures and data forecasting to bundle depot modifications in order to minimize fleet- wide effects on aircraft availability. The service life extension for the F- 16 is designed to extend the service life of 300 F-16 aircraft from 8,000 to 13,856 flight hours at an estimated cost of $740 million (as of June 2016). The strategy for the Navy E-2D provides a systematic approach to ensure that a comprehensive support package is in place to support the sustainment of the aircraft. Also, it describes the overall plan for the management and execution of the product support package by communicating the sustainment strategy to stakeholders in the acquisition, engineering, and logistics communities. However, the Navy had not documented a sustainment strategy for the C- 2A because a strategy was not required when the aircraft, now a legacy system, was going through the acquisition process prior to 1965. According to Navy officials, while they have not documented a strategy for the C-2A, they are undertaking efforts, such as updating technical publications, performing maintenance analysis on the landing gear, and evaluating depot tasks to decrease turnaround time, among other efforts, to sustain the aircraft. However, a documented sustainment strategy for the C-2A would help guide the planning and implementation of these efforts, as well as serve as a management tool by documenting these requirements that are known by all stakeholders. In addition, the Navy’s sustainment strategies for the E-2C (2011), EA- 18G (2006), and F/A-18A-D (2001) were developed prior to 2012 and thus have not been updated in over 5 years. With respect to the EA-18G, Navy officials told us that the sustainment strategy should be updated in accordance with DOD’s acquisition policy—DOD Instruction 5000.02— since the EA-18G is still in the acquisition process, as it continues to be produced. For the E-2C and F/A-18A-D, Naval Air Systems Command officials and program office officials told us that they were not required to document sustainment strategies because these aircraft were legacy systems at the time the requirement to develop and maintain a sustainment strategy was implemented. Therefore, according to these officials, the DOD requirements to document and update sustainment strategies every 5 years in DOD Instruction 5000.02 were not applicable. DOD Instruction 5000.02 requires weapon systems to have some form of a sustainment strategy that is not older than 5 years; however, it is unclear whether this policy is applicable to legacy weapon systems. Specifically, the policy states that program managers for all programs are responsible for developing and maintaining a sustainment strategy, such as a Life-cycle Sustainment Plan, beginning at the risk-reduction decision point (i.e., Milestone A of the acquisition process). However, based on our discussions with Navy program officials for our selected aircraft and our review of the policy, it is unclear whether the policy—as currently written—is applicable to legacy systems that were no longer in production and thus had completed the risk-reduction decision point (or Milestone A) prior to the requirement to update a sustainment strategy every 5 years. According to DOD officials, the intent of the policy is for all programs, including legacy weapon systems, to develop and maintain a sustainment strategy; however, the policy does not explicitly state that legacy systems are expected to fulfill this requirement. In May 2017, the Air Force updated its sustainment guidance to require sustainment strategies for legacy systems and for those strategies to be updated every 5 years. Air Force officials told us that they did this because the DOD policy was unclear whether it was applicable to legacy systems and it was a good practice to ensure the guidance was explicit for all weapon systems to document and update a sustainment strategy. This instruction explicitly states that the requirement to document a sustainment strategy and update it every 5 years is applicable to all weapon systems, including legacy systems that are in the O&S phase of their life cycles. Additionally, the Air Force Instruction states that these legacy systems are not required to retroactively meet requirements identified for previous phases of the acquisition life-cycle, but should meet the requirements needed for continued operations of the system. However, the Navy has not made the requirement explicit for legacy systems in its guidance. Specifically, Navy guidance does not explicitly state that documenting a sustainment strategy and updating that strategy every 5 years is a requirement for legacy systems. While Navy guidance requires the development and use of sustainment metrics for legacy systems and requires the Naval Air Systems Command be responsible for aviation weapon systems in sustainment, the Navy does not address any requirement for sustainment strategies for legacy systems. The lack of clarity in DOD Instruction 5000.02 and the Navy guidance regarding whether legacy systems are required to document a sustainment strategy and update that strategy every 5 years has resulted in confusion regarding sustainment planning requirements among Navy program offices and could cause confusion with other weapon system program offices across DOD. Standards for Internal Control in the Federal Government state that management should define objectives in specific terms so they are understood at all levels of the entity. The standards also state that guidance should clearly define what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. As indicated by the Air Force’s 2017 update to its sustainment guidance, clarifying DOD and Navy guidance and the applicability of sustainment strategy requirements to legacy systems could be done through very small additions and clarifications to the applicable guidance documents. Until DOD and the Navy update or issue new guidance clarifying the requirements for documenting sustainment strategies for legacy systems, weapon system program offices, such as those for fixed-wing aircraft, as well as Naval Air Systems Command and DOD may not have full visibility of necessary requirements to achieve program objectives or any related risks associated with the sustainment of these weapon systems. While the DOD policy and Navy guidance is unclear, Naval Air Systems Command and Navy program offices for the four aircraft—C-2A, E-2C, EA-18G, and F/A-18A-D—that either do not have a sustainment strategy or have not updated the strategy within the last 5 years are taking actions to document or update the sustainment strategies for these aircraft. According to Naval Air Systems Command officials, once it was brought to their attention that the intent of DOD Instruction 5000.02 was for legacy systems to have an updated documented sustainment strategy, they began to take action to develop or update the respective sustainment strategies. Specifically, according to C-2A, E-2C, and E-2D program officials, they are currently updating the E-2D strategy for its 5-year update, which is due in fiscal year 2018, and it will include updates for the C-2A and E-2C since the airframe for all three aircraft are very similar. Also, program officials for the EA-18G and F/A-18A-D told us that they are currently updating the strategies for these aircraft and are expected to complete the process in fiscal year 2018. Given that the Navy is already taking action to update its sustainment strategies and has established timelines for these updates, we are not making any recommendations to the Navy regarding updating the respective sustainment strategies. The Air Force and the Navy have (1) regularly reviewed sustainment metrics for fixed-wing aircraft and (2) implemented improvement plans to address aircraft availability. The Air Force and Navy have regularly monitored the condition of their fixed-wing aircraft, which includes measuring aircraft availability against planned goals as well as monitoring other sustainment metrics. Specifically, the Air Force Materiel Command monitors aircraft availability and other sustainment metrics through quarterly Weapon System Enterprise Review (WSER) briefings. The program office in conjunction with the Air Force Life Cycle Management Center generates the WSER, which is briefed through Air Force Materiel Command and the Program Executive Offices to the Air Force Chief of Staff. The WSER delivers insight into the comprehensive health of a system by flagging gaps in performance and identifying mitigating actions, which is used to conduct crosscutting enterprise analysis and provide input into readiness reviews. In addition to the WSER, the program offices manage their performance through their Health of the Fleet briefs. These briefs—conducted monthly or quarterly depending upon the aircraft—include readiness assessments that provide insight on maintenance and management practices. The assessment is delivered by the program’s maintenance group, and includes aircraft performance metrics, issues, actions, and schedules to inform program leadership on fleet status and to help prioritize and make decisions concerning the issues. The Navy monitors aircraft availability through its aircraft status dashboard for each aircraft, which provides specific information, such as goals, actual availability, and gaps between the two. More specifically, the Navy tracks the status of each of its aircraft through the dashboard, including those aircraft that are available (i.e., Ready-Basic-Aircraft ), are in depot maintenance, or are not mission capable due to maintenance or supply, among other metrics. The dashboard is updated monthly, and there are weekly meetings with key stakeholders, including Naval Air Systems Command officials, industry partners, and depot officials, to monitor the performance of each aircraft and make adjustments to improve aircraft availability. Additionally, all program offices have processes in place to manage the fleet within their portfolios, including semiannual or annual program reviews such as Program Management Reviews and Executive Steering Reviews. These reviews focus on readiness, cost drivers, and initiatives to address program risk and ways to resolve issues affecting each aircraft. Further, the Marine Corps Commandant for Aviation leads biannual Executive Steering Summits to assess readiness issues affecting Marine Corps aircraft. The Air Force and Navy have implemented improvement plans to address aircraft availability for each of the selected fixed-wing aircraft. Air Force program offices for the fixed-wing aircraft in our review have plans for improving availability. Since 2005, the Air Force Materiel Command has had an annual process to improve aircraft availability, which is known as the Aircraft Availability Improvement Program. The process enables the program offices to assess and limit risk, incorporate available support funding, and specifically address where there are effects on availability, such as aircraft in depot. This process also incorporates projecting historical and goal rates in order to leverage scheduled and modernization maintenance. Program offices create plans, known as aircraft availability improvement plans, based on these projections to forecast improvements that can facilitate increased availability and reduction of costs, among other things. The Air Force provides guidance in the form of a template to ensure consistency amongst the plans, which typically must include improvement initiatives with milestone goals. This information includes projected aircraft availability rates for mission capable, units possessed not reported, not mission capable for supply, not mission capable for maintenance, and depot possession. Officials noted that the program office creates an improvement plan each year, regardless of whether it is short of its availability goal, since the plan serves as a forecasting measure. The program is designed to ensure the program offices have plans in place to meet target goals, and the information and milestones laid out in the plans feed into the WSER briefings to senior management. For example: The B-52 plan for fiscal year 2017 discusses the process and milestones for replacing actuator seals for the fleet, the costs of the repair, and the expected benefit to B-52 availability—1.05 percent improvement to the not mission capable supply metric. The C-17 plan for fiscal year 2017 identifies the current and future modifications, timelines for beginning and completion, and the effect on availability. For example, the future replacement of a legacy computer system with a modernized system and display is set to begin in fiscal year 2019 with an estimated completion date of 2026. This replacement is planned to be done concurrently with other maintenance, and to prevent future declines in the C-17’s availability. The F-22 plan for fiscal year 2017 identifies several projects taking place between 2016 and 2021 that are expected to improve availability by almost 2 percent. Further, officials said they are currently working with the Assistant Secretary of the Air Force (Acquisition) to develop an Air Force manual that would make developing an Aircraft Availability Improvement Plan a requirement. This manual will become a supplement to Air Force Instruction 63-101/20-101, according to the officials. Navy program offices for all seven fixed-wing aircraft in our review also have plans for improving availability. According to Navy officials, they started preparing “summary playbooks,” which is the Navy’s term for improvement plans, in late 2015 and started implementing these plans in early 2016 to increase aircraft availability. Officials told us that there was a limitation in funding because of sequestration prior to fiscal year 2017, which hampered their ability to fully implement the playbooks. At a broad level, the Navy’s playbooks include efforts such as maintenance planning, supply support, aircraft material condition and management, and technical data, among other things. These efforts are linked to specific initiatives such as working with the manufacturer and contractors to provide maintenance support, identifying obsolete parts, conducting aircraft fatigue analysis, and updating technical publications, among other things, which have been identified by the program office as ways to improve aircraft availability. Additionally, these playbooks include the extent to which these initiatives are funded, underfunded, or partially funded and the appropriation account that would fund each initiative. The playbooks include the status of each initiative, and some of the playbooks also provide an approximate time frame for implementing each initiative. For example: The playbook for the C-2A has a fatigue analysis initiative focused on analyzing the landing gear to update its design, provide a depot repair manual, and increase its service life, among other things. This initiative is considered funded, is expected to improve aircraft availability, and has an estimated time frame for implementation between fiscal years 2017 and 2021. The playbook for the E-2D contains a maintenance initiative focused on improving the maintenance planning process of the C-2A, E-2C, and E-2D aircraft by completing elements of the product support package, such as training, publications, support equipment, and tools, among others. This initiative is considered partially funded, is expected to improve aircraft availability by decreasing the not mission- capable rates related to maintenance and supply and decreasing maintenance down time, and has an estimated time frame for implementation between fiscal years 2017 through 2019. The playbook for the F/A-18A-D includes a product improvement initiative to conduct a case study to assess the condition of the wiring of the aircraft in the fleet. This initiative is considered funded and is expected to help to sustain aircraft availability. However, there is no time frame for implementing this initiative. The playbook for the F/A-18E-F contains a service life modification initiative focused on extending the service life of the aircraft through modifications. According to officials, this initiative is considered partially funded, is expected to help to sustain aircraft availability, and is expected to help the fleet realize an 80 percent cost avoidance because the Navy will not have to pay the cost to replace these aircraft. Also, this initiative has an estimated time frame for implementation between fiscal years 2018 through 2040. The Departments of the Air Force and Navy spend tens of billions of dollars each year to sustain their fixed-wing aircraft, which need expensive logistics support, including maintenance and repair, to meet goals for availability. The departments spent at least $20 billion annually since 2011 to sustain the 12 aircraft that we examined. The Air Force and Navy share a variety of sustainment challenges, including the age of their aircraft as well as maintenance and supply support issues. These challenges have led to half (6 of 12) of the aircraft in our review experiencing decreasing availability and to the aircraft in general not being able to meet aircraft availability goals. For example, 9 of 12 aircraft did not meet availability goals in fiscal year 2016. These trends are occurring even though the Air Force and Navy regularly review sustainment metrics for the aircraft and are implementing plans for improving aircraft availability. However, DOD’s policy and the Navy’s guidance are not clear on whether the services should have a current sustainment strategy for legacy weapon systems, including fixed-wing aircraft, and on whether the strategies are required to be updated every 5 years. Without clarity about whether the DOD instruction and the Navy guidance apply to legacy systems, program officials will not know whether they are required to have a sustainment strategy or are required to update the plan for their respective fixed-wing aircraft. Furthermore, the program offices, the services, and DOD may not have full visibility of necessary requirements to document program objectives, related risks, and the effectiveness of the program, ultimately jeopardizing the sustainability and affordability of each of the programs. We are making the following two recommendations to DOD: The Secretary of Defense should ensure that the Under Secretary of Defense for Acquisition and Sustainment updates or issues new policy clarifying the requirements for documenting sustainment strategies for legacy weapon systems, including fixed-wing aircraft. (Recommendation 1) The Secretary of the Navy should update or issue new guidance clarifying the requirements for documenting sustainment strategies for legacy weapon systems, including fixed-wing aircraft. (Recommendation 2) We provided a draft of the sensitive report to DOD for review and comment. In written comments that are reproduced in appendix XVI, DOD concurred with our recommendations and noted planned actions to address each recommendation. The Air Force and Navy also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense; the Secretaries of the Navy and Air Force; the Commandant of the Marine Corps; the Under Secretary of Defense for Acquisition and Sustainment; and the Director, Defense Logistics Agency. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have questions about this report, please contact me at merrittz@gao.gov or (202) 512-5257. GAO staff who made key contributions to this report are listed in appendix XVII. Over the past several years, we have conducted work on a number of issues that affect the ability of the Department of Defense (DOD) to sustain its weapon systems. In September 2017, we found that several factors were important to the success of Product Support Managers. These factors included teamwork and collaboration, early implementation of the Product Support Manager position, and organizational support and emphasis on sustainment. We also found that in response to our 2014 recommendations regarding the implementation of the Product Support Manager position, DOD had developed a comprehensive career path and associated guidance to develop, train, and support future Product Support Managers. Additionally, DOD revised guidance to define roles, responsibilities, and reporting relationships between support staff and Product Support Managers. However, DOD was still in the process of implementing our other three recommendations, such as issuing clear, comprehensive, centralized guidance regarding the roles and responsibilities of PSMs and collecting and evaluating information on the effects, if any, that Product Support Managers are having on life-cycle sustainment decisions for their assigned weapon systems. In September 2017, we also found that DOD does not have complete information to identify and manage single-source-of-supply risks. Specifically, some parts are provided by a single source of supply (e.g., one manufacturing facility), and if that single source were no longer able to provide the part, DOD could face challenges in maintaining weapon systems. DOD concurred with our six recommendations focused on improving the completeness of information for single-source-of-supply risks, including issuing department-wide policy that clearly defines requirements of Diminishing Manufacturing Sources and Material Shortages management, and details responsibilities and procedures to be followed to implement the policy. DOD is in the process of taking action to implement these recommendations. In June 2016, we found that the Defense Logistics Agency and the military services have not adopted metrics to measure the accuracy of planning factors, such as the accuracy of part lists, or the costs created by backorders. As a result, depot maintenance may not be efficient or cost-effective, resulting in unnecessary delays in the repair of weapon systems. DOD concurred with our six recommendations to develop metrics to monitor the accuracy of demand planning factors and disruption costs created by the lack of parts at depot maintenance sites and is in the process of taking action to implement these recommendations. For a listing of relevant past GAO work, see the Related GAO Products list at the end of this report. Sustainment: Depot maintenance conducted organically at the designated air logistics complex and contractually for some depot- level repairs at contractor facilities. The B-52 is a long-range, heavy bomber that can perform a variety of missions, including strategic attack, close air support, air interdiction, maritime operations, and offensive counter-air missions. It can carry nuclear or precision-guided conventional ordnance with worldwide precision navigation capability. However, the B-52s are some of the oldest aircraft in the Air Force’s fleet, and will continue to operate until at least 2040 (see fig. 8). Operating and support (O&S) costs for the B-52s have remained relatively steady, generally fluctuating around $1.2 billion–$1.3 billion per year. As a predominantly military-maintained system, most of that O&S cost is related to maintenance and manpower, with depot maintenance and depot-level reparables—direct labor and materials for item repairs, transportation, and storage, among other things—accounting for most of the maintenance cost. Technology Program (2014) is focused on upgrading outdated communications technology. The communications modification requires 7,000 hours of work and is estimated to be complete by 2020. The fleet has active sustainment plans for other components of the aircraft, such as the B-52 Anti-skid Replacement Life Cycle Sustainment Plan (2015), which is estimated to cost over $40 million and be completed by 2019. The B-52 faces sustainment challenges related to its age and, according to officials, replacement parts are difficult to obtain. Several modernization efforts are under way (communications, engines, etc.), and is working with vendors and its own service engineers to identify problem areas and plan ahead so that replacement parts will be available. Depot maintenance on the B-52 is managed by the program office and conducted at Oklahoma City Air Logistics Complex depot. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The C-17 is a long-range, heavy logistic transport aircraft powered by four F-117 turbofan engines with air-refueling capability that was first manufactured in 1987 (see fig. 10). It is capable of rapid strategic delivery of troops and all types of cargo to main operating bases or to bases in any forward deployment area. The C-17 can perform tactical airlift and airdrop missions and can transport ambulatory patients during aeromedical evacuations, when required. The C-17 can carry virtually all air-transportable equipment. Total operating and support (O&S) costs for the C-17 have decreased from about $5.3 billion in fiscal 2011 to about $4.0 billion in fiscal year 2016. Specifically, unit operations decreased, while maintenance costs have generally increased during this period due to contractor logistics support because the C-17 is a predominantly contractor-managed aircraft. The C-17 Enterprise Life Cycle Management Plan and Life Cycle Sustainment Plan (2014) documents current and future acquisition, sustainment, and integration efforts of the aircraft. It also addresses contractual arrangements and partnership support agreements between Air Force, Boeing, and other service providers for aircraft sustainment. Boeing provides continued sole-source life-cycle support for the C-17 under the terms of the Globemaster Integrated Sustainment Program (2013). Under this program, Boeing is responsible for sustainment, to include material management and depot maintenance support. The C-17 participates in a virtual fleet arrangement, a global network of 43 additional C-17 aircraft, which allows participants total aircraft parts access from any fleet participant worldwide. The C-17 is an aircraft being modified to meet its requirements as well as to address maintenance and supply issues. The Air Force’s actions to mitigate these challenges include processes to increase the service life of the aircraft, allowing managers to quickly hire skilled workers for critical positions, and locating other vendor source for parts. Logistics Complex, and at its facility in San Antonio; landing gear overhaul occurs at Ogden Air Logistics Complex, and engine overhaul occurs at Oklahoma City Air Logistics Complex in partnership with Pratt & Whitney, the original equipment manufacturer on the F-117 turbofan engine. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Sustainment: Depot maintenance conducted by Northrop Grumman, and field maintenance conducted organically, by the National Guard. The E-8C Joint Surveillance Target Attack Radar System (E-8C) was first manufactured in 1967 (see fig. 12). Its primary mission is to provide theater ground and air commanders with ground surveillance to support attack operations and targeting that contributes to the delay, disruption, and destruction of enemy forces. Total operating and support (O&S) costs for the E-8C have generally increased from about $686 million in fiscal year 2011 to about $734 million in fiscal year 2016. Specifically, maintenance cost has increased partly because of increases in contractor logistics support since the E-8C is maintained by Northrop Grumman. E-8C aircraft were formerly used as commercial airliners and purchased by the Air Force. Therefore, the exact usage of the aircraft was unknown with any degree of specificity. The program office has utilized new analysis conducted by Boeing to develop an improved method of determining and tracking service life for the E-8C aircraft. The new method uses a quantitative analysis capability to identify safety of flight structural concerns, allowing for planning and execution of risk mitigation. The E-8C is an aircraft with significant maintenance and supply issues according to Air Force officials. The Air Force’s actions to mitigate these challenges include updating the Maintenance Plan and the Corrosion Plan for the E-8C (formerly a commercial airframe) to bring them in line with military standards. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Sustainment: Depot maintenance conducted organically at the designated air logistics complex, and field maintenance conducted organically and by contractors. The F-16 Fighting Falcon is a compact, single-engine, multirole fighter aircraft first manufactured in 1978 (see figure 14). It is highly maneuverable and participates in air-to-air combat and air-to-surface attack. There are four versions of the F-16: A, single-seat model; B, two-seat model with tandem cockpits; C and D, single- and two-seat models, respectively, incorporating newer capabilities. Total operating and support (O&S) cost for the F-16 decreased from about $5 billion in fiscal year 2011 to about $4 billion in fiscal year 2016 because of a 6 percent reduction of inventory. Specifically, maintenance cost has generally decreased during this same period as a result of a decrease in cost of depot maintenance. Sustainment: Performance-based logistics contract with depot maintenance subcontracted to Ogden Air Logistics Complex, Utah, and field maintenance performed organically. and is designed to project air dominance, rapidly and at great distances, and defeat threats. Overall operating and support costs (O&S) for the F-22 have decreased about $248 million overall since fiscal year 2011. Maintenance issues continue to be an area of concern for the aircraft, and these costs increased approximately $255 million from fiscal years 2011 to 2016, due to increases in contractor logistics costs. maintaining a comprehensive diminishing manufacturing sources program and proactively supporting the continued sustainment of component parts of the aircraft through various replacement programs, such as the F-22 Reliability and Maintainability Maturation. This initiative is an ongoing effort to drive continuous improvement in availability. The F-22 faces issues with its low- observable coating and supply funding. Actions to mitigate these challenges include contracting a repair facility to conduct coating reversion repair and securing additional spares funding. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The AV-8B Harrier (AV-8B) is a Vertical/Short Take-off and Landing attack aircraft first manufactured in 1984 (see fig. 18). The AV-8B has the capability of conducting close air support using conventional weapons for intermediate range intercept and attack missions. The AV-8B is capable of deploying and operating on aircraft carriers and other suitable seagoing platforms, advanced bases, expeditionary airfields, and remote tactical landing sites. Total operating and support (O&S) costs for the AV-8B have decreased from about $815 million in fiscal year 2011 to about $646 million in fiscal year 2016. Specifically, unit-level manpower and operations as well as maintenance costs have decreased partly because the inventory is decreasing as AV-8B squadrons transition to the F-35 Joint Strike Fighter. Average number of flying hours: 4,711 hours per aircraft Operating and support cost: $646 million Depot maintenance activity and squadron locations: AV-8B Program Strategic Sustainment and Warfighting Relevance Plan (2013) addresses strategic sustainment and warfighting requirements to ensure relevance, reliability, safety, and sustainability through five pillars: recruit and retain high-quality people, develop a comprehensive readiness and sustainment plan, meet combatant commander requirements, retain and sustain government and industry agencies to support engineering and logistics requirements, and integrate capabilities to remain tactically relevant and operationally effective. AV-8B is maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals occurring every 1,500 flight hours; supply support is provided organically by Naval Supply Systems Command and Defense Logistics Agency; contractor support services are provided by Boeing. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. Manufacturer: Grumman Corporation (acquired by Northrop Grumman) The C-2A Greyhound Logistics Aircraft (C-2A) is a high-wing, twin-engine monoplane cargo aircraft first manufactured in 1965 (see fig. 20). It is designed to land on aircraft carriers, with a primary mission of providing critical logistics support to Carrier Strike Groups by transporting high-priority cargo, mail, and passengers between carriers and shore bases. The original C-2A aircraft were overhauled to extend their operational life in 1973 and again from 2004 through 2011. Total operating and support (O&S) costs for the C-2A have generally decreased from about $233 million in fiscal year 2011 to about $207 million in fiscal year 2016. Specifically, unit-level manpower, unit operations, and continuing system improvements have decreased, while maintenance costs have increased. landing gear, and avionics system, among others. The Navy will include an appendix for the C-2A when it updates the sustainment strategy for the E 2D for its 5-year update. C-2A completed a service life extension program from 2004 through 2011 to increase flight hours from 10,000 to 15,000 and landings from 16,020 to 36,000, among other things. Aircraft are maintained organically by field maintainers and at Navy Fleet Readiness Centers under a planned maintenance interval cycle with three planned maintenance interval events occurring consecutively every 24 months, and supply support is provided organically by the Naval Supply Systems Command and Defense Logistics Agency. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The E-2 Hawkeye (E-2C) is the Navy’s all-weather, carrier-based tactical battle management, surface surveillance coordination and airborne early warning, command and control aircraft, with a planned sunset in 2026 when the last E-2D is delivered (see fig. 22). The E-2 is a twin-engine, five- crewmember, high-wing turboprop aircraft with a 24-foot diameter radar rotodome attached to the upper fuselage. Total operating and support (O&S) costs for the E-2 have decreased from about $536 million in fiscal year 2011 to about $345 million in fiscal year 2016. Specifically, unit manpower and maintenance costs have decreased, partly because E-2C inventory is decreasing as E-2C squadrons transition to the E-2D fleet. comprehensive sustainment logistics, engineering programs, and financial resources necessary to ensure continued platform sustainment and attainment of readiness and safety operations. The Navy will include an appendix for the E-2C when it updates the sustainment strategy for the E-2D for its 5-year update. E-2C is maintained organically by field maintainers and at Navy Fleet Readiness Centers under a planned maintenance interval cycle: initial planned maintenance interval is performed by field maintainers at 42 months and the second cycle is performed at a Fleet Readiness Center 46 months after the initial planned maintenance interval. Supply support is provided organically by the Naval Supply Systems Command and Defense Logistics Agency; contractor support services are provided by General Dynamics and Wyle Labs. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The E-2 Advanced Hawkeye (E-2D) is the newest variant of the E-2 aircraft platform, expecting to reach full operational capability by 2027 (see fig. 24). Using the same configuration as the E-2C, the E-2D aircraft is used for surface-surveillance coordination and airborne early warning, and command control. Its mission is to provide advanced warning of approaching enemy surface units, and cruise missiles and aircraft, among other things. Total operating and support (O&S) costs for the E-2D have increased consistently since fiscal year 2011 to about $125 million in fiscal year 2016. This increase is driven by the addition of aircraft to the inventory as the Navy continues to produce E-2D aircraft through 2026. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The EA-18G Growler is the fourth major variant of the F/A-18 family of aircraft manufactured in 2007 to replace the EA-6B Prowler (see fig. 26). The EA-18G is the first newly designed electronic warfare aircraft produced in more than 35 years and combines the proven F/A-18 Super Hornet platform with a sophisticated electronic warfare suite. Total O&S costs for the EA-18G have consistently increased from about $334 million in fiscal year 2011 to about $868 million in fiscal year 2016. Specifically, unit manpower and maintenance costs have increased partly because the inventory is increasing, as EA-18Gs are still in production. design, development, and fielding of the aircraft. Some of the key support program elements include developing support equipment and technical data, testing requirements for avionics, and facilities requirements, among others. The Navy is updating this plan and expects to finalize it in 2018. The aircraft are maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals, which typically occur every 72 months. Also, the Navy partners with Boeing to provide wholesale supply and depot repair support for major components, such as the engine. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The F/A-18A-D Hornet Strike Fighter is a twin-engine, mid-wing, multimission tactical aircraft initially fielded in the 1980s (see fig. 28). In its fighter mode, it is used primarily as a fighter escort and for air defense; in its attack mode, it is used for force projection, interdiction, and air support. Total operating and support (O&S) costs for the F/A-18A-D have decreased consistently from about $3.1 billion in fiscal year 2011 to about $2.4 billion in fiscal year 2016. Specifically, unit manpower, operations, and maintenance costs have decreased, partly because the F/A-18A-Ds are being permanently transitioned out of service to be replaced by the F-35 Joint Strike Fighter.. and financial resources necessary to ensure continued readiness and supportability for the remainder of the aircraft’s service life. The Navy is currently updating this plan and expects to finalize it in 2018. The aircraft are maintained organically at Navy Fleet Readiness Centers under planned maintenance intervals, which typically occur every 48 months for carrier-deploying aircraft, and every 72 months for land-based aircraft. The Navy implemented the High-Flight-Hour program in 2006 to extend the service life from 8,000 to 10,000 flight hours by inspecting and repairing airframes, and replacing major components and parts. The High-Flight-Hour program, along with other factors, has led to maintenance carryover (i.e., into the next fiscal year) due to maintenance events taking longer than planned. In 1999, the Navy entered into a contract with Boeing for engineering support to leverage resources within the technology and industrial base to improve efficiency of the maintenance process and address the maintenance backlog. The F/A-18A-D is operating beyond its planned service life with maintenance and supply issues. The Navy’s actions to mitigate these challenges include extending the service life of the aircraft, allowing maintainers to work overtime to reduce backlog, and cannibalizing parts—moving parts from one aircraft to another. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. The F/A-18E-F Super Hornet was first manufactured in 1998 (see fig. 30). The F/A-18E-F is highly capable across the full mission spectrum: air superiority, fighter escort, reconnaissance, aerial refueling, close air support, air defense suppression, and day/night precision strike. The F/A-18E-F provides aircrew the capability and performance necessary to face 21st century threats. Total operating and support (O&S) costs for the F/A-18E-4 have increased from about $2.2 billion in fiscal year 2011 to about $3.1 billion in fiscal year 2016. Specifically, unit manpower, maintenance, and continuing system support have increased, partly because the inventory is increasing, as the F/A-18E-F is still in production. the Navy is conducting an assessment to determine the number of flight hours the aircraft can safely continue to fly, and then extend the service life of the program through inspections, repairs, and modifications, among other things. The Navy contracted with Boeing to potentially begin these efforts by fiscal year 2018. The F/A-18E-F is a high operational tempo aircraft supporting contingency operations with maintenance and supply issues. The Navy’s actions to mitigate these challenges include plans to extend the service life of the aircraft, training maintainers to transition to vacated positions, and cannibalizing parts—removing parts from one aircraft to another. This report is a public version of a sensitive report that we issued on April 25, 2018. DOD deemed some of the information, such as aircraft availability, not mission capable rates, number of aircraft in depots, and budgeted and executed flight hours to be sensitive (i.e., For Official Use Only). This public report omits the information that DOD deemed to be sensitive. To examine the trends in aircraft availability and operating and support (O&S) costs for selected Air Force and Navy fixed-wing aircraft, including whether the aircraft met availability goals, we selected a nongeneralizable sample of 12 fixed-wing aircraft managed by the Departments of the Air Force and the Navy. These included two Marine Corps aircraft that are managed by the Department of the Navy. This nongeneralizable sample was selected to ensure a mix of aircraft, including type of aircraft (fighter, bomber, cargo, etc.), age of the aircraft, and size of inventory, and whether the aircraft were sustained organically by the Department of Defense (DOD) or through contract arrangements, such as public-private partnerships or performance-based logistics, among other factors. For the Air Force, we selected five fixed-wing aircraft—the B-52 Stratofortress, C-17 Globemaster III, E-8C Joint Surveillance and Target Attack Radar System (JSTARS), F-16 Fighting Falcon, and F-22 Raptor. For the Navy, including the Marine Corps, we selected seven fixed-wing aircraft—the AV-8B Harrier, C-2A Greyhound Logistics Aircraft, E-2 Hawkeye Early Warning and Control Aircraft, E-2 Advanced Hawkeye Early Warning and Control Aircraft, EA-18G Growler, F/A-18 Hornet Strike Fighter A-D, and F/A-18 Super Hornet E-F. The Marine Corps uses the AV-8B Harrier and also uses a variant of the F/A-18A-D. For the selected aircraft, we obtained and reviewed the aircraft availability, sustainment, and O&S data for accuracy and completeness, interviewed officials regarding their data-collection processes, and reviewed available related policies and procedures associated with the collection of the data. As a result, we found the information to be sufficiently reliable for the purposes of presenting sustainment metrics, such as aircraft availability and O&S costs. status due to maintenance, supply, and both. With respect to O&S costs, we collected and analyzed data from fiscal years 2011 through 2016. We conducted data-reliability assessments for the data provided by the Air Force and the Navy. To do this, we sent data-reliability questionnaires to both departments requesting information on the sources that generated the data. For the Air Force, we conducted data-reliability assessments on the Air Force Total Ownership Cost system and the Logistics Installation and Mission Support system. For the Navy, we conducted data-reliability assessments on the Aviation Management Supply and Readiness Reporting—Type Model Series Integrated Database, the Decision Knowledge Programming for Logistics Analysis and Technical Evaluation system, the Flying Hour Projection System / Cost Adjustment and Visibility Tracking System, and the Visibility and Management of Operating and Support Costs system. We reviewed responses from both departments on these sources as well as documentation—such as guidance, user manuals, and data dictionaries—provided to corroborate questionnaire responses, and interviewed knowledgeable officials to discuss the data. We concluded that the data provided by the Air Force and the Navy were sufficiently reliable for the purposes of reporting condition metrics such as aircraft availability; not mission capable status due to maintenance, supply, and both; depot inductions; budgeted and executed flight hours; and O&S costs for the selected fixed-wing aircraft in our review. To identify the sustainment challenges and mitigation actions for the selected aircraft, we reviewed sustainment metrics data, performance briefings, and other relevant documentation to identify specific challenges for each of the 12 aircraft in our review. We also reviewed ongoing and planned actions to address those challenges. Additionally, we interviewed program officials, depot officials, field maintainers, and squadron personnel to obtain their views on the challenges they face in sustaining the aircraft and the actions they take to mitigate those challenges. In some instances, we visited depots and squadrons to observe aircraft undergoing maintenance, discuss the respective maintenance processes, and discuss challenges and mitigation actions with officials. We then grouped the identified challenges into categories and represented them in a table to demonstrate which aircraft are experiencing specific challenges. To assess the extent to which the Air Force and the Navy have sustainment strategies, regularly review sustainment metrics, and have plans to improve aircraft availability for the selected fixed-wing aircraft, we obtained and analyzed sustainment strategies, performance management frameworks (i.e., sustainment metrics collected and monitored as well as the levels of management review), and improvement plans for each of the selected 12 fixed-wing aircraft. We also identified and reviewed DOD, Air Force, and Navy guidance to analyze the departments’ efforts in sustaining these aircraft and to determine whether these were consistent with federal standards for internal control that deal with management defining objectives in specific terms. Specifically, we reviewed DOD Instruction 5000.02, Operation of the Defense Acquisition System, which provides management principles and mandatory policies for defense acquisition systems such as fixed- wing aircraft. These policies incorporate decision processes and assessing of readiness, which includes the creation of and requirements for a Life-cycle Sustainment Plan. We also reviewed Air Force Instruction 63-101/20-101, Integrated Life Cycle Management, which implements various Air Force and DOD policy directives, including DOD Instruction 5000.02. It establishes the integrated life-cycle management guidelines and procedures for Air Force personnel who develop, review, approve, or manage the systems, subsystems, end-items, services, and activities procured by the Air Force. For the Navy, we reviewed Secretary of the Navy M-5000.2, Department of the Navy Acquisition and Capabilities Guidebook, which provides guidance for the operation of the defense acquisition system and the joint capabilities integration and development system. It also implements DOD Instruction 5000.02 for the Navy and Marine Corps, including guidance on the management and execution of a sustainment strategy. and service guidance. We also reviewed the Air Force’s and the Navy’s performance metric briefings and improvement plans to determine whether the departments regularly reviewed sustainment metrics and had plans aimed at improving aircraft availability. We interviewed DOD, Air Force, and Navy officials knowledgeable about sustainment of these selected fixed-wing aircraft to discuss DOD’s and the departments’ efforts in sustaining these aircraft, including historical information on each aircraft, applicability of policy and guidance for legacy aircraft, and overviews of performance management frameworks identified by the departments to monitor and improve aircraft availability. To develop the fixed-wing aircraft sustainment summary documents (i.e., “Sustainment Quick Looks”) in appendixes II–XIII we obtained historical and current information including background on aircraft capabilities, manufacturer, sustainment strategy, depot maintenance and squadron locations, and key dates in the life cycle of each aircraft (i.e., first manufactured, initial and full operational capability, last production, and planned sunset year). We collected and analyzed the following metrics: aircraft availability, not mission capable maintenance, not mission capable supply, and not mission capable aircraft from fiscal year 2011 through March 2017; the number of aircraft in depots for fiscal years 2011 through 2016; budgeted and executed flight hours from fiscal years 2011 through overall O&S and maintenance costs for fiscal years 2011 through 2016. We compared availability actuals to goals, aircraft in depots to availability trends, and budgeted and executed flight hours to availability trends. We analyzed O&S cost by reviewing its six elements and compared them to availability trends. We also analyzed the subcategories of the maintenance costs element. Through interviews with knowledgeable officials and reviewing documentation, we identified sustainment challenges (i.e., aging, maintenance and supply support) and mitigation actions to address these challenges for each selected fixed-wing aircraft. DOD deemed some of the information, such as aircraft availability, not mission capable status, number of aircraft in depots, and budgeted and executed flight hours, to be sensitive (i.e., For Official Use Only), which must be protected from public disclosure. This public report omits the information that DOD deemed to be sensitive. Additionally, to support our work for each objective we conducted site visits and interviewed officials to discuss data trends and identify specific sustainment challenges such as aging, maintenance, and supply support, among other challenges affecting aircraft availability, and mitigation actions to address these challenges. For the Air Force, we met with the following entities: Headquarters—Secretary of the Air Force, Logistics and Product Support and Deputy Assistant Secretary for Cost and Economics, Air Force Cost Analysis Agency; Materiel Commands—Air Force Materiel Command and Air Force Life Cycle Management Center; Program Offices—B-52 Program Office, C-17 Program Office, E-8C Program Office, F-16 Program Office, and F-22 Program Office; Depots—Tinker Air Force Base at Oklahoma City, Oklahoma (B-52); Robins Air Force Base at Warner Robbins, Georgia (C-17); Northrop Grumman facility at Lake Charles, Louisiana (E-8C); Ogden Air Logistics Center / Hill Air Force Base at Ogden, Utah (F-16 and F-22); and Squadrons—437th Maintenance Group, Joint Base Charleston, South Carolina (C-17); 461st Air Control Wing, Robins Air Force Base Georgia (E-8C); 20th Fighter Wing, Shaw Air Force Base, South Carolina (F-16); and 325th Maintenance Group, Tyndall Air Force Base, Florida (F-22). For the Navy, we met with the following entities: Headquarters—Deputy Assistant Secretary of the Navy— Expeditionary Programs and Logistics Management, Marine Corps Aviation Plans and Policy Branch, and Air Warfare Division; Materiel Commands—Commander, Fleet Readiness Center; Naval Air Systems Command; and Naval Supply Systems Command; Program Offices—Program Manager–Air (PMA)-231 (C-2A, E-2C, and E-2D); PMA- 257 (AV-8B); and PMA-265 (F/A-18A-F, and EA- 18G); Depots—Fleet Readiness Center–East at Cherry Point, North Carolina; Fleet Readiness Center–Mid Atlantic at Naval Air Station Norfolk, Virginia, and Naval Air Station Oceana, Virginia; Squadrons—Marine Corps Air Station Cherry Point, North Carolina; Marine Corps Air Station Miramar, California; Naval Air Station Norfolk, Virginia; and Naval Air Station Oceana, Virginia; and Other—Naval Center for Cost Analysis. The performance audit upon which this report is based was conducted from September 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate, evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with DOD from April 2018 to September 2018 to prepare this unclassified version of the original sensitive report for public release. This public version was also prepared in accordance with these standards. For fiscal year 2016, total operating and support (O&S) costs for the five Air Force fixed-wing aircraft selected in our review were about $12 billion, and the average O&S cost per aircraft across all five fleets was about $96 million, as shown in figure 32. Each of the C-17 and F-16 fleets accounted for about 33 percent of the total O&S cost, and the E-8C’s average cost per aircraft accounted for about 48 percent of the total average cost per aircraft. For fiscal year 2016, total O&S costs for the seven Navy fixed-wing aircraft selected in our review were about $7.7 billion, and the average O&S cost per aircraft across all seven fleets was about $44 million, as shown in figure 33. The F/A-18E-F fleet accounted for about 40 percent of the total O&S cost, and the E-2C’s average cost per aircraft accounted for about 19 percent of the total average cost per aircraft. In addition to the contact named above, John Bumgarner (Assistant Director), Clarine Allen, Ron Aribo, Vincent Buquicchio, Amie Lesser, Richard Powelson, Steven Putansu, Matt Spiers, and Natasha Wilder made key contributions to this report. Defense Supply Chain: DOD Needs Complete Information on Single Sources of Supply to Proactively Manage the Risks. GAO-17-768. Washington, D.C.: September 27, 2017. Weapon Systems Management: Product Support Managers’ Perspectives on Factors Critical to Influencing Sustainment-Related Decisions. GAO-17-744R. Washington, D.C.: September 12, 2017. Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-17-333SP. Washington, D.C.: March 30, 2017. Depot Maintenance: Executed Workload and Maintenance Operations at DOD Depots. GAO-17-82R. Washington, D.C.: February 3, 2017. Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Weapon Systems Management: DOD Has Taken Steps to Implement Product Support Managers but Needs to Evaluate Their Effects. GAO-14-326. Washington, D.C.: April 29, 2014.	[ "DOD spends billions of dollars annually to sustain its weapon systems to support current and future operations. The Air Force and Navy are operating many of their fixed-wing aircraft well beyond their original designed service lives and therefore are confronted with sustainment challenges. House Report 114-537 included a provision for GAO to evaluate the sustainment of major weapon systems. This report, among other things, (1) examines the trends in availability and O&S costs for selected Air Force and Navy fixed-wing aircraft since fiscal year 2011, including whether they met availability goals, and (2) assesses the extent that the departments documented sustainment strategies, reviewed sustainment metrics, and implemented plans to improve aircraft availability. GAO selected a nongeneralizable sample of 12 fixed-wing aircraft by considering a variety of factors, such as the type, age, and manufacturer of the aircraft, among other factors, and analyzed condition and availability data, O&S costs, and sustainment challenges from fiscal year 2011 through March 2017 for each aircraft in a “Sustainment Quick Look.” GAO also analyzed policies, strategies, and plans, and interviewed Navy and Air Force officials in program offices, squadrons, and maintenance depots. Between fiscal years 2011 and 2016, the Air Force and Navy generally did not meet aircraft availability goals, and operating and support (O&S) cost trends for GAO's selected fixed-wing aircraft varied. Specifically, GAO found that availability declined for 6 of 12 aircraft—3 from each service—between fiscal years 2011 and 2016; availability fell short of goals for 9 of 12 aircraft in fiscal year 2016; and O&S costs increased for 5 of the aircraft, and maintenance costs—the largest share—increased for 8 of 12 aircraft. GAO found, and officials agreed, that these aircraft face similar challenges. a Obsolescence means a part is unavailable due to its lack of usefulness or it is no longer current or available for production. b Diminishing manufacturing sources is a loss or impending loss of manufacturers or suppliers. The Air Force and Navy have documented sustainment strategies for some aircraft, regularly reviewed sustainment metrics, and implemented improvement plans. The Air Force has documented sustainment strategies for all aircraft GAO reviewed; however, the Navy has not documented or updated its sustainment strategies for four aircraft. Specifically, the Navy does not have a documented sustainment strategy for the C-2A, and has not updated the strategies for the E2C, EA-18G, and F/A-18A-D since before 2012. The Navy is in the process of documenting its strategies, but Department of Defense (DOD) policy is unclear on whether a sustainment strategy is required and has to be updated every 5 years for weapon systems that are in the operations and support phase of their life cycle (i.e., legacy systems). Also, Navy guidance does not specify a requirement for legacy systems, although Air Force guidance does. Clarifying the requirements to document sustainment strategies for legacy systems, and documenting those strategies, would add additional visibility over the availability and O&S costs of DOD aircraft and any associated sustainment risks. This is a public version of a sensitive report issued in April 2018. Information on aircraft availability and other related information was deemed to be sensitive and has been omitted from this report. GAO is recommending that DOD and the Navy update or issue new policy and guidance clarifying the requirements for documenting sustainment strategies for legacy weapon systems. DOD concurred with the recommendations." ]	12,207	gov_report	en	null	e6030e255f6b8c70f7b3c9faf0320d4f7729b4eddacf727f
As reported by the United Nations, the International Criminal Police Organization, and other organizations, wildlife trafficking networks span the globe. These organizations have attempted to measure the value of illegally traded wildlife, but available estimates are subject to uncertainty. In 2016, for example, the United Nations Environment Programme (UNEP) reported that various sources estimated the global scale of illegal wildlife trade to be from $7 billion to $23 billion annually. UNEP also estimated that the scale of wildlife crime has increased in recent years in part based on a rise in environmental crime. U.S. trade in wildlife and related products includes a variety of species, such as live reptiles, birds, and mammals, as well as elephant ivory, according to law enforcement reports and government and nongovernmental officials. FWS and NOAA data on wildlife products seized at U.S. ports provide examples of the diversity of illegally traded plants, fish, and wildlife imported into or exported from the United States. For example, from 2007 to 2016, the top 10 plant, fish, and wildlife shipments seized nationally by FWS were coral, crocodiles, conchs, deer, pythons, sea turtles, mollusks, ginseng, clams, and seahorses. During that time, FWS reported that more than one-third of the wildlife shipments it seized were confiscated while being imported from or exported to Mexico (14 percent), China (13 percent), or Canada (9 percent). FWS and NOAA law enforcement offices are responsible for enforcing certain laws and treaties prohibiting wildlife trafficking. FWS Office of Law Enforcement. This office enforces certain U.S. laws and regulations as well as treaties prohibiting the trafficking of terrestrial wildlife, freshwater species, and birds. Among other things, the office aims to prevent the unlawful import, export, and interstate commerce of foreign fish and wildlife, as well as to protect U.S. plants, fish, and wildlife from unlawful exploitation. As of fiscal year 2016, the office had a budget of $74.7 million and employed 205 special agents to investigate wildlife crime, including international and domestic wildlife trafficking rings. Most of these special agents report to one of eight regional offices, which receive national oversight, support, training, and policy guidance from the FWS Office of Law Enforcement headquarters. The office’s headquarters houses a special investigative unit focused on conducting complex, large- scale criminal investigations of wildlife traffickers. In addition, the FWS Office of Law Enforcement has deployed special agents to serve as international attachés at seven U.S. embassies. These attachés provide countertrafficking expertise to embassy staff, work with host government officials to build law enforcement capacity, and contribute directly to casework or criminal investigations of wildlife traffickers. According to FWS data, the FWS Office of Law Enforcement opened more than 7,000 investigations on wildlife trafficking and other illegal activities in fiscal year 2016, including nearly 5,000 cases involving Endangered Species Act violations and nearly 1,500 cases involving Lacey Act violations. FWS Office of Law Enforcement investigations have disrupted wildlife trafficking operations. For example, Operation Crash—an ongoing rhino horn and elephant ivory-trafficking investigation launched in 2011—has led to over 30 convictions and more than $2 million in fines. NOAA Office of Law Enforcement. This office enforces certain U.S. laws and regulations as well as treaties prohibiting the trafficking of marine wildlife, including fish, as well as anadromous fish. Among other things, the office aims to prevent the illegal, unregulated, and unreported harvesting and trade of fish as well as the trafficking of protected marine wildlife. As of fiscal year 2016, the office had a budget of $68.6 million and employed 77 special agents to investigate wildlife crimes within its jurisdiction. These agents report to one of five regional offices, and those offices receive national oversight, support, and policy guidance from the NOAA Office of Law Enforcement headquarters. According to NOAA data, the NOAA Office of Law Enforcement initiated more than 5,000 investigations in fiscal year 2016. About half of those investigations involved violations of the Magnuson-Stevens Fishery Conservation and Management Act, as amended, and some of the 5,000 investigations involved violations of the Endangered Species Act or the Lacey Act. NOAA Office of Law Enforcement investigations have disrupted wildlife trafficking operations. For example, in fiscal year 2016, a NOAA Office of Law Enforcement investigation led to the conviction of a company and five individuals for illegally trafficking whale bone carvings, walrus ivory carvings, black coral carvings, and other products derived from protected species into the United States. The FWS and NOAA law enforcement offices collaborate with other government agencies and organizations to combat wildlife trafficking. Both agencies work with other federal, state, and tribal law enforcement officers as well as their international counterparts as needed during wildlife trafficking investigations. For example, FWS and NOAA work with U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and the U.S. Department of Agriculture to maintain import and export controls and interdict smuggled wildlife and related products at U.S. ports of entry. In addition, FWS and NOAA collaborate with Department of Justice prosecutors on criminal cases that result from agency investigations. Both agencies also collaborate with nongovernmental organizations to combat wildlife trafficking. For example, FWS and NOAA officials said that nongovernmental organizations have, in some cases, offered financial rewards (in addition to rewards offered by FWS and NOAA) for information on a wildlife crime. In addition, some nongovernmental organizations proactively provide information to FWS and NOAA on wildlife trafficking activities in the United States or foreign countries that violate U.S. laws. For example, in 2017, a nongovernmental organization created a website to collect tips on wildlife crime and to connect the sources of those tips with relevant U.S. authorities for potential financial rewards. FWS may pay financial rewards from moneys in two accounts. Law Enforcement Reward Account. FWS may pay rewards under the Endangered Species Act, the Lacey Act, and the Rhinoceros and Tiger Conservation Act from moneys in the agency’s Law Enforcement Reward Account. The moneys in this account come from fines, penalties, and proceeds from forfeited property for violations of these three laws. According to FWS officials, these moneys are available until expended. These moneys can be used to (1) pay financial rewards to those who provide information that leads to an arrest, criminal conviction, civil penalty assessment, or forfeiture of property for any violation of the Endangered Species Act, the Lacey Act, or the Rhinoceros and Tiger Conservation Act or (2) provide temporary care for plants, fish, or wildlife that are the subject of a civil or criminal proceeding under the Endangered Species Act, Lacey Act, or the Rhinoceros and Tiger Conservation Act. As of the beginning of fiscal year 2017, the balance of the Law Enforcement Reward Account was about $7 million. Law Enforcement Special Funds Account. FWS may also pay rewards from moneys in its law enforcement office’s Special Funds Account. The moneys in this account come from an annual line item appropriation and are available until expended. Since fiscal year 1988, this appropriation has provided FWS up to $400,000 each year to pay for information, rewards, or evidence concerning violations of laws FWS administers, as well as miscellaneous and emergency expenses of enforcement activity that the Secretary of the Interior authorized or approved. NOAA generally pays rewards from moneys available in the Fisheries Enforcement Asset Forfeiture Fund. The moneys in this account come from fines, penalties, and proceeds from forfeited property for violations of marine resource laws that NOAA enforces, including the Magnuson- Stevens Fishery Conservation and Management Act, the Endangered Species Act, and the Lacey Act. According to NOAA officials, moneys are available until expended and can be used to pay certain enforcement- related expenses, including travel expenses, equipment purchases, and the payment of financial rewards. As of the beginning of fiscal year 2017, the Fisheries Enforcement Asset Forfeiture Fund had a balance of about $18 million. Academic literature on the use of financial rewards to combat illegal activities and stakeholders we interviewed identified several advantages and disadvantages of using financial rewards to obtain information on wildlife trafficking. Potential advantages of using financial rewards include the following: Providing incentives. The potential for a financial reward can motivate people with information to come forward when they otherwise might not do so. Increasing public awareness. Financial rewards may bring greater public attention to the problem of wildlife trafficking, including federal efforts to combat wildlife trafficking. Saving resources. Using financial rewards may save agency resources by enabling agents to get information sooner and at a lower cost than they could have through their own efforts. Potential disadvantages of using financial rewards include the following: Eliciting false or unproductive leads. Financial rewards may generate false or unproductive leads. Affecting witness credibility. Financial rewards may lead to a source’s credibility being challenged at trial by defense attorneys since sources receive compensation for the information they provide. Consuming resources. The potential for a financial reward may create a flood of tips that take agency time and resources to follow up on or corroborate. Outside of wildlife trafficking, multiple federal agencies and federal courts are authorized to pay financial rewards for information on illegal activities under certain circumstances. For example, U.S. Customs and Border Protection—which controls, regulates, and facilitates the import and export of goods through U.S. ports of entry—is authorized, under certain circumstances, to pay rewards for original information about violations of any laws that it enforces. The Department of State may also pay rewards under certain circumstances, including for information leading to the disruption of financial mechanisms of a transnational criminal group. Similarly, the U.S. Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS) may pay rewards for information about violations of federal securities laws and the underpayment of taxes, respectively, if certain conditions are met. Federal judges may award money to persons who give information leading to convictions for violating treaties, laws, and regulations that prohibit certain pollution from ships, including oil and garbage discharges. FWS and NOAA officials identified multiple laws, such as the Endangered Species Act and the Lacey Act, that authorize the payment of financial rewards to people who provide information on wildlife trafficking. FWS and NOAA reported paying few financial rewards under these laws from fiscal years 2007 through 2017. However, agency officials could not provide sufficient assurance that the reward information they provided to us represented all of their reward payments for this period. FWS and NOAA officials identified over 10 laws prohibiting wildlife trafficking—including the Endangered Species Act, Lacey Act, and Bald and Golden Eagle Protection Act—that specifically authorize the payment of financial rewards in certain circumstances to people who provide information on violations of the law (see app. II for a complete list of the laws). These laws provide discretion to the agencies to choose whether to pay rewards but have varying requirements for who is eligible to receive a reward and the payment amounts. For example, the Bald and Golden Eagle Protection Act caps rewards at $2,500 for information that leads to a conviction. In contrast, the Endangered Species Act does not cap reward amounts and authorizes rewards for information that leads to a conviction as well as to an arrest, civil penalty, or forfeiture of property. Table 1 identifies the laws that FWS and NOAA officials indicated they have used to pay financial rewards for information on wildlife trafficking from fiscal years 2007 through 2017, along with information on these laws’ requirements for payment of rewards. FWS and NOAA reported paying few financial rewards for information on wildlife trafficking from fiscal years 2007 through 2017, but agency officials could not provide sufficient assurance that this information was complete. Officials from both agencies said that their agencies have not prioritized the use of rewards, and they believed that the reward information they identified—such as the number, dollar amount, and year that rewards were paid—appropriately captured the few reward payments they made during this time frame. Based on the agencies’ reviews of their records, FWS reported paying 25 rewards for a total of $184,500 from fiscal years 2007 through 2017, and NOAA reported paying 2 rewards for a total of $21,000 during that same period (see table 2). See appendix III for additional details on the cases where financial rewards were paid. FWS reported paying rewards in trafficking cases involving a variety of wildlife species, such as eagles, bears, reptiles, and mollusks, across the 11-year period. FWS officials said they generally paid rewards to thank sources who proactively provided information. For example, based on our review of a reward case, FWS paid a reward in 2010 because the source provided information that was crucial in uncovering an attempt to illegally traffic leopards into the United States from South Africa. FWS would not have known about this illegal activity if the source had not come forward with the information. In several cases we reviewed, FWS officials said that the sources did not know about the possibility of receiving a reward when they contacted the agency with information. The two rewards NOAA reported paying from fiscal years 2007 through 2017 involved the illegal trafficking of sea scallops and a green sea turtle. NOAA officials said that in both cases they paid a reward to thank the source who proactively provided information to law enforcement agents. For example, the agent who investigated the sea scallop case reported requesting the reward because the information the source proactively provided was timely, credible, and led to the criminal conviction of several individuals. FWS and NOAA officials could not provide sufficient assurance that the reward information they reported to us represented all of the rewards their agencies had paid from fiscal years 2007 through 2017, but they said the information was complete to the best of their knowledge. Specifically, FWS and NOAA officials said they track all their expenditures, including reward payments, in their financial databases. However, they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats. As a result, FWS and NOAA officials said they identified the rewards they reported to us by manually reviewing their financial and law enforcement records. In particular, FWS officials said they reviewed their paper records to identify instances when the agency paid rewards and then retrieved additional information from their financial and law enforcement databases, such as final payment amounts. NOAA officials said they identified instances when the agency paid rewards by using a combination of paper and electronic records located at NOAA’s headquarters office. NOAA officials also contacted their regions to obtain additional information located at the regional offices to confirm information about the rewards NOAA had paid. Seventeen stakeholders we interviewed who had experience investigating wildlife trafficking or expertise in using financial rewards as a law enforcement tool said that it would be useful for FWS and NOAA to maintain comprehensive information on the rewards they paid. For example, two stakeholders said that maintaining comprehensive information and making that information available to law enforcement agents could motivate agents to make greater use of rewards as a law enforcement tool. Two other stakeholders said that maintaining information on and monitoring reward use would allow the agencies to make ongoing adjustments, such as adjusting payment amounts, to make the most effective use of rewards in combating wildlife trafficking. Federal internal control standards say that management should clearly document internal control and all transactions and other significant events in a manner that allows the documentation to be readily available for examination. Control activities can be implemented in either an automated or a manual manner, but automated control activities tend to be more reliable because they are less susceptible to human error and are typically more efficient. FWS and NOAA officials agreed that maintaining reward information so that complete information is easily retrievable may be beneficial. FWS officials said having clearly documented and readily available reward information could improve how they manage rewards and enable them to monitor and examine their use of rewards more holistically. The officials said they may analyze options for creating a single repository for reward information but did not commit to doing so. They said that creating a single repository for reward information may involve some drawbacks, such as duplicating some data entry in separate databases. Similarly, NOAA officials said having clearly documented and readily available reward information would provide agency management with easier and more consistent access to that information. As a result, they said that they are exploring modifications to their financial and law enforcement databases to better identify and track rewards. For example, NOAA officials said they may be able to create a unique identifier to flag payments that are for rewards in their financial system to enable them to identify payment amounts more easily. NOAA officials did not provide a time frame for completing modifications to their financial system. By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool. FWS and NOAA have policies to guide their law enforcement agents on the process for preparing and submitting a request to pay a financial reward. Specifically, both agencies’ policies call for agents to include a description of the case, the nature of the information that the source provided, a justification for providing a reward, and an explanation of how a proposed reward amount was developed. These policies also outline the general review and approval process, how payments are to be made upon approval of a request, and eligibility criteria to receive a reward. For example, FWS and NOAA policies prohibit paying rewards to foreign government officials as well as paying rewards to any person whose receipt of a reward would create a conflict of interest or the appearance of impropriety. NOAA’s policy explicitly states that the NOAA Office of Law Enforcement is to use statutorily authorized rewards as a tool to obtain information from the public on resource violations and that rewards can help promote compliance with marine resource laws. NOAA’s policy suggests that agents consider advertising reward offers to assist investigations, encourages press releases, and describes the process agents should follow to do so. Moreover, NOAA’s policy specifies factors that agents might include in their reward requests to support the proposed reward, such as (1) the benefit to the marine resources that was furthered by the information provided; (2) the risk, if any, the individual took in collecting and providing the information; (3) the probability that the investigation would have been successfully concluded without the information provided; and (4) the relationship between any fines or other collections and the information provided. FWS’s policy specifies that rewards may be provided in situations in which an individual furnishes essential information leading to an arrest, conviction, civil penalty, or forfeiture of property. However, it does not discuss the usefulness of financial rewards as a law enforcement tool or the types of circumstances when rewards should be used or advertised to the public. Further, FWS’s policy does not communicate necessary quality information internally that agents may need when deciding to request the payment of rewards. In particular, it does not specify factors for agents to consider when developing proposed reward amounts. Instead, the policy leaves it to the discretion of field and regional agents to develop proposed reward amounts within any limitations specified in law. Some FWS agents we interviewed said that they developed proposed reward amounts on a case-by-case basis and did not know whether their proposed amounts were enough, too little, or too much. In addition, some agents said that because FWS’s policy does not specify factors for agents to consider, the reward approval process is subjective and unclear and this has made it challenging for the agents to develop proposed reward amounts. For example, one agent we interviewed said he submitted a request to his supervisor to pay a $10,000 reward to a source who provided information on a major wildlife trafficker. But, for reasons unknown to the agent, his supervisor reduced the amount to $1,000. FWS headquarters officials said field agents submit reward requests to headquarters for approval, and these officials were not aware of instances of proposed reward amounts being changed or denied during the review process. Seven of the 20 stakeholders we interviewed suggested that FWS augment its reward policy to specify factors for agents to consider when developing proposed reward amounts. For example, helpful factors to consider when developing a proposed reward amount may include (1) the number of hours the source dedicated to the case, (2) the risk the source took in providing the information, (3) the significance of the information provided by the source, and (4) the amount of fines or other penalties collected as a result of the information. Two stakeholders expressed concern that some of FWS’s reward payments were insufficient, especially when comparing the amount of time and effort or the risk a source faced in providing the information. A couple of stakeholders also said that without a policy that specifies factors for agents to consider, reward amounts may be subjective and could vary depending on which agent develops the reward proposal. Another stakeholder said that it was important to specify factors for agents to consider when developing proposed reward amounts so that the agency has a reasonable and defensible basis for the reward amounts it pays across cases. According to federal standards for internal control, management should internally communicate the necessary quality information to achieve an agency’s objectives. For example, management communicates quality information down and across reporting lines to enable personnel to make key decisions. FWS officials said they believe that their reward policy is sound, indicating they believe that law enforcement agents have the information they need to develop proposals for reward amounts in cases where rewards are warranted. However, they also agreed that it may be helpful to review their policy but did not commit to doing so. By augmenting its policy to specify factors for agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals. Based on our review of the agencies’ websites and other communications, we found that FWS and NOAA communicate little information to the public on financial rewards for reporting information on wildlife trafficking, such as the potential availability of rewards and eligibility criteria. Specifically, some FWS and NOAA law enforcement websites provided information to the public on ways to report violations of the laws that the agencies are responsible for enforcing, such as via tip lines. Some of the websites also provided examples of the types of information the public can report, such as photos or other documentation of illegal activities. However, most of the agencies’ websites did not indicate that providing information on illegal activities could result in a reward. In contrast, the FWS Alaska regional office’s website provided information on the potential availability of rewards and ways the public may submit information for a potential reward. For example, this website provided phone numbers and an e-mail address for the public to use when submitting information. Figure 1 shows the information available on FWS’s and NOAA’s national and regional websites relevant to reporting violations of the laws the agencies enforce in general and on receiving rewards in particular. In addition, FWS and NOAA headquarters officials said their field agents have used other means to communicate the potential availability of rewards in specific cases when the agents had no other information that could help solve those cases. For example, a FWS field official said that the agency advertised a reward offer for information on a case of bald eagle killings by distributing reward posters and posting news releases in the vicinity where the killings occurred. Similarly, NOAA officials said they have advertised reward offers through various means, including circulating reward posters in specific geographic areas after an illegal activity has occurred. Figure 2 shows a reward poster that NOAA distributed in Guam in 2017 advertising a $1,000 reward for information leading to the arrest and conviction of sea turtle poachers. Instead of having a plan for communicating general information to the public on rewards, FWS and NOAA grant discretion to their regional offices and law enforcement agents to determine the type and level of communication to provide, according to FWS and NOAA policies. FWS officials explained that because they typically use financial rewards to thank individuals who come forward on their own accord—rather than using rewards to incentivize individuals with information to come forward—they have not seen the need to communicate more information to the public on the potential availability of rewards. NOAA officials said they have targeted their communications on rewards by publicizing reward offers for specific cases where they do not have leads. They added that they want to receive quality information and already receive a substantial amount of information from sources who reach out to them proactively, so NOAA has not seen the need to communicate more information to the public on the potential availability of rewards. Sixteen of the 20 stakeholders we interviewed said that it would be useful for FWS and NOAA to advertise the potential availability of financial rewards. Several stakeholders said that if the public does not know about the possibility for rewards, then some people with information may not be incentivized to come forward. Two stakeholders added that agencies should carefully consider how and which reward information to communicate to the public so that people who are most likely to have information on illegal wildlife trafficking learn about the potential for rewards. For example, one stakeholder suggested advertising rewards at ports where international shipments are offloaded or placing advertisements at wildlife trafficking nodes, such as entrances to African wildlife refuges. This stakeholder suggested advertising rewards along with wildlife trafficking awareness-raising posters that nongovernment organizations place in some airports. In addition, 14 stakeholders suggested that it would be useful for FWS and NOAA to provide information to the public on the process for submitting information to potentially receive rewards. Several other stakeholders said that it is important for the public to understand whether they may be eligible for a reward, how to submit information, and whether or to what extent their confidentiality will be protected. Another stakeholder provided examples of how other agencies provide information about their reward programs on their websites. SEC and IRS, for instance, use their websites to communicate information to the public on the process for reporting illegal activity for financial rewards. This information includes the types of information to report, confidentiality rules, eligibility criteria, and the process for submitting information to obtain a reward. In addition, the Department of State posts instructions on its websites on how to submit information on an illegal activity and potentially receive a reward. Federal internal control standards say that management should externally communicate the necessary quality information to achieve an agency’s objectives. For example, using appropriate methods to communicate, management communicates quality information so that external parties, such as the public, can help the agency achieve its objectives. This could include communicating information to the public on the types of information and eligibility requirements for potentially receiving rewards for reporting information on wildlife trafficking. FWS officials said that making more reward information available could lead to a significant increase in the amount of information the agency receives, which, in turn, could strain FWS’s resources in following up on that information. However, FWS officials also agreed that it was reasonable to consider making more reward information available to relevant members of the public, particularly in targeted circumstances, but did not commit to doing so. Similarly, NOAA officials said they had some concerns about the additional resources it might take to investigate potentially unreliable or false tips that may result if they make reward information broadly available to the public, but they agreed that it would be reasonable for the agency to consider doing so. NOAA officials also said they may consider making more reward information publicly available at the conclusion of our audit but provided no plans for doing so. By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website on the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive. FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a tool for combating wildlife trafficking. FWS officials said their agency has not reviewed or considered changes to its use of rewards because the agency has not prioritized the use of rewards. NOAA officials said their agency has not focused on using rewards or identified the need to review its use of this tool, particularly in light of other, higher mission priorities. Nine of the 20 stakeholders we interviewed said that FWS and NOAA should review the effectiveness of their use of rewards and consider potential improvements. Several stakeholders said that it would be useful for FWS and NOAA to compare their respective approaches to those of federal agencies that use rewards in contexts outside of wildlife trafficking to identify best practices or lessons learned that might be applicable in the context of combating wildlife trafficking. For example, one stakeholder said that SEC has an effective whistleblower program and may have lessons learned that are relevant for FWS and NOAA to consider. Another stakeholder we interviewed separately indicated that in 2010, before SEC had a whistleblower program that publicized rewards and provided detailed instructions on how members of the public could report information on illegal activities, SEC received few tips. Once SEC implemented a whistleblower program that publicized rewards and provided detailed instructions on its public website, the agency’s use of the program grew substantially, according to the stakeholder. Other stakeholders said it would be useful for the agencies to consider potential improvements to their use of rewards, such as making a standing reward offer for information on wildlife trafficking targeted at high-priority endangered species or particular criminal networks. Two of these stakeholders said such an offer might improve FWS’s and NOAA’s use of rewards by generating more tips than reward offers focused on individual cases. At the same time, they said such an offer would likely filter out some of the false or unproductive tips that the agencies might receive if they made an untargeted standing reward offer. Federal internal control standards state that management should design control activities to achieve objectives and respond to risks by, for example, conducting reviews at the functional or activity level by comparing actual performance to planned or expected results and analyzing significant differences. Further, under the standards, management should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving an agency’s objectives or addressing related risks. FWS and NOAA officials agreed that reviewing the effectiveness of their use of rewards would be worthwhile. Specifically, FWS officials said that it would be useful to compare their approach to those of other federal agencies that use rewards in investigating crimes that involve interstate and foreign smuggling of goods. Similarly, NOAA officials said that reviewing the agency’s use of financial rewards would be worthwhile but cautioned that such a review would need to be balanced against the agency’s constrained resources and many mission requirements. FWS and NOAA officials said they may consider conducting such a review at the conclusion of our audit but provided no plans for doing so. By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking. Wildlife trafficking is a large and growing transnational criminal activity, with global environmental, security, and economic consequences. The federal government has emphasized strengthening law enforcement efforts to combat wildlife trafficking, and using financial rewards to obtain information on illegal activities is one tool that some federal agencies have used. However, to date, FWS and NOAA have not prioritized the use of rewards and were unable to provide sufficient assurance that the 27 rewards they paid during fiscal years 2007 through 2017 represented all of the rewards they provided during that period. By tracking reward information so that it is clearly documented and readily available for examination, FWS and NOAA can better ensure that they have complete information on the rewards they have paid to help manage their use of rewards as a law enforcement tool. Additionally, FWS and NOAA have policies outlining the processes their law enforcement agents are to use in making reward payments, and NOAA’s policy specifies factors for its agents to consider in developing proposed reward amounts, such as the risk the individual took in collecting the information. FWS’s policy does not specify such factors that could inform agents in achieving the agency’s objectives, which is not consistent with federal internal control standards. By augmenting its policy to specify factors for its agents to consider when developing proposed reward amounts, FWS can better ensure that its agents have the necessary quality information to prepare defensible reward proposals. Both agencies have also advertised the potential for rewards in specific cases when agents had no other information, but FWS and NOAA have otherwise communicated little information to the public on the potential availability of rewards. If the public does not know about the possibility of rewards, then some people with information may not be incentivized to come forward. By determining the types of additional information to communicate to the public on rewards—such as providing information on the agency’s website about the potential availability of rewards—and then developing and implementing plans to do so, FWS and NOAA can improve their chances of obtaining information on wildlife trafficking activities that they otherwise might not receive. Finally, FWS and NOAA have not reviewed the effectiveness of their use of financial rewards or considered whether any changes might improve the usefulness of rewards as a law enforcement tool. By undertaking such reviews, the agencies can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking. We are making a total of seven recommendations, including four to FWS and three to NOAA. Specifically: The Assistant Director of the FWS Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination. (Recommendation 1) The Director of the NOAA Office of Law Enforcement should track financial reward information so that it is clearly documented and readily available for examination. (Recommendation 2) The Assistant Director of the FWS Office of Law Enforcement should augment FWS’s financial reward policy to specify factors law enforcement agents are to consider when developing proposed reward amounts. (Recommendation 3) The Assistant Director of the FWS Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information. (Recommendation 4) The Director of the NOAA Office of Law Enforcement should determine the types of additional information to communicate to the public on financial rewards and then develop and implement a plan for communicating that information. (Recommendation 5) The Assistant Director of the FWS Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool. (Recommendation 6) The Director of the NOAA Office of Law Enforcement should review the effectiveness of the agency’s use of financial rewards and implement any changes that the agency determines would improve the usefulness of financial rewards as a law enforcement tool. (Recommendation 7) We provided a draft of this report for review and comment to the Departments of Commerce and the Interior. The departments transmitted written comments, which are reproduced in appendixes IV and V of this report. The Department of Commerce concurred with the three recommendations directed to NOAA and stated that NOAA is developing procedures to ensure that its rewards are closely tracked, clearly documented, and better communicated. In written comments from NOAA, NOAA stated the report fairly and thoroughly reviews NOAA’s use of financial rewards. NOAA outlined the steps it plans to take in response to our recommendations, including developing a procedure to track financial reward information, reviewing information currently disseminated to the public and evaluating whether additional information may be useful, and reviewing the agency’s reward policy to determine whether changes are needed to enhance reward effectiveness. In its written comments, the Department of the Interior concurred with the four recommendations directed to FWS. Interior stated that it appreciated our review of the challenges faced by FWS’s Office of Law Enforcement in combating wildlife trafficking and identifying areas where FWS and NOAA can improve the use of financial rewards as a tool for combating wildlife trafficking. Interior also provided technical comments, which we incorporated as appropriate. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretaries of Commerce and the Interior, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or fennella@gao.gov. Contact points for our Offices of Congressional Relations and of Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VI. The objectives of our review were to (1) identify laws that authorize the U.S. Fish and Wildlife Service (FWS) and the National Oceanic and Atmospheric Administration (NOAA) to pay financial rewards for information on wildlife trafficking and the extent to which these agencies paid such rewards from fiscal years 2007 through 2017, (2) evaluate FWS’s and NOAA’s policies on financial rewards, (3) evaluate the information available to the public on financial rewards, and (4) determine the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking. To address these objectives, we reviewed academic literature on the use of financial rewards to combat illegal activities and United Nations Environment Programme reports on the scope and scale of wildlife trafficking. We also interviewed officials from federal agencies that play a role in combating wildlife trafficking or manage programs that pay financial rewards for information on illegal activities. Specifically, we interviewed officials from the Departments of Agriculture, Commerce, Homeland Security, the Interior, Justice, and State, as well as officials from the Internal Revenue Service, the U.S. Securities and Exchange Commission, and the U.S. Agency for International Development. In addition, we reviewed documentation that the Department of the Treasury provided on its role in paying financial rewards. We did not compare FWS’s and NOAA’s use of financial rewards in combating wildlife trafficking to federal agencies’ use of financial rewards in other contexts because the different contexts are not directly comparable. However, we reviewed information on other federal agencies’ use of financial rewards as examples of how financial rewards are used in contexts outside of wildlife trafficking. In addition, we interviewed representatives of six nongovernmental organizations that we selected based on those organizations’ knowledge or experience in combating wildlife trafficking. Specifically, we interviewed representatives from the Elephant Action League, the Environmental Investigation Agency, the National Association of Conservation Law Enforcement Chiefs, the National Whistleblower Center, TRAFFIC, and the World Wildlife Fund. To identify laws that authorize FWS and NOAA to pay financial rewards for information on wildlife trafficking, we asked FWS and NOAA attorneys to compile a list of laws that each of their agencies implements or enforces that prohibit wildlife trafficking and authorize the agency to pay rewards for providing information about trafficking. We then compared that list to the results of our search of the United States Code for such laws. We also reviewed FWS and NOAA documentation for accounts where the fines, penalties, and proceeds from forfeited property that are used to pay rewards are deposited as well as the accounts where appropriations available to pay rewards were deposited. To identify the extent to which FWS and NOAA have paid financial rewards for information on wildlife trafficking, we analyzed FWS and NOAA data on financial rewards the agencies reported paying from fiscal years 2007 through 2017. The data included information on, among other things, the fiscal years in which rewards were paid, laws under which rewards were paid, types of wildlife involved in those cases, the amounts of civil penalties or criminal fines imposed in those cases, the numbers of arrests and convictions as a result of those cases, and whether reward recipients were individuals or groups and U.S. or foreign citizens. To assess the reliability of the data FWS and NOAA provided on financial rewards, we interviewed agency officials knowledgeable about the data and compared the data to case records the agencies provided. Specifically, FWS and NOAA officials said they track all expenditures, including reward payments, in their financial databases, but they are not able to readily identify reward payments because their financial systems do not include a unique identifier for such payments and their reward information is located in multiple databases and formats. As a result, FWS and NOAA officials said they identified the rewards that they reported to us by manually reviewing their financial and law enforcement records, and officials said the information was complete to the best of their knowledge. Based on these steps, we found the data that the agencies provided to us to be sufficiently reliable for reporting information on the rewards the agencies reported paying. However, as we discuss in the report, FWS and NOAA officials could not provide sufficient assurance that the data included all the financial rewards that they had paid from fiscal years 2007 through 2017. To obtain additional detail about cases where financial rewards were paid, we reviewed a nongeneralizable sample of 10 wildlife trafficking cases. We selected these cases based on the agency that investigated the case (to include both FWS and NOAA cases), the amount of the reward paid in the case (to reflect both low and high amounts), the year in which the reward was paid (to include rewards paid more recently), and the type of wildlife trafficked in the case (to include both fish and wildlife cases—there were no plant trafficking cases to select). While the findings from our review cannot be generalized to cases we did not select and review, they illustrate how FWS and NOAA have used financial rewards in wildlife trafficking cases. To evaluate FWS and NOAA policies on financial rewards, we reviewed relevant FWS and NOAA policies and compared them to each other; interviewed FWS and NOAA officials about those policies; and compared the information in the policies with federal internal control standards on information and communication. To evaluate information available to the public on rewards, we reviewed relevant FWS and NOAA publications and examples of communications to the public on the availability of rewards in specific cases and interviewed FWS and NOAA officials. We also reviewed information available on FWS’s and NOAA’s national and regional websites as of December 2017 and January 2018, respectively, relevant to reporting violations of the laws that the agencies enforce in general and on receiving rewards in particular. We compared the agencies’ public communications on rewards with federal internal control standards on information and communication. To evaluate the extent to which FWS and NOAA reviewed the effectiveness of their use of financial rewards in combating wildlife trafficking, we interviewed FWS and NOAA officials and requested any reviews the agencies had conducted regarding their use of financial rewards to compare with federal internal control standards on control activities. FWS and NOAA did not have any such reviews to provide. In addition, for all four objectives, we interviewed a nongeneralizable sample of 20 stakeholders who had experience investigating wildlife trafficking or expertise in the use of financial rewards as a law enforcement tool. To select stakeholders to interview, we first identified a list of stakeholders by reviewing (1) FWS and NOAA data on law enforcement agents with at least 5 years of experience who had investigated wildlife trafficking cases and used financial rewards, (2) Department of Justice data on federal prosecutors who had prosecuted wildlife trafficking cases since fiscal year 2014, (3) literature search results identifying academics with expertise in the use of financial rewards as a law enforcement tool and federal programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking, (4) the biographies of members of the federal Advisory Council on Wildlife Trafficking, and (5) recommendations from stakeholders we interviewed. From this list, we then used a multistep process to select the 20 stakeholders to interview. To ensure coverage and a range of perspectives, we selected stakeholders from the following groups: FWS and NOAA law enforcement agents, including field and federal prosecutors responsible for prosecuting wildlife trafficking cases; federal officials responsible for programs that use financial rewards to combat illegal activities in contexts outside of wildlife trafficking; academics with expertise in the use of financial rewards as a law members of the federal Advisory Council on Wildlife Trafficking; and representatives of nongovernmental organizations that investigate wildlife trafficking. We conducted semistructured interviews with the 20 selected stakeholders using a standard set of questions. We asked questions about stakeholder views on the usefulness of financial rewards in combating wildlife trafficking; the strength and weaknesses of the statutory provisions that authorize federal agencies to pay financial rewards for information on wildlife trafficking; FWS’s and NOAA’s use of financial rewards to combat wildlife trafficking; and how, if at all, the two agencies could improve their use of financial rewards to combat wildlife trafficking. We analyzed the stakeholders’ responses to our questions, grouping the responses into overall themes. We summarized the results of our analysis and then shared the summary with relevant FWS and NOAA officials to obtain their views. Views from these stakeholders cannot be generalized to those whom we did not select and interview. We conducted this performance audit from February 2017 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Department of the Interior’s U.S. Fish and Wildlife Service (FWS) and the Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) implement or enforce multiple laws that specifically authorize the payment, under specified circumstances, of financial rewards to persons for information about violations of laws that prohibit wildlife trafficking. The laws that FWS officials identified are listed and summarized in table 3, and the laws that NOAA officials identified are listed and summarized in table 4. In addition, as noted above, the reward provisions in the Magnuson- Stevens Fishery Conservation and Management Act as amended and the Fish and Wildlife Improvement Act as amended authorize the payment of rewards for information about violations of multiple laws. Specifically, the Magnuson-Stevens Fishery Conservation and Management Act as amended authorizes the payment of rewards for information about violations of the act as well as any other marine resource law that the Secretary of Commerce enforces. Further, the Fish and Wildlife Improvement Act as amended authorizes the payment of rewards for information about violations of any law administered by NOAA’s National Marine Fisheries Service relating to plants, fish, or wildlife. NOAA officials identified 14 such laws that prohibit wildlife trafficking (see table 5). If a violation of the laws listed in table 5 occurs, NOAA officials said they could use the Magnuson-Stevens Fishery Conservation and Management Act or Fish and Wildlife Improvement Act reward provision to pay a reward for information on the violation. None of the laws listed in table 5 specifically authorize the payment of financial rewards. Table 6 provides information on U.S. Fish and Wildlife Service and National Oceanic and Atmospheric Administration cases where these agencies reported paying rewards for information on wildlife trafficking from fiscal years 2007 through 2017. In addition to the contact named above, Alyssa M. Hundrup (Assistant Director), David Marroni (Analyst-in-Charge), Cindy Gilbert, Keesha Luebke, Jeanette Soares, Sheryl Stein, Sara Sullivan, and Judith Williams made key contributions to this report.	[ "Wildlife trafficking—the poaching and illegal trade of plants, fish, and wildlife—is a multibillion-dollar, global criminal activity that imperils thousands of species. FWS and NOAA enforce laws prohibiting wildlife trafficking that authorize the agencies to pay financial rewards for information about such illegal activities. GAO was asked to review FWS's and NOAA's use of financial rewards to combat wildlife trafficking. This report examines (1) laws that authorize FWS and NOAA to pay rewards for information on wildlife trafficking and the extent to which the agencies paid such rewards from fiscal years 2007 through 2017, (2) the agencies' reward policies, (3) information available to the public on rewards, and (4) the extent to which the agencies reviewed the effectiveness of their use of rewards. GAO reviewed laws, examined FWS and NOAA policies and public communications on rewards, analyzed agency reward data for fiscal years 2007 through 2017 and assessed their reliability, interviewed FWS and NOAA officials, and compared agency policies and public communications on rewards to federal internal control standards. Multiple laws—such as the Endangered Species Act and Lacey Act—authorize the Departments of the Interior's U.S. Fish and Wildlife Service (FWS) and Commerce's National Oceanic and Atmospheric Administration (NOAA) to pay rewards for information on wildlife trafficking. FWS and NOAA reported paying few rewards from fiscal years 2007 through 2017. Specifically, the agencies collectively reported paying 27 rewards, totaling $205,500. Agency officials said that the information was complete to the best of their knowledge but could not sufficiently assure that this information represented all of their reward payments. FWS and NOAA have reward policies that outline the general process for preparing reward proposals, but FWS's policy does not specify factors for its agents to consider when developing proposed reward amounts. Some FWS agents GAO interviewed said that in developing proposals, they did not know whether their proposed reward amounts were enough, too little, or too much. By augmenting its policy to specify factors for agents to consider, FWS can better ensure that its agents have the necessary quality information to prepare proposed reward amounts, consistent with federal internal control standards. FWS and NOAA communicate little information to the public on rewards. For example, most agency websites did not indicate that providing information on wildlife trafficking could qualify for a reward. This is inconsistent with federal standards that call for management to communicate quality information so that external parties can help achieve agency objectives. FWS and NOAA officials said they have not communicated general reward information because of workload concerns, but they said it may be reasonable to provide more information in some instances. By developing plans to communicate more reward information to the public, the agencies can improve their chances of obtaining information on wildlife trafficking that they otherwise might not receive. FWS and NOAA have not reviewed the effectiveness of their use of rewards. The agencies have not done so because using rewards has generally not been a priority. FWS and NOAA officials agreed that such a review would be worthwhile but provided no plans for doing so. By reviewing the effectiveness of their use of rewards, FWS and NOAA can identify opportunities to improve the usefulness of rewards as a tool for combating wildlife trafficking. GAO is making seven recommendations, including that FWS and NOAA track reward information, FWS augment its reward policy to specify factors for agents to consider when developing proposed reward amounts, FWS and NOAA develop plans to communicate more reward information to the public, and FWS and NOAA review the effectiveness of their reward use. Both agencies concurred with these recommendations." ]	8,129	gov_report	en	null	cbc3f7193f9fa873108c6ccc73a558eb1d2a97b249a1f930
Cross-border data flows underlie today's globally connected world and are essential to conducting international trade and commerce. Data flows enable companies to transmit information for online communication, track global supply chains, share research, and provide cross-border services. One study estimates that digital commerce relying on data flows drives 22% of global economic output, and that global GDP will increase by another $2 trillion by 2020 due to advances in emerging technologies. However, while cross-border data flows increase productivity and enable innovation, they also raise concerns around the security and privacy of the information being transmitted. Cross-border data flows are central to trade and trade negotiations as organizations rely on the transmission of information to use cloud services, and to send nonpersonal corporate data as well as personal data to partners, subsidiaries, and customers. U.S. policymakers are considering various policy options to address online privacy, some of which could affect cross-border data flows. For example, new consumer rights to control their personal data may impact how companies can use such data. To enable international data flows and trade, the United States has aimed to eliminate trade barriers and establish enforceable international rules and best practices that allow policymakers to achieve public policy objectives, including promoting online security and privacy. Building consensus for international rules and norms on data flows and privacy has become increasingly important as recent incidents have heightened the public's awareness of the risk of personal data stored online. For example, the 2018 Cambridge Analytica scandal drew attention because the firm reportedly acquired and used data on more than 87 million Facebook accounts in an effort to influence voters in the 2016 U.S. presidential election and the UK referendum on continued European Union (EU) membership ("Brexit"). In addition, security concerns have been raised about data breaches, such as those that exposed the personal data of half a million Google users or 500 million Marriot hotel customers. Organizations value consumers' personal online data for a variety of reasons. For example, companies may seek to facilitate business transactions, analyze marketing information, detect disease patterns from medical histories, discover fraudulent payments, improve proprietary algorithms, or develop competitive innovations. Some analysts compare data to oil or gold, but unlike those valuable substances, data can be reused, analyzed, shared, and combined with other information; it is not a scarce resource. However, personal data is considered personal private property. Individuals often want to control who accesses their data and how it is used. Experts suggest that data may therefore be considered both a benefit and a liability that organizations hold. Data has value, but an organization takes on risk by collecting personal data; they become responsible for protecting users' privacy and not misusing the information. Data privacy concerns may become more urgent as the amount of online information organizations access and collect, and the level of global data flows, continue to expand. Countries vary in their policies and laws on these issues. The United States has traditionally supported open data flows and has regulated privacy at a sectoral level to cover data, such as health records, rather than create a comprehensive policy. U.S. trade policy has sought to balance the goals of consumer privacy, security, and open commerce, including eliminating trade barriers and opening markets. Other countries are developing data privacy policies that affect international trade as some governments or groups seek to limit data flows outside of an organization or across national borders for a number of reasons. Blocking international data flows may impede the ability of a firm to do business or of an individual to conduct a transaction, creating a form of trade protectionism. Research demonstrates not only the economic gains from digital trade and international data flows, but also the real economic costs of restrictions on such flows. For many policymakers, the crux of the issue is: How can governments protect individual privacy in the least trade-restrictive way possible? The question is similar to concerns raised about ensuring cybersecurity while allowing the free flow of data. In recent years, Congress has examined multiple issues related to cross-border data flows and online privacy. In the 115 th Congress, congressional committees held hearings on these topics, introduced multiple bills, and conducted oversight over federal laws on related issues such as data breach notification. Members are introducing new bills and holding hearings in the 116 th Congress. Congress may consider the proposed U.S.-Mexico-Canada Agreement (USMCA) and examine the digital trade chapter as an example of how to address the issues through trade agreements. In most circumstances, a consumer expects both privacy and security when conducting an online transaction. However, users' expectations and values may vary and there is no globally accepted standard or definition of data privacy in the online world. In addressing online privacy, Congress may need to define personal data and differentiate between sensitive and nonsensitive personal data. In general, data privacy can be defined by an individual's ability to prevent access to personally identifiable information (PII). According to the U.S. Office of Management and Budget (OMB) guidance to federal agencies, PII refers to information that can be used to distinguish or trace an individual's identity, either alone or when combined with other information that is linked or linkable to a specific individual. Since electronic data can be readily shared and combined, some data not traditionally considered PII may have become more sensitive. For example, the OMB definition does not specifically mention data on location tracking, purchase history, o r preferences, but these digital data points can be tracked by a device such as a mobile phone or laptop that an individual carries or logs into. The EU definition of PII attempts to capture the breadth of data available in the online world: "personal data" means any information relating to an identified or identifiable natural person ('data subject'); an identifiable natural person is one who can be identified, directly or indirectly, in particular by reference to an identifier such as a name, an identification number, location data, an online identifier or to one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social identity of that natural person. Policymakers may consider differentiating between sensitive and nonsensitive personal data. For example, sensitive personal data could include ethnic origin, political or religious affiliation, biometric data, health data, sexual orientation, precise geolocation data, etc. "Cross-border data flows" refers to the movement or transfer of information between computer servers across national borders. Cross-border data flows are part of, and integral to, digital trade and facilitate the movement of goods, services, people, and finance. A 2017 analysis estimated that global flows of goods, services, finance, and people increased world gross domestic product (GDP) by at least 10% in the past decade, adding $8 trillion between 2005 and 2015. Effective and sustainable digital trade relies on data flows that permit commerce and communication but that also ensure privacy and security, protect intellectual property, and build trust and confidence. Impeding cross-border data flows, including through some privacy regulations, may decrease efficiency and reduce other benefits of digital trade, resulting in the fracturing, or so-called balkanization, of the internet. In addressing online privacy, some policymakers focus on limiting access to online information by restricting the flow of data beyond a country's borders. Such limits may also act as protectionist measures. Online privacy policies may create barriers to digital trade, or damage trust in the underlying digital economy. For example, measures to limit cross-border data flows could block companies from using cloud computing to aggregate and analyze global data, or from gaining economies of scale, constrain e-commerce by limiting international online payments, hinder global supply chains seeking to use blockchain to track products or manage supply chains, customs documentation, or electronic payments, impede the trading of crypto-currency, or limit the use of advanced technology like artificial intelligence. According to the World Trade Organization (WTO), one of the most significant overall impacts of the growth of digital technologies is in transforming international trade. Technology can lower the costs of trade, change the types of goods and services that are traded, and may even change the factors defining a country's comparative advantage. The extent of the impact of digital technologies on trade, however, depends in large part on open cross-border data flows. One study of U.S. companies found that data localization rules (i.e., requiring organizations to store data on local servers) were the most-cited digital trade barrier. Some governments advocate privacy or security policies that require data localization and limit cross-border data flows. However, many industry stakeholders argue that blocking cross-border data flows and storing data domestically does not make such data more secure or private. Many experts argue that policymakers should limit cross-border data flows in the least trade-restrictive manner possible and also ensure security and privacy. These objectives are not easily reconciled. Moreover, although an overlap exists between data protection and privacy, the two are not equivalent. Cybersecurity measures are essential to protect data (e.g., against intrusions or theft by hackers). However, they may not be sufficient to protect privacy. For example, if an organization shares user data with a third party, it may be doing so securely, but not in a way that protects users' privacy or aligns with consumer expectations. Similarly, breach notification requirements are not the same as proactive privacy protection measures. At the same time, policies that protect a consumer's privacy can align with security policies. Laws can limit law enforcement's access to information except in certain circumstances. Keeping user information anonymous may enable firms to analyze data while protecting individuals' identities. Some see an inherent conflict between online security, privacy, and trade; others believe that policies protecting all three can be coherent and consistent. The U.S. government has traditionally sought to balance these objectives. Some stakeholders note, however, that current U.S. policy has been inadequate in protecting online privacy and that change is needed. In some cases in the past, Congress has acted to address privacy concerns in particular sectors; for example, the Health Insurance Portability and Accountability Act (HIPAA) of 1996 led to health privacy standards regulations. The Trump Administration has begun an effort to devise an overarching data privacy policy (see " Defining the U.S. Approach ") and many Members of Congress are also considering possible approaches. There are no comprehensive multilateral rules specifically about privacy or cross-border data flows. However, the United States and other countries have begun to address these issues in negotiating new and updated trade agreements, and through international economic forums and organizations such as the Asia-Pacific Economic Cooperation (APEC) forum and the Organisation for Economic Co-operation and Development (OECD). The World Trade Organization (WTO) General Agreement on Trade in Services (GATS) entered into force in January 1995, predating the current reach of the internet and the explosive growth of global data flows. Many digital products and services that did not exist when the agreements were negotiated are not covered. On the other hand, privacy is explicitly addressed within GATS as an exception to allow countries to take measures that do not conform with the agreement in order to protect "the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts," as long as those measures are not arbitrary or a disguised trade restriction. Efforts to update the multilateral agreement and discussions for new digital trade rules under the WTO Electronic Commerce Work Program stalled in 2017. Given the lack of progress on multilateral rules, some have suggested that the WTO should identify best practices or guidelines for digital trade rules that could lay the foundation for a future multilateral WTO agreement. In December 2017, a group of more than 70 WTO members, including the United States, agreed to "initiate exploratory work together toward future WTO negotiations on trade-related aspects of electronic commerce." Overall U.S. objectives include allowing the free flow of information for international trade and cross-border data flows, "subject to reasonable safeguards like the protection of consumer data when it is exported," but do not specifically address privacy. The group formally launched the e-commerce initiative in January 2019. The official joint statement lists the United States and EU as participants, and also several developing countries such as China and Brazil. India stated it will not join, preferring to maintain its flexibility to favor domestic firms, limit foreign market access, and raise revenue in the future. The statement did not define the scope of any potential agreement. After the meeting, the EU noted data localization measures among the potential new rules to be discussed when negotiations officially launch in March 2019. The U.S. Trade Representative's (USTR's) statement emphasized the need for a high-standard agreement that includes enforceable obligations. Although some experts note that harmonization or mutual recognition is unlikely given divergent legal systems, privacy regimes, and norms of the parties, a common system of rules to allow for cross-border data flows while ensuring privacy protection is reportedly under discussion. Personal privacy has received increasing focus with the growth of digital trade encouraging global cooperation. The United States has contributed to developing international guidelines or principles related to privacy and cross-border data flows, although none are legally binding. The OECD 1980 Privacy Guidelines established the first international set of privacy principles emphasizing data protection as a condition for the free flow of personal data across borders. These OECD guidelines were intended to assist countries with drawing up national data privacy policies. The guidelines were updated in 2013, focusing on national level implementation based on a risk management approach and improving interoperability between national privacy strategies. The updated guidelines identify specific principles for countries to take into account in establishing national policies. The guidelines are to be reviewed and updated again in 2019. Building on the OECD principles and prior G-20 work, the 2018 G-20 Digital Economy Ministerial Declaration identified principles to "facilitate an inclusive and whole-of-government approach to the use of information and communication technology (ICT) and assist governments in reshaping their capacities and strategies, while respecting the applicable frameworks of different countries, including with regards to privacy and data protection." Japan is to host the 2019 G-20 and plans to focus on data governance, offering a forum to address potential global standards on privacy and cross-border data flows. APEC is a regional forum for economic cooperation whose initiatives on privacy and cross-border data flows have influenced members' domestic policies. APEC's 21 members, including the United States, agreed to the 2005 APEC Privacy Framework , based on the OECD guidelines. The framework identifies a set of principles and implementation guidelines to provide members with a flexible approach to regulate privacy at a national level. Once the OECD publishes updated guidelines in 2019, APEC members may revise the framework and principles to reflect the updated guidelines. The APEC Cross-Border Privacy Rules (CBPR), endorsed by APEC Leaders in 2011, is a privacy code of conduct, based on the framework. The CBPR system establishes a set of principles for governments and businesses to follow to protect personal data and allow for cross-border data flows between CBPR members. They aim to balance information privacy with business needs and commercial interests, and facilitate digital trade to spur economic growth in the region. Rather than creating a new set of international regulations, the APEC framework and CBPR system identify best practices that each APEC member can tailor to its domestic legal system and allow for interoperability between countries. The scope and implementation mechanisms under CBPR can vary according to each member country's laws and regulations, providing flexibility for governments to design national privacy approaches. To become a member of the CBPR, a government must 1. Be a member of APEC; 2. Establish a regulator with authority to sign the Cross-Border Privacy Enforcement Arrangement (CPEA); 3. Map national laws to the published APEC guidelines, which set baseline standards; and 4. Establish an accountability agent empowered to audit and review a company's practices, and enforce privacy rules and laws. If a government joins the CBPR system, every domestic organization is not required to also join; however, becoming a member of CBPR may benefit an organization engaged in international trade by indicating to customers and partners that the organization values and protects data privacy. With certified enrollment in CBPR, organizations can transfer personal information between participating economies (e.g., Mexico to Singapore) and be assured of compliance with the legal regimes in both places. To become a CBPR member, an individual organization must develop and implement data privacy policies consistent with the APEC Privacy Framework and complete a questionnaire. The third party accountability agent is responsible for assessing an organization's application, ongoing monitoring of compliance, investigating any complaints, and taking enforcement actions as necessary. Domestic enforcement authorities in each member country serve as a backstop for dispute resolution if an accountability agent cannot resolve a particular issue. All CBPR member governments must join the CPEA to ensure cooperation and collaboration between the designated national enforcement authorities. In the United States, the Federal Trade Commission (FTC) is the regulator and enforcement authority. TrustArc is the only accountability agent, but many expect the U.S. Department of Commerce to recognize additional agents soon. As of this writing, TrustArc lists about 20 U.S. firms that are APEC CBPR certified. The CBPR grows in significance as the number of participating economies and organizations increases. The U.S. ambassador to APEC aims to have "as many APEC economies as possible as soon as possible to join the system." Currently, the United States, Japan, Mexico, Canada, South Korea, Singapore, Taiwan, and Australia are CBPR members; the Philippines is in the process of joining. Russia, on the other hand, stated it has no plans to join. Although APEC initiatives are regionally focused, they can provide a basis to scale up to larger global efforts because they reflect economies at different stages of development and include industry participation. Due to its voluntary nature, APEC has served as a testbed for identifying best practices, standards, and principles and for creating frameworks that can lead to binding commitments in plurilateral or larger multilateral agreements (see " Data Flows and Privacy in U.S. Trade Agreements "). Expanding CBPR beyond APEC could represent the next step toward consistent international rules and disciplines on data flows and privacy. Countries vary in their privacy policies and laws, reflecting differing priorities, cultures, and legal structures. According to one index, China is the most restrictive digital trade country among 64 countries surveyed, followed by Russia, India, Indonesia, and Vietnam (see Figure 1 ). The United States ranks 22 in the index, less restrictive than Brazil or France but more restrictive than Canada or Australia. The relatively high U.S. score largely reflects financial sector restrictions. The "restrictions on data" category covers data policies such as privacy and security measures; this category is included in the composite index. Looking specifically at the 64 countries' data policies, Russia is the most restrictive country, followed by Turkey and China. Russia's policies include data localization, retention, and transfer requirements, among others. Turkey's comprehensive Data Protection Law also establishes requirements in these areas. In contrast, the United States ranks 50 for data policy restrictions. Two of the top U.S. trading partners (the EU and China) have established their data policies from different perspectives. The EU's policies are driven by privacy concerns; China's policies are based on security justifications. Both are setting examples that other countries, especially those with (or seeking) closer trading ties to China or the EU, are emulating; thus, these policies have affected U.S. firms seeking to do business in those other countries as well. The EU considers the privacy of communications and the protection of personal data to be fundamental human rights, which are codified in EU law. Differences between the United States and EU in their approaches to data protection and data privacy laws have long been sticking points in U.S.-EU economic and security relations. The EU and United States negotiated the U.S.-EU Privacy Shield to allow for the transatlantic transfer of personal data by certified organizations. The bilateral agreement established a voluntary program with commitments and obligations for companies, limitations on law enforcement access, and transparency requirements. U.S. companies that participate in the program must still comply with all of the obligations under EU law (see below) if they process personal data of EU persons. The Privacy Shield is overseen and enforced by EU federal and U.S. agencies, including the Department of Commerce and the FTC, and is reviewed by both parties annually. The EU's General Data Protection Regulation (GDPR), effective May 2018, establishes rules for EU members, with extraterritorial implications. The GDPR is a comprehensive privacy regime that builds on previous EU data protection rules. It grants new rights to individuals to control personal data and creates specific new data protection requirements. The GDPR applies to (1) all businesses and organizations with an EU establishment that process (i.e., perform operations on) personal data of individuals in the EU, regardless of where the actual processing of the data takes place; and (2) entities outside the EU that offer goods or services (for payment or for free) to individuals in the EU or monitor the behavior of individuals in the EU. While the GDPR is directly applicable at the EU member state level, individual countries are responsible for establishing some national-level rules and policies as well as enforcement authorities, and some are still in the process of doing so. As a result, some U.S. stakeholders have voiced concerns about a lack of clarity and inadequate country compliance guidelines. Many U.S. firms doing business in the EU have made and are making changes to comply with the GDPR, such as revising and clarifying user terms of agreement and asking for explicit consent. For some U.S. companies, it may be easier and cheaper to apply GDPR protections to all users worldwide rather than to maintain different policies for different users. Large firms may have the resources to hire consultants and lawyers to guide implementation and compliance; it may be harder and costlier for small and mid-sized enterprises to comply, possibly deterring them from entering the EU market and creating a de facto trade barrier. Since the GDPR went into effect on May 25, 2018, some U.S. businesses, including some newspaper websites and digital advertising firms, have opted to exit the EU market given the complexities of complying with the GDPR and the threat of potential enforcement actions. European Data Protection Authorities (DPAs) have received a range of GDPR complaints and initiated several GDPR enforcement actions in the fall of 2018. In January 2019, the French DPA issued the largest penalty to date for a data privacy breach. The agency imposed a €50 million (approximately $57 million) fine on Google for the "lack of transparency" regarding how the search engine processes user data. Analysts contend that the high fine may set a benchmark and signal for future enforcement, raising concerns among some firms doing business in the EU. Under the GDPR, a few options exist to transfer personal data in or out of the EU and ensure that privacy is maintained. 1. An organization may use specific Binding Corporate Rules (BCRs) or Model Contracts approved by the EU; 2. An organization may comply with domestic privacy regimes of a country that has obtained a mutual adequacy decision from the EU, which means that the EU has deemed that a country's laws and regulations provide an adequate level of data protection; currently, fewer than 15 jurisdictions are deemed adequate by the EU; or 3. A U.S.-based organization may enroll in the bilateral U.S.-EU Privacy Shield program for transatlantic transfer of personal data. The GDPR legal text seems to envision a fourth way, such as a certification scheme to transfer data, that the EU has yet to elaborate. A certification option(s) could create a less burdensome means of compliance for U.S. and other non-EU organizations to transfer personal data to or from the EU in the future. This could be an opportunity for the United States to work with the EU on creating a common system, perhaps even setting a global standard. Some experts contend that the GDPR may effectively set new global data privacy standards, since many companies and organizations are striving for GDPR compliance to avoid being shut out of the EU market, fined, or otherwise penalized, or in case other countries introduce rules that imitate the GDPR. The EU is actively promoting the GDPR and some countries, such as Argentina, are imitating all or parts of the GDPR in their own privacy regulatory and legislative efforts or as part of broader trade negotiations with the EU. In general, the EU does not include cross-border data flows or privacy in free trade agreements. However, alongside trade negotiations with Japan, the EU and Japan agreed to recognize each other's data protection systems as "equivalent," allowing for the free flow of data between the EU and Japan and serving as a first step in adopting an adequacy decision. Under the agreement, Japan committed to implementing additional measures to address the handling of the personal data of EU persons on top of Japan's own privacy regime. China's trade and internet policies reflect state direction and industrial policy, limiting the free flow of information and individual privacy. For example, the requirement for all internet traffic to pass through a national firewall can impede the cross-border transmission of data. China's 2015 counterterrorism law requires telecommunications operators and internet service providers to provide assistance to the government, which could include sharing individuals' data. Citing national security concerns, China's Internet Sovereignty policies, Cybersecurity Law, and Personal Information Security Specification impose strict requirements on companies, such as storing data domestically; limiting the ability to access, use, or transfer data internationally; and mandating security assessments that provide Chinese authorities access to proprietary information. In 2014, China announced a new social credit system, a centralized big-data-enabled system for monitoring and shaping businesses' and citizens' behavior that serves as a self-enforcing regulatory mechanism. According to the government, China aims to make individuals more "sincere" and "trustworthy," while obtaining reliable data on the creditworthiness of businesses and individuals. An individual's score would determine the level of government services and opportunities he or she could receive. China seeks to have all its citizens subject to the social credit system by 2020, forcing some U.S. businesses who do business in China, such as airlines, to participate. As of 2018, multiple government agencies and financial institutions contribute data to the platform. Pilot projects are underway in some provinces to apply various rewards and punishments in response to data collected. The lack of control an individual may have and the exposure of what some consider private data is controversial among observers in and out of China. Some countries, such as Vietnam, are following China's approach in creating cybersecurity policies that limit data flows and require local data storage and possible access by government authorities. Some U.S. firms and other multinational companies are considering exiting the Vietnamese market rather than complying, while some analysts suggest that Vietnam's law may not be in compliance with its recent commitments in trade agreements (see below). India has also cited security as the rationale for its draft Personal Data Protection Bill, which would establish broad data localization requirements and limit cross-border transfer of some data. Unlike the EU, these countries do not specify mechanisms to allow for cross-border data flows. U.S. officials have raised concerns with both Vietnam's and India's localization requirements. The EU's emphasis on privacy protection and China's focus on national security (and the countries that emulate their policies) have led these countries to create data-focused policies that restrict international trade and commerce. The United States has traditionally sought a balanced approach between trade, privacy, and security. U.S. data flow policy priorities are articulated in USTR's Digital 2 Dozen report, first developed under the Obama Administration, and the White House's 2017 National Security Strategy. Both Administrations emphasize the need for protection of privacy, the free flow of data across borders, and an interoperable internet. These documents establish the U.S. position that the free flow of data is not inconsistent with privacy protection. Recent free trade agreements translate the U.S. position into binding international commitments. The United States has taken a data-specific approach to regulating data privacy, with laws protecting specific information, such as healthcare or financial data. The FTC enforces consumer protection laws and requires that consumers be notified of and consent to how their data will be used, but the FTC does not have the mandate or resources to enforce broad online privacy protections. There is growing interest among some Members of Congress and in the Administration for a more holistic U.S. data privacy policy. The United States has played an important role in international discussions on privacy and data flows, such as in the OECD, G-20, and APEC, and has included provisions on these subjects in recent free trade agreements. Congress noted the importance of digital trade and the internet as a trading platform in setting the current U.S. trade negotiating objectives in the June 2015 Trade Promotion Authority (TPA) legislation ( P.L. 114-26 ). TPA includes a specific principal U.S. trade negotiating objective on "digital trade in goods and services and cross-border data flows." According to TPA, a trade agreement should ensure that governments "refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data." However, TPA also recognizes that sometimes measures are necessary to achieve legitimate policy objectives and aims for such regulations to be the least trade restrictive, nondiscriminatory, and transparent. Comprehensive and Progressive Agreement for Trans‐Pacific Partnership (CPTPP /TPP-11 ) . The CPTPP is a recently concluded trade agreement among 11 Asia-Pacific countries. The CPTPP is based on the proposed Trans-Pacific Partnership (TPP) agreement negotiated by the Obama Administration and from which President Trump withdrew the United States in January 2017. The electronic commerce chapter in TPP, left unchanged in CPTPP, contains the strongest binding trade agreement commitments on digital trade in force globally. CPTPP includes provisions on cross-border data flows and personal information protection. The text specifically states that the parties "shall allow the cross-border transfer of information." The agreement allows restrictive measures for legitimate public policy purposes if they are not discriminatory or disguised trade barriers. The agreement also prohibits localization requirements for computing facilities, with similar exceptions. On privacy, the CPTPP requires parties to have a legal framework in place to protect personal information and to have consumer protection laws that cover online commerce. It encourages interoperability between data privacy regimes and encourages cooperation between consumer protection authorities. United States-Mexico-Canada Agreement (USMCA). The released text for the proposed USMCA aims to revise and update the trilateral North American Free Trade Agreement (NAFTA), and illustrates the Trump Administration's approach. The USMCA chapter 19 on digital trade includes articles on consumer protection, personal information protection, cross-border transfer of information by electronic means, and cybersecurity, among other topics. Building on the TPP, the agreement seeks to balance the legitimate objectives by requiring parties to have a legal framework to protect personal information, have consumer protection laws for online commercial activities, and not prohibit or restrict cross-border transfer of information. While the agreement does not prescribe specific rules or measures that a party must take to protect privacy, it goes further than the TPP (or CPTPP) provisions and provides guidance to inform a country's privacy regime. In particular, the USMCA explicitly refers to the APEC Privacy Framework and OECD Guidelines as relevant and identifies key principles. In general, the proposed USMCA requires that parties not restrict cross-border data flows. Governments are allowed to do so to achieve a legitimate public policy objective (e.g., privacy, national security), provided the measure is not arbitrary, discriminatory, a disguised trade barrier, or greater than necessary to achieve the particular objective. In this way, the parties seek to balance the free flow of data for commerce and communication with protecting privacy and security. The agreement specifically states that the parties may take different legal approaches to protect personal data and also recognizes APEC CBPR as a "valid mechanism to facilitate cross-border information transfer while protecting personal information." The agreement aims to increase cooperation between the United States, Mexico, and Canada on a number of digital trade issues, including exchanging information on personal information protection and enforcement experiences; strengthening collaboration on cybersecurity issues; and promoting the APEC CBPR and global interoperability of national privacy regimes. The governments also commit to encourage private-sector self-regulation models and promote cooperation to enforce privacy laws. While the agreement is only between three parties, the provisions are written broadly to encompass global efforts. Some stakeholders look at USMCA as the basis for potential future trade agreements (such as with the UK). Cross-border data flows will likely be a key issue in future U.S.-EU trade negotiations. The United States has articulated a clear position on data privacy in trade agreements; however, there is no single U.S. data privacy policy. Nevertheless, the Trump Administration is seeking to define an overarching U.S. policy on data privacy. The Trump Administration's ongoing three-track process is being managed by the Department of Commerce (Commerce) in consultation with the White House. Different bureaus in Commerce are tasked with different aspects of the process, as follows. 1. The National Institutes of Standards and Technology (NIST) is developing a privacy framework. Similar to its cybersecurity framework, NIST aims to create a voluntary framework as a tool for organizations to adopt to identify, assess, manage, and communicate about privacy risks. By classifying specific privacy outcomes and potential approaches, the framework is intended to enable organizations to create and adapt privacy strategies, innovate, and manage privacy risks within diverse environments. As part of its transparent approach, NIST is currently consulting with public- and private-sector stakeholders through various forms of outreach to collect feedback and aims to have a draft framework before the end of 2019. 2. The National Telecommunications and Information Administration (NTIA) is developing a set of privacy principles to guide a domestic legal and policy approach. The NITA sought public comment on a proposed set of "user-centric privacy outcomes" and a set of high-level goals. 3. The International Trade Administration (ITA) engages with foreign governments and international organizations such as APEC. ITA is focusing on the international interoperability aspects of potential U.S. privacy policy. ITA's role is to ensure that the NIST and NTIA approaches are consistent with U.S. international policy objectives, including TPA, and principles, such as the OECD framework and APEC CBPRs. Like the EU and China, Commerce is seeking input through a public- and private-sector consultation process. However, unlike the EU or China, Commerce is expecting to create a voluntary privacy framework. Some observers question whether the Commerce approach is sufficient to result in strong privacy protections if it is not backed up by congressional action and federal legislation. Some suggest that Congress could lead a whole-of-government approach through new federal legislation. In the 115 th Congress, then-House Committee on Energy and Commerce Ranking Member Frank Pallone, Jr. requested that the Government Accountability Office (GAO) examine issues related to federal oversight of internet privacy. The January 2019 GAO report concluded that now is "an appropriate time for Congress to consider comprehensive Internet privacy." GAO stated that "Congress should consider developing comprehensive legislation on Internet privacy that would enhance consumer protections and provide flexibility to address a rapidly evolving Internet environment. Issues that should be considered include what authorities agencies should have in order to oversee Internet privacy, including appropriate rulemaking authority." Recognizing the importance of protecting open data flows amid growing concerns about online privacy, some stakeholders seek to influence U.S. policies on these issues. In addition to submitting comments in response to NTIA and NIST requests and participating in their forums, multiple organizations issued their own sets of principles or guidelines, some referencing the EU GDPR. The U.S. Chamber of Commerce has also published model privacy legislation for Congress to consider. Though they vary in emphasis, these proposals share common themes: transparency on what data is being collected and how it is being used; user control, including the ability to opt out of sharing at least some information and to access and correct personal data collected; data security measures, like data breach notification requirements; and enforcement by the FTC; FTC commissioners also voiced support for the agency as the appropriate federal enforcer for consumer privacy. But these groups also differ in some areas, such as whether, or to what extent, to include certain aspects included in the GDPR, such as the right to deletion (so-called "right to be forgotten"), requirements for data minimization, or extraterritorial reach. There is not consensus on whether the FTC should be given rule-making authority or additional resources, the enforcement role of states, or if an independent data protection commission is needed similar to EU DPAs. Consistent with U.S. trade policy, industry groups generally point out the need to be flexible, encourage private-sector innovation, establish sector- and technology-neutral rules, create international interoperability between privacy regimes, and facilitate cross-border data flows. Private-sector stakeholders generally want to avoid what they regard as overregulation or high compliance burdens. These groups emphasize risk management and a harm-based approach, which they state keeps an organization's costs proportional to the consumer harm prevented. On the other hand, some consumer advocates point to a need for baseline obligations to protect against discrimination, disinformation, or other harm. In general, consumer advocates believe that any comprehensive federal privacy policy should complement, and not supplant, sector-specific privacy legislation or state-level legislation. Finding a global consensus on how to balance open data flows and privacy protection may be key to maintaining trust in the digital environment and advancing international trade. One study found that over 120 countries have laws related to personal data protection. Divergent national privacy approaches raise the costs of doing business and make it harder for governments to collaborate and share data, whether for scientific research, defense, or law enforcement. A system for global interoperability in a least trade-restrictive and nondiscriminatory way between different national systems could help minimize costs and allow entities in different jurisdictions with varying online privacy regimes to share data via cross-border data flows. Such a system could help avoid fragmentation of the internet between European, Chinese, and American spheres, a danger that some analysts have warned against. For example, Figure 2 suggests the potential of an interoperability system that allows data to flow freely between GDPR- and CBPR-certified economies. The OECD guidelines, G-20 principles, APEC CBPR, CPTPP, and USMCA provisions demonstrate an evolving understanding on how to balance cross-border data flows, security, and privacy, to create interoperable policies that can be tailored by countries and avoid fragmentation or the potential exclusion of other countries or regulatory systems. The various trade agreements and initiatives with differing sets of parties may ultimately pave the way for a broader multilateral understanding and eventually lead to more enforceable binding commitments founded on the key WTO principles of nondiscrimination, least trade restrictiveness, and transparency. Congress may consider the trade-related aspects of data flows in trade agreements, including through close examination of these provisions during the congressional debate and consideration of legislation to implement the proposed USMCA. Issues include whether the agreements make progress in meeting TPA's related trade negotiating objectives and if the provisions strike the appropriate balance among public policy objectives. In addition, USTR's specific trade negotiating objectives for future agreements with the EU and Japan include establishing rules to protect cross-border data flows. These future trade negotiations present challenges and provide opportunities for Congress to further engage USTR on the issues and to conduct oversight. Congress may further consider how best to achieve broader consensus on data flows and privacy at the global level. Congress could, for example, conduct additional oversight of current best practice approaches (e.g., OECD, APEC) or ongoing negotiations in the WTO on e-commerce to create rules through plurilateral or multilateral agreements. Congress may consider endorsing certain of these efforts to influence international discussions and the engagement of other countries. Congress may want to examine the potential challenges and implications of building a system of interoperability between APEC, CBPR, and the EU GDPR. Related issues are the extent to which the EU is establishing its system as a potential de facto global approach through its trade agreements and other mechanisms, and how U.S. and other trade agreements may ultimately provide approaches that could be adopted more globally. Congress may seek to better understand the economic impact of data flows and privacy regimes in other countries related to U.S. access to other markets and the extent to which barriers are being put in place that may discriminate against U.S. exporters. Congress may examine the lack of reciprocal treatment and limits on U.S. firms' access to some foreign markets. Congress may consider the implications of not having a comprehensive national data privacy policy. Will the EU GDPR and China cybersecurity policies become the global norms that other countries follow in the absence of a clear U.S. alternative? Congress may enact comprehensive privacy legislation. In considering such action, Congress could investigate and conduct oversight of the Administration's ongoing privacy efforts, including requesting briefings and updates on the NTIA, NIST, and ITA initiatives to provide congressional feedback and direction and ensure they are aligned with U.S. trade objectives. Congress may also seek input from other federal agencies. In deliberating a comprehensive U.S. policy on personal data privacy, Congress may review the GAO report's findings and conclusions. Congress may also weigh several factors, including: How can U.S. trade and domestic policy achieve the appropriate balance to encourage cross-border commerce, economic growth, and innovation, while safeguarding individual privacy and national security? How would a new privacy regime affect U.S. consumers and businesses, including large multinationals who must comply with different national privacy regimes and small- and medium-sized enterprises with limited resources and technology expertise? Do U.S. agencies have the needed tools to accurately assess the size and scope of cross-border data flows to help analyze the economic impact of different privacy policies, or measure the costs of trade barriers? How should an evolving U.S. privacy regime align with U.S. trade policy objectives and evolving international standards, such as the OECD Guidelines for privacy and cybersecurity, and should U.S. policymakers prioritize interoperability with other international privacy frameworks to avoid further fragmentation of global markets and so-called balkanization of the internet? In addition, there are a host of other policy considerations not directly related to trade.	[ "\"Cross-border data flows\" refers to the movement or transfer of information between computer servers across national borders. Such data flows enable people to transmit information for online communication, track global supply chains, share research, provide cross-border services, and support technological innovation. Ensuring open cross-border data flows has been an objective of Congress in recent trade agreements and in broader U.S. international trade policy. The free flow of personal data, however, has raised security and privacy concerns. U.S. trade policy has traditionally sought to balance the need for cross-border data flows, which often include personal data, with online privacy and security. Some stakeholders, including some Members of Congress, believe that U.S. policy should better protect personal data privacy and security, and have introduced legislation to set a national policy. Other policymakers and analysts are concerned about increasing foreign barriers to U.S. digital trade, including data flows. Recent incidents of private information being shared or exposed have heightened public awareness of the risks posed to personal data stored online. Consumers' personal online data is valued by organizations for a variety of reasons, such as analyzing marketing information and easing the efficiency of transactions. Concerns are likely to grow as the amount of online data organizations collect and the level of global data flows expand. As Congress assesses policy options, it may further explore the link between cross-border data flows, online privacy, and trade policy; the trade implications of a comprehensive data privacy policy; and the U.S. role in establishing best practices and binding trade rules that seek to balance public policy priorities. There is no globally accepted standard or definition of data privacy in the online world, and there are no comprehensive binding multilateral rules specifically about cross-border data flows and privacy. Several international organizations, including the Organisation for Economic Co-operation and Development (OECD), G-20, and Asia-Pacific Economic Cooperation (APEC) forum, have sought to develop best practice guidelines or principles related to privacy and cross-border data flows, although none are legally binding. U.S. and other recent trade agreements are establishing new enforceable trade rules and disciplines. Countries vary in their data policies and laws; some focus on limiting access to online information by restricting the flow of data beyond a country's borders, aiming to protect domestic interests (e.g., constituents' privacy). However, these policies can also act as protectionist measures. The EU and China, two top U.S. trading partners, have established prescriptive rules on cross-border data flows and personal data from different perspectives. The EU General Data Protection Regulation (GDPR) is driven by privacy concerns; China is focused on security. Their policies affect U.S. firms seeking to do business in those regions, as well as in other markets that emulate the EU and Chinese approaches. Unlike the EU or China, the United States does not broadly restrict cross-border data flows and has traditionally regulated privacy at a sectoral level to cover data, such as health records. U.S. trade policy has sought to balance the goals of consumer privacy, security, and open commerce. The proposed United States-Mexico-Canada Agreement (USMCA) represents the Trump Administration's first attempt to include negotiated trade rules and disciplines on privacy, cross-border data flows, and security in a trade agreement. While the United States and other countries work to define their respective national privacy strategies, many stakeholders seek a more global approach that would allow interoperability between differing national regimes to facilitate and remove discriminatory trade barriers to cross-border data flows; this could offer an opportunity for the United States to lead the global conversation. Although Congress has examined issues surrounding online privacy and has considered multiple bills, there is not yet consensus on a comprehensive U.S. online data privacy policy. Congress may weigh in as the Administration seeks to define U.S. policy on data privacy and engages in international negotiations on cross-border data flows." ]	7,088	gov_report	en	null	1b6b47fa851187e2eb91a700bfab672580beef5a1671dd5c
The federal government supports the development of airport infrastructure in three different ways. First, the Airport Improvement Program (AIP) provides federal grants to airports for planning and development, mainly of capital projects related to aircraft operations such as runways and taxiways. Second, Congress has authorized airports to assess a local passenger facility charge (PFC) on each boarding passenger, subject to specific federal approval. PFC revenues can be used for a broader range of projects than AIP funds, including "landside" projects such as passenger terminals and ground access improvements. Third, federal law grants investors preferential income tax treatment on interest income from bonds issued by state and local governments for airport improvements (subject to compliance with federal rules). Airports may also draw on state and local funds and on operating revenues, such as lease payments and landing fees. A federal role in airport infrastructure first developed during World War II. Prior to the war, airports were a local or private responsibility, with federal support limited to the tax exclusion of municipal bond interest. National defense needs led to the first major federal support for airport construction. After the war, the Federal Airport Act of 1946 (P.L. 79-377) continued federal a id, although at lower levels than during the war years. Initially, much of this spending supported conversion of military airports to civilian use. In the 1960s, substantial funding also was used to upgrade and extend runways for use by commercial jets. In 1970, Congress responded to increasing congestion, both in the air and on the ground at U.S. airports, by passing two laws. The first, the Airport and Airway Development Act, established the forerunner programs of AIP: the Airport Development Aid Program and the Planning Grant Program. The second, the Airport and Airway Revenue Act of 1970, dealt with the revenue side of airport development, establishing the Airport and Airway Trust Fund (AATF, also referred to as the Aviation Trust Fund, and in this report, the trust fund). The Airport and Airway Improvement Act of 1982 ( P.L. 97-248 ; the 1982 Act) created the current AIP and reactivated the trust fund. For a more detailed legislative history of AIP, see Appendix A of this report. Eight years later, amid concerns that the existing sources of funds for airport development would be insufficient to meet national airport needs, the Aviation Safety and Capacity Expansion Act of 1990 (Title IX of the Omnibus Budget Reconciliation Act of 1990, P.L. 101-508 ) allowed the Secretary of Transportation to authorize public agencies that control commercial airports to impose a passenger facility charge on each paying passenger boarding an aircraft at their airports. Different airports use different combinations of AIP funding, PFCs, tax-exempt bonds, state and local grants, and airport revenues to finance particular projects. Small airports are more likely to be dependent on AIP grants than large or medium-sized airports. Larger airports are much more likely to issue tax-exempt bonds or finance capital projects with the proceeds of PFCs. Each of these funding sources places various legislative, regulatory, or contractual constraints on airports that use it. The availability and conditions of one source of funding may also influence the availability and terms of other funding sources. In a 2015 study, the U.S. Government Accountability Office (GAO) found that airport-generated net income financed about 38% of airports' capital spending, AIP 33%, PFCs 18%, capital contributions by airport sponsor (often a state or municipality) or by other sources such as an airline or tenant 6%, and state grants nearly 5%. AIP provides federal grants to airports for airport development and planning. Participants range from very large publicly owned commercial airports to small general aviation airports that may be privately owned but are available for public use. AIP funding is usually limited to construction of improvements related to aircraft operations, such as runways and taxiways. Commercial revenue-producing facilities are generally not eligible for AIP funding, nor are operating costs. The structure of AIP funds distribution reflects congressional priorities and the objectives of assuring airport safety and security, increasing airport capacity, reducing congestion, helping fund noise and environmental mitigation costs, and financing small state and community airports. The main financial advantage of AIP to airports is that, as a grant program, it can provide funds for capital projects without the financial burden of debt financing, although airports are required to provide a modest local match to the federal funds. Limitations on the use of AIP grants include the range of projects that AIP can fund and the requirement that recipients adhere to all program regulations and grant assurances. Federal law requires the Secretary of Transportation to publish a national plan for the development of public-use airports in the United States. This appears as a biannual Federal Aviation Administration (FAA) publication called the National Plan of Integrated Airport System s (NPIAS) . For an airport to receive AIP funds, it must be listed in the NPIAS. AIP program structure and authorizations are set in FAA authorization acts. Modifications have been made to AIP through the years, but the basic program structure remains the same. The most recent act, the FAA Reauthorization Act of 2018 ( P.L. 115-254 ), authorized AIP funding through FY2023. The trust fund was designed to assure an adequate and consistent source of funds for federal airport and airway programs. It is the primary funding source for most FAA activities in addition to federal grants to airports. These include facilities and equipment (F&E); research, engineering, and development (R, E&D); and FAA operations and maintenance (O&M). Congress determines how much the trust fund will be allowed to expend for various purposes, including the AIP. The money flowing into the Airport and Airway Trust Fund comes from a variety of aviation-related taxes. These taxes were authorized by the Taxpayer Relief Act of 1997 ( P.L. 105-34 ) and reauthorized by the 2018 FAA reauthorization act. Revenue sources include the following: 7.5% ticket tax, $4.20 flight segment tax, 6.25% tax on cargo waybills, 4.4 cents per gallon on commercial aviation fuel, 19.4 cents per gallon on general aviation gasoline, 21.9 cents per gallon on general aviation jet fuel, 14.1 cents per gallon fractional ownership surtax on general aviation jet fuel, $18.60 international arrival tax, $18.60 international departure tax, and 7.5% "frequent flyer" award tax. In most years since the trust fund was established, the revenues plus interest on the unexpended balances brought in more money than was being paid out. This led to the growth in the end-of-year unexpended balances in the trust fund. At times these unexpended balances are inaccurately referred to as a surplus. In practice, FAA may have committed unexpended balances to fund particular airport projects, so those balances may not be available for other purposes. Most air carriers have altered their pricing structures in ways that have implications for the trust fund. Ancillary fees are now commonly charged for services such as checked baggage that in the past were included in the ticket price. Such fees are not subject to the 7.5% ticket tax. Had the $4.57 billion in baggage fees collected in 2017 been subject to the ticket tax, the trust fund might have received more than $343 million in additional revenue. AIP spending authorized and the amounts actually made available for grants from the aviation trust fund since FY2000 are illustrated in Table 1 . After trending upward from FY1982 to FY1992, grant funding approved in annual appropriations declined through the mid-1990s as part of federal deficit reduction efforts, leaving large gaps between authorized AIP spending levels and the amounts the program was actually allowed to expend. This occurred despite provisions in place since 1976 designed to ensure that federal capital spending for airports is fully funded at the authorized level (see Text B ox ). The Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century (AIR21; P.L. 106-181 ), enacted in 2000, provided major increases in AIP's authorization, starting in FY2001. During FY2001-FY2006 AIP was funded near its fully authorized levels. The amount available for grants peaked at $3.47 billion in FY2008. From FY2008 through FY2011, when AIP was authorized by a series of authorization extension acts, appropriators set the program's annual obligation limitation at $3.515 billion. The 2012 FAA Modernization and Reform Act authorized funding through FY2015 at an annual level of $3.35 billion. In July 2016, the FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) was passed to further extend the authorization of AIP at the annual level of $3.35 billion through September 30, 2017. The 115 th Congress passed a six-month extension ( P.L. 115-63 ) of aviation funding and programs through the end of March 2018. Subsequently, the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), provided a further extension through the end of FY2018. In addition to the annual funding of $3.35 billion, the 2018 appropriations act provided a $1.0 billion appropriation from the general fund to the AIP discretionary grants program. The Secretary of Transportation was directed to keep this supplemental funding available through September 30, 2020, and to give priority to nonprimary, nonhub, and small hub airports. These supplemental funds are not included in the AIP funding summary or discussion in this report, as FAA is in the process of evaluating applications and distributing funds. The FAA Reauthorization Act of 2018 ( P.L. 115-254 ) funded AIP from FY2019 through FY2023 at an annual level of $3.35 billion. It also authorized supplemental annual funding from the general fund to the AIP discretionary grants program ($1.02 billion in FY2019, $1.04 billion in FY2020, $1.06 billion in FY2021, $1.09 billion in FY2022, and $1.11 billion in FY2023), and required at least 50% of these additional funds to be available to nonhub and small hub airports. In February 2019, Congress passed the Consolidated Appropriations Act, 2019 ( P.L. 116-6 ). The act provided a $500 million supplemental appropriation from the general fund to the AIP discretionary grants program and required that this money remain available through September 30, 2021. The distribution system for AIP grants is complex. It is based on a combination of formula grants (also referred to as apportionments or entitlements) and discretionary funds. Each year the entitlements are first apportioned by formula to specific airports or types of airports. Once the entitlements are satisfied, the remaining funds are defined as discretionary funds. Airports apply for discretionary funds for projects in their airport master plans. Formula grants and discretionary funds are not mutually exclusive, in the sense that airports receiving formula funds may also apply for and receive discretionary funds. Grants are generally awarded directly to airports. Legislation sets forth definitions of airports that are relevant both in discussions of the airport system in general and of AIP funding distribution in particular (see Appendix B ). The statutory provisions for the allocation of both formula and discretionary funds are based on these definitions. Entitlements are funds that are apportioned by formula to airports and may generally be used for any eligible airport improvement or planning project. These funds are divided into four categories: primary airports, cargo service airports, general aviation airports, and Alaska supplemental funds (see Appendix B for a full list of airport definitions). Each category distributes AIP funds by a different formula (49 U.S.C. §47114). Most airports have up to three years to use their apportionments. Nonhub commercial service airports have up to four years. The formula distributions are contingent on an annual AIP obligation limitation of $3.2 billion or more. If this threshold is not met in a particular fiscal year, most formulas revert to prior authorized funding formulas. Primary Airports. The apportionment for airports that board more than 10,000 passengers each year is based on the number of boardings (also referred to as enplanements) during the prior calendar year. The amount apportioned for each fiscal year is equal to double the amount that would be received according to the following formulas: $7.80 for each of the first 50,000 passenger boardings; $5.20 for each of the next 50,000 passenger boardings; $2.60 for each of the next 400,000 passenger boardings; $0.65 for each of the next 500,000 passenger boardings; and $0.50 for each passenger boarding in excess of 1 million. The minimum allocation to any primary airport is $1 million. The maximum is $26 million. Cargo Service Airports. Some 3.5% of AIP funds subject to apportionment are apportioned to airports served by all-cargo aircraft with a total annual landed weight of more than 100 million pounds. The allocation formula is the proportion of the individual airport's landed weight to the total landed weight at all cargo service airports. General Aviation Airports. General aviation, reliever, and nonprimary commercial service airports are apportioned 20% of AIP funds subject to apportionment. From this share, all airports, excluding all nonreliever primary airports, receive the lesser of the following: $150,000; or one-fifth of the estimated five-year costs for airport development for each of these airports as listed in the most recent NPIAS. Any remaining funds are distributed according to a state-based population and area formula. FAA makes the project decisions on the use of these funds in consultation with the states. Although FAA has ultimate control, some states view these funds as an opportunity to address general aviation needs from a statewide, rather than a local or national, perspective. Alaska Supplemental Funds. Funds are apportioned to airports in Alaska to assure that Alaskan airports receive at least twice as much funding as they did under the Airport Development Aid Program in 1980. Foregone Apportionments. Large and medium hub airports that collect a passenger facility charge of $3 or less have their AIP formula entitlements reduced by an amount equal to 50% of their projected PFC revenue for the fiscal year until they forgo or give back 50% of their AIP formula grants. In the case of PFC above the $3 level the percentage forgone is 75%. A special small airport fund, which provides grants on a discretionary basis to airports smaller than medium hub, gets 87.5% of these foregone funds. The discretionary fund gets the remaining 12.5%. The discretionary funds (49 U.S.C. §§47115-47116) include the money not distributed under the apportioned entitlements, as well as the forgone PFC revenues that were not deposited into the small airport fund. AIP discretionary funding for FY2018 was about 9.4% of the total AIP funding. Discretionary grants are approved by FAA based on project priority and other selection criteria. Figure 1 illustrates the composition of both apportioned and discretionary grants, based on FY2018 data. Despite its name, the discretionary fund is not allocated solely at FAA's discretion. Allocations are subject to the following three set-asides and certain other spending criteria: Airport Noise Set-Asides . At least 35% of discretionary funds are set aside for noise compatibility planning and for carrying out noise abatement and compatibility programs. Military Airport Program . At least 4% of discretionary funds are set aside for conversion and dual use of up to 15 current and former military airports. The program allows funding of some projects not normally eligible under AIP. Grants for Reliever Airports . There is a set-aside of two-thirds of 1% of discretionary funds for reliever airports in metropolitan areas suffering from flight delays. The Secretary of Transportation is also directed to see that 75% of the grants made from the discretionary fund are used to preserve and enhance capacity, safety, and security at primary and reliever airports, and also to carry out airport noise compatibility planning and programs at these airports. From the remaining 25%, FAA is required to set aside $5 million for the testing and evaluation of innovative aviation security systems. Subject to these limitations and the three set-asides, the Secretary of Transportation, through FAA, has discretion in distribution of grants from the remainder of the discretionary fund. Under this program, FAA provides funds directly to participating states for projects at airports classified as other than primary airports. Each participating state receives a block grant made up of the state's apportionment (formula) funds and available discretionary funds. A block grant program state is responsible for selecting and funding AIP projects at the small airports in the state. In making the selections, the participating states are required to comply with federal priorities. Each block grant state is responsible for project administration as well as most of the inspection and oversight roles normally assumed by FAA. The states that currently participate in the state block grant program are Georgia, Illinois, Michigan, Missouri, New Hampshire, North Carolina, Pennsylvania, Tennessee, Texas, and Wisconsin. For AIP projects, the federal government share differs depending on the type of airport. The federal share, whether funded by formula or discretionary grants, is as follows: 75% for large and medium hub airports (80% for noise compatibility projects); 90% for other airports; "not more than" 90% for airport projects in states participating in the state block grant program; 70% for projects funded from the discretionary fund at airports receiving exemptions under 49 U.S.C. §47134, the pilot program for private ownership of airports; airports reclassified as medium hubs due to increased passenger volumes may retain eligibility for up to a 90% federal share for a two-year transition period; certain economically distressed communities receiving subsidized air service may be eligible for up to a 95% federal share of project costs. This cost-share structure means that smaller airports pay a lower share of AIP-funded project costs than larger airports. The airports themselves must raise the remaining share from other sources. Although smaller airports' individual grants are of much smaller dollar amounts than the grants going to large and medium hub airports, the smaller airports are much more dependent on AIP to meet their capital needs. This is particularly the case for noncommercial airports, such as general aviation and reliever airports, which received over 25% of AIP grants distributed in FY2018. Air carriers have objected to this allocation, pointing out that their passengers and freight shippers pay the vast majority of revenue flowing into the trust fund. General aviation interests, however, defend AIP grants to noncommercial airports. Figure 2 shows the share of AIP grants awarded in FY2018, by value, broken out by airport type. Figure 3 displays AIP grants awarded by type of project for FY2018. For the most part, AIP development grants support "airside" development projects such as runways, taxiways, aprons, navigation aids, lighting, and airside safety projects. Substantial AIP funds also go for state block grants and noise planning and abatement. AIP spending on roads is generally restricted to roads on or entering airport property. In cases in which a primary or reliever airport may want to begin an AIP-eligible project without waiting for the funds to become available, FAA is authorized to issue a letter of intent (LOI). If it does so, the LOI states that eligible project costs, up to the allowable federal share, will be reimbursed according to a schedule set forth in the letter. Although the LOI technically does not obligate the federal government, it is an indication of FAA's approval of the scope and timing of the project, as well as the federal intent to fund the project in future years. Because most primary airports fund their major development projects with tax-exempt revenue bonds, the evidence of federal support that the LOI provides is likely to lead to favorable bond interest rates. The airport may proceed with the project with assurance that all AIP-allowable costs specified in the LOI will remain eligible for reimbursement over the life of the LOI. Both entitlement and discretionary funds are used to fulfill LOIs. FAA limits the total of discretionary funds in all LOIs subject to future obligation to roughly 50% of forecast available discretionary funds. LOIs have certain eligibility restrictions. They can only be issued to cover projects at primary and reliever airports. The proposed airport development project or action must "enhance airfield capacity in terms of increased aircraft operations, increased aircraft seating or cargo capacity, or reduced airfield operational delays." For large and medium hub airports, the project must enhance "system-wide airport capacity significantly." Airports' grant applications are conditioned on assurances regarding future airport operations. Examples of such assurances include making the airport available for public use on reasonable conditions and without unjust economic discrimination (against all types, kinds, and classes of aeronautical activities); charging air carriers making similar use of the airport substantially comparable amounts; maintaining a current airport layout plan; making financial reports to FAA; and expending airport revenue only on capital or operating costs at the airport. Within the AIP context, assurances are a means of guaranteeing the implementation of federal policy. Obligations derived from airports' assurances extend beyond the formal closure of AIP grant-supported projects. Obligations related to the use, operation, and maintenance of an airport remain in effect for the expected life of the improvement, up to 20 years. In the case of the purchase of land with AIP funds, the federal obligations do not expire. Airports may request that FAA release them from their AIP contractual obligations. Typically, as a condition of the release, the airport sponsor must either reimburse the federal government for the AIP grants (in the case of land grants, the federal share of the fair market value of the land) or reinvest the amount in an approved AIP project (see Text B ox ). When airport managers or interest groups express concerns about the "strings attached" to AIP funding, they are usually referring to AIP grant assurances. In 1990, federal deficits and expected tight budgets led to concerns that the Airport and Airway Trust Fund and other existing sources of funds for airport development would be insufficient to meet national airport needs. This led to authorization of a new user charge, the Passenger Facility Charge (PFC). The PFC was seen as a complementary funding source to AIP. The Aviation Safety and Capacity Expansion Act of 1990 allowed the Secretary of Transportation to authorize public agencies that control commercial airports to impose a fee on each paying passenger boarding an aircraft at their airports. Initially, there was a $3 cap on each airport's PFC and a $12 limit on the total PFCs that a passenger could be charged per round trip. The PFC is a state, local, or port authority fee, not a federally imposed tax deposited into the Treasury. Because of the complementary relationship between AIP and PFCs, PFC provisions are generally folded into the sections of FAA reauthorization legislation dealing with AIP. The money raised from PFCs must be used to finance eligible airport-related projects. Unlike AIP funds, PFC funds may be used to service debt incurred to carry out projects. Legislation in 2000 raised the PFC ceiling to $4.50, with an $18 limit on the total PFCs that a passenger can be charged per round trip. To impose a PFC above $3 an airport has to show that the funded projects will make significant improvements in air safety, increase competition, or reduce congestion or noise impacts on communities, and that these projects could not be fully funded by using the airport's AIP formula funds or AIP discretionary grants. Large and medium hub airports imposing PFCs above the $3 level forgo 75% of their AIP formula funds. PFCs at large and medium hub airports may not be approved unless the airport has submitted a written competition plan to FAA, which includes information about the availability of gates, leasing arrangements, gate-use requirements, controls over airside and ground-side capacity, and intentions to build gates that could be used as common facilities. The FAA Modernization and Reform Act of 2012 included minor changes to the PFC program. The act made permanent the trial program that authorized nonhub small airports to impose PFCs. The act also required GAO to study alternative means of collecting PFCs without including the PFC in the ticket price. The FAA Reauthorization Act of 2018 did not include significant changes to the PFC program and maintained the $4.50 PFC cap, with a maximum charge of $18 per round-trip flight. It did include a provision, however, that required a qualified organization to conduct a study assessing the infrastructure needs of airports and existing financial resources for commercial service airports and to make recommendations on the actions needed to upgrade the national aviation infrastructure system. Unlike AIP grants, of which over 67% in FY2018 went to airside projects (runways, taxiways, aprons, and safety-related projects), PFC revenues are heavily used for landside projects, such as terminals and transit systems on airport property, and for interest payments. Table 2 shows the AIP grant awards and PFC approvals by project type in FY2018. Annual system-wide PFC collections grew from $85.4 million in 1992 to over $3.4 billion in 2018. The PFC statutory language lends itself to a broader interpretation of "capacity enhancing" projects, and the implementing regulations are less constraining than those for AIP funds. Air carriers, which historically have preferred funding to be dedicated to airside projects, must be notified and provided with an opportunity for consultation about airports' proposals to fund projects with PFC revenues. They are generally less involved in the PFC project planning and decisionmaking process than is the case with AIP projects. The difference in the pattern of project types may also be influenced by the fact that larger airports, which collect most of the PFC revenue, tend to have substantial landside infrastructure, whereas smaller airports that are much more dependent on AIP funding have comparatively limited landside facilities. Bonds have long been a major source of funding for capital projects at primary airports. According to Bond Buyer, a trade publication, airports raised approximately $17.4 billion in 84 bond issues in 2018, a substantial increase over the $14.7 billion raised in 116 issues in 2017. Most airport-related bonds are classified as tax-exempt private activity bonds (PABs). These bonds, issued by a local government or public authority, allow the use of landing fees, charges on airport users, and property taxes on privately controlled on-airport buildings, such as cargo facilities, to service debt without obligating tax revenue. Their tax-exempt status enables airports to raise funds more cheaply than would otherwise be the case because investors enjoy a federal income tax exclusion on interest paid on the bonds. In some cases, revenue from PFCs may be used to service the bonds. PABs may be used to build facilities that are directly related and essential to servicing aircraft, enabling aircraft to take off and land, and transferring passengers or cargo to or from aircraft. Normally, airport bonds might be classified as taxable PABs because they are used to finance facilities where more than 90% of the activity is private and more than 90% of the repayment is from revenue generated by the facility. Issuers of taxable PABs must pay higher interest rates than required on tax-exempt bonds, to compensate investors for the taxes due on interest income. Congress therefore created an exception allowing airports that are owned by governmental entities to issue "qualified" PABs that are tax-exempt. The majority of airport bonds are considered by the Internal Revenue Service to be "qualified" PABs. Some recent proposals would allow privately owned airports to receive the same tax-preferred treatment of their bonds as airports owned by public authorities. A possible precedent for this is the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( P.L. 109-59 , §1143; SAFETEA-LU), which allowed for up to $15 billion in tax-exempt bond financing for highways or freight transfer facilities that would otherwise not qualify for tax-exempt financing. Many of the supporters of the SAFETEA-LU provisions envisioned expanded eligibility for PABs as a means of facilitating public-private partnerships between a public authority and an outside investor. In the airport context, this would be analogous to an airport authority agreeing to a long-term lease with a private investor who would have the ability to enter the market for tax-exempt bonds to finance improvements at the airport and, perhaps, also to finance the purchasing costs of the lease itself. By statute, the safe operation of airports is the highest aviation priority. Other priorities established by Congress include increasing capacity to the maximum feasible extent, minimizing noise impacts, and encouraging efficient service to state and local communities (i.e., support for general aviation airports). But there are significant disagreements about the appropriate degree of federal participation in airport development and finance and about the specific types of expenditure that should be given priority within AIP. Airline and airport operators tend to view the fully authorized funding of the program as a good thing. An alternative view, however, is that too much has been spent on AIP, particularly at smaller airports that do not play a significant role in commercial aviation. The assessment of airport capital needs is fundamental to determining the appropriate federal support needed to foster a safe and efficient national airport system. The federal government's interest goes beyond capacity issues to include implementation of federal safety and noise policies. Both FAA and the Airports Council International-North America (ACI-NA) have issued projections of airports' long-term financial needs. In its most recent NPIAS report, FAA estimated that the national system's capital needs for FY2019-FY2023 will total $35.1 billion (an annual average of approximately $7 billion). The ACI-NA infrastructure needs survey resulted in an estimate of $128.1 billion over the same years (an annual average of approximately $25.6 billion). The main reason for the widely differing estimates was disparate views on what kinds of airport projects to include. The NPIAS report was based on information taken from airport master plans and state system plans, but FAA planners screened out planned projects not justified by aviation activity forecasts or not eligible for AIP grants. Only designated NPIAS airports were included in the FAA study. Implicit in this methodology is that the planning has been carried through to the point where financing is identified. Not all projects used to develop the NPIAS estimates are actually completed, or in some cases even begun, within the range of years covered in the NPIAS estimates. ACI-NA argues that the NPIAS underestimates AIP eligible needs because not all such needs will be in the current airport plans. The ACI-NA study reflects the broader business view of major airport operators and casts a substantially wider net. It includes projects funded by PFCs, bonds, or state or local funding; airport-funded air traffic control facilities; airport- or TSA-funded security projects; "necessary" AIP-ineligible projects such as parking facilities, hangars, revenue portions of terminals, and off-airport roads/transit facilities; and AIP-eligible projects not reported to FAA in the belief that there would be a low probability of receiving additional AIP funding. Its 2019-2023 infrastructure needs survey, for example, included major airport terminal projects that are ineligible for AIP grants. The ACI-NA study also includes projects without identified funding sources. The ACI-NA estimate is higher than the FAA estimate because of the wider net it casts and because it is adjusted for projected inflation. The estimates are important because the primary AIP reauthorization issue is the program's appropriate level of funding. Because the ACI-NA airport needs projection includes much that is not eligible for AIP grants, its accuracy may not be as critical in evaluating appropriate AIP funding levels as that of the NPIAS projections. On the other hand, the broader ACI-NA estimate may be more significant for policy choices related to bond issuance and PFCs, since these sources fund a broader range of projects than AIP. In 2004, then-FAA Administrator Marion C. Blakey stated that the agency's goal was to increase total capacity at the top 35 U.S. airports by 30% over a 10-year period. FAA's Operational Evolution Plan (OEP) is intended to increase the capacity and efficiency of the National Airspace System (NAS) over a 10-year period to keep up with the expected growth in demand for air travel and air cargo. In support of that goal, FAA released a study focused on the 35 busiest airports, Capacity Needs in the National Airspace System: An Analysis of Airport and Metropolitan Area Demand and Operational Capacity in the Future (also referred to as FACT1). The study projected 18 airports would need additional capacity by 2020. In 2007, FACT1 was updated by a second study, FACT2. FACT2 expanded the study to include 21 non-OEP airports that were identified as having the potential to be capacity constrained or were in capacity-constrained metropolitan areas. The study examined airports that would need capacity increases and also projected which airports would need capacity increases in 2015 and 2025. It identified four airports plus the New York metropolitan area that needed additional capacity in 2007. It further identified 14 hub airports as likely to be capacity-constrained in 2025. FACT2 found that, in comparison to FACT1, many non-OEP airports "... have higher capacities than originally presumed and thus less need for additional capacity." A further update, FACT3, was released in January 2015. FACT3 forecasted that the 2007-2009 recession, volatile fuel costs, airline consolidation, and replacement of many 50-seat regional jets with larger aircraft would result in 32% fewer operations and about 23% fewer enplanements in 2025 at the 30 core airports than forecast in FACT2. It projected that airport delays would remain concentrated at a few major hub airports, notably the three New York City-area airports, Philadelphia International Airport, and Hartsfield-Jackson Atlanta International Airport. This study may have implications for the reauthorization of AIP. The large runway projects that are the focus of the OEP can require long lead times—10 or more years from concept to initial construction is not unusual. At large and medium hub airports, runway projects are usually paid for, in part, by AIP funds. Therefore, some projects needed by 2025 may require AIP funding in earlier years. Because large and medium airports that levy PFCs must forgo either 50% or 75% of their AIP formula entitlement funds, most federal funding for their runway projects would probably need to take the form of AIP discretionary funds. The pool of discretionary funds is primarily the remainder of annual funding after the entitlement formula requirements are satisfied. Of the forgone PFC funds, 87.5% are reserved for the small airport fund and are also not available for OEP airports. If the AIP budget is constrained in the future, either under a reauthorization bill or during the annual appropriations process, and the entitlement formulas remain as they are, the discretionary portion of the AIP budget may be squeezed, limiting large airports' ability to draw on AIP funds for major capacity expansion projects. Many of the attributes of AIP's programmatic structure are similar to those of the 1982 act that created the program. Over the years these attributes have been modified based on perceived needs and on the practical politics of passing the periodic FAA reauthorization bills that contain the AIP provisions. These considerations make a major overhaul of the AIP structure unlikely, but may leave room for programmatic adjustments in the distribution of apportionments. One such adjustment might shift AIP funds to enhancing capacity at large and medium hub airports. There are several ways Congress might accomplish this. One would be to eliminate the requirement that large and medium hub airports that impose the maximum PFCs forgo 75% of their entitlements. This change would give larger airports a greater share of entitlement funding, but at the cost of reducing AIP grants to small airports. Alternatively, changes in the statutory set-asides of discretionary funds could give FAA more flexibility to use that money for capacity enhancement, but might reduce funding for noise mitigation and other purposes. Changes in the last several FAA authorization acts increased entitlements and broadened the range of landside projects eligible for AIP grants. These changes generally benefitted airports smaller than medium hub size. In particular, the increased amount of apportioned funds has limited the availability of funds for discretionary grants at major airports. Further changes giving airports increased flexibility in the use of their entitlements might benefit smaller airports not served by commercial aviation, in line with the national goal of having an "extensive" national airport system, but this use of funds might conflict with the goal of reducing congestion at major commercial airports. The current apportionment system relies on a $3.2 billion funding level trigger mechanism to lift most of the apportionments to twice their formula level. This has been in place for two reauthorization cycles. Should that trigger be breached, entitlements for all airports would be reduced drastically. The entitlement formulas may not be sustainable, without depleting discretionary funds, in the absence of additional funding for AIP. One way to reduce the amount of trust fund revenue needed for AIP would be to allow large and medium hub airports to opt out of AIP and rely exclusively on PFCs to finance capital projects. This would require raising or eliminating the federal cap on PFCs. These "defederalized" airports could then be released from some or all of the AIP grant assurances under which they now operate, such as land use requirements and airport revenue use restrictions. If airports exit the program, AIP spending could be reduced or could be redirected to other NPIAS airports. Airport privatization denotes a change in ownership from a public entity (such as a local government or an airport authority established by a state government) to a private one. In a number of countries, such as Great Britain, government-owned airports have been privatized by sale to private owners. In the United States, some airports have allowed private ownership of certain on-airport facilities or management functions, but the ownership of all major airports remains in the hands of government entities. The Airport Privatization Pilot Program (49 U.S.C. §47134; Section 149 of the Federal Aviation Reauthorization Act of 1996, P.L. 104-264 , as amended) authorizes FAA to exempt up to 10 airports from certain federal restrictions on the use of airport revenue off-airport. Participating airports may be also exempted from certain requirements on the repayment of federal grants. Privatized airports may still participate in the AIP, but at a lower federal share (70%). The pilot program was renamed the Airport Investment Partnership Program (AIPP) in the 2018 FAA reauthorization act and expanded to admit more than 10 airports. The AIPP provides that at primary airports, the airport sponsor may only recover from the sale or lease an amount approved by at least 65% of the scheduled air carriers serving the airport, as well as by both scheduled and unscheduled air carriers that together account for 65% of the total landed weight at the airport for the year. The requirement that air carriers approve the use of airport revenue for nonairport purposes, such as profit distribution, may have served to limit interest in the program. To date, only two airports have completed the privatization process established under the provisions of the AIPP. One of those, Stewart International Airport in New York State, subsequently reverted to public ownership when it was purchased by the Port Authority of New York and New Jersey. Luis Muñoz Marín International Airport in San Juan, PR, is now the only commercial service airport operating under private management after privatization under the APPP. As of 2018, there are three applicants under active FAA consideration: Hendry County Airglades Airport in Clewiston, FL; Westchester Airport in White Plains, NY; and St. Louis Lambert International Airport in St. Louis, MO. There is no certainty that any AIP cost savings from privatization would be retained for use by the other AIP-eligible airports. AIP spending is determined by the authorization and appropriations process, and Congress could choose to use any savings to reduce the program size, to marginally assist in deficit reduction, to reduce general fund portions of FAA operations funding, or to make money available for spending elsewhere. Debate over FAA reauthorization generally brings forth proposals to alter the AIP grant assurances, such as ensuring that workers on airport construction projects receive prevailing wages set under the Davis-Bacon Act and pledging to use airport revenue solely for spending on airport operations and capital costs. If AIP spending remains constrained, critics are likely to argue that the grant assurances raise the cost of projects to increase airport capacity and complicate the closure and reuse of underutilized airports or airports that are locally unpopular due to noise or safety concerns. Historically, a basic funding issue is whether to change the existing discretionary fund set-aside for noise mitigation and abatement. The noise set-aside, however, has been increased in previous reauthorization acts and is now 35% of discretionary funding. Demand to use AIP funds for noise mitigation could increase if Congress grants FAA the flexibility to fund noise mitigation projects that are outside the DNL 65 decibel (dB) noise impact area, but this could divert resources from capacity and safety projects. A related issue is whether to make the planning for noise-mitigating air traffic control procedures at individual airports eligible for AIP funding. The central issue related to PFCs is whether to raise the $4.50 per enplaned passenger ceiling or to eliminate the ceiling altogether. In general, airports argue for increasing or eliminating the ceiling, whereas most air carriers and some passenger advocates oppose higher limits on the PFCs. A 2015 GAO study analyzed the effects by raising the PFC cap under three scenarios: setting the cap at $6.47, $8.00, or $8.50. The study found raising PFC would significantly increase airport funding, but could also marginally slow passenger growth and therefore the growth in revenues to the trust fund. PFC supporters feel that the PFC is more reliable than AIP funding, which is subject to the authorization and appropriations process. They also argue that PFCs are procompetitive, helping airports build gates and facilities that both encourage new entrant carriers and allow incumbent carriers to expand. Advocates of an increase in the cap also argue that over time, the value of the PFC has been eroded by inflation and an adjustment is therefore necessary. The permissible uses of revenues are an ongoing point of contention. Airport operators, in particular, would like more freedom to use PFC funds for off-airport projects, such as transportation access projects, and want the process of obtaining FAA approval to be streamlined. Carriers, on the other hand, often complain that airports use PFC funds to finance proposals of dubious value, especially outside airport boundaries, instead of high-priority projects that offer meaningful safety or capacity enhancements. The major air carriers are also unhappy with their limited influence over project decisions, as airports are required only to consult with resident air carriers instead of having to get their agreement on PFC-funded projects. Unlike interest income from governmental bonds, which is not subject to the alternative minimum tax (AMT), interest from private activity bonds is still subject to the AMT. ACI-NA has proposed broadening the definition of governmental airport bonds to, in effect, include either all airport bonds or at least those bonds issued for public-use projects that meet AIP or PFC eligibility requirements. Opponents of such changes express concerns that these changes would reduce U.S. Treasury revenues. Some also argue it would make more sense to change the AMT as part of a tax bill rather than including a specific exemption for income on airport bonds in an FAA reauthorization bill. In either case, such a change would not be under the jurisdiction of the congressional committees that will have jurisdiction over most reauthorization provisions. Changes to the AMT would be under the jurisdiction of the congressional tax-writing committees, the House Committee on Ways and Means and the Senate Committee on Finance. Appendix A. Legislative History of Federal Grants-in-Aid to Airports Prior to World War II the federal government viewed airports as a local responsibility. During the 1930s, it spent about $150 million a year on airports through work relief agencies such as the Works Progress Administration (WPA). The first federal support for airport construction was granted during World War II. After the war, the Federal Airport Act of 1946 (P.L. 79-377) created the Federal Aid to Airports Program, using funds appropriated annually from the general fund. Initially much of this spending supported conversion of military airports to civilian use. In the 1960s substantial funding went to upgrade and extend runways for use by commercial jets. By the end of the 1960s, congestion, both in the air and on the ground at U.S. airports, was seen as evidence that airport capacity was inadequate. Airport and Airway Development and Revenue Acts of 1970 (P.L. 91-258) In 1970, Congress responded to the capacity concerns by passing two acts. The first, the Airport and Airway Development Act (Title I of P.L. 91-258), established the Airport Development Aid Program (ADAP) and the Planning Grant Program (PGP), and set forth the programs' grant criteria, distribution guidelines, and authorization of grant-in-aid funding for the first five years of the program. The second, the Airport and Airway Revenue Act of 1970 (Title II of P.L. 91-258), established the Airport and Airway Trust Fund. Revenues from levies on aviation users and fuel were dedicated to the fund. Under the 1970 acts the trust fund could pay capital costs and, when excess funds existed, could also help cover FAA's administrative and operations costs. Airport and Airway Development and Revenue Acts Amendments of 1971 (P.L. 92-174) The Nixon Administration's FAA budget requests for FY1971 and FY1972 under the new trust fund system brought it into immediate conflict with Congress over the budgetary treatment of trust fund revenues. The Administration treated the new financing system as a user-pay system, whereas many Members of Congress viewed the trust fund as primarily a capital fund. The 1971 Amendments Act made the trust fund a capital-only account (although only through FY1976), disallowing the use of trust fund revenues for FAA operations. Airport and Airway Development Amendments Act of 1976 ( P.L. 94-353 ) The 1976 act made a number of adjustments to the ADAP and reauthorized the Airport and Airway Trust Fund through FY1980. The act again allowed the use of trust fund resources for the costs of air navigation services (a part of operations and maintenance). However, in an attempt to assure adequate funding of airport grants, the act included "cap and penalty" provisions which placed an annual cap on spending for costs of air navigation systems and a penalty that reduced these caps if airport grants were not funded each year at the airport program's authorized levels. This cap was altered multiple times in reauthorization acts in the following decades. ADAP grants totaled about $4.1 billion from 1971 through 1980. Congress did not pass authorizing legislation for ADAP during FY1981 and FY1982, during which the aviation trust fund lapsed, although spending for airport grants continued. Airport and Airway Improvement Act of 1982 ( P.L. 97-248 ) The 1982 act created the current AIP and reactivated the Airport and Airway Trust Fund. It altered the funding distribution among the newly defined categories of airports, extending aid eligibility to privately owned general aviation airports, increasing the federal share of eligible project costs, and earmarking 8% of total funding for noise abatement and compatibility planning. The act also required the Secretary of Transportation to publish a national plan for the development of public-use airports in the United States. This biannual publication, the National Plan of Integrated Airport Systems (NPIAS) , identifies airports that are considered important to the national aviation system. For an airport to receive AIP funds it must be listed in the NPIAS. Although the 1982 act was amended often in the 1980s and early 1990s, the general structure of AIP remained the same. The Airport and Airway Safety and Capacity Expansion Act of 1987 ( P.L. 100-223 ; 1987 act) authorized significant spending increases for AIP and added a cargo service apportionment. It also included provisions to encourage full funding of AIP at the authorized level. Title IX of P.L. 101-508 , the Omnibus Budget Reconciliation Act of 1990 (OBRA1990), included the Aviation and Airway Safety and Capacity Act of 1990, which allowed airports, under certain conditions, to levy a Passenger Facility Charge (PFC) to raise revenue and also established the Military Airport Program (MAP), which provided AIP funding for capacity and/or conversion-related projects at joint-use or former military airports. The Airport Noise and Capacity Act of 1990 (OBRA 1990, Title IX, Subtitle D) set a national aviation noise policy. OBRA1990 included the Revenue Reconciliation Act of 1990, which reauthorized the Aviation Trust Fund and adjusted some of the aviation taxes. The Federal Aviation Reauthorization Act of 1994 ( P.L. 103-305 ) reauthorized AIP for two more years and again made modifications in the cap and penalty provisions. Federal Aviation Reauthorization Act of 1996 ( P.L. 104-264 ) The 1996 reauthorization of the AIP made a number of adjustments to entitlement funding and discretionary set-aside provisions. It also included directives concerning intermodal planning, cost reimbursement rules, letters of intent, and the small airport fund. A demonstration airport privatization program and a demonstration program for innovative financing techniques were established. The demonstration status of the state block grant program was removed. The act did not reauthorize the taxes that supported the Airport and Airway Trust Fund. This was done by the Taxpayer Relief Act of 1997 ( P.L. 105-34 ), which extended, subject to a number of modifications, the existing aviation trust fund taxes through September 30, 2007. The Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century of 2000 (AIR21; P.L. 106-181 ) The enactment of AIR21 was the culmination of two years of legislative effort to pass a multiyear FAA reauthorization bill. The initial debate focused on provisions to take the aviation trust fund off-budget or erect budgetary "firewalls" to assure that all trust fund revenues and interest would be spent each year for aviation purposes. These proposals, however, never emerged from the conference committee. Instead, the enacted legislation included a so-called "guarantee" that all of each year's receipts and interest credited to the trust fund would be made available annually for aviation purposes. AIR21 did not make major changes in the structure or functioning of AIP. It did, however, greatly increase the amount available for airport development projects. The AIP funding authorization rose from $1.9 billion in FY2000 to $3.4 billion in FY2003. The formula funding and minimums for primary airports were doubled starting in FY2001. The state apportionment for general aviation airports was increased from 18.5% to 20%. The noise set-aside was increased from 31% to 34% of discretionary funding and a reliever airport discretionary set-aside of 0.66% was established. AIR21 also increased the PFC maximum to $4.50 per boarding passenger. In return for imposing a PFC above the $3 level, large and medium hub airports would forgo 75% of their AIP formula funds. This had the effect of making a greater share of AIP funding available to smaller airports. Vision 100: Century of Aviation Reauthorization Act of 2003 ( P.L. 108-176 ; H.Rept. 108-334 ) Vision 100, signed by President George W. Bush on December 12, 2003, included significant changes to AIP. The law codified the AIR21 spending "guarantees" through FY2007. It increased the discretionary set-aside for noise compatibility projects from 34% to 35%. It increased the amount that an airport participating in the Military Airport Program (MAP) could receive to $10 million for FY2004 and FY2005, but in FY2006 and FY2007 it returned the maximum funding level to $7 million. The act allowed nonprimary airports to use their entitlements for revenue-generating aeronautical support facilities, including fuel farms and hangars, if the Secretary of Transportation determines that the sponsor has made adequate provisions for the airside needs of the airport. The law permitted AIP grants at small airports to be used to pay interest on bonds issued to finance airport projects. The act included a trial program to test procedures for authorizing small airports to impose PFCs. Vision 100 repealed the authority to use AIP or PFC funds for most airport security purposes. FAA Modernization and Reform Act of 2012 ( P.L. 112-95 ) The 2012 FAA reauthorization act funded AIP for four years from FY2012 to FY2015 at an annual level of $3.35 billion. A new provision, Section 138, permitted small airports reclassified as medium hubs due to increased passenger volumes to retain eligibility for up to a 90% federal share for a two-year transition period. This provision also allows certain economically distressed communities receiving subsidized air service to be eligible for up to a 95% federal share of project costs. The 2012 act maintained the $4.50 PFC cap, with a maximum charge of $18 per round-trip flight. It included a provision that instructed GAO to study alternative means for collecting PFCs. The act also expanded the number of airports that could participate in the airport privatization pilot program from 5 to 10. This law was extended through July 15, 2016. The FAA Extension, Safety, and Security Act of 2016 ( P.L. 114-190 ) The 2016 FAA extension act funded AIP through FY2017 at an annual level of $3.35 billion. A new provision, Section 2303, provided temporary relief to small airports that had 10,000 or more passenger boardings in 2012 but had fewer than 10,000 during the calendar year used to calculate the AIP apportionment for FY2017. This provision allowed such airports to receive apportionment for FY2017 an amount based on the number of passenger boardings at the airport during calendar year 2012. The FAA Reauthorization Act of 2018 ( P.L. 115-254 ) The 2018 FAA reauthorization act funded AIP for five years from FY2019 through FY2023 at an annual level of $3.35 billion. It also authorized supplemental annual funding from the general fund to the AIP discretionary funds—$1.02 billion in FY2019, $1.04 billion in FY2020, $1.06 billion in FY2021, $1.09 billion in FY2022, and $1.11 billion in FY2023—and required at least 50% of the additional discretionary funds to be available to nonhub and small hub airports. The act included a provision permitting eligible projects at small airports (including those in the State Block Grant Program) to receive 95% federal share of project costs (otherwise capped at 90%), if such projects are determined to be successive phases of a multiphase construction project that received a grant in FY2011. The 2018 reauthorization expanded the number of states that could participate in the State Block Grant Program from 10 to 20 and also expanded the existing airport privatization pilot program (now renamed the Airport Investment Partnership Program) to include more than 10 airports. The law included a provision that forbids states or local governments from levying or collecting taxes on a business on an airport that "is not generally imposed on sales or services by that State, political subdivision, or authority unless wholly utilized for airport or aeronautical purposes." Appendix B. Definitions of Airports Included in the NPIAS Commercial Service Airports Publicly owned airports that receive scheduled passenger service and board at least 2,500 passengers each year (506 airports). Primary Airports . Airports that board more than 10,000 passengers each year. There are four subcategories: Large Hub Airports . Board 1% or more of system -wide boardings ( 30 airports, 72 % of all enplanements)Medium Hub Airports . Board 0.25% but less than 1% (31 airports, 16% of all enplanements) Small Hub Airports . Board 0.05% but less than 0.25% (72 airports, 8% of all enplanements) Non hub Primary Airports . Board more than 10,000 but less than 0.05% (247 airports, 3% of all enplanements) Non primary Commercial Service Airports . Board at least 2,500 but no more than 10,000 passengers each year (126 airports, 0.1% of all enplanements). Other Airports General Aviation Airports . General aviation airports do not receive scheduled commercial or military service but typically do support business, personal, and instructional flying; agricultural spraying; air ambulances; on-demand air-taxies; and/or charter aircraft service (2,554 airports). Reliever Airports . Airports designated by FAA to relieve congestion at commercial airports and provide improved general aviation access (261 airports). Cargo Service Airports . Airports served by aircraft that transport cargo only and have a total annual landed weight of over 100 million pounds. An airport may be both a commercial service and a cargo service airport. New Airports Seven airports are anticipated to be built between 2019 and 2023. They include two primary airports, two nonprimary commercial service airports, and three general aviation airports.	[ "There are five major sources of airport capital development funding: the federal Airport Improvement Program (AIP); local passenger facility charges (PFCs) imposed pursuant to federal law; tax-exempt bonds; state and local grants; and airport operating revenue from tenant lease and other revenue-generating activities such as landing fees. Federal involvement is most consequential in AIP, PFCs, and tax-exempt financing. The AIP has been providing federal grants for airport development and planning since the passage of the Airport and Airway Improvement Act of 1982 (P.L. 97-248). AIP funding is usually spent on projects that support aircraft operations such as runways, taxiways, aprons, noise abatement, land purchase, and safety or emergency equipment. The funds obligated for AIP are drawn from the airport and airway trust fund, which is supported by a variety of user fees and fuel taxes. Different airports use different combinations of these sources depending on the individual airport's financial situation and the type of project being considered. Although smaller airports' individual grants are of much smaller dollar amounts than the grants going to large and medium hub airports, the smaller airports are much more dependent on AIP to meet their capital needs. This is particularly the case for noncommercial airports, which received over 25% of AIP grants distributed in FY2018. Larger airports are much more likely to issue tax-exempt bonds or finance capital projects with the proceeds of PFCs. The FAA Reauthorization Act of 2018 (P.L. 115-254) provided annual AIP funding of $3.35 billion from the airport and airway trust fund for five years from FY2019 to FY2023. The act left the basic structure of AIP unchanged, but authorized supplemental annual funding of over $1 billion from the general fund to the AIP discretionary funds, starting with $1.02 billion in FY2019, and required at least 50% of the additional discretionary funds to be available to nonhub and small hub airports. The act included a provision permitting eligible projects at small airports (including those in the State Block Grant Program) to receive a 95% federal share of project costs (otherwise capped at 90%), if such projects are determined to be successive phases of a multiphase construction project that received a grant in FY2011. The 2018 reauthorization expanded the number of states that could participate in the State Block Grant Program from 10 to 20 and also expanded the existing airport privatization pilot program (now renamed the Airport Investment Partnership Program) to include more than 10 airports. The law included a provision that forbids states or local governments from levying or collecting taxes on a business at an airport that \"is not generally imposed on sales or services by that State, political subdivision, or authority unless wholly utilized for airport or aeronautical purposes.\" The airport improvement issues Congress generally faces in the context of FAA reauthorization include the following: Should airport development funding be increased or decreased? Should the $4.50 ceiling on PFCs be eliminated, raised, or kept as it is? Could AIP be restructured to address congestion at the busiest U.S. airports, or should a large share of AIP resources continue to go to noncommercial airports that lack other sources of funding? Should Congress set tighter limits on the purposes for which AIP and PFC funds may be spent? This report provides an overview of airport improvement financing, with emphasis on AIP and the related passenger facility charges. It also discusses some ongoing airport issues that are likely to be included in a future FAA reauthorization debate." ]	9,366	gov_report	en	null	14fff932d702f49ba8037e3853528f5c24952fea97e12075
DOD’s MILCON appropriations are used to fund the acquisition, construction, installation, and equipping of temporary or permanent public works, military installations, facilities, and real property needed to support U.S. military forces in the United States and overseas. As with other DOD activities, no funds may be appropriated in any fiscal year or obligated or expended for MILCON activities unless such funds have been specifically authorized by law. Each year, the National Defense Authorization Act authorizes amounts to be appropriated in each of the 18 programmatic MILCON appropriations accounts. Individual or conference committee reports accompanying each fiscal year’s National Defense Authorization Act provide specific congressional direction on authorized funding levels designated for specific construction projects supported by the various MILCON accounts. Similarly, conference committee reports or explanatory statements accompanying each fiscal year’s appropriations acts establish appropriated funding levels for MILCON projects. The process through which the active component requests funding for construction projects is supported by DOD’s Form 1391 Military Construction Project Data (Form 1391). The Form 1391 is to be used to support each project proposed for inclusion in the MILCON appropriations request submitted concurrently with all other DOD appropriations requests annually. The forms are to be used for both new projects as well as urgent unforeseen projects. The Form 1391 describes the scope, total project costs, and estimates of specific project elements. Costs associated with other project elements such as contingency and supervision, inspection, and design are also to be captured and included in the total requested amount. Finally, the Form 1391 is to include a description of the proposed construction and a requirements statement indicating what requirement the project provides. Project budget estimates are initially developed at the installation level and are provided to the next responsible level for review, validation, refinement, prioritization, and approval. Administrative support is to be provided when requested across the departments, but ultimately the installation is the originator and the primary responsible entity in developing the completed Form 1391. MILCON appropriations are generally available for obligation for 5 fiscal years, at which time the appropriation expires. For 5 years after they expire, appropriations are available for limited purposes, such as liquidating obligations made during the period of availability or adjusting contract costs. After these 5 years, any remaining unexpended amounts, whether obligated or unobligated, are canceled and returned to the U.S. Treasury. Once funds are returned to the U.S. Treasury, they are no longer available for any purposes. DOD obligates its appropriations throughout the period in which the appropriation is available. An “unobligated balance” is the difference between the total appropriation amount and total obligations made against the appropriated amounts. An “unexpended balance” is the total of obligated but unliquidated and unobligated amounts. According to DOD officials, available but unobligated amounts no longer needed may be either rescinded by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding. Reprogrammed amounts may be used to fund other projects where there are shortfalls; for projects authorized by Congress but not specifically funded through the appropriations process; for emergency projects, such as for facilities destroyed by fires. DOD’s flexibility to reprogram without congressional approval is limited by the amount to be reprogrammed to a particular project. DOD’s Financial Management Regulation requires prior congressional approval for a reprogramming that would result in an increase exceeding 25 percent of a project’s authorized base amount or $2 million, whichever is less. Prior approval is not required when established costs or project-related thresholds are not reached. According to DOD officials, reprogrammings requiring congressional approval are called “above-threshold reprogrammings” and those that do not are called “below-threshold reprogrammings.” DOD designates construction agents for the military departments and defense agencies with primary responsibility for developing and refining MILCON proposals and cost estimates, and to manage the design and construction of projects. Typically, the Army Corps of Engineers is the construction agent for Army MILCON-funded projects and the Naval Facilities Engineering Command is the construction agent for Navy and Marine Corps MILCON-funded projects. Either of those DOD entities can be the construction agent for the defense agencies and activities, such as for the Missile Defense Agency or Defense Education Activity, with the approval of the military department having jurisdiction of the real property facility. However, both the Army and the Navy may use each other’s construction agent if it is in the interest of efficiency and cost- effectiveness or when otherwise considered appropriate. The Air Force may use either the Army Corps of Engineers or Naval Facilities Engineering Command for its projects. Additionally, the Air Force Civil Engineer Center, although not a designated construction agent, reviews and approves requirements for Air Force MILCON cost estimates, and in some cases may design and construct Air Force projects where both the Air Force and the commander of the assigned construction agent agree that it is the most efficient, expeditious, and cost-effective means to complete the project. Within DOD there are two levels of military construction guidance: the Unified Facilities Criteria and component-level guidance. The Unified Facilities Criteria are overarching, DOD-wide technical manuals and standards used for planning, design, construction, restoration, and maintenance of DOD facility projects. The Unified Facilities Criteria was designed to standardize and streamline the process for developing, maintaining, and disseminating criteria in support of MILCON. The Unified Facilities Criteria contains guidance describing methods, procedures, and formats for the preparation of construction cost estimates and construction contract modification estimates, among other types of guidance. The Unified Facilities Criteria is to be used to the greatest extent possible by all the DOD regardless of funding source. In addition to the Unified Facilities Criteria, the military departments and agencies have also developed their own internal guidance on MILCON, providing further direction on conducting activities such as cost analysis and determining facility requirements. We developed the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (Cost Guide) to assist federal agencies in developing reliable cost estimates and also as a tool for evaluating existing cost estimating procedures. To develop the Cost Guide, our cost experts assessed measures applied by cost estimating organizations throughout the federal government and industry and considered best practices for the development of reliable cost estimates. While the Cost Guide has a focus on developing cost estimates in the context of government acquisition programs, it outlines best practices that are generally applicable to cost estimation in a variety of circumstances. These best practices can be used to assess (1) the specific project cost estimates an agency develops to determine whether they meet the four characteristics—comprehensive, well-documented, accurate, and credible—for being reliable and (2) an agency’s cost estimating guidance and procedures to see how well they incorporate all the steps needed for producing a high-quality cost estimate. Figure 1 shows the four characteristics and associated best practices for each that define a reliable cost estimate and table 1 shows the 12 steps identified in the Cost Guide that, if followed correctly, should result in high-quality cost estimates that management can use for making informed decisions. During fiscal years 2005 through 2016, Congress appropriated about $66 billion in MILCON funds to the active component and, as of September 30, 2016, the active component had obligated all but about $5.1 billion and expended all but about $11 billion of those funds. Of the $5.1 billion that remains unobligated, about $4.6 billion was unexpired and available for new obligations (i.e., from fiscal year 2013 through 2016 appropriations). Table 2 shows the active component’s combined MILCON appropriations, obligations, and unexpended funds from fiscal year 2005 through fiscal year 2016. In general, during the early first few years of a MILCON appropriation available for 5 years, it is often likely that most of the funds will remain unobligated. For example, as shown in table 2 above, of the nearly $3.9 billion appropriated for military construction for the active component from the fiscal year 2016-2020 appropriation, only about $1.1 billion had been obligated as of September 30, 2016. This is not surprising given the time that it takes to award, obligate and disburse funds for projects. Ultimately, though, as an appropriation nears its expiration date, all or nearly all of the amounts have generally been obligated. In fact, as shown in table 2, for each MILCON appropriation received by the active component prior to fiscal year 2013 (fiscal years 2005 through 2012), less than 2 percent of each year’s appropriation was unexpended as of September 30, 2016. In appendix II, we provide additional analysis of the active component’s unexpended and unobligated balances, by appropriation year and by military department. Although ultimately, the active component obligates and expends most of its MILCON appropriations, the active component can experience a wide range of differences between initial cost estimates and final costs during the execution of individual MILCON projects, resulting in savings or shortfalls depending on the project. For example, we found that from fiscal year 2010 through fiscal year 2016, the active component achieved about $4.2 billion in MILCON project savings as a result, for example, of canceled projects, projects with lower than expected contractor bids, or the use of less expensive building materials. In appendix III, we provide additional analysis of the active component’s estimated initial costs and the contract award amounts that were funded by MILCON appropriations for fiscal year 2010 through fiscal year 2016. The active component reprogrammed about $1.6 billion in MILCON appropriations to fund shortfalls caused by emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding in fiscal years 2010 through 2016. Of this amount, the Army reprogrammed about $789 million of about $14 billion in appropriated MILCON funds; the Navy, about $535 million of about $14 billion in appropriated MILCON funds; and the Air Force, about $295 million of about $7 billion in appropriated MILCON funds. Table 3 shows the number and amounts of above-threshold reprogrammings by the active component for fiscal years 2010 through 2016. As seen in table 3, for any given year there are typically hundreds of millions of dollars reprogrammed. There are generally multiple active or canceled projects that result in cost savings, which may be used to fund authorized but not specifically funded projects. Below are three examples where the active component funded MILCON projects with amounts reprogrammed from other projects: Repair Shop at Andersen Air Force Base, Guam: This is an Air Force project to construct a pacific air resiliency low observable/corrosion control/composite repair shop in Guam. It is an authorized project that did not receive specific funding during the appropriation process but was fully funded by reprogrammed cost savings from active construction projects. Congress authorized $34.4 million for the repair shop in fiscal year 2015; however, no funds were specifically appropriated for the project. According to Air Force officials, since this was their top unfunded military construction priority, they used $34.4 million in savings achieved from other projects to construct the repair shop. Table 4 lists the three projects whose MILCON funds were reprogrammed for the repair shop at Andersen Air Force Base in Guam. Training Facility at the Naval Air Station at Mayport, Florida: This is a Navy project to construct a littoral combat ship training facility in Florida. It is a specifically funded project requiring additional funds that received reprogrammed amounts from a canceled project. In fiscal year 2014, the initial cost as listed on the Form 1391 was estimated to be $20.5 million, but project costs increased by 41 percent to an estimated $28.9 million, according to a fiscal year 2016 reprogramming request to Congress. As detailed in the reprogramming request, the Navy attributed the increased cost to underestimated mission simulator and communication line requirements. To fund the increased costs, the Navy used $8.3 million in savings from a canceled project to complete the facility. Table 5 lists the canceled project that resulted in funds being reprogrammed for the training facility at Mayport. Barracks at Presidio of Monterey, California: This is an Army project to construct a trainee barracks in California. It is a specifically funded project in need of additional funds that received reprogrammed amounts from active and canceled construction projects. In fiscal year 2011, the initial cost for the project as listed on the Form 1391 was estimated to be $63 million, but project costs increased by 51 percent to $95 million, according to a fiscal year 2015 reprogramming request to Congress. As detailed in the reprogramming request, the Army attributed the increased costs to a 3-year delay in construction and the need to move the project to a small, steep-terrain site. The reprogramming request further noted that the delay in construction was due to the discovery at the proposed construction site of a seismic fault and a plant that is an endangered species. To fund the increased costs, the Army sought to reprogram funds from the savings achieved from the active and canceled projects. Table 6 lists the projects that generated the reprogrammed funds used for the barracks at Presidio. Our analyses of the cost estimates for three selected projects shows that the cost estimates were not reliable, and DOD’s cost estimating guidance does not fully incorporate all the steps needed for producing reliable estimates. We examined the cost estimates of three high-value military construction projects and noted that the initial cost estimates increased for all three projects, with cost estimates for two of the projects increasing by over 30 percent and the other, by about 7 percent. Specifically: Strategic Command Operations Building, Offutt Air Force Base, Nebraska. The project to construct a nuclear, space, and network command and control operations building for the command at Offutt Air Force Base, Nebraska, increased from an initial cost estimate in fiscal year 2012 of $564 million to $601 million in fiscal year 2014 (or a 7-percent increase). According to a fiscal year 2014 reprogramming request to Congress, the Air Force attributed the increased cost to the fact that the project team did not appreciate the full scope, complexity, and risk of such an information technology- intensive project. These cost issues are similar to challenges we have reported on for other information technology-intensive MILCON projects. The Air Force is the project owner and the Army Corps of Engineers is the construction agent for this project. Command Headquarters and Cyberspace Operations Building, Fort Meade, Maryland. The project to construct a command headquarters and cyberspace operations building with sensitive compartmented information facility in Fort Meade, Maryland, increased from an initial cost estimate in fiscal year 2013 of $84 million to $110 million in fiscal year 2015 (or a 31-percent increase). As detailed in the fiscal year 2015 reprogramming request, the Navy attributed the increased cost to higher than expected construction costs due to increased demand on the labor workforce in the Washington, D.C./Baltimore area and underestimated electrical power requirements. The Navy is the project owner and the Army Corps of Engineers is the construction agent for this project. Elementary School Camp Foster, Japan. The project to replace an elementary school at Camp Foster, Japan increased from an initial cost estimate in fiscal year 2012 of $79 million to $107 million in fiscal year 2014 (or a 35-percent increase). As detailed on the fiscal year 2014 reprogramming request, the Department of Defense Education Activity attributed the increased cost to the volatile construction climate in Japan caused by natural disasters; Japanese government policies, economic stimulus, and reform; and the planned developments for the 2020 Tokyo Olympic Games. Although this project is not owned by any of the military departments, it is being managed by the Army Corps of Engineers in its role as a DOD construction agent through which it plays an important role in the development of the construction cost estimate. The Department of Defense Education Activity is the project owner and the Army Corps of Engineers is the construction agent. To determine the reliability of the cost estimates for these three selected projects, we assessed the cost estimates against the best practices for developing a reliable estimate in our Cost Guide. As previously discussed, the Cost Guide defines the four characteristics— comprehensive, well documented, accurate, and credible—of a reliable cost estimate and the associated best practices related to each characteristic. In conducting these assessments, we examined both the Form 1391 estimate (i.e., the estimate used to develop the budget) and the independent government estimate i.e., (the estimate used to award the contract) for each project. Our analysis of the cost estimates for the three selected projects shows that the cost estimators did not follow all the best practices listed for each of the four characteristics. As a result, none of the characteristics were fully or substantially met. To be reliable, a cost estimate must substantially or fully meet each of the four characteristics. As the Cost Guide states, if any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable. Table 7 provides the results of our assessment of the cost estimates for each of the three selected projects. The Cost Guide also identifies 12 steps that, when incorporated into an agency’s cost estimating procedures and guidance, are more likely to result in reliable and valid cost estimates. However, our analysis of DOD’s department-wide cost estimating guidance—the Unified Facilities Criteria—found that the criteria did not include all of these 12 steps. The Unified Facilities Criteria incorporates some of the 12 steps to some degree, but not others, and as a result DOD is at a greater risk of developing estimates that are not reliable. Table 8 provides our assessment of the extent to which DOD’s Unified Facilities Criteria incorporates the 12 steps needed to develop a high-quality, reliable cost estimate. Each of the military departments is required to follow the Unified Facilities Criteria to the greatest extent possible when designing and constructing facilities. However, as shown by the table above, there are shortcomings in these criteria when compared with our Cost Guide. Despite these shortcomings, the military departments have gone beyond the Unified Facilities Criteria and developed their own guidance that more closely aligns with our Cost Guide. For example, for both the “determining the estimating structure” and “obtain the data” steps, we found that all three military departments had developed their own guidance that more closely aligned with the 12 steps than the Unified Criteria did. In addition, some military departments are also making improvements to their cost estimating processes, but these improvements have not been fully implemented yet. For example, the Air Force Civil Engineer Center is implementing a cost estimate improvement plan to include the training of nearly 700 airmen and has conducted a study that directly ties the 12 steps in the Cost Guide to the associated tasks to be completed by the Air Force cost estimator to meet each individual step. However, the actions contained in the cost improvement plan have not been fully implemented and still remain in the concept phase. Similarly, although the Army Corps of Engineers is investigating expanding the use the of cost and schedule risk analysis—which could align with the best practices in the Cost Guide—that the Army currently conducts for selected civil work construction projects to its high-cost military construction projects, the Army has not formally required the use of these tools. In appendix IV, we describe the guidance the military departments have developed beyond the Unified Facilities Criteria. The Cost Guide is designed to establish a consistent methodology that is based on best practices and that can be used across the federal government for developing, managing, and evaluating capital program cost estimates. Air Force and Army Corps of Engineers officials noted that there may be instances in which following all the 12 steps of the Cost Guide for every MILCON project would not be appropriate to the risk level of the project. For example, it may not be realistic or to the military departments’ benefit for the military departments to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects. We agree that it may not be suitable to fully apply all 12 of the cost estimating steps in the Cost Guide to all MILCON projects. However, incorporating the 12 steps into the Unified Facilities Criteria would establish consistency across DOD in the cost estimating process by ensuring that, for each MILCON project, each step in the Cost Guide would at least be considered. Furthermore, DOD could choose to establish thresholds—based on, for example, the dollar values of the projects—to guide the services in implementing the 12 steps for the most valuable projects. Skipping or not considering any step of the 12-step cost estimating process, especially for high-value projects such as those in our case studies, increases the risk that cost estimates may use improper assumptions, lack appropriate definition, or be otherwise unreliable. Without improving the Unified Facilities Criteria with respect to cost estimating processes, DOD and the services will not be positioned well to provide reliable cost estimates to DOD and congressional decision- makers. Each year DOD receives billions of dollars in MILCON appropriations to use for projects in the United States and overseas. The quality of project cost estimates are of great importance since those estimates are the basis for DOD’s requests for appropriations. While DOD’s policy is that MILCON cost estimates be prepared as accurately as possible in order to reflect the full cost of constructing DOD facilities, DOD’s Unified Facilities Criteria—the department’s primary construction criteria for developing cost estimates—does not fully incorporate all of the steps needed for producing reliable cost estimates. Until DOD incorporates the 12 steps of high-quality, reliable cost estimating into this department-wide construction criteria, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects. We are making one recommendation to DOD: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and the Environment work with DOD’s construction agents, military departments, and other offices to improve DOD’s MILCON cost estimating guidance (i.e., DOD’s Unified Facilities Criteria) by fully incorporating all the steps needed for developing high- quality reliable cost estimates. (Recommendation 1) We provided a draft of this report to DOD. In written comments, which are reprinted in their entirety in appendix VI, DOD partially concurred with our recommendation. DOD also provided technical comments that have been incorporated into the report as appropriate. DOD partially concurred with our recommendation to improve its cost estimating guidance by fully incorporating all 12 steps needed for developing high-quality, reliable estimates. DOD stated that it did not believe that it is suitable to fully apply all 12 steps to any construction project due to characteristics of the military construction program that DOD believes differ from those of major system or weapon acquisition programs. However, DOD also stated that it concurred with the intent and general applicability of the twelve steps to military construction and that DOD cost estimating guidance lacks specificity in several of these areas. DOD acknowledged that expanding its cost guidance to more fully incorporate these steps would benefit the military construction program, and that it is planning to address this by revising its cost guidance during Fiscal Year 2019. In our report, we recognize that it may not be appropriate to fully apply all 12 steps to each construction project. For example, it may not be realistic or to the military departments’ benefit to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects. Accordingly, we did not recommend that DOD fully apply all 12 steps to each construction project, but rather that it fully incorporate the 12 steps into the Unified Facilities Criteria so that, at least, each step is considered for each project. DOD could then choose to establish thresholds—based on, for example, the dollar values of the projects—to determine for which the 12 steps should be fully applied or other circumstances in which some steps might not be applicable. We believe DOD’s planned revisions will meet the general intent of our recommendation. We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense, the Secretaries of the Army, Navy, and Air Force. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report, please contact me at (202) 512-4523 or leporeb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. To examine the active component’s military construction (MILCON) obligations and expended balances, we reviewed MILCON appropriations found in appropriations acts, including accompanying explanatory statements and conference committee reports from fiscal year 2005 through 2016. Further, we analyzed the obligation and disbursement data of the active component‘s MILCON accounts, appropriation status reports, bid savings reports, as well as annual reports from the U.S. Department of the Treasury. We also collected and compared project data from each of the active component on projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016. Specifically, we compared the initial estimate as shown on the Form 1391—the form DOD uses to submit requirements and justifications in support of its funding requests to Congress—with the contract award amount and analyzed any differences between the two. To examine the amount of MILCON reprogramming during fiscal years 2010 and 2016 by the active component, we reviewed DOD’s requests to Congress to reprogram MILCON funds from one project to another. We calculated the total number of times such requests were made and the dollar amounts for fiscal year 2010 through fiscal year 2016. We selected this time frame because the reprogramming requests were readily available from DOD. In addition, we judgmentally selected three projects from this same time frame and reviewed accompanying Forms 1391 and the reprogramming requests associated with the projects to illustrate instances in which savings from one MILCON project funded another project. We collected and analyzed data for fiscal years 2005 through 2016 on the active component MILCON appropriations, obligations, and disbursements and we collected reprogramming data for fiscal years 2010 through 2016. We assessed the reliability of the data by interviewing knowledgeable officials about the data and the steps that they had taken to verify the data’s accuracy. We determined that the data were sufficiently reliable for our objectives. To determine the extent to which DOD’s MILCON cost estimates are reliable and DOD’s guidance for producing estimates fully incorporates all of the steps needed for developing reliable estimates, we compared the process for developing three selected projects with the characteristics and best practices for developing a reliable estimate identified in GAO’s Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (the Cost Guide). This guide is a compilation of cost estimating best practices drawn from across industry and federal government. We selected our projects from the universe of projects that we reasonably expected could have begun execution (i.e., projects initiated during fiscal years 2012-2014); projects that were underway, but not substantially completed (i.e., between 10- and 75- percent complete); and projects that constituted a significant financial investment (i.e., projects with appropriations of $75 million or greater). Ultimately, of 690 total projects we identified DOD-wide, 13 met these criteria and, from this sample, we selected the 3 projects included in this report: (1) the construction of a replacement elementary school at Camp Foster, Japan; (2) the construction of a Strategic Command operations building at Offutt Air Force Base, Nebraska; and (3) the construction of a Marine Corps command headquarters and cyberspace operations building in Fort Meade, Maryland. In conducting the assessments for these three selected projects, we examined the processes used to develop both the Form 1391 estimate (i.e the form DOD uses to submit project-level requirements and justifications in support of its MILCON funding requests to Congress ) and the independent government estimate (i.e., the estimate used to award the contract) to determine whether the project cost estimates had the characteristics of a high-quality and reliable cost estimate, as defined in the Cost Guide. These projects are not intended to be a projectable sample, but to illustrate how cost estimates are assessed against best practices. Although the Camp Foster project is not owned by any of the active component, the construction and planning of the project is being led by the Army Corps of Engineers in its capacity as a DOD construction agent and, as such, we decided to include it in our review. Additionally, we reviewed DOD’s Unified Facilities Criteria and the active component’s respective guidance related to MILCON cost estimating and compared them with the steps needed for developing reliable estimates identified in the Cost Guide. We also interviewed military project cost estimators and active component construction agents to discuss the requirements and guidance they follow in preparing, documenting, and reviewing project cost estimates. Table 9 details the documents we reviewed for our cost estimating assessments. We conducted this performance audit from January 2016 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In this appendix we provide the supporting details on the active component’s unobligated and unexpended balances of military construction (MILCON) appropriations for fiscal years 2005 through 2016. We include details on unobligated and unexpended balances by appropriation year and include individual tables for each military department of the active component. Overall, the active component had high obligation and expenditure rates associated with MILCON appropriations that have expired or been canceled. The Army, the Air Force, and the Navy consistently expended over 90 percent of amounts appropriated in fiscal years 2005 through 2011. This appendix also provides supporting details on the active component’s execution of MILCON appropriations for fiscal years 2010 through 2016. Using Department of Defense (DOD) data, we identified two groups of MILCON projects: congressionally directed and other. “Congressionally directed” projects are those MILCON projects specifically identified in an appropriation act, explanatory statement, and/or committee reports accompanying the appropriation act for a specific fiscal year. “Other” projects refer to congressionally directed MILCON projects identified in an appropriation act, explanatory statement, and/or conference committee reports in a previous fiscal year. Overall, the active component obligated about 89 percent of its fiscal years 2010 through 2012 appropriations for congressionally directed projects whose appropriations expired on September 30, 2017. Tables 10 through 12 present detailed information on unexpended and unobligated balances for each military department of the active component’s MILCON appropriation for fiscal years 2005 through 2016, as reported by DOD as of September 30, 2016. Table 10 shows that for fiscal years 2005 through 2012, the Army expended almost all of its MILCON appropriations. Specifically, with the exception of fiscal year 2012, the Army expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011. Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations. Table 11 shows that, for fiscal years 2005 through 2013, the Air Force expended almost all of its MILCON appropriations. Specifically, the Air Force expended at least 95 percent of its appropriations received each year for fiscal years 2005 through 2011 and also in fiscal year 2013. Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations. Table 12 shows that for fiscal years 2005 through 2012, the Navy expended almost all of its MILCON appropriations. Specifically, the Navy expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011. Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations. Tables 13 through 15 provide detailed information on budget execution for each active duty military department’s MILCON appropriation for “congressionally directed” and “other” MILCON projects for fiscal years 2010 through 2016, as reported by DOD as of September 30, 2016. Table13 shows the obligations made by the Army for MILCON appropriations for fiscal years 2010 through 2016. We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects. For fiscal year 2010, using data in the table, we found that about 97.2 percent of obligations were for congressionally directed projects and 2.8 percent were for other projects, as discussed above. In fiscal year 2011, about 94 percent of obligations were for congressionally directed projects and 4.2 percent were for other projects; and in fiscal year 2012, about 86.5 percent of obligations were for congressionally directed projects and 7.2 percent were for other projects. Table 14 shows the obligations made by the Air Force for MILCON appropriations for fiscal years 2010 through 2016. We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects. For fiscal year 2010, using the data listed in the table, we found that 90.5 percent of obligations were for congressionally directed projects and 7.3 percent were for other projects, as discussed above. In fiscal year 2011, about 84.3 percent of obligations were for congressionally directed projects and 12.9 percent were for other projects; and in fiscal year 2012, about 87.5 percent of obligations were for congressionally directed projects and 9.0 percent were for other projects. Table 15 shows the obligations made by the Navy for MILCON appropriations for fiscal years 2010 through 2016. We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects. For fiscal year 2010, using data in the table, we found that 84.7 percent of obligations were for congressionally directed projects and 15.0 percent were for other projects, as discussed above. In fiscal year 2011, about 87.7 percent of obligations were for congressionally directed projects and 11.8 percent were for other projects; and in fiscal year 2012, about 85.5 percent of obligations were for congressionally directed projects and 13.4 percent for other projects. This appendix provides information on our analysis of DOD’s estimated initial costs and contract award amounts of projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016 by the active component. An official from the Office of the Assistant Secretary of Defense for Energy, Installations, and Environment told us that, to determine whether initial cost estimates were over- or underestimated, a comparison between initial Form 1391 estimates and contract award amounts would be a valid approach since contract award amounts are, in general, estimates of the same requirements identified on a Form 1391. The official also noted that supervision, inspection, overhead, and contingency costs included on a Form 1391 are not included in contract award amounts, which could create differences between the Form 1391 cost estimates and contract award prices. Because of this, we excluded the supervision, inspection, overhead, and contingency costs from the Form 1391 estimates in the table below to eliminate those differences. Form 1391 cost estimates may also vary from contract award amounts for reasons such as changes in project size or scope, changes in project characteristics, unexpectedly high or low contractor bids, or differences in expected building material costs, among other things. A negative percent change from the Form 1391 estimate to the contract award amount indicates the estimated project cost was overestimated and a positive percent change indicates the project was underestimated. We did not determine the precise reasons for any differences between estimated costs and contract award amounts. Table 16 lists information on 414 completed projects funded with military construction (MILCON) appropriations during fiscal year 2010 through fiscal year 2016 sorted by largest percentage overestimated to largest percentage underestimated. The military departments of the active component have gone beyond the Unified Facilities Criteria and developed their own guidance for military construction (MILCON) that more closely aligns with the 12 steps needed for developing high-quality, reliable estimates. Table 17 describes the guidance developed by the military departments to align with those steps. In addition to the contact named above, Maria Storts, Assistant Director; Bonita Anderson; Shawn Arbogast; Ronald Bergman; Brian Bothwell; Robert Brown; Farrah Graham; Mae Jones; Jennifer Leotta; Amie Lesser; Felicia Lopez; Carol Petersen; Vikki Porter; Steve Pruitt; and Karen Richey made key contributions to this report.	[ "Between fiscal years 2005 and 2016, Congress annually appropriated between $2.5 to $9.6 billion in MILCON funding for the active component of the U.S. military to use for projects worldwide. Reliable project construction cost estimates are of great importance, since those estimates drive these appropriations. House Report 114-537 accompanying a proposed bill authorizing national defense activities for fiscal year 2017 included a provision for GAO to report on DOD's MILCON cost estimating. This report examines the extent to which (1) the active component obligated and expended the MILCON appropriations received during fiscal years 2005-2016, (2) the active component reprogrammed MILCON appropriations during fiscal years 2010 through 2016, and (3) DOD's MILCON cost estimates are reliable for selected projects and DOD's guidance for developing estimates fully incorporates the steps needed for developing reliable estimates. GAO analyzed the active components' MILCON execution data and reviewed DOD's guidance for cost estimating and compared it with the best practices identified in GAO's Cost Estimating and Assessment Guide . During fiscal years 2005 through 2016, Congress appropriated about $66 billion in military construction funds (MILCON) to the active duty Army, Navy, and Air Force (referred to as the active component) for projects. As of September 30, 2016, the active component had obligated all but about $5.1 billion and expended all but about $11 billion of those funds. Of the $5.1 billion remaining unobligated, about $4.6 billion was still available to be obligated because MILCON appropriations are generally available for new obligations for 5 years. According to Department of Defense (DOD) officials, available but unobligated amounts no longer needed may be either taken back by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding. During fiscal years 2010 through 2016, the active component reprogrammed about $1.6 billion in MILCON appropriations to fund emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding. Of this amount, the Army reprogrammed about $789 million; the Navy, about $535 million; and the Air Force, about $295 million. DOD's guidance does not fully incorporate the steps needed for developing reliable estimates and the estimates for three projects that GAO reviewed were not reliable. Specifically, two of the three high-value projects GAO examined experienced a more than 30-percent increase from the initial cost estimates submitted to Congress. GAO determined that DOD cost estimators did not follow all the best practices associated with the four characteristics—comprehensive, well-documented, accurate, and credible—of a reliable estimate for these projects. GAO's Cost Estimating and Assessment Guide identifies 12 steps that, if used, are more likely to result in reliable and valid cost estimates. However, as shown below, DOD's construction guidance—the Unified Facilities Criteria—does not include all of these steps. Until DOD incorporates these steps, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects. GAO recommends that DOD ensure that its cost estimating guidance fully incorporate the steps needed for developing reliable cost estimates. DOD partially concurred with GAO's recommendation and stated that it will issue revised cost guidance in fiscal year 2019 that more fully incorporates those steps that would benefit the military construction program." ]	6,142	gov_report	en	null	cde0dd328fcfff44d9709e0e3b6e07100b1d23ebc8208f78
To participate in federal student aid programs, postsecondary schools must be 1) certified by Education as eligible to participate in federal student aid programs, 2) accredited by a recognized accrediting agency— generally nongovernmental, nonprofit entities—and 3) authorized by the state in which the school is physically located. (See table 1.) FSA is responsible for ensuring that schools with access to federal student aid are eligible and capable of properly administering federal student aid funds, according to standards established by Education and authorized by the Higher Education Act. These standards include requirements for schools related to communication, personnel, policies, procedures and reporting, and adequate checks and balances in a system of internal controls, among others. FSA is also responsible for conducting ongoing financial oversight of schools that receive federal student aid. This includes reviewing annual financial statement audits to assess a school’s financial responsibility and providing additional oversight to schools that do not meet financial responsibility standards outlined in the Higher Education Act. Schools that participate in federal student aid programs generally are required to submit annual compliance audits. The compliance audit provides information that FSA can use to assess the school’s administration of federal student aid programs and to identify schools that require additional oversight because they do not fully comply with federal student aid administrative requirements. The OIG is required to assess the quality of school compliance audits and selects a sample to review each year. The OIG reviews the audit documentation to ensure that it supports the auditor’s opinions and that the audit results are reliable. According to agency guidance, FSA staff should refer compliance audits to the OIG for a quality review if they have any concerns about the quality of the audits. Both FSA and OIG officials stated that the OIG has primary responsibility for issues related to audit quality. When a school first applies to be certified to administer federal student aid, FSA will either approve the school for provisional certification— generally for 1 year—or deny certification (see fig. 1). Once a school is approved for initial certification and applies for recertification, FSA will provisionally or fully recertify the school, or deny certification. According to FSA procedures, FSA uses provisional certification for initial, or first time, applicants, as well as schools that are applying for recertification. Provisional certification is the only approval status available to new schools. In addition, FSA may decide to recertify a school provisionally if it determines that a school has not fully complied with federal student aid requirements. FSA prohibits provisionally certified schools from opening new campus locations or offering new programs without approval from FSA, and provisionally certified schools that are denied recertification have a less substantive appeals process than fully certified schools. Further, recertified schools in provisional status are subject to more FSA oversight than schools that are fully certified. FSA procedures allow for some discretion in determining for how long to certify a school. Provisional recertification generally lasts 1 to 3 years, while full recertification generally lasts 4 to 6 years. Education’s FSA regional staff draw information from a variety of sources during the certification process to assess a school’s capability to administer federal student aid. According to FSA documents, regional staff are to review information collected from schools and third parties, such as annual compliance audits conducted by independent auditors, among other information sources. FSA staff responsible for different functional areas, such as financial and compliance audits, accreditation status, and student loan default rates, compile and review information on schools, according to FSA procedures. FSA officials told us that these staff meet to discuss any potential program eligibility issues and to ensure that all information relevant to a school is considered before making a certification decision. FSA’s certification procedures outline some of the key information that regional staff should assess, some of which is relevant to both initial and recertification decisions, and some of which is specific to each type of certification process (see fig. 2). Documents and policies provided by schools: FSA regional staff are directed to review documents submitted by schools, including school catalogs, and certain school policies—such as admissions and student refund policies—that are relevant to assessing administrative capability. Proof of accreditation: School accreditors are responsible for applying and enforcing standards to help ensure that the education offered by schools is of sufficient quality to achieve program objectives. Accreditation of schools, which generally includes a site visit, takes place on a cycle that may range from every few years to as many as 10 years. Proof of state authorization: States are responsible for authorizing schools to offer postsecondary education and respond to student complaints. The process for approving schools varies from state to state and may include on-site visits. Audited financial statements: FSA regional staff are directed to review information in audited financial statements to assess schools’ financial health. Schools are required to have annual audited financial statements issued by an independent certified public accountant or a government auditor. Self-reported school data: FSA regional staff are instructed to review data on continual student enrollment in eligible academic programs and student withdrawal rates. Pre-certification review and school outreach: FSA staff are responsible for contacting school personnel to verify the school’s application information and discuss relevant policies, procedures, and other materials relevant to administering federal student aid. FSA visits to newly certified schools: After schools first apply and are provisionally certified, Education requires FSA regional staff to contact them within 3 months and schedule an on-site school visit. Schools cannot administer federal student aid until they are certified, so FSA has limited information on how newly certified schools are administering federal student aid programs. School visits provide FSA with an opportunity to collect additional information about a provisionally certified school’s ability to administer federal student aid. Some FSA regional staff we interviewed told us that on-site visits to newly certified schools provide valuable first-hand information about whether these schools are administering federal student aid in accordance with program requirements. If FSA regional staff find that a school is having difficulties administering federal student aid, FSA procedures direct regional staff to assist schools by providing clarification and guidance on federal student aid policies, recommending additional training for school officials, and helping schools develop a plan to track and report on their corrective actions, among other things. Compliance audits: FSA staff are directed to review information in compliance audits to determine if schools are complying with specific federal student aid requirements. Generally, compliance audits are required to be conducted annually by an independent auditor, and submitted with the school’s audited financial statements. Program reviews: FSA regional staff are also responsible for conducting program reviews, usually on site, which evaluate school compliance with federal requirements and can provide more in-depth information on schools than compliance audits, according to some FSA staff we interviewed. Generally, FSA selects schools for program reviews that it considers to be at risk for noncompliance, according to Education documents. FSA conducts approximately 250 to 300 program reviews per year, according to FSA documentation. FSA staff from all four of our selected regional offices told us they consider results from any recent program review in decisions about recertification and noted that such information, when available, is valuable for assessing schools’ administrative capability. Education data: FSA regional office staff are also directed to review data on student loan default rates. From calendar years 2006 through 2017, FSA approved most schools applying for certification to receive federal student aid, according to Education data. From 2006 through 2017, FSA approved 89 percent of schools new to administering federal student aid for provisional certification and denied 11 percent of schools overall (see fig. 3). Denial rates for initial certification were 11 percent for public and for-profit schools and 14 percent for nonprofit schools. For more information on 2006-2017 school certification outcomes by year, see appendix I. FSA regional staff responsible for reviewing school applications told us that schools are denied initial certification for issues such as a lack of accreditation, not offering eligible programs for federal student aid, or not meeting other statutory eligibility requirements. For example, FSA staff said that for-profit and vocational schools that apply for initial certification are required to provide an eligible program continuously for 2 years prior to their initial application. FSA staff may also advise schools that do not meet basic eligibility requirements not to apply, which could result in fewer initial certification denials overall. In addition, FSA staff said they often work with schools to address compliance problems, for example, by providing guidance on revising school policies that do not meet requirements, so that the schools are able to meet FSA’s certification requirements. From 2006 through 2017, 76 percent of schools applying for recertification were fully recertified, 21 percent were provisionally recertified, and 3 percent were denied recertification. Sixty-six percent of for-profit schools were fully recertified, 28 percent were provisionally recertified, and 6 percent were denied. In comparison, 86 percent of public schools were fully recertified, 14 percent were provisionally recertified, and fewer than 1 percent were denied. Nonprofit schools had rates similar to public schools, with 80 percent fully recertified, 18 percent provisionally recertified, and 2 percent denied (see fig 4). FSA staff from all four of our selected regional offices told us that they typically deny recertification when a school no longer meets eligibility requirements, such as losing accreditation, or when there is significant evidence of serious issues or massive wrongdoing, such as fraud. For example, managers in one regional office told us they denied recertification for a school because they had evidence that the school was accepting students without valid high school diplomas and referring them to diploma mills to boost enrollment. Staff in two FSA regional offices told us that they can also choose to fully recertify a school for shorter periods of time if they uncover issues related to administrative capability. For example, one regional staff member told us that when they found a school’s default rate for one federal student loan program had been high for the prior 3 years, the regional office decided to shorten the school’s full recertification period from 6 to 4 years, to allow FSA staff to review the school again sooner. FSA staff from all four of our selected regional offices told us that they provisionally certify schools for a variety of reasons, including when a school submits a late compliance audit or when a recent compliance audit indicates that a school could potentially have significant problems. Generally, schools in provisional certification status are subject to additional monitoring by FSA compared to schools that have been fully certified. For example, Education officials said that if they have concerns about a provisionally certified school’s student withdrawal rate, they can add provisional conditions requiring the school to submit monthly enrollment rosters for review. Staff in two FSA regional offices told us that in other cases, if they have concerns about how a school is administering federal student aid or suspected fraud, they can put a school on provisional status and conduct a program review to collect more detailed information on compliance with federal requirements. Education data also show that most schools remain in provisional status the first time they are recertified—62 percent from 2006 to 2017. In contrast, FSA staff fully recertified over three-quarters of schools that applied for recertification a second time during the same time period (see table 2). For more information on first and second recertification outcomes by school sector, see appendix II. We found that FSA generally relies on compliance audits as the only annual on-site review to determine how schools applying for recertification administer federal student aid. The audits provide direct information collected by independent auditors from school visits and file reviews examining how schools administer federal student aid and comply with program requirements. For example, OIG audit guidance directs auditors to check whether schools are distributing federal student aid to eligible students and accurately calculating student loan amounts. FSA officials and staff from all four of our selected regional offices said that compliance audits are a key source of information they use to assess a school’s administrative capability. Officials from Education’s OIG said that the quality of information in compliance audits varies substantially and depends on the auditor. The OIG has found quality problems in some of the compliance audits it selects—based on auditor and school risk factors—for its annual quality control reviews. Because the OIG selects higher risk audits to review, its reviews are more likely to detect problems, and OIG officials said they cannot make any conclusions about the overall prevalence of quality problems in compliance audits. However, our analysis of OIG quality review data found that of the 739 compliance audits reviewed by the OIG from fiscal years 2006 through 2017, the OIG passed 23 percent (173) and failed 59 percent (436). An additional 18 percent (130) passed with deficiencies. For example, across the 41 compliance audits it reviewed in fiscal year 2016, the OIG identified 264 quality deficiencies with the auditor’s work, according to our analysis of quality reviews provided by the OIG. The most frequently cited issues in these 41 audits were: reporting (24 audits), such as lack of evidence that the auditor tested whether the school correctly reported student enrollment status; student eligibility (20 audits), such as lack of evidence that the auditor verified student school attendance; and administrative capability (19 audits), such as lack of evidence that the auditor determined whether the accreditor had been notified about a change in school ownership within 10 days. FSA officials also identified quality issues with the compliance audits of some schools. FSA headquarters officials and staff we interviewed in several regional offices said they have seen schools with significant program review findings that had not been identified in annual compliance audits. FSA staff said they have referred some compliance audits to the OIG for quality reviews when they have had questions about the thoroughness of an audit. We also found a couple of examples in our review of school certification documents in which the findings identified in a school’s compliance audit were different from the findings identified by FSA in a program review of the same school covering the same time period. In one case, FSA staff said they probably would have fully recertified the school if they had relied solely on the compliance audit. Instead, they used the program review to determine that the school should be provisionally recertified. Compliance audits and program review findings are based on a sample of student records, and FSA staff said some differences in findings might be explained by differences in the records reviewed. FSA and OIG officials cited several issues that can affect the quality of compliance audits. FSA and OIG officials we interviewed said that some auditors conducting compliance audits have insufficient training in federal student aid, which contributes to audit quality problems. OIG staff also said that even if an auditor meets the general training hour requirements for auditors, the training content may not be relevant for federal student aid audits. In addition, FSA and OIG officials said some schools— particularly smaller schools—tend to hire less experienced auditors in order to save money, often resulting in poor quality audits. FSA officials in most selected regional offices said that additional training on federal student aid for auditors who are new to or unfamiliar with federal student aid could help improve audit quality. FSA and the OIG recently have taken steps to address audit quality and the information available to FSA staff when making certification decisions. These efforts include: Training for auditors: The OIG has taken steps to enhance training offered to auditors of schools’ administration of federal student aid and is exploring opportunities to provide additional training. In December 2017, the OIG and the American Institute of Certified Public Accountants cosponsored training for auditors on the OIG’s 2016 revised guide for audits of for-profit schools, and other topics related to auditing federal student aid. The training included discussion of common audit quality issues and areas of highest risk. According to an OIG official, about 200 auditors attended, and after the event, the American Institute of Certified Public Accountants and the OIG posted a recording of the training to their websites to make it available to additional auditors. In addition, OIG officials said they maintain an email account—listed on the OIG website—through which auditors can ask questions and receive responses. In March 2018, the OIG posted frequently asked questions and answers to the website. Timeliness of OIG quality reviews: Both FSA and OIG officials said that the OIG has recently renewed efforts to issue compliance audit quality reviews more quickly, after several years in which staffing shortages and other issues led to some delayed quality reviews. Guidance to schools on selecting an auditor: OIG officials said that at the 2017 FSA training conference for school financial aid staff, they presented to more than 400 participants about factors schools should consider when hiring an auditor. For example, they suggested that schools verify the licenses of certified public accountants, ask about the types of engagements an auditing firm has conducted, request and check references, check for any actions that may have been taken against a firm, and ask whether the auditor has been subject to a previous review by the OIG or another agency. FSA officials said they expected to invite the OIG to present at future FSA conferences, and OIG officials said they were seeking additional opportunities to share information on auditor selection with schools, including a planned presentation to an association of postsecondary schools. FSA working group: FSA recently established a working group to update its guidance to FSA staff on how to coordinate with the OIG to address compliance audits with quality problems. Among other topics, the working group has consulted with the OIG about how schools are made aware of the OIG’s findings regarding the quality of their audits. FSA officials said that OIG officials have provided input and feedback on FSA’s proposed changes to the guidance. Audit guide revisions: In addition, OIG and FSA staff told us they expected the OIG’s 2016 revisions to the for-profit school audit guide to improve the quality of compliance audits for those schools. They said that because the revised guide clarified some issues that were confusing to auditors in the previous guide issued in 2000, auditors might be better able to implement the guidance. The audit guide revisions include more testing and reporting requirements, clarified procedures, and guidance on issues such as fraud reporting and coordinating financial and compliance audits. The 2016 revisions first applied to audits for fiscal years beginning after June 30, 2016, and FSA began receiving those audits at the end of 2017. In addition, although the OIG’s 2016 revisions only apply to audits of for-profit schools, FSA officials said they planned to establish a working group to consider improvements to audit guidance for public and nonprofit schools. FSA and OIG efforts to address audit quality could help ensure that compliance audits provide accurate and reliable information on school administrative capability for Education’s recertification decisions. We provided a draft of this report to Education for review and comment. Education’s Office of Inspector General provided technical comments, which we considered and incorporated as appropriate. Education did not provide other comments on the report. We are sending copies of this report to the appropriate congressional committees; the Secretary of Education; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0534 or emreyarrasm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. In addition to the contact named above, Michelle St. Pierre (Assistant Director), Kristy Kennedy (Analyst-in-Charge), Edward Bodine, Marissa Jones, and Mark Ward made significant contributions. Also contributing to this report were Susan Aschoff, Deborah Bland, Nagla’a El-Hodiri, Monika Gomez, Sheila R. McCoy, Jessica Orr, Mimi Nguyen, John Mingus, Rhiannon Patterson, Monica Savoy, Benjamin Sinoff, and Rosemary Torres Lerma.	[ "Education provided over $122 billion in grants, loans and work study funds to help students pay for college at about 6,000 schools in fiscal year 2017. Education is responsible for certifying that these schools are eligible for and capable of properly administering federal student aid funds. Schools are required to submit an annual compliance audit that provides information on schools' administrative capability, which Education considers in its school certification decisions. GAO was asked to review Education's process for certifying schools to receive federal student aid. This report examines (1) how Education certifies schools to administer federal student aid and how frequently schools are approved and denied certification; and (2) the role of compliance audits in the certification process and what, if any, steps Education has taken to address the quality of the audit information. GAO analyzed data on school certification outcomes for calendar years 2006-2017 (when GAO determined data were most reliable); reviewed data and reports summarizing Education's reviews of compliance audit quality for fiscal years 2006-2017; reviewed a non-generalizable sample of 21 school certification decisions from fiscal years 2015 and 2016, selected for a mix of decisions, school characteristics, and geographic regions; examined relevant federal laws, regulations, policy manuals and guidance; and interviewed Education officials. The Department of Education (Education) is responsible for evaluating a variety of information to determine whether a postsecondary school should be certified to administer federal student aid programs, and agency data show that it approves most schools that apply. Education procedures instruct regional office staff to review school policies, financial statements, and compliance audits prepared by independent auditors, among other things. Education can certify schools to participate in federal student aid programs for up to 6 years, or it can provisionally certify them for less time if it determines that increased oversight is needed—for example, when a school applies for certification for the first time or when it has met some but not all requirements to be fully certified. In calendar years 2006 through 2017, Education fully or provisionally approved most schools applying for initial or recertification to receive federal student aid (see figure). Note: Schools applying for certification for the first time and approved are placed in provisional certification. In deciding whether to certify schools, Education particularly relies on compliance audits for direct information about how well schools are administering federal student aid, and Education's offices of Federal Student Aid and Inspector General have taken steps to address audit quality. The Inspector General annually selects a sample of compliance audits for quality reviews based on risk factors, such as auditors previously cited for errors. In fiscal years 2006 through 2017, 59 percent of the 739 selected audits received failing scores. Audits that fail must be corrected; if not, the school generally must repay federal student aid covered by the audit. Because higher risk audits are selected for review, Inspector General officials said they cannot assess the overall prevalence of quality problems in compliance audits. These two Education offices have taken steps to improve audit quality. For example, the Inspector General offered additional training to auditors on its revised 2016 audit guide and provided guidance to schools on hiring an auditor, while Federal Student Aid created a working group to strengthen its procedures for addressing poor quality compliance audits. Education's efforts to address audit quality could help ensure that these audits provide reliable information for school certification decisions. GAO is not making recommendations in this report." ]	3,366	gov_report	en	null	81e845f35acd55c1f6b4edda428a0a52fd22bade5be9cf13
Cybersecurity incidents continue to impact federal entities and the information they maintain. According to OMB’s 2018 annual FISMA report to Congress, agencies reported 35,277 information security incidents to DHS’s U.S. Computer Emergency Readiness Team (US-CERT) in fiscal year 2017. As shown in figure 1, these incidents involved threat vectors, such as web-based attacks, phishing attacks, and the loss or theft of computer equipment, among others. These incidents and others like them can pose a serious challenge to economic, national, and personal privacy and security. The following examples highlight the impact of such incidents: In March 2018, the Department of Justice reported that it had indicted nine Iranians for conducting a massive cybersecurity theft campaign on behalf of the Islamic Revolutionary Guard Corps. According to the department, the Iranians allegedly stole more than 31 terabytes of documents and data from more than 140 American universities, 30 U.S. companies, and 5 federal government agencies, among other entities. In March 2018, a joint alert from DHS and the Federal Bureau of Investigation stated that, since at least March 2016, Russian government actors had targeted U.S. government entities and critical infrastructure sectors, including the energy, nuclear, water, aviation, and critical manufacturing sectors. In June 2015, the Office of Personnel Management reported that an intrusion into its systems had affected the personnel records of about 4.2 million current and former federal employees. Then, in July 2015, the agency reported that a separate but related incident had compromised its systems and the files related to background investigations for at least 21.5 million individuals. The federal approach and strategy for securing information systems is prescribed by federal law and policy. FISMA sets requirements for effectively securing federal systems and information. In addition, the Federal Cybersecurity Enhancement Act of 2015 requires protecting federal networks through the use of federal intrusion prevention and detection capabilities. Further, Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, directs agencies to manage cybersecurity risks to the federal enterprise by, among other things, using the NIST Framework for Improving Critical Infrastructure Cybersecurity (cybersecurity framework). FISMA was enacted to improve federal cybersecurity and clarify government-wide responsibilities. The law is intended to provide for improved oversight of federal agencies’ information security programs. Specifically, the law provides a comprehensive framework for ensuring the effectiveness of information security controls over information resources that support federal operations and assets. The law is also intended to ensure the effective oversight of information security risks, including those throughout civilian, national security, and law enforcement agencies. FISMA assigns OMB and DHS oversight roles in ensuring federal agencies’ compliance with the law. Among other things, FISMA requires OMB to develop and oversee the implementation of policies, principles, standards, and guidelines on information security in federal agencies, except with regard to national security systems. The law also assigns OMB the responsibility of requiring agencies to identify and provide information security protections commensurate with assessments of risk to their information and information systems. The law further requires DHS to administer the implementation of agency information security policies and practices for non-national security information systems, in consultation with OMB, by developing, issuing, and overseeing implementation of binding operational directives; monitoring agency implementation of information security policies and practices; and convening meetings with senior agency officials to help ensure their effective implementation of information security policies and practices, among other things. FISMA assigned to NIST the responsibility for developing standards and guidelines that include minimum information security requirements. To this end, NIST has issued several publications to provide guidance for agencies in implementing an information security program. For example, NIST Special Publication (SP) 800-53 provides guidance to agencies on the selection and implementation of information security and privacy controls for systems. FISMA also assigns to the head of each executive branch agency, responsibility for providing information security protections commensurate with the risk and magnitude of harm resulting from unauthorized access, use, disclosure, disruption, modification, or destruction of information systems used or operated by an agency or by a contractor of an agency or other organization on behalf of an agency. The law also delegates to the agency chief information officer (CIO), or comparable official, the authority to ensure compliance with FISMA requirements. The CIO is responsible for designating a senior agency information security officer whose primary duty is information security. In addition, the law requires agencies to develop, document, and implement an agency-wide information security program to secure federal information systems. Specifically, these information security programs are to provide risk-based protections for the information and information systems that support the operations and assets of the agency. Further, FISMA requires agencies to comply with DHS binding operational directives, OMB policies and procedures, and NIST federal information processing standards. FISMA also has reporting requirements for OMB and federal agencies. Specifically, OMB is to report annually, in consultation with DHS, on the effectiveness of agency information security policies and practices, including a summary of major agency information security incidents and an assessment of agency compliance with NIST standards. Further, the law requires agencies to report annually to OMB, DHS, certain congressional committees, and the Comptroller General of the United States on the adequacy and effectiveness of their information security policies, procedures, and practices, as well as their compliance with FISMA. The Federal Cybersecurity Enhancement Act of 2015, among other things, sets forth authority for enhancing federal intrusion prevention and detection capabilities among federal entities. The act contains several provisions for DHS and OMB. Specifically, the act requires that DHS deploy, operate, and maintain capabilities to prevent and detect cybersecurity risks in network traffic traveling to or from an agency’s information system. DHS is to make these capabilities available for use by any agency. In addition, the act requires DHS to improve intrusion detection and prevention capabilities, as appropriate, by regularly deploying new technologies and modifying existing technologies. The act also requires OMB and DHS, in consultation with appropriate agencies, to review and update government-wide policies and programs to ensure appropriate prioritization and use of network security monitoring tools within agency networks, and to brief appropriate congressional committees. In May 2017, the President signed Executive Order 13800, which sets policy for managing cybersecurity risk as an executive branch enterprise. Specifically, it outlines actions to enhance cybersecurity across federal agencies and critical infrastructure to improve the nation’s cyber posture and capabilities against cybersecurity threats. To this end, the order states that the President will hold executive agency heads accountable for managing agency-wide cybersecurity risk and directs each executive agency to use the NIST cybersecurity framework to manage those risks. The cybersecurity framework, which provides guidance for cybersecurity activities, is based on five core security functions: Identify: Develop an organizational understanding to manage cybersecurity risk to systems, people, assets, data, and capabilities. Protect: Develop and implement appropriate safeguards to ensure delivery of critical services. Detect: Develop and implement appropriate activities to identify the occurrence of a cybersecurity event. Respond: Develop and implement appropriate activities to take action regarding a detected cybersecurity incident. Recover: Develop and implement appropriate activities to maintain plans for resilience and to restore capabilities or services that were impaired due to a cybersecurity incident. According to NIST, these five functions should be performed concurrently and continuously to address cybersecurity risk. In addition, when considered together, they provide a high-level, strategic view of the life cycle of an organization’s management of cybersecurity risk. Within the five functions are 23 categories and 108 subcategories that include controls for achieving the intent of each function. Appendix II provides a description of the cybersecurity framework categories and subcategories of controls. In February 2013, we reported that the government had issued a variety of strategy-related documents that addressed priorities for enhancing cybersecurity within the federal government, as well as for encouraging improvements in the cybersecurity of critical infrastructure within the private sector. However, we noted that no overarching cybersecurity strategy had been developed that articulated priority actions, assigned responsibilities for performing them, and set time frames for their completion. Accordingly, we recommended that the White House Cybersecurity Coordinator in the Executive Office of the President develop an overarching federal cybersecurity strategy that included all key elements of the desirable characteristics of a national strategy. These characteristics would include, among other things, milestones and performance measures for major activities to address stated priorities; cost and resources needed to accomplish stated priorities; and specific roles and responsibilities of federal organizations related to the strategy’s stated priorities. Since that time, the executive branch has made progress toward outlining a federal strategy for confronting cyber threats. For example, in September 2018, we reported that recent executive branch initiatives that identify cybersecurity priorities for the federal government provide a good foundation toward establishing a more comprehensive strategy. Nevertheless, we pointed out that additional efforts were needed to address all of the desirable characteristics of a national strategy that we recommended. Specifically, recently issued executive branch strategy documents did not include key elements of desirable characteristics that can enhance the usefulness of a national strategy as guidance for decision makers in allocating resources, defining policies, and helping to ensure accountability. For example, these strategy documents did not generally include: milestones and performance measures to gauge results; resources needed to carry out the goals and objectives; and clearly defined roles and responsibilities for key agencies, such as DHS, the Department of Defense, and OMB. Ultimately, we determined that a more clearly defined, coordinated, and comprehensive approach to planning and executing an overall strategy would likely lead to significant progress in furthering strategic goals and lessening persistent weaknesses. Subsequent to our September 2018 report, the President issued the National Cyber Strategy on September 20, 2018. The strategy builds upon Executive Order 13800 and describes actions that federal agencies and the administration are to take to, among other things, secure federal information systems. For example, the strategy states that the administration is expected to further enable DHS to secure federal department and agency networks, to include ensuring that DHS has appropriate access to agency information systems for cybersecurity purposes and can take and direct action to safeguard systems. In addition, the strategy states that the administration plans to continue with its existing efforts underway to transition agencies to shared services and infrastructure and that DHS is to have appropriate visibility into those services and infrastructure to improve cybersecurity posture. DHS’s Network Security Deployment (NSD) division manages cybersecurity programs that are intended to improve the cybersecurity posture of the federal government. Among these programs, NCPS provides a capability to detect and prevent potentially malicious network traffic from entering agencies’ networks. In addition, the Continuous Diagnostics and Mitigation (CDM) program provides tools to agencies intended to identify and resolve cyber vulnerabilities on an ongoing basis. Operated by DHS’s US-CERT, NCPS is intended to detect and prevent cyber intrusions into agency networks, analyze network data for trends and anomalous data, and share information with agencies on cyber threats and incidents. Deployed in stages, this system, operationally known as EINSTEIN, has provided increasing capabilities to detect and prevent potential cyberattacks involving the network traffic entering or exiting the networks of participating federal agencies. Table 1 provides an overview of the EINSTEIN deployment stages to date. In January 2016, we reported the projected total life-cycle cost of the program was approximately $5.7 billion through fiscal year 2018. In addition, according to the Federal CIO, Congress appropriated $468 million in fiscal year 2017 and $402 million in fiscal year 2018 for NCPS. In that report, we also noted that NCPS was partially, but not fully, meeting most of its stated system objectives. Although the system’s intrusion detection capabilities provided the ability to detect known patterns of malicious activity on agency networks, it was limited in its capabilities to identify potential threats using anomaly-based detection. We also reported that although DHS had developed metrics for measuring the performance of NCPS, the metrics did not gauge the quality, accuracy, or effectiveness of the system’s intrusion detection and prevention capabilities. The department had also identified needs for future capabilities, but had not defined requirements for the capability to detect threats entering and exiting cloud service providers. Further, DHS had not considered specific vulnerability information for agency information systems in making risk- based decisions about future intrusion prevention capabilities. Accordingly, we made nine recommendations to DHS to, among other things, enhance the NCPS capabilities for meeting its objectives and better define requirements for future capabilities. DHS agreed with each of our nine recommendations and indicated that it would take steps to address them. DHS’s CDM program provides federal agencies with tools and services that have the intended capability to automate network monitoring, correlate and analyze security-related information, and enhance risk- based decision making at agency and government-wide levels. These tools include sensors that perform automated scans or searches for known cyber vulnerabilities, the results of which can feed into a dashboard that, at an agency level, is intended to alert network managers and enable the agency to allocate resources based on the risk. Summary data from each participating agency’s dashboard is expected to be transmitted to the Federal Dashboard where the data can be used to inform decisions about cybersecurity risks across the federal government. There are four phases of CDM implementation: Phase 1—involves deploying products to automate hardware and software asset management, configuration settings, and common vulnerability management capabilities. According to the Cybersecurity Strategy and Implementation Plan, DHS purchased phase 1 tools and integration services for all participating agencies in fiscal year 2015. DHS plans to have all phase 1 tools deployed at participating agencies by the end of the second quarter of fiscal year 2019. Phase 2—intends to address privilege management and infrastructure integrity by allowing agencies to monitor users on their networks and to detect whether users are engaging in unauthorized activity. According to the Cybersecurity Strategy and Implementation Plan, DHS was to provide agencies with additional phase 2 capabilities throughout fiscal year 2016, with the full suite of CDM phase 2 capabilities delivered by the end of that fiscal year. However, according to the OMB FISMA Annual Report to Congress for Fiscal Year 2017, the CDM program began deploying Phase 2 tools and sensors during fiscal year 2017. DHS plans to have all phase 2 tools deployed at participating agencies by the end of fiscal year 2019. Phase 3—includes detection capabilities that are intended to assess agency network activity and identify any anomalies that may indicate a cybersecurity compromise. Full operating capability for phases 1, 2, and 3 is planned to be achieved by the end of fiscal year 2022. Phase 4—intends to provide tools to (1) protect data at rest, in transit, and in use; (2) prevent loss of data; and (3) manage and mitigate data breaches. According to CDM program officials, phase 4 has not been approved and no tools have been selected. An approach for protecting systems against cybersecurity compromise is for federal agencies to build successive layers of defense mechanisms at strategic points in their information technology infrastructures. This approach, commonly referred to as defense in depth, entails implementing a series of protective mechanisms so that if one mechanism fails to detect and prevent an attack, another will provide a backup defense. By utilizing defense in depth, federal agencies can reduce the risk of a successful cyberattack by implementing intrusion detection and prevention capabilities. NIST has developed guidelines for protecting agency information systems using intrusion detection and prevention capabilities. For example, NIST SP 800-53 recommends that agencies strategically deploy capabilities and perform monitoring of their systems to include observation of events occurring on their network and at the external boundary of their network. In addition, NIST SP 800-94 provides agencies with guidance in designing, implementing, configuring, securing, monitoring, and maintaining such capabilities. As part of their defense-in-depth approach and, as recommended by the NIST guidelines, agencies can deploy the following list of capabilities, among others, on their networks to detect and prevent an attack: Protecting email from intrusions: According to OMB, email, by way of phishing attacks, remains one of the most common threat vectors across the government. Methods for protecting email include encryption, false email alerts, and anti-spear-phishing training. Monitoring cloud services: Cloud vendors provide services to agencies, including Software as a Service, Platform as a Service, and Infrastructure as a Service. As agencies increasingly rely on cloud services, monitoring traffic to and from their cloud service providers helps to ensure that agencies detect malicious traffic. Using host-based intrusion prevention: Host-based intrusion prevention systems provide defense at an individual system or device level by protecting against malicious activities. Host-based capabilities include memory-based protection and application whitelisting. Monitoring external and internal traffic: Agencies can monitor external and internal traffic, including: encrypted traffic, traffic between workstations and servers on the network, and direct connections to outside entities such as universities. Monitoring traffic helps to ensure that agencies detect malicious activity. Using security information and event management: A security information and event management capability produces real-time alerts and notifications of significant security events. Security alerts and notifications can provide the agency with better situational awareness regarding possible intrusion activity. According to inspectors general, agency CIOs, and OMB reports on federal information security practices, many agencies were not effectively implementing the federal government’s approach and strategy to securing information systems as of fiscal year 2017. Agencies’ inspectors general determined that most of the 23 civilian CFO Act agencies did not have effective agency-wide information security programs. They also reported that agencies did not have effective information security controls in place, leading to deficiencies in internal control over financial reporting. In addition, the CIOs demonstrated that, during fiscal years 2016 and 2017, most agencies had not met all targets for the cybersecurity CAP goal for improving cybersecurity performance. Further, based on FISMA metrics reported for fiscal year 2017, OMB determined that 13 of the 23 agencies were managing risks to their enterprise, while the other 10 agencies were at risk of ineffectively identifying, protecting, detecting, responding to, and if necessary, recovering from cyber intrusions. Figure 2 summarizes agencies’ efforts to implement the government’s approach and strategy for securing information systems as of fiscal year 2017. Appendix III includes a table that provides an additional overview of the effectiveness of each agency’s implementation of the government’s approach and strategy to securing information systems. Inspectors general determined that more than half of the 23 civilian CFO Act agencies did not have effective agency-wide information security programs as of fiscal year 2017. Further, in agency financial statement audit reports for fiscal year 2017, inspectors general reported that, despite improvements being made in information security practices, most of the civilian CFO Act agencies continued to exhibit deficiencies in information security controls. As a result of these deficiencies, inspectors general reported material weaknesses or significant deficiencies in internal control over financial reporting. FISMA requires inspectors general to determine the effectiveness of their respective agencies’ information security programs. To do so, FISMA reporting instructions direct inspectors general to provide a maturity rating for agency information security policies, procedures, and practices related to the five core security functions established in the NIST cybersecurity framework, as well as for the agency-wide information security program. The ratings used to evaluate the effectiveness of agencies’ information security programs are based on a five-level maturity model, as described in table 2. According to this maturity model, Level 4 (managed and measurable) represents an effective level of security. Therefore, if an inspector general rates the agency’s information security program at Level 4 or Level 5, then that agency is considered to have an effective information security program. For fiscal year 2017, the inspectors general for 6 of the 23 civilian CFO Act agencies reported that their agencies had an effective agency-wide information security program. More specifically, for the 5 core security functions, most inspectors general reported that their agency was at Level 3 (consistently implemented) for the identify, protect, and recover functions, and at Level 2 (defined) for the detect and respond functions, as shown in figure 3. Inspectors general report on the effectiveness of agencies’ information security controls as part of the annual audits of the agencies’ financial statements. The reports resulting from these audits include a description of information security control deficiencies related to the five major control categories defined by the Federal Information System Controls Audit Manual (FISCAM)—access controls, configuration management, segregation of duties, contingency planning, and security management. The reports also identify the inspectors general’s designation of information security as a significant deficiency or material weakness in internal control over financial reporting systems. For fiscal year 2017, inspectors general continued to identify information security control deficiencies in each of the five major control categories across the 23 civilian CFO Act agencies. The number of agencies with deficiencies in the access control and contingency planning information security control categories decreased between fiscal years 2016 and 2017, according to the inspectors general. Nevertheless, the inspectors general reported that agencies continued to exhibit deficiencies in these two control categories. In addition, the number of agencies with deficiencies in the security management and segregation of duties control categories increased from the prior year. The number of agencies reported as having deficiencies in the configuration management control category remained the same. Figure 4 shows the number of agencies that reported deficiencies in each of the information security control categories for fiscal years 2016 and 2017. Overall, inspectors general for the 23 civilian CFO Act agencies reported progress in agencies’ information security practices for fiscal year 2017. Specifically, during that time, 17 inspectors general designated information security as either a significant deficiency (11) or material weakness (6) in internal control over financial reporting systems for their agencies. This is a decrease from the previous fiscal year when 19 inspectors general designated information security as a significant deficiency (12) or material weakness (7). Reporting instructions contained in the fiscal year 2017 FISMA metrics directed CIOs to assess their agencies’ progress toward achieving outcomes that strengthen federal cybersecurity. To do this, CIOs evaluated their agencies’ performance in reaching targets for specific FISMA reporting metrics. According to the reporting instructions, certain metrics were selected to represent the administration’s cybersecurity CAP goal. These selected metrics allowed CIOs to evaluate their agencies progress in meeting targets for that goal. The cybersecurity CAP goal for fiscal years 2015 through 2017 was to improve cybersecurity performance by having an ongoing awareness of information security, vulnerabilities, and threats impacting the operating information environment; ensuring that only authorized users have access to resources and information; and implementing technologies and processes that reduce the risk of malware. The cybersecurity CAP goal consisted of three priority areas with a total of nine performance indicators. Each of the nine performance indicators had an expected level of performance, or target, for implementation. Table 3 shows the three priority areas and related performance indicators and targets of the cybersecurity CAP goal for fiscal years 2015 through 2017. According to agency CIO assessments for fiscal year 2017, 6 of the 23 agencies met all 9 targets for the cybersecurity CAP goal. More specifically, 8 agencies met all four targets for the information security continuous 16 agencies met the two targets for the identity, credential, and access management priority area; and 17 agencies met all three targets for the anti-phishing and malware defense priority area. In addition, CIOs reported that agencies were making progress in meeting the targets for the nine performance indicators for fiscal years 2016 and 2017, with increases in the number of agencies meeting the targets within each of the three priority areas. However, although the number of agencies that met the targets in individual priority areas showed a net increase, not all agencies maintained their status. For example, the CIO for one agency reported meeting all three targets for the anti-phishing and malware defense priority area in fiscal year 2016, but reported that the agency only met two of the three targets in fiscal year 2017. Figure 5 shows the number of agencies that reported meeting each of the targets within the individual cybersecurity CAP goal priority areas for fiscal years 2016 and 2017. Although the CIOs for only six agencies reported meeting each of the targets associated with all nine performance indicators for the three cybersecurity CAP goal priority areas, the CIOs at an additional eight agencies reported meeting each target for two of the three priority areas. Specifically, one CIO reported that its agency met each of the targets for the (1) information security continuous monitoring and (2) identity, credential, and access management priority areas; another CIO reported that its agency met each of the targets for the (1) information security continuous monitoring and (2) anti-phishing and malware defense priority areas; and the CIOs at six other agencies met each of the targets for the (1) identity, credential, and access management and (2) anti-phishing and malware defense priority areas. In fiscal year 2018, the President’s Management Agenda replaced the three cybersecurity-focused CAP goal priority areas with updated performance indicators, most of which are to be met by 2020: 1. the manage asset security priority area is similar to the information security continuous monitoring priority area from the previous CAP goal and has a focus on understanding the assets and users on agency networks. In addition to hardware asset and software asset management, this priority area includes performance indicators for authorization and mobile device management. 2. the limit personnel access priority area focuses on issues of access management. This area includes performance indicators for using automated access management and managing access for privileged network and high-impact system users. The privileged network access management performance indicator is a continuation of the identity, credential, and access management priority area of the previous cybersecurity CAP goal. Therefore, agencies are expected to complete this metric by the end of the fiscal year 2018 FISMA reporting year. 3. the protect networks and data priority area, which is similar to the anti-phishing and malware defense priority area from the previous cybersecurity CAP goal, has three new performance indicators: intrusion detection and prevention, exfiltration and enhanced defenses, and data protection. Appendix IV describes the updated cybersecurity-focused CAP priority areas and performance indicators in more detail. In Executive Order 13800, the President directed OMB, in coordination with DHS, to assess and report to the executive branch on the sufficiency and appropriateness of federal agencies’ processes for managing cybersecurity risks. For these risk management assessments, OMB leveraged the FISMA metrics reported by agency CIOs and inspectors general for fiscal year 2017. The metrics addressed domains that correspond with the five core security functions identified in the cybersecurity framework. Table 4 lists these domains and their relationship to the core functions. Based on OMB’s evaluation of these domains, agency risk management processes related to the five core security functions and overall agency enterprise fell into one of the following three rating categories: managing risk: required cybersecurity policies, procedures, and tools are in use and the agency actively manages cybersecurity risks; at risk: some essential policies, processes, and tools are in place to mitigate overall cybersecurity risk, but significant gaps remain; and high risk: key fundamental cybersecurity policies, processes, and tools are either not in place or not deployed sufficiently. For fiscal year 2017, OMB reported that not all agencies were managing risk. When considering each of the five core security functions, OMB reported that most of the 23 agencies were at risk or at high risk with regard to the identify and protect core security functions. Less than half of the 23 agencies were at risk with regard to the detect, respond, and recover core security functions. Overall, OMB determined that 13 agencies were managing risk and that the remaining 10 agencies were at risk of not effectively identifying, protecting, detecting, responding to, and if necessary, recovering from cyber intrusions. Figure 6 shows OMB’s risk management assessment ratings by core security function across the 23 agencies for fiscal year 2017. DHS and OMB, as required by law and policy, have taken various actions to facilitate the agencies’ use of intrusion detection and prevention capabilities to secure federal systems. For example, DHS has developed an intrusion assessment plan, deployed NCPS to offer intrusion detection and prevention capabilities to agencies, and is providing tools and services to agencies to monitor their networks through its CDM program. However, NCPS still had limitations in detecting certain types of traffic and agencies were not sending all appropriate traffic through the system. Further, CDM was behind at meeting planned implementation dates, and agencies have requested additional training and guidance for these services. OMB has taken steps to improve upon agencies’ capabilities, but has not completed a policy and strategy to do so, or fully reported on its assessment of agencies’ capabilities. The Federal Cybersecurity Enhancement Act of 2015 requires DHS, in coordination with OMB, to develop and implement an intrusion assessment plan to proactively detect, identify, and remove intruders in agency information systems on a routine basis. The act also requires that the plan be updated, as necessary. In December 2016, DHS documented its Intrusion Assessment Plan. In the plan, DHS outlined tools, platforms, resources, and ongoing work that the department provides, and that are intended to help agencies detect, identify, and remove intruders on their networks and systems. The intrusion assessment plan also outlines a defense-in-depth strategy, which utilizes multiple layers of cybersecurity and deploys multiple capabilities in combination, to secure agencies’ networks and information systems. For example, the plan calls for DHS to implement NCPS to provide a perimeter defense for the networks of federal civilian executive branch agencies, while the agencies are to deploy their own intrusion detection and prevention capabilities inside their networks. DHS submitted its intrusion assessment plan to OMB in January 2017. The Federal Cybersecurity Enhancement Act of 2015 also requires DHS to deploy, operate, and maintain a capability to detect cybersecurity risks and prevent network traffic associated with such risks from transiting to or from an agency information system. In addition, the act requires that DHS make regular improvements to intrusion detection and prevention capabilities by deploying new technologies and modifying existing technologies. Further, the act requires agencies to use this capability on all information traveling between their information systems and any information system other than an agency information system. DHS developed NCPS, operationally known as EINSTEIN, to provide the capabilities to detect and prevent potentially malicious network traffic from entering agency networks. Consistent with recommendations we made to DHS in January 2016, DHS has taken actions to improve these capabilities and has other actions underway. For example, the department determined that enhancing NCPS’s current intrusion detection approach to include functionality that would detect deviations from normal network behavior baselines would be feasible. In addition, according to DHS officials, the department was operationalizing functionality intended to identify malicious activity in network traffic otherwise missed by signature-based methods. determined that developing enhancements to current intrusion detection capabilities to facilitate the scanning of Internet Protocol Version 6 (IPv6) traffic would be feasible. According to DHS officials, the department has developed plans to fully support IPv6 for several of its NCPS intrusion detection capabilities. Further, the department has developed implementation schedules and begun roll-out of the enhancements. updated the tool it uses to manage and deploy intrusion detection signatures to include a mechanism to clearly link signatures to publicly available, open-source information. developed clearly defined requirements for detecting threats on agency internal networks and at cloud service providers to help better ensure effective support of information security activities. According to DHS officials, the department was also continuing pilot activities with cloud service providers to enhance protections of agency assets. developed processes and procedures for using vulnerability information, such as data from the CDM program as it becomes available, to help ensure the department is using a risk-based approach for the selection/development of future NCPS intrusion prevention capabilities. Nevertheless, NCPS continues to have known limitations in its ability to identify potential threats. For example: NCPS does not have the ability to effectively detect intrusions across multiple types of traffic. Specifically, DHS determined that developing enhancements to current intrusion detection capabilities to facilitate the scanning of traffic related to supervisory control and data acquisition (SCADA) control systems would not be feasible. However, according to DHS officials, the department is exploring capabilities that are intended to provide critical, cross-sector, real-time visibility into critical infrastructure companies that utilize SCADA systems. In addition, DHS determined that the scanning of encrypted traffic would not be feasible. Nevertheless, according to its officials, the department performed research on potential architectural, technical, and policy mitigation strategies that could provide both the protection and situational awareness for encrypted traffic. The department has actions under way to continue its research in this area. DHS does not always explicitly ask agencies for feedback or confirmation of receipt of NCPS-related notification. While the department had drafted a standard operating procedure related to its incident notification process, the policy did not instruct DHS analysts specifically to include a solicitation of feedback from agencies within the notification. Further, US-CERT could not provide any information regarding the timetable for when these procedures would take effect. Metrics for NCPS, as provided by DHS, do not provide information about how well the system is enhancing government information security or the quality, efficiency and accuracy of supporting actions. Without the deployment of comprehensive measures, DHS cannot appropriately articulate the value provided by NCPS. While the department had taken actions to develop new measures, these measures did not provide a qualitative or quantitative assessment of the system’s ability to fulfill the system’s objectives. NSD did not provide guidance to agencies on how to securely route their information to their Internet service providers. Without providing network routing guidance, NSD has no assurance that the traffic it sees constitutes all or only a subset of the traffic the customer agencies intend to send. As shown in table 5, as of October 2018, the department had implemented five of the nine recommendations and was in the process of implementing the remainder. However, until DHS completes implementation of the remaining recommendations, the effectiveness of NCPS’s intrusion detection and prevention capabilities may be hindered. In addition, the 23 civilian CFO Act agencies had implemented NCPS capabilities to varying degrees. In a March 2018 report, OMB reported that 21 (about 91 percent) of the 23 agencies had implemented the first two iterations of the NCPS capabilities. In addition, 15 (about 65 percent) of the 23 agencies had implemented all three NCPS capabilities, as shown in table 6 below. However, agencies did not route all network traffic for all information traveling between their information systems and any information system other than an agency information system through NCPS sensors. For example, officials at 13 of 23 agencies stated that not all of their agency external network traffic flowed through NCPS. To illustrate, officials at one agency estimated that 20 percent of their external network traffic did not flow through the system. In addition, 4 of the agencies in our review previously cited several challenges in routing all of their traffic through NCPS intrusion detection sensors, including capacity limitations of the sensors, agreements with external business partners that use direct network connections, interagency network connections that do not route through Internet gateways, use of encrypted communications mechanisms, and backup network circuits that are not used regularly. NSD officials stated that agencies are responsible for routing their traffic to the intrusion detection sensors, and DHS does not have a role in that aspect of NCPS implementation. As a result, potential cyberattacks may not be detected or prevented for a portion of the external traffic at federal agencies. As noted above, we previously recommended that DHS work with agencies to better ensure the complete routing of information to NCPS sensors. The Federal Cybersecurity Enhancement Act of 2015 requires DHS to include, in the efforts of the department to continuously diagnose and mitigate cybersecurity risks, advanced network security tools to improve the visibility of network activity and to detect and mitigate intrusions and anomalous activity. According to DHS officials, the department is addressing the requirement to improve the visibility of network activity by including advanced network security tools as a part of CDM phase 3. In April 2018, we testified that DHS had previously planned to provide 97 percent of federal agencies with the services they needed for CDM phase 3 in fiscal year 2017. In addition, according to OMB’s annual FISMA report for fiscal year 2017, the CDM program was to continue to incorporate additional capabilities, including phase 3, in fiscal year 2018. However, DHS now expects initial operational capabilities to be in place for phase 3 in fiscal year 2019. The department has awarded contracts of approximately $3.26 billion to support its Dynamic and Evolving Federal Enterprise Network Defense (also known as DEFEND) aspect of the CDM program, which is to include phase 3. DEFEND also is to provide coverage for existing agency deployments. According to DHS documentation, the task orders associated with DEFEND are to be issued between the second quarter of fiscal year 2018 and the second quarter of fiscal year 2024. FISMA requires that DHS provide operational and technical assistance to agencies in implementing policies, principles, standards, and guidelines on information security. Toward this end, DHS has available training and guidance related to the implementation of the capabilities of NCPS (i.e., EINSTEIN) and CDM. Specifically: According the DHS officials, the department offers training and guidance to agencies on EINSTEIN 1 implementation. For example, DHS established a program in which the Software Engineering Institute will provide training and mentoring to agencies looking to enhance their understanding of, and proficiency with, the EINSTEIN 1 capability (e.g., network traffic information). NCPS program officials stated that agencies can use this service, which is available at no charge to them, on an unlimited basis as long as the requests relate to EINSTEIN 1. According to the officials, training and guidance related to EINSTEIN 2 and EINSTEIN 3 Accelerated is limited because DHS intentionally restricts the amount of data provided to agencies. According to DHS officials, the department also offers training and guidance to assist agencies with the implementation and use of resources associated with the CDM program, including webinars, guides, and computer-based training. The DEFEND contracts that the department awarded also include a mechanism for agencies to procure specialized tailored training, such as on the use of CDM tools. The department also offers customer advisory forums every other month that agencies are invited to attend. According to CDM program officials, the program’s governance, among other topics, is commonly discussed during these forums. Further, the department provides agencies with guidance, such as various governance documents, best practices, and frequently asked questions, through a web portal that is made available by OMB. In addition, US-CERT offers the CDM training program, which is to provide CDM implementation resources. Nevertheless, most agencies told us that they wanted DHS to provide more training and guidance as it relates to their implementation of the capabilities made available by NCPS and CDM. Specifically, Officials from 16 of 23 agencies reported that they wanted to receive additional training on NCPS capabilities. For example, officials at 5 agencies stated that they would like to receive training related to using network traffic information, understanding alerts, or implementing capabilities for cloud services. The officials also stated that they wanted training specific to agency security personnel. Officials from 19 of 23 agencies stated that they wanted to receive additional guidance related to NCPS’s capabilities, but not all of the 19 provided specific details. For example, officials from at least 3 agencies stated that they wanted additional guidance such as, “how to” documents, descriptions of architecture details, or guidance documents that explain NCPS’s capabilities so that agencies can gauge the gap between the security that the system provides and the security being provided by their own agency’s capabilities. Officials from 21 of 23 agencies reported that they wanted to receive additional training on implementing CDM at their agencies. For example, officials from 7 agencies suggested that additional training on the use of the tools would be beneficial. Officials from 22 of 23 agencies stated that they wanted additional guidance as it relates to CDM implementation. For example, officials from one agency stated that they would like examples of best practices and successful deployments. These requests for additional training and guidance demonstrate that agencies are either unaware of the available training and guidance, or that the training may not meet their needs. Until DHS coordinates with agencies to determine if additional training and guidance are needed, agencies may not be able to fully realize the benefits of the capabilities provided by the NCPS and CDM programs. Although OMB took steps to report on agencies’ implementation of intrusion detection and prevention capabilities, it did not report on all required actions. For example, the office did not submit DHS’s intrusion plan to Congress as required by the Federal Cybersecurity Enhancement Act of 2015. In addition, OMB provided various reports to Congress that described agencies’ intrusion detection and prevention capabilities, but the reports did not always include all information required by the act. Further, OMB developed a draft policy and strategy that were intended to improve agency capabilities, but it had not finalized these documents. The Federal Cybersecurity Enhancement Act of 2015 requires OMB to submit the intrusion assessment plan developed by DHS to the appropriate congressional committees no later than 6 months after the date of enactment of the act. The act also required OMB to submit to Congress a description of the implementation of the intrusion assessment plan and the findings of the intrusion assessments conducted pursuant to the intrusion assessment plan no later than 1 year after the date of enactment of the act, and annually thereafter. Although DHS developed and documented an intrusion assessment plan, which described a defense-in-depth approach to security, OMB did not submit the plan to Congress, as called for in the act. Even though DHS submitted the plan to OMB in January 2017, OMB had not submitted it to Congress as of October 2018 (21 months after DHS submitted the plan and 28 months past the due date). On the other hand, OMB did submit its own reports to Congress which generally described elements of the implementation of DHS’s intrusion assessment plan and intrusion assessment findings. In September 2017, OMB issued its analysis of agencies’ implementation of intrusion detection and prevention capabilities, or more specifically, agencies’ implementation of the various versions of NCPS. In addition, the office’s annual FISMA report, issued most recently in March 2018, generally covered elements of the intrusion assessment plan. OMB personnel within the Office of the Federal CIO believed that these two reports, along with a process the office had initiated to validate incidents across the government, addressed the requirement for OMB to submit to Congress a description of the implementation of the intrusion assessment plan and the findings of the intrusion assessments conducted pursuant to the plan. However, the September 2017 and March 2018 reports did not address other elements described in DHS’s intrusion assessment plan. For example, OMB did not describe agency roles associated with segmenting their networks, identifying key servers based on threat and impact, ensuring all applications are appropriately tracked and configured, and categorizing and tagging data based on threat and impact. While OMB has provided important information to congressional stakeholders through its own reports, until it submits the plan and addresses all elements described in DHS’s intrusion assessment plan, it will continue to be remiss in providing timely and sufficiently detailed information regarding the intrusion assessment plan to congressional stakeholders to support their oversight responsibilities. The Federal Cybersecurity Enhancement Act of 2015 also required that OMB submit an analysis of agencies’ application of the intrusion detection and prevention capabilities to Congress no later than 18 months after the date of enactment of the act, and annually thereafter. OMB was to include a list of federal agencies and the degree to which each agency had applied the intrusion detection and prevention capabilities in this analysis. As discussed previously in this report, OMB issued its analysis of agencies’ implementation of intrusion detection and prevention capabilities in September 2017. However, the analysis did not include the degree to which agencies had applied the intrusion detection and prevention capabilities. For example, the analysis did not reflect that not all agencies were using this capability on all information traveling between their systems and any system other than an agency system, as required by the act. Until OMB includes the degree to which agencies have applied intrusion detection and prevention capabilities in its analysis, it cannot provide congressional stakeholders with an accurate portrayal of the extent to which the capabilities are detecting and preventing potential intrusions. The Federal Cybersecurity Enhancement Act of 2015 further required that the Federal Chief Information Officer, within OMB, submit a report to Congress no earlier than 18 months after the date of enactment, but no later than 2 years after that date, assessing the intrusion detection and intrusion prevention capabilities that DHS made available to agencies. The act required that the report address (1) the effectiveness of DHS’s system used for detecting, disrupting, and preventing cyber-threat actors, including advanced persistent threats, from accessing agency information and agency information systems; (2) whether the intrusion detection and prevention capabilities, continuous diagnostics and mitigation, and other systems deployed are effective in securing federal information systems; (3) the costs and benefits of the intrusion detection and prevention capabilities, including as compared to commercial technologies and tools, and including the value of classified cyber threat indicators; and (4) the capability of agencies to protect sensitive cyber threat indicators and defensive measures if they were shared through unclassified mechanisms for use in commercial technologies and tools. In a report issued in September 2018 (about 8 months past the required due date), the Federal Chief Information Officer provided Congress an assessment of intrusion detection and intrusion prevention capabilities across the federal enterprise. The report pointed out, among other things, that agencies did not possess or properly deploy capabilities to detect or prevent intrusions or minimize the impact of intrusions when they occur. In addition, the report acknowledged the need to improve the effectiveness of intrusion detection and intrusion prevention capabilities and stated that OMB would track performance through the CAP goal and annual FISMA reports. However, the report did not address all of the requirements specified in the act. For example, the report did not address whether DHS’s system (i.e., NCPS) was effective in detecting advanced persistent threats. In addition, the report did not include a comparison of the costs and benefits of the intrusion detection and prevention capabilities versus commercial technologies and tools, or the value of classified cyber threat indicators. Further, the report did not address the capability of agencies to protect sensitive cyber threat indicators and defensive measures. Until OMB updates the Federal CIO report to address all of the requirements specified in the act, it will continue to be remiss in providing timely and sufficiently detailed information, such as that related to costs and benefits, among other elements in the act, to congressional stakeholders to support their oversight responsibilities. In addition to OMB’s responsibilities in the Federal Cybersecurity Enhancement Act of 2015, OMB has initiated plans for further improving agencies’ intrusion detection and prevention capabilities. In response to a tasking in Executive Order 13800, the Director of the American Technology Council coordinated the development of a report to the President from the Secretary of DHS, the Director of OMB, and the Administrator of the General Services Administration, regarding the modernization of federal information technology (IT). The report, Report to the President on Federal IT Modernization, identified actions that OMB should take for (1) prioritizing the modernization of high-risk, high-value assets and (2) modernizing the Trusted Internet Connection (TIC) program and NCPS to improve protections, remove barriers, and enable commercial cloud migration. For example, OMB was to take the following actions subsequent to the December 13, 2017 report issuance date: Within 60 days: Update a TIC policy to address challenges with agencies’ perimeter-based architectures, such as the modernization of NCPS. In addition, introduce a “90 day sprint” during which approved projects would pilot proposed changes in TIC requirements. Within 90 days: Update the annual FISMA and CAP goal metrics to focus on those critical capabilities that were most commonly lacking among agencies and focus oversight assessments on high-value assets. Within 120 days: In conjunction with DHS, develop a strategy for optimally realigning resources across agencies to reduce the risk to high-value assets and respond to cybersecurity incidents for those assets. OMB has taken steps toward implementing several, but not all, of these actions. For example, it introduced a “90 day sprint” and, according to knowledgeable OMB staff, the outcomes of this action are directly informing changes in TIC requirements. In addition, OMB updated the annual FISMA and CAP goal metrics by including several metrics that focus on high-value assets. The updated FISMA and CAP goal metrics went into effect in April 2018. However, while OMB had taken steps toward updating the TIC policy and developing a strategy for optimally realigning resources, the policy and strategy were in draft and had not yet been finalized as of October 2018. The agency did not specify a time frame for finalizing the policy and strategy. Until OMB finalizes the TIC policy and the strategy for optimally realigning resources, the enhancements offered through the policy and strategy are unlikely to be realized. FISMA requires agencies to provide information security protections to prevent unauthorized access to their systems and information. Officials from the 23 selected agencies reported to us that they generally took steps to meet this requirement by augmenting the tools and services provided by DHS with their own intrusion detection and prevention capabilities. However, agencies did not consistently implement five key capabilities specified by DHS and NIST guidance. In addition, most of the agencies did not fully implement any of the phases of DHS’s CDM program that is intended to improve their capabilities to detect and prevent intrusions. Binding Operational Directive (BOD) 18-01 instructs agencies to enhance email security. These enhancements include enabling encrypted email transmission, ensuring that receiving mail servers know what actions the agency would like taken when an email falsely claims to have originated from the agency, and removing certain insecure protocols, among others. The final deadline for implementing all BOD 18-01 requirements was October 16, 2018. Additionally, NIST SP 800-53 Revision 4 recommends that security awareness training include training on how to recognize and prevent spear-phishing attempts. As of September 2018, only 2 of the 23 agencies reported implementing all of the email requirements. For the remaining 21 agencies: 9 agencies stated that their agency had plans to implement all enhancements by the October 2018 deadline, 1 agency was uncertain whether it would meet the deadline, and 11 stated they would not be able to meet the deadline. By contrast, the majority of agencies (22 of 23) reported that they had trained staff on spear-phishing exercises, as recommended by NIST SP 800-53 Revision 4. Officials at the remaining agency told us that the agency planned to have spear-phishing exercises in fiscal year 2019. Such training should help ensure that phishing will be a less effective attack vector against the majority of agencies. While agencies benefit from secure protocols and spear-phishing training, implementing the remaining BOD 18-01 email requirements would provide additional protection to agency information systems. NIST recommends that federal agencies deploy intrusion detection and prevention capabilities. These capabilities include monitoring cloud services, using host-based intrusion prevention systems, monitoring external and internal network traffic, and using a security information and event management (SIEM) system. However, in our semi-structured interviews of the 23 agencies, officials told us that they often had not implemented many of these capabilities. Such inconsistent implementation exposes federal systems and the information they contain to additional risk. As part of their continuing oversight efforts, OMB and DHS can use the information below to work with agencies to identify obstacles and impediments affecting the agencies’ abilities to implement these capabilities. NIST SP 800-53 Revision 4 states that agencies should monitor and control communications at the external boundary of the network. However, as of June 2018, fewer than half of the agencies that used cloud computing services were monitoring cloud traffic. Specifically: 10 of 22 agencies that used Infrastructure as a Service were monitoring inbound and outbound Infrastructure as a Service traffic, 7 of 21 agencies that used Platform as a Service were monitoring inbound and outbound Platform as a Service traffic, and 10 of 23 agencies that used Software as a Service were monitoring inbound and outbound Software as a Service traffic. Without monitoring traffic to and from cloud service providers, agencies risk a greater chance of malicious cloud activity detrimentally affecting agency information security. NIST SP 800-53 Revision 4 states that agency internal monitoring may be achieved by utilizing intrusion prevention capabilities. These capabilities include using host-based intrusion prevention systems to provide defense at an individual system or device level by protecting against malicious activities. Host-based capabilities include memory-based protection and application whitelisting. As of June 2018, officials at the 23 agencies reported the following to us: 16 agencies used host-based intrusion prevention capabilities, 15 agencies used memory-based protection, and 8 agencies used host-based application whitelisting. Until host-based intrusion protections are fully deployed, agencies will be at greater risk of malicious activity adversely affecting agency operations. NIST SP 800-53 Revision 4 also states that agencies should monitor and control communications at the external boundary of the network and at key internal boundaries (e.g., network traffic). NIST guidance also stated that an agency should deploy monitoring devices strategically within the network to detect essential information. However, the agencies in our review did not always monitor external and internal traffic. For example, of the 23 agencies: 5 reported that they were not monitoring inbound or outbound direct connections to outside entities. 11 reported that they were not persistently monitoring inbound encrypted traffic. 8 reported that they were not persistently monitoring outbound encrypted traffic. In addition, 13 agencies reported they were not using a network-based session capture solution. Of the 10 agencies that reported using this solution, officials from 2 agencies stated that they were not capturing workstation-to-workstation connections. Without thorough monitoring of external and internal traffic, agencies will have less assurance that they are aware of compromised or potentially compromised traffic within their network. NIST SP 800-53 Revision 4 states that agencies should establish enhanced monitoring capabilities. Such capabilities should include automated mechanisms that collect and analyze incident data for increased threat and situational awareness. According to NIST, a security information and event management (SIEM) system analyzes data from different sources and identifies and prioritizes significant events. Sources of data used by SIEM systems include logs from database systems, network devices, security systems, web applications, and workstation operating systems. Of the 23 agencies that we reviewed, 21 reported using a SIEM capability. Over half of the agencies employing a SIEM used one or more of their logs to match against known vulnerabilities and advanced persistent threats, as well as to create real-time alerts. For example, of the 21 agencies: 14 agencies reported collecting database logs, but only 7 agencies reported using the logs to match against known vulnerabilities and persistent threats and to create real-time alerts; 20 agencies reported collecting network logs, but only 13 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; 21 agencies reported collecting security logs, but only 13 reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; 15 agencies reported collecting web application logs, but only 9 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts; and 13 agencies reported collecting workstation logs, but only 8 agencies reported using them to match against known vulnerabilities and persistent threats and to create real-time alerts. Only 5 agencies collected all 5 types of logs and used them to match against known vulnerabilities and persistent threats and to create real- time alerts. By not fully using SIEM capabilities, agencies will have less assurance that relevant personnel will be aware of possible weaknesses or intrusions. To further enhance their intrusion detection and prevention capabilities, the 23 civilian CFO Act agencies were in the process of implementing DHS’s CDM program. As previously discussed, Phase 1 of the program involves deploying products to automate hardware and software asset management, configuration settings, and common vulnerability management capabilities. Phase 2 intends to address privilege management and infrastructure integrity by allowing agencies to monitor users on their networks and to detect whether users are engaging in unauthorized activity. Phase 3 is intended to assess agency network activity and identify any anomalies that may indicate a cybersecurity compromise. As of June 2018, most agencies had not fully implemented any of the three phases. As shown in Figure 7, 15 agencies had partially implemented phase 1, 21 had partially or not yet begun to implement phase 2, and none of the agencies had fully implemented phase 3. Agencies’ implementation status has been affected, at least in part, due to delays in DHS’s deployment of the program phases. As a result, federal systems will remain at risk until the program is fully deployed. Many agencies have not effectively implemented the federal approach and strategy for securing information systems. For example, the inspectors general for 17 of the 23 selected agencies reported that their agencies had not effectively implemented their information security programs and had significant information security deficiencies associated with internal control over financial reporting. In addition, CIOs for 17 agencies reported not meeting all nine targets for the cybersecurity cross- agency priority goal. Further, OMB determined that that only 13 of the 23 agencies were managing risks to their overall enterprise, while the other 10 agencies were at risk. Until agencies more effectively implement the government’s approach and strategy, federal systems will remain at risk. DHS and OMB have initiatives underway that are intended to further improve agencies’ security posture. However, although DHS had provided training and guidance for NCPS and CDM, agencies expressed the need for more. In addition, OMB had also not finalized its policy and strategy aimed at addressing challenges with perimeter security and protecting high value assets, respectively. OMB had also not provided useful information to Congress, such as a description of agencies’ implementation of DHS’s intrusion assessment plan, the degree to which agencies are using NCPS, a complete analysis of agencies’ implementation of DHS’s intrusion assessment plan, or the costs and benefits of using commercial tools. Although agencies’ officials reported various efforts underway to enhance their agency’s intrusion detection and prevention capabilities, implementation efforts across the federal government were not consistent. OMB and DHS can use the information provided in this report to work with agencies to identify obstacles and impediments affecting the agencies’ abilities to implement these capabilities. We are making a total of nine recommendations, including two to DHS and seven to OMB. Specifically: The Secretary of DHS should direct the Network Security Deployment division to coordinate further with federal agencies to identify training and guidance needs for implementing NCPS and CDM. (Recommendation 1) The Secretary of DHS should direct the appropriate staff to work with OMB to follow up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities. (Recommendation 2) The Director of OMB should submit the intrusion assessment plan to the appropriate congressional committees. (Recommendation 3) The Director of OMB should report on implementation of the defense- in-depth strategy described in the intrusion assessment plan, including all elements described in the plan. (Recommendation 4) The Director of OMB should update the analysis of agencies’ intrusion detection and prevention capabilities to include the degree to which agencies are using NCPS. (Recommendation 5) The Director of OMB should direct the Federal CIO to update her report to Congress to include required information, such as detecting advanced persistent threats, a comparison of the costs and benefits of the capabilities versus commercial technologies and tools, and the capability of agencies to protect sensitive cyber threat indicators and defense measures. (Recommendation 6) The Director of OMB should establish a time frame for finalizing the Trusted Internet Connections policy intended to address challenges with agencies’ perimeter-based architectures and issue it when finalized. (Recommendation 7) The Director of OMB should establish a time frame for finalizing the strategy for realigning resources across agencies to protect high- value assets and issue it when finalized. (Recommendation 8) The Director of OMB should direct the Federal CIO to work with DHS to follow-up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities. (Recommendation 9) We provided a draft of this report to OMB and the 23 civilian CFO Act agencies, including DHS, covered by our review. In response, OMB provided comments via email, and DHS and three other agencies (the Department of Commerce, Social Security Administration, and U.S. Agency for International Development) provided written comments, which are reprinted in appendices V through VIII, respectively. The 19 remaining agencies (the Departments of Agriculture, Education, Energy, Health and Human Services, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs; as well as the Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, and Small Business Administration) stated via email that they had no comments. In its comments, which the OMB liaison provided to GAO via email on December 7, 2018, OMB did not state whether it agreed or disagreed with the seven recommendations that we made to it. Rather, according to the liaison, OMB agreed with the facts in our draft report, but found that the report did not reflect the agency’s rationale for not submitting the DHS intrusion assessment plan to Congress and a report on the implementation of the plan, as required by the Federal Cybersecurity Enhancement Act of 2015. The liaison stated that OMB is working closely with DHS to provide strategic direction in assessing gaps in, and modernizing, the manner in which intrusion detection and prevention capabilities are delivered to the federal government. Further, in a subsequent email on December 10, 2018, OMB said it believes the Federal CIO’s September 2018 report to Congress, along with data provided in OMB’s fiscal year 2017 FISMA report to Congress, achieves the outcomes sought by the Federal Cybersecurity Enhancement Act of 2015 and demonstrates OMB's continuous engagement with DHS across the evolution of the intrusion detection and prevention program. As stated in our report, we acknowledge that OMB has provided important information to congressional stakeholders through its reports. However, OMB’s reports did not cover all outcomes described in the act. For example, as we pointed out, these reports did not fully address implementation of the defense-in-depth strategy described in DHS’s intrusion assessment plan. In addition, although OMB reported on several elements required by the Federal Cybersecurity Enhancement Act of 2015, it did not report on all of the required elements. For example, the reports did not address whether DHS’s NCPS was effective in detecting advanced persistent threats. The reports also did not include a comparison of the costs and benefits of the intrusion detection and prevention capabilities versus commercial technologies and tools, or the value of classified cyber threat indicators. Further, the reports did not address the capability of agencies to protect sensitive cyber threat indicators and defensive measures. Accordingly, we maintain that our recommendations for OMB to report on required elements in the Federal Cybersecurity Enhancement Act of 2015 are warranted. In addition, OMB suggested that we revise our recommendations to the agency to include a shared responsibility with DHS to help drive desired outcomes. However, six of the seven recommendations we are making to OMB are related to specific OMB responsibilities cited in either the Federal Cybersecurity Enhancement Act of 2015 or the Report to the President on Federal IT Modernization. As such, we believe the recommendations are appropriately addressed to OMB. Furthermore, our recommendations do not prevent OMB from working with DHS to implement them. Our seventh recommendation to OMB—to work with DHS to follow up with agencies to identify obstacles and impediments affecting their abilities to implement intrusion detection and prevention capabilities—includes a shared responsibility with DHS. OMB also provided technical comments, which we incorporated into the report, as appropriate. Subsequent to providing initial comments on our draft report, OMB issued a memorandum intended to provide a strategy for realigning resources across agencies to protect high-value assets. This action addresses our recommendation 8, which called for the Director of OMB to establish a time frame for finalizing the strategy for realigning resources across agencies to protect high-value assets, and to issue the strategy when finalized. In its comments, DHS stated that it concurred with the two recommendations we made to the department. DHS stated that it expects to implement the recommendations in 2019. The Department of Commerce commented that the report was reasonable and that the department agreed with the findings and recommendations. In its comments, the Social Security Administration stated that protecting its networks and information is a critical priority. According to the agency, it continued to make improvements in fiscal year 2018, such as improvements and progress in securing applications, leveraging the cloud, managing its assets and vulnerabilities, strengthening its network and incident response capabilities, improving its security training, and enhancing the overall effectiveness of its cybersecurity program. Finally, the U.S. Agency for International Development commented that its inspector general had improved the agency’s capability maturity ratings for core security functions in fiscal year 2018. The agency also pointed out that it was the only selected agency in which fiscal year 2017 indicators of effectiveness in implementing the federal approach and strategy for securing information systems were all positive (as noted in Appendix III). We are sending copies of this report to appropriate congressional committees, the Director of OMB, the heads of the 23 civilian CFO Act agencies and their inspectors general, and other interested congressional parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IX. The Federal Cybersecurity Enhancement Act of 2015, which was enacted December 18, 2015, included a provision for GAO to report on the effectiveness of the federal government’s approach and strategy for securing agency information systems, including intrusion detection and prevention capabilities. The objectives of our review were to assess: (1) the reported effectiveness of selected agencies’ implementation of the federal government’s approach and strategy to securing agency information systems; (2) the extent to which the Office of Management and Budget (OMB) and the Department of Homeland Security (DHS) have facilitated the use of intrusion detection and prevention capabilities to secure federal agency information systems; and (3) the extent to which selected agencies reported implementing intrusion detection and prevention capabilities. Selected agencies for our review were the 23 civilian agencies covered by the Chief Financial Officers Act of 1990 (CFO Act). We did not include the Department of Defense because the Federal Cybersecurity Enhancement Act of 2015 only pertains to civilian agencies. Because we focused our work on the 23 civilian agencies, results from these reviews are not generalizable to the entire federal government. To assess the reported effectiveness of agencies’ implementation of the federal government’s approach and strategy to securing agency information systems, we described the federal government’s approach and strategy by summarizing the Federal Information Security Modernization Act of 2014 (FISMA), Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure, and the National Institute of Standards and Technology’s (NIST) Framework for Improving Critical Infrastructure Cybersecurity (cybersecurity framework). assessed the reported effectiveness of agencies’ implementation of the approach and strategy by reviewing annual reports from OMB and the inspectors general (IG) of the 23 civilian CFO Act agencies regarding the reported implementation of FISMA for fiscal year 2017. We described the IG reported maturity levels, including the Office of Inspectors General FISMA Reporting Metrics definition of “effectiveness.” These maturity levels are based on security domains aligned with the five core functions in NIST’s cybersecurity framework. We also summarized IG reported conclusions on the effectiveness of agencies’ information security programs for fiscal year 2017. reviewed the fiscal year 2016 and 2017 financial statement audit reports for each of the 23 civilian CFO Act agencies to identify the extent to which any significant deficiencies or material weaknesses related to information security over financial systems had been reported and to identify information security control weaknesses reported by the IGs. identified whether agencies had met the targets for the cybersecurity- focused cross-agency priority goal for fiscal years 2016 and 2017 by examining agency-reported performance metrics for fiscal years 2016 and 2017. evaluated OMB’s agency risk management assessment ratings to make a determination on how agencies were managing risk to their enterprise. These conclusions were based on FISMA metrics, and are aligned with the five core security functions defined in the cybersecurity framework. interviewed knowledgeable OMB officials and staff to obtain their views on the reported effectiveness of the federal government’s approach and strategy to securing agency information systems. To assess the extent to which OMB and DHS have facilitated the use of intrusion detection and prevention capabilities to secure federal agency information systems, we determined the extent OMB and DHS fulfilled their requirements described in the Federal Cybersecurity Enhancement Act of 2015 by collecting and reviewing artifacts from OMB and DHS and comparing them to the provisions outlined in the act. We also interviewed knowledgeable officials from OMB and DHS regarding their efforts to fulfill their requirements described in the act. determined the effectiveness of corrective actions taken by DHS to address nine previously reported recommendations we made in our report related to NCPS. Specifically, we collected appropriate artifacts and assessed the artifacts against the criteria used in that report, and determined the extent to which the actions taken by DHS met the intent of the recommendations, and we met with DHS staff responsible for the remediation activities and obtained their views of the status of actions taken to address the recommendations. held semi-structured interviews with knowledgeable officials from the 23 civilian CFO Act agencies. During these interviews, we obtained the agency’s views on whether they need more training and guidance from DHS for NCPS and CDM. We also interviewed knowledgeable officials and staff at DHS to obtain their views on how DHS had improved the intrusion detection and prevention capabilities it provides to federal agencies. We also interviewed DHS officials to obtain their views on the training and guidance that the department makes available to agencies. To assess the extent to which selected agencies reported implementing intrusion detection and prevention capabilities, we described the reported intrusion detection and prevention capabilities implemented by the 23 civilian CFO Act civilian agencies by summarizing implemented intrusion detection and prevention capability information obtained from the semi-structured interviews at the 23 civilian CFO Act agencies described above; identifying the extent to which the 23 civilian CFO Act agencies were in compliance with DHS’s binding operating directive (BOD) pertaining to enhanced email and web security (BOD 18-01) by collecting and summarizing Cyber Hygiene Trustworthy Email reports from the 23 agencies and determining the extent to which the agencies had taken required actions to implement the BOD. During the semi-structured interviews, we also obtained the agency’s views and experiences with other programs and services provided by DHS, including the extent to which agencies had implemented the tools offered by the department’s Continuous Diagnostics and Mitigation (CDM) program. To determine the reliability of submitted data and obtain clarification about agencies’ processes to ensure the accuracy and completeness of data used in their respective FISMA reports, we analyzed documents and conducted interviews with officials from 6 of the 23 civilian CFO Act agencies. To select these six agencies, we sorted agency fiscal year 2017 information technology budget data from highest to lowest amount and then divided the data into three tiers: high spending, medium spending, and low spending. We then randomly selected two agencies from each of the three tiers. The selected agencies were the Departments of Agriculture, Commerce, Housing and Urban Development, Transportation, and Veterans Affairs, and the U.S. Agency for International Development. While not generalizable to all agencies, the information we collected and analyzed about the six selected agencies provided insights into various processes in place to produce FISMA reports. Based on this assessment, we determined that the data were sufficiently reliable for the purposes of our reporting objectives. We conducted this performance audit from December 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The National Institute of Standards and Technology established the cybersecurity framework to provide guidance for cybersecurity activities within the private sector and government agencies at all levels. The cybersecurity framework consists of five core functions: identify, protect, detect, respond, and recover. Within the five functions are 23 categories and 108 subcategories that define discrete outcomes for each function, as described in table 7. The federal approach and strategy for securing information systems is prescribed by federal law and policy, including the Federal Information Security Modernization Act of 2014 and the presidential executive order on Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. Accordingly, federal reports describing agency implementation of this law and policy, and reports of related agency information security activities, indicated the effectiveness of agencies’ efforts to implement the federal approach and strategy. Table 8 summarizes the reported effectiveness of the 23 civilian Chief Financial Officers Act of 1990 agencies to implement the government’s approach and strategy to securing information systems. The President’s Management Agenda identifies cross-agency priority (CAP) goals to target areas where multiple agencies must collaborate to effect change. The agenda issued in fiscal year 2018 established an information technology modernization goal that includes a cybersecurity objective with specific priority areas and performance indicators. This cybersecurity-focused goal is intended to drive progress in the government’s efforts to modernize information technology to increase productivity and security. Figure 8 describes the 3 updated cybersecurity- focused cross-agency priority areas and 10 performance indicators. Each federal agency is expected to meet one of the 10 new performance indicators by the end of fiscal year 2018 and the remainder by 2020. In addition to the individual named above, Jeffrey Knott (assistant director), Daniel Swartz (analyst-in-charge), David Blanding, Chris Businsky, Kristi Dorsey, Di’Mond Spencer, Priscilla Smith, and Edward Varty made key contributions to this report. West Coile, Franklin Jackson, and Chris Warweg also provided assistance.	[ "Federal agencies are dependent on information systems to carry out operations. The risks to these systems are increasing as security threats evolve and become more sophisticated. To reduce the risk of a successful cyberattack, agencies can deploy intrusion detection and prevention capabilities on their networks and systems. GAO first designated federal information security as a government-wide high-risk area in 1997. In 2015, GAO expanded this area to include protecting the privacy of personally identifiable information. Most recently, in September 2018, GAO updated the area to identify 10 critical actions that the federal government and other entities need to take to address major cybersecurity challenges. The federal approach and strategy for securing information systems is grounded in the provisions of the Federal Information Security Modernization Act of 2014 and Executive Order 13800. The act requires agencies to develop, document, and implement an agency-wide program to secure their information systems. The Executive Order, issued in May 2017, directs agencies to use the National Institute of Standards and Technology's cybersecurity framework to manage cybersecurity risks. The Federal Cybersecurity Enhancement Act of 2015 contained a provision for GAO to report on the effectiveness of the government's approach and strategy for securing its systems. GAO determined (1) the reported effectiveness of agencies' implementation of the government's approach and strategy; (2) the extent to which DHS and OMB have taken steps to facilitate the use of intrusion detection and prevention capabilities to secure federal systems; and (3) the extent to which agencies reported implementing capabilities to detect and prevent intrusions. To address these objectives, GAO analyzed OMB reports related to agencies' information security practices including OMB's annual report to Congress for fiscal year 2017. GAO also analyzed and summarized agency-reported security performance metrics and IG-reported information for the 23 civilian CFO Act agencies. In addition, GAO evaluated plans, reports, and other documents related to DHS intrusion detection and prevention programs, and interviewed OMB, DHS, and agency officials. The 23 civilian agencies covered by the Chief Financial Officers Act of 1990 (CFO Act) have often not effectively implemented the federal government's approach and strategy for securing information systems (see figure below). Until agencies more effectively implement the government's approach and strategy, federal systems will remain at risk. To illustrate: As required by Office of Management and Budget (OMB), inspectors general (IGs) evaluated the maturity of their agencies' information security programs using performance measures associated with the five core security functions—identify, protect, detect, respond, and recover. The IGs at 17 of the 23 agencies reported that their agencies' programs were not effectively implemented. IGs also evaluated information security controls as part of the annual audit of their agencies' financial statements, identifying material weaknesses or significant deficiencies in internal controls for financial reporting at 17 of the 23 civilian CFO Act agencies. Chief information officers (CIOs) for 17 of the 23 agencies reported not meeting all elements of the government's cybersecurity cross-agency priority goal. The goal was intended to improve cybersecurity performance through, among other things, maintaining ongoing awareness of information security, vulnerabilities, and threats; and implementing technologies and processes that reduce malware risk. Executive Order 13800 directed OMB, in coordination with the Department of Homeland Security (DHS), to assess and report on the sufficiency and appropriateness of federal agencies' processes for managing cybersecurity risks. Using performance measures for each of the five core security functions, OMB determined that 13 of the 23 agencies were managing overall enterprise risks, while the other 10 agencies were at risk. In assessing agency risk by core security function, OMB identified a few agencies to be at high risk (see figure at the top of next page). DHS and OMB facilitated the use of intrusion detection and prevention capabilities to secure federal agency systems, but further efforts remain. For example, in response to prior GAO recommendations, DHS had improved the capabilities of the National Cybersecurity Protection System (NCPS), which is intended to detect and prevent malicious traffic from entering agencies' computer networks. However, the system still had limitations, such as not having the capability to scan encrypted traffic. The department was also in the process of enhancing the capabilities of federal agencies to automate network monitoring for malicious activity through its Continuous Diagnostics and Mitigation (CDM) program. However, the program was running behind schedule and officials at most agencies indicated the need for additional training and guidance. Further, the Federal CIO issued a mandated report assessing agencies' intrusion detection and prevention capabilities, but the report did not address required information, such as the capability of NCPS to detect advanced persistent threats, and a cost/benefit comparison of capabilities to commercial technologies and tools. Selected agencies had not consistently implemented capabilities to detect and prevent intrusions into their computer networks. Specifically, the agencies told GAO that they had not fully implemented required actions for protecting email, cloud services, host-based systems, and network traffic from malicious activity. For example, 21 of 23 agencies had not, as of September 2018, sufficiently enhanced email protection through implementation of DHS' directive on enhanced email security. In addition, less than half of the agencies that use cloud services reported monitoring these services. Further, most of the selected 23 agencies had not fully implemented the tools and services available through the first two phases of DHS's CDM program. Until agencies more thoroughly implement capabilities to detect and prevent intrusions, federal systems and the information they process will be vulnerable to malicious threats. GAO is making two recommendations to DHS, to among other things, coordinate with agencies to identify additional needs for training and guidance. GAO is also making seven recommendations to OMB to, among other things, direct the Federal CIO to update the mandated report with required information, such as detecting advanced persistent threats. DHS concurred with GAO's recommendations. OMB did not indicate whether it concurred with the recommendations or not." ]	12,551	gov_report	en	null	a6d311b6722cdf0fd1e95f07371162c59183a53db1fc5f62
Since 1993, USAID has obligated more than $5 billion in bilateral assistance to the Palestinians in the West Bank and Gaza, primarily using funds appropriated through the ESF. According to State officials, through the ESF, USAID provides project assistance and debt relief payments to PA creditors. USAID, with overall foreign policy guidance from State, implements most ESF programs, including programs related to private sector development, health, water and road infrastructure, local governance, civil society, rule of law, education, and youth development. According to USAID officials, this assistance to the West Bank and Gaza contributes to building a more democratic, stable, prosperous, and secure Palestinian society—a goal that USAID described as being in the interest of the Palestinians, the United States, and Israel. Figure 1 shows the location of the West Bank and Gaza relative to surrounding countries. USAID assistance to the West Bank and Gaza is conducted under antiterrorism policies and procedures outlined in an administrative policy document known as Mission Order 21. The stated purpose of the mission order, as amended, is to describe policies and procedures to ensure that the mission’s program assistance does not inadvertently provide support to entities or individuals associated with terrorism. We have previously reported on the status of ESF assistance to the Palestinians and USAID’s antiterrorism policies and procedures in the West Bank and Gaza. As of March 31, 2018, USAID had obligated about $544.1 million (over 99 percent) and expended about $350.6 million (over 64 percent) of approximately $544.5 million in ESF assistance allocated for the West Bank and Gaza in fiscal years 2015 and 2016 (see table 1). USAID obligated portions of the allocated funds for direct payments to PA creditors—specifically, payments to two Israeli fuel companies, to cover debts for petroleum purchases, and to a local Palestinian bank, to pay off a line of credit used for PA medical referrals to six hospitals in the East Jerusalem Hospital network. Project assistance obligated for fiscal years 2015 and 2016 accounted for about $215 million (74 percent) and $184 million (72 percent), respectively, of USAID’s obligations of ESF assistance for the West Bank and Gaza for those fiscal years (see fig. 1). Payments to the PA’s creditors accounted for the remaining obligations—about $75 million (26 percent) of fiscal year 2015 obligations and about $70 million (28 percent) of fiscal year 2016 obligations. According to USAID documents, ESF project assistance for the West Bank and Gaza for fiscal years 2015 and 2016 was obligated for three USAID development objectives: Economic Growth and Infrastructure (about $239 million), Investing in the Next Generation (about $107 million), and Governance and Civic Engagement (about $25 million). Program support—which sustains all development objectives, according to USAID—accounted for about $29 million (see table 2). Economic Growth and Infrastructure. The largest share—about 60 percent—of USAID’s ESF project assistance for the West Bank and Gaza for fiscal years 2015 and 2016 supported the agency’s Economic Growth and Infrastructure development objective. According to USAID documents, as of March 31, 2018, the agency had obligated about $239 million and expended approximately $89 million (about 37 percent) for projects under this objective. USAID officials stated that the agency funded these projects under the following standard State-budgeted program areas: health (including water), infrastructure, private sector competiveness, and stabilization operations and security sector reform. The largest project—the Architecture and Engineering Services project—received about $20 million of fiscal year 2015 ESF assistance and $17 million of fiscal year 2016 ESF assistance. The purpose of the project was to rehabilitate and construct infrastructure through the procurement of infrastructure services, including engineering design and construction management, among other things. The contractor was required to coordinate with relevant PA and Israeli entities, as well as with USAID, to assist in the selection of PA water and wastewater projects and in the planning and design of water projects such as small- to large-scale water distribution systems, water treatment systems, and institutional capacity building. Investing in the Next Generation. The second-largest share—about 27 percent—of USAID’s fiscal years 2015 and 2016 ESF project assistance for the West Bank and Gaza supported the agency’s Investing in the Next Generation development objective. According to USAID documents, as of March 31, 2018, the agency had obligated about $107 million and expended approximately $79 million (about 74 percent) for projects under this objective. Program areas funded included education, health, social and economic services and protection of vulnerable populations. The largest project funded under this objective—a grant to the World Food Program for assistance to vulnerable groups—received $12 million in fiscal year 2015 and $15 million in fiscal year 2016 ESF assistance. The project focused on ensuring food security, including meeting food needs, of the nonrefugee population; increasing food availability and dietary diversity for the most vulnerable and food-insecure nonrefugee population; and establishing linkages with the Palestinian private sector (shopkeepers, farms, and factories) to produce and deliver the aid being provided to Palestinians. For example, the project directly distributed a standard food ration through both direct food distribution and electronic food vouchers to vulnerable nonrefugee families. Governance and Civic Engagement. The smallest share—about 6 percent—of USAID’s fiscal years 2015 and 2016 ESF project assistance for the West Bank and Gaza supported the agency’s Governance and Civic Engagement development objective. According to USAID documents, as of March 31, 2018, USAID had obligated about $24.6 million and expended approximately $14.5 million (about 60 percent) for projects in program areas that included civil society, good governance, and rule of law. The largest project funded under this objective—a contract for the Communities Thrive Project— received about $5.2 million and $8 million in fiscal years 2015 and 2016 ESF assistance, respectively. The project aimed to help 55 West Bank municipalities improve fiscal management, fiscal accountability and transparency, and delivery and management of municipal services, among other things. Under debt relief grant agreements with the PA, USAID made direct payments of ESF assistance to PA creditors totaling about $75 million from fiscal year 2015 funds and $70 million from fiscal year 2016 funds. USAID paid about $40 million from fiscal year 2015 funds and $45 million from fiscal year 2016 funds to two oil companies to cover debts for petroleum purchases. In addition, USAID paid about $35 million from fiscal year 2015 funds and $25 million from fiscal year 2016 funds to the Bank of Palestine, to pay off a PA line of credit that was used to cover PA medical referrals to six hospitals in the East Jerusalem Hospital network. Before using fiscal years 2015 and 2016 ESF assistance to pay PA creditors, USAID vetted the creditors to ensure that the assistance would not provide support to entities or individuals associated with terrorism, as required by its policies and procedures. USAID determined that certain legal requirements, including the requirement for an assessment of the PA Ministry of Finance and Planning, were not applicable for direct payments of these funds to PA creditors. Nevertheless, USAID continued to commission external assessments and financial audits of the PA Ministries of Health and Finance and Planning. USAID documentation for payments to creditors shows that before signing debt relief agreements with the PA, mission officials checked, as required by Mission Order 21, the vetting status of PA creditors who would receive direct payments under the agreements, to ensure their eligibility before any payment was made. USAID Mission Order 21 requires that before payments to PA creditors are executed, the creditors must be vetted—that is, the creditors’ key individuals and other identifying information must be checked against the federal Terrorist Screening Center database and other information sources to determine whether they have links to terrorism. According to USAID policies and procedures, each PA creditor must be vetted if more than 12 months have passed since the last time the creditor was vetted and approved to receive ESF payments. We found that for payments made to PA creditors using fiscal years 2015 and 2016 ESF assistance, USAID vetted each PA creditor that received payments and completed the vetting during the 12- month period before the debt relief agreements with the PA were signed (see table 3). USAID determined that certain legal requirements applicable to cash transfers to the PA were not applicable to direct payments to PA creditors of fiscal years 2015 and 2016 ESF assistance. In September 2015, we reported that USAID ceased making cash payments directly to the PA in 2014 and began making payments of ESF assistance directly to PA creditors. In reviewing USAID’s compliance with key legal requirements, we found that USAID had complied with the requirements when making cash transfers to the PA in fiscal year 2013. However, USAID had determined that some requirements were not applicable to direct payments made to PA creditors in fiscal year 2014, because no funds were being provided directly to the PA. After fiscal year 2015, USAID further defined the scope of statutory requirements it deemed applicable to payments to PA creditors using fiscal years 2015 and 2016 ESF assistance, under the rationale that these payments do not constitute direct payments to the PA. Specifically, according to USAID, the agency determined that the following statutory requirements discussed in our prior report were not applicable to direct payments to PA creditors. A requirement to notify the Committees on Appropriations 15 days before obligating funds for a cash transfer to the PA A requirement for the PA to maintain cash transfer funds in a separate account A requirement for the President to waive the prohibition on providing funds to the PA and to submit an accompanying report to the Committees on Appropriations A requirement for the Secretary of State to provide a certification and accompanying report to the Committees on Appropriations when the President waives the prohibition on providing funds to the PA Requirements for direct government-to-government assistance, including an assessment of the PA Ministry of Finance and Planning According to USAID officials, they currently do not plan to resume cash payments to the PA, because making direct payments to creditors minimizes the misuse of funds and assures full transparency and appropriateness of transfers. Although USAID concluded that the statutory requirement mandating assessments of the PA Ministry of Finance and Planning did not apply to direct payments to PA creditors, the West Bank and Gaza mission commissioned external assessments of the PA Ministry of Health’s medical referral services and Ministry of Finance and Planning’s petroleum procurement system. According to a USAID document, while the payments to the creditors did not constitute direct budget support to the PA, the agency chose to commission external assessments to determine whether the PA’s financial systems were sufficient to ensure adequate accountability for USAID funds consistent with legislative requirements for direct budget support funds. These external assessments identified weaknesses in both systems. Ministry of Health medical referrals. The assessment report stated that the ministry did not have approved policies and procedures for the medical referral process, a list of medical services covered by the referral system, and written criteria for selecting referral hospitals in the medical referral systems. In response, in a January 2016 internal memorandum, the West Bank and Gaza mission officials concluded, among other things, that the findings did not pose a significant risk to USAID funds. They also stated that the Ministry of Health’s medical referral system had adequate policies and procedures for referrals to local hospitals. However, after the assessment report was issued, a USAID contractor worked with the Ministry of Health to update, revise, and approve guidelines for medical referrals. Ministry of Finance and Planning petroleum procurements. The assessment report stated that the ministry lacked specific policies and procedures to prevent or detect fraud in the petroleum procurement systems. In the West Bank and Gaza mission’s January 2016 memorandum, USAID mission officials disagreed with the assessment’s findings regarding the petroleum procurement system, stating that the assessment did not take into account sufficient and adequate internal controls at the ministry as a first line of defense against fraud. The memorandum also stated that the finding did not affect USAID debt relief payments to the PA creditors. USAID officials told us that, while they did not believe the external assessments’ findings affected the integrity of USAID’s debt relief payment process, they took four additional steps to mitigate findings noted in the assessment of the Ministry of Finance and Planning’s fuel procurement processes. According to USAID officials, they (1) confirmed that the fuel companies had controls and systems to ensure an objective and transparent system in receiving and recording PA orders, (2) dispatched orders with official and properly signed shipping delivery and receipt documents, (3) obtained written confirmation from the fuel companies of the costs of the fuel provided to the PA, and (4) confirmed the PA’s petroleum debt with the fuel companies before initiating the payments and after making the payments. In addition, in 2016, USAID commissioned two routine financial audits of the debt relief grant agreed to by USAID and the PA for the use of fiscal year 2015 ESF assistance to make direct payments to PA creditors. According to USAID officials, the auditors were to examine the PA Ministry of Finance and Planning’s recording of USAID payments to PA creditors in its financial records as well as the ministry’s and USAID’s compliance with the terms of the grant agreement and related implementation letters. The audits did not identify any questioned or ineligible costs, reportable material weaknesses in internal control, or material instances of noncompliance with the terms of the debt relief grant. Also, in 2017, USAID contracted for a financial audit of the fiscal year 2016 debt relief grant agreed to by USAID and the PA. According to a USAID document, in May 2018, USAID held an entrance conference with the PA Ministry of Finance and Planning for the audit of the fiscal year 2016 grant. In July 2018, USAID sent the final audit report to the Regional Inspector General for review. According to the USAID document, the report did not identify any questioned or ineligible costs, reportable material weaknesses in internal controls, or material instances of noncompliance with the terms of the grant. We provided a draft of this report to USAID and State for review and comment. USAID provided comments, which we have reproduced in appendix II, as well as technical comments, which we incorporated as appropriate. State did not provide comments. We are sending copies of this report to the appropriate congressional committees, the Administrator of USAID, and the Secretary of State. In addition, the report is available at no charge on the GAO website at http://www.gao.gov If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who contributed to this report are listed in appendix III. Appropriations acts for fiscal years 2015 and 2016 included provisions for GAO to review the treatment, handling, and uses of funds provided through the ESF for assistance to the West Bank and Gaza. This report examines (1) the status of ESF assistance and projects provided to the West Bank and Gaza for fiscal years 2015 and 2016, including payments to PA creditors, and (2) the extent to which USAID conducted required vetting of PA creditors to ensure that assistance would not support entities or individuals associated with terrorism and assessed PA ministries’ capacity to use ESF assistance as intended. To address our first objective, we reviewed appropriations legislation, related budget justification documents, and financial data for fiscal years 2015 and 2016, including expenditures as of March 31, 2018, provided by USAID’s West Bank and Gaza mission in Tel Aviv, Israel. We reviewed data that USAID provided on obligations and expenditures of all ESF assistance for the West Bank and Gaza as of March 31, 2018, from annual allocations for fiscal years 2015 and 2016. We also reviewed relevant USAID documents, including notifications to Congress regarding the use of appropriated funds. In addition, we interviewed USAID and State officials in Washington, D.C., and Tel Aviv. To determine whether the data were sufficiently reliable for the purposes of this report, we requested and reviewed information from USAID officials about their procedures for entering contract and financial information into USAID’s data system. We determined that the USAID data were sufficiently reliable. For the project information included in this report, we relied on data that USAID provided, showing its obligations and expenditures of fiscal year 2015 and 2016 ESF assistance for West Bank and Gaza. For illustrative purposes, we requested and obtained from USAID descriptions of projects that, according to USAID officials, represented the largest financial obligations for each development objective in fiscal years 2015 and 2016. To address our second objective, we identified and reviewed relevant legal requirements as well as USAID policies and procedures to comply with those requirements. USAID Mission Order 21 is the primary document that details USAID procedures to ensure that the mission’s assistance program does not provide support to entities or individuals associated with terrorism, consistent with the prohibition on such support found in relevant laws and executive orders. In addition, we reviewed 27 USAID determinations of compliance for payments to PA creditors and discussed with USAID mission officials their efforts to comply with the policies and procedures in Mission Order 21 before executing payments to hospitals, companies, and banks that facilitated the payments. We also reviewed the timing of USAID’s vetting of each PA creditor that received payments, to ensure that, as required by Mission Order 21, the vetting occurred within 12 months before USAID signed the relevant debt relief grant agreement with the PA. Further, we reviewed external assessments of the PA Ministries of Health and Finance and Planning and financial audits of the PA Ministry of Finance and Planning, and we discussed the assessments’ and audits with USAID officials responsible for payments to PA creditors. We conducted this performance audit from September 2017 to August 2018, in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for findings and conclusions based on our audit objectives. In addition to the contact named above, Judith McCloskey (Assistant Director), Tom Zingale (Analyst-in-Charge), Eddie Uyekawa, Jeff Isaacs, and Nicole Willems made significant contributions to this report. David Dornisch, Neil Doherty, Reid Lowe, and Roger Stoltz also contributed to the report.	[ "Since 1993, the U.S. government has committed more than $5 billion in bilateral assistance to the Palestinians in the West Bank and Gaza. According to the Department of State, this assistance to the Palestinians promotes U.S. economic and political foreign policy interests by supporting Middle East peace negotiations and financing economic stabilization programs. USAID is primarily responsible for administering ESF assistance to the West Bank and Gaza. Appropriations acts for fiscal years 2015 and 2016 included provisions for GAO to review the treatment, handling, and uses of funds provided through the ESF for assistance to the West Bank and Gaza. This report examines (1) the status of ESF assistance and projects provided to the West Bank and Gaza for fiscal years 2015 and 2016, including project assistance and payments to PA creditors, and (2) the extent to which USAID conducted required vetting of PA creditors to ensure that this assistance would not support entities or individuals associated with terrorism and assessed PA ministries' capacity to use ESF assistance as intended. GAO reviewed relevant laws and regulations and USAID financial data, policies, procedures, and documents. GAO also interviewed USAID and State Department officials. As of March 2018, the U.S. Agency for International Development (USAID) had allocated about $545 million of funding appropriated to the Economic Support Fund (ESF) for assistance in the West Bank and Gaza for fiscal years 2015 and 2016. USAID obligated about $544 million (over 99 percent) and expended about $351 million (over 64 percent) of the total allocations. Project assistance accounted for approximately $399 million of the obligated funds, while payments to Palestinian Authority (PA) creditors accounted for $145 million (see figure). USAID's obligations for project assistance in the West Bank and Gaza for fiscal years 2015 and 2016 supported three development objectives—Economic Growth and Infrastructure ($239 million), Investing in the Next Generation ($107 million), and Governance and Civic Engagement (about $25 million). In fiscal years 2015 and 2016, USAID made payments directly to PA creditors—two Israeli fuel companies, to cover debts for petroleum purchases, and a local Palestinian bank, to pay off a line of credit used for PA medical referrals to six hospitals in the East Jerusalem Hospital network. USAID vetted PA creditors to ensure that the program assistance would not provide support to entities or individuals associated with terrorism and also conducted external assessments and financial audits of PA ministries of Health and Finance and Planning. USAID documentation showed that, as required, officials checked the vetting status of each PA creditor within 12 months before USAID signed its debt relief grant agreements with the PA. In addition, although USAID determined that it was not legally required to assess the PA Ministry of Health's medical referral services and the Ministry of Finance and Planning's petroleum procurement system, the agency commissioned external assessments of both ministries. These assessments found some weaknesses in both ministries' systems; however, USAID mission officials stated that these weaknesses did not affect USAID debt relief payments to the PA creditors. Nevertheless, USAID took additional steps to mitigate the identified weaknesses. For example, a USAID contractor worked with the Ministry of Health to update, revise, and approve guidelines for medical referrals. In addition, USAID commissioned financial audits of the debt relief grant agreements between USAID and the PA for direct payments to PA creditors in fiscal year 2015 and 2016. The audits did not identify any ineligible costs, reportable material weaknesses in internal control, or material instances of noncompliance with the terms of the agreements. GAO is not making recommendations in this report." ]	3,091	gov_report	en	null	6f6b6187fc270471899d0ce86ec305328fcee442361be864
Congressional interest in small business access to capital has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to start, continue, or expand operations and create jobs. Small businesses have played an important role in net job growth during previous economic recoveries, particularly in the construction, housing, and retail sectors. For example, after the eight-month recession that began in July 1990 and ended in March 1991, small businesses (defined for this purpose as having fewer than 500 employees) increased their net employment in the first year after the recession, whereas larger businesses continued to experience declines in employment. During the most recent recession (December 2007-June 2009), small businesses accounted for almost 60% of net job losses. From the end of the recession through the end of FY2012, small businesses accounted for about 63% of net new jobs, close to their historical average share of net new job creation. Since then, small businesses have added about 65% of net new jobs. Some have argued that the federal government should provide additional resources to assist small businesses. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs. Several laws were enacted during the 111 th Congress to enhance small business access to capital. For example, P.L. 111-5 , the American Recovery and Reinvestment Act of 2009 (ARRA), provided the Small Business Administration (SBA) an additional $730 million, including $375 million to temporarily subsidize SBA fees and increase the 7(a) loan guaranty program's maximum loan guaranty percentage from 85% on loans of $150,000 or less and 75% on loans exceeding $150,000 to 90% for all regular 7(a) loans. P.L. 111-240 , the Small Business Jobs Act of 2010, authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF) ($4.0 billion was issued) to encourage community banks with less than $10 billion in assets to increase their lending to small businesses. It also authorized a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, numerous changes to the SBA's loan guaranty and contracting programs, funding to continue the SBA's fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through December 31, 2010, and about $12 billion in tax relief for small businesses. P.L. 111-322 , the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue its fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until available funding was exhausted, which occurred on January 3, 2011. According to the SBA, the temporary fee subsidies and 90% maximum loan guaranty for the 7(a) program "engineered a significant turnaround in SBA lending.... The end result is that the agency helped put more than $42 billion in the hands of small businesses through the Recovery Act and Jobs Act combined." This report focuses on the SBLF. It begins with a discussion of the supply and demand for small business loans. The SBLF's advocates argued that the fund was an important part of a larger effort to enhance the supply of small business loans. After describing the program's structure, the report then examines other arguments that were presented both for and against the program's enactment. Advocates claimed the SBLF would increase lending to small businesses and, in turn, create jobs. Opponents contended that the SBLF could lose money, lacked sufficient oversight provisions, did not require lenders to increase their lending to small businesses, could serve as a vehicle for the Troubled Asset Relief Program (TARP) recipients to effectively refinance their TARP loans on more favorable terms with little or no resulting benefit for small businesses, and could encourage a failing lender to make even riskier loans to avoid higher dividend payments. The report concludes with an examination of the SBLF's implementation by the Department of the Treasury and a discussion of bills introduced during recent Congresses to amend the SBLF. For example, during the 112 th Congress, S. 681 , the Greater Accountability in the Lending Fund Act of 2011, would have, among other provisions, limited the program's authority to 15 years from enactment and prohibited TARP recipients from participating in the program. H.R. 2807 , the Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds from the SBLF when its investment authority expired on September 27, 2011, to the Community Development Financial Institutions Fund "to continue the program of making capital investments in eligible community development financial institutions in order to increase the availability of credit for small businesses." H.R. 3147 , the Small Business Lending Extension Act, would have, among other provisions, extended the Department of the Treasury's investment authority from one year following the date of enactment to two years. During the 113 th Congress, H.R. 2474 , the Community Lending and Small Business Jobs Act of 2013, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund. Each quarter, the Federal Reserve Board surveys senior loan officers concerning their bank's lending practices. The survey includes questions about both the supply and demand for small business loans. For example, the survey includes a question concerning their bank's credit standards for small business loans: "Over the past three months, how have your bank's credit standards for approving applications for C&I [commercial and industrial] loans or credit lines—other than those to be used to finance mergers and acquisitions—for small firms (defined as having annual sales of less than $50 million) changed?" The senior loan officers are asked to indicate if their bank's credit standards have "Tightened considerably," "Tightened somewhat," "Remained basically unchanged," "Eased somewhat," or "Eased considerably." Subtracting the percentage of respondents reporting "Eased somewhat" and "Eased considerably" from the percentage of respondents reporting "Tightened considerably" and "Tightened somewhat" provides an indication of the market's supply of small business loans. As shown in Figure 1 , senior loan officers reported that they generally tightened small business loan credit standards from 2007 through late 2009. Since 2009, small business credit markets have generally improved, with some tightening in 2016 and the end of 2018. The survey also includes a question concerning the demand for small business loans: "Apart from normal seasonal variation, how has demand for C&I loans changed over the past three months for small firms (annual sales of less than $50 million)?" Senior loan officers are asked to indicate if demand was "Substantially stronger," "Moderately stronger," "About the same," "Moderately weaker," or "Substantially weaker." Subtracting the percentage of respondents reporting "Moderately weaker" and "Substantially weaker" from the percentage of respondents reporting "Substantially stronger" and "Moderately stronger" provides an indication of the market's demand for small business loans. As shown in Figure 1 , senior loan officers reported that the demand for small business loans declined somewhat in 2007 and 2008, and declined significantly in 2009. Demand then leveled off (at a relatively reduced level) during 2010, increased somewhat during the first half of 2011, declined during the latter half of 2011, generally increased from 2012 through 2015, and has varied somewhat, increasing in some quarters and declining in others, since then. The Federal Deposit Insurance Corporation (FDIC) has maintained comparable small business lending data for the second quarter (June 30) of each year since 2002. Figure 2 shows the amount of outstanding small business loans (defined by the FDIC as commercial and industrial loans of $1 million or less) for nonagricultural purposes as of June 30 of each year from 2006 to 2018. As shown in Figure 2 , the amount of outstanding small business loans for nonagricultural purposes increased at a relatively steady pace from June 30, 2006, to June 30, 2008, declined over the next several years, and has increased each year since June 30, 2013. Although changes in small business outstanding debt are not necessarily a result of changes in the supply of small business loans, many, including the SBA, view a decline in small business outstanding debt as a signal that small businesses might be experiencing difficulty accessing sufficient capital to enable them to lead job growth. According to an SBA-sponsored study of small business lending, several factors contributed to the decline in small business lending from 2007 to 2010. The report's authors noted that the 30% decline in home prices from their peak in 2006 to 2010 diminished the value of collateral for many small business borrowers, some of whom had relied on home equity loans to finance their small businesses during the real estate boom. The authors concluded that the absence of this additional source of collateral may have contributed to a decline in lending to small businesses. They also argued that many small businesses found it increasingly difficult to renew existing lines of credit as lenders became more cautious as a result of slow economic growth and an increasing risk of loan defaults, especially among small business start-ups, which are generally considered among the most risky investments. The authors argued that in this newly regulated market, smaller lenders are likely to be less profitable because they have fewer sales of products and services to spread out over the higher auditing and FDIC costs. Hence, they have less money to lend to small businesses and others; and the relative difficulty in assessing creditworthiness due to the lack of information about potential financial performance is very high in small business lending, especially in financial markets driven by factor—rather than relationship—lending. Therefore, one would expect the small business loan market to recover more slowly than other financial markets. The authors also noted that FDIC data indicated that small business lending had not only declined in absolute terms (the total amount of dollars borrowed and the total number of small business loans issued), but in relative terms as well (the market share of business loans): Over the eight years from 2003 through 2010, small business loans as a share of total business loans declined by more than 12 percentage points, from 81.7% in 2003 to 68.9% in 2010. Perhaps of most concern is the further decline in the ratios of small business loans to total assets and small business loans to total business loans. Small business loans constituted about 16.8% of total assets in 2005, but only 15.3% in 2010; hence, small business lending is becoming less significant for these lenders. Small business lending is also losing market share in the business loan market. In the eight-year period from 2003 to 2010, small business loans as a share of total business loans declined more than 10 percentage points from 81.7% in 2003 to 68.9% in 2010. According to the previously mentioned SBA-sponsored study of small business lending, the demand for small business loans fell during the recession primarily because many small businesses experienced a decline in sales and many small business owners had a heightened level of uncertainty concerning future sales. The study's authors argued that given small business owners' lack of confidence in the demand for their goods and services, many small business owners decided to save capital instead of hiring additional employees and borrowing capital to invest in business expansions and inventory. The responses of small business owners to a monthly survey by the National Federation of Independent Business Research Foundation (NFIB) concerning small business owners' views of the economy support the argument that declining sales contributed to the reduced demand for small business loans. From 2008 through 2011, small business owners responding to the NFIB surveys identified poor sales as their number-one problem. Prior to 2008, taxes had been reported as their number-one problem in nearly every survey since the monthly surveys began in 1986. Also, employment data suggest that small businesses were particularly hard hit by the recession. As mentioned previously, small businesses accounted for almost 60% of the net job losses during the December 2007-June 2009 recession. According to testimony by the Secretary of the Treasury before the House Small Business Committee on June 22, 2011, small businesses were especially hard hit by the recession because [s]mall businesses are concentrated in sectors that were especially hard hit by the recession and the bursting of the housing bubble: construction and real estate. More than one-third of all construction workers are employed by firms with less than 20 workers, and an additional third are employed by businesses with fewer than 100 employees. Just over half of those employed in the real estate, rental, and leasing sectors work for businesses with less than 100 workers on their payrolls. More broadly, the rate of job losses was almost twice as high in small businesses as it was in larger firms during the depths of the crisis. During the 111 th Congress, legislation designed to increase both the supply and demand for small business loans was adopted. For example, Congress provided more than $1.1 billion to temporarily subsidize fees for the SBA's 7(a) and 504/Certified Development Company (504/CDC) loan guaranty programs and to increase the 7(a) program's maximum loan guaranty percentage from 85% on loans of $150,000 or less and 75% on loans exceeding $150,000 to 90% for all regular 7(a) loans (funding was exhausted on January 3, 2011). The fee subsidies were designed to increase the demand for small business loans by reducing the cost of borrowing. The 90% loan guarantee was designed to increase the supply of small business loans by reducing the risk of lending. Congress also provided the SBA additional resources to expand its lending to small businesses. For example, ARRA included a $255 million temporary, two-year small business stabilization program to guarantee loans of $35,000 or less to small businesses for qualified debt consolidation, later named the America's Recovery Capital (ARC) Loan program (the program ceased issuing new loan guarantees on September 30, 2010); an additional $15 million for the SBA's surety bond program and a temporary increase in that program's maximum bond amount from $2 million to $5 million and up to $10 million under certain conditions (the higher maximum bond amounts ended on September 30, 2010); an additional $6 million for the SBA's Microloan program's lending program and an additional $24 million for the Microloan program's technical assistance program; and increased the funds ( leverage ) available to SBA-licensed Small Business Investment Companies (SBICs) to no more than 300% of the company's private capital or $150 million, whichever is less. Several other programs were also enacted during the 111 th Congress to increase the supply of small business loans. For example, ARRA authorized the SBA to establish a temporary secondary market guarantee authority to provide a federal guarantee for pools of first lien 504/CDC program loans that are to be sold to third-party investors. ARRA also authorized the SBA to make below-market interest rate direct loans to SBA-designated "Systemically Important Secondary Market (SISM) Broker-Dealers" that would use the loan funds to purchase SBA-guaranteed loans from commercial lenders, assemble them into pools, and sell them to investors in the secondary loan market. P.L. 111-240 extended the SBA's secondary market guarantee authority from two years after the date of ARRA's enactment to two years after the date of the program's first sale of a pool of first lien position 504/CDC loans to a third-party investor (which took place on September 24, 2010). The act also increased the loan guarantee limits for the SBA's 7(a) program from $2 million to $5 million, and for the 504/CDC program from $1.5 million to $5 million for "regular" borrowers, from $2 million to $5 million if the loan proceeds are directed toward one or more specified public policy goals, and from $4 million to $5.5 million for manufacturers. It also increased the SBA's Microloan program's loan limit for borrowers from $35,000 to $50,000 and for microlender intermediaries after their first year in the program from $3.5 million to $5 million. In addition, it temporarily increased for one year (through September 26, 2011) the SBA 7(a) Express Program's loan limit from $350,000 to $1 million. The act also authorized the Secretary of the Treasury to establish the $30 billion SBLF and a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs. The SBLF was designed "to address the ongoing effects of the financial crisis on small businesses by providing temporary authority to the Secretary of the Treasury to make capital investments in eligible institutions in order to increase the availability of credit for small businesses." The SBLF's legislative history, including differences in the House- and Senate-passed versions of the program, appears in the Appendix . P.L. 111-240 authorized the Secretary of the Treasury to make up to $30 billion in capital investments in eligible institutions with total assets equal to or less than $1 billion or $10 billion (as of the end of the fourth quarter of calendar year 2009). The authority to make capital investments in eligible institutions was limited to one year after enactment. Eligible financial institutions with total assets equal to or less than $1 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the SBLF in an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application. During the fourth quarter of 2009, 7,340 FDIC-insured lending institutions reported having assets amounting to less than $1 billion. Eligible financial institutions with total assets of $10 billion or less as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the fund in an amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application. During the fourth quarter of 2009, 565 FDIC-insured lending institutions reported having assets of $1 billion to $10 billion. Risk-weighted assets are assets such as cash, loans, investments, and other financial institution assets that have different risks associated with them. FDIC regulations (12 C.F.R. §567.6) establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher risk-weighting. Lending institutions on the FDIC problem bank list or institutions that have been removed from the FDIC problem bank list for less than 90 days are ineligible to participate in the program. A lending institution can refinance securities issued through the Treasury Capital Purchase Program (CPP) and the Community Development Capital Incentive (CDCI) program under TARP, but only if that institution had not missed more than one dividend payment due under those programs. Participating banks (C corporations and savings associations) are charged a dividend rate of no more than 5% per annum initially, with reduced rates available if the bank increases its small business lending by specified amounts. For example, during any calendar quarter in the initial two years of the capital investments under the program, the bank's dividend rate is lowered if it increases its small business lending, as reported in its FDIC call reports, compared with the average small business lending it made in the four previous quarters immediately preceding the law's enactment, minus some allowable adjustments. Table 1 shows the dividend rates associated with small business lending increases by C corporation banks and savings associations. Table 2 shows the dividend rates associated with small business lending increases by participating S corporation banks and mutual lending institutions. These rates are slightly higher than those for C corporation banks and savings associations "to reflect after-tax effective rates equivalent to the dividend rate paid by other classes of institutions participating in the Fund through the issuance of preferred stock." As will be discussed later, an S corporation does not pay federal taxes at the corporate level. Any business income or loss is "passed through" to shareholders who report it on their personal income tax returns. Community Development Financial Institutions (CFDIs) are provided funding for an initial eight years with an automatic rollover for two additional years at the issuer's option. On the 10 th anniversary of the investment date the issuer repays the principal amount, together with all accrued and unpaid interest. Additionally, the dividend rate is 2% per annum for the first eight years from the investment date (payable quarterly in arrears on January 1, April 1, July 1, and October 1 of each year) and 9% thereafter. SBLF applicants are required to submit a small business lending plan to the appropriate federal banking agency and, for applicants that are state-chartered banks, to the appropriate state banking regulator. The plan must describe how the applicant's business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan to provide linguistically and culturally appropriate outreach, where appropriate. The plan is treated as confidential supervisory information. The Secretary of the Treasury is required to consult with the appropriate federal banking agency or, in the case of an eligible institution that is a nondepository community development financial institution, the Community Development Financial Institution Fund, before determining if the eligible institution may participate in the program. The act directed that all funds received by the Secretary of the Treasury in connection with purchases made by the SBLF, "including interest payments, dividend payments, and proceeds from the sale of any financial instrument, shall be paid into the general fund of the Treasury for reduction of the public debt." The SBLF's advocates argued that it would create jobs by encouraging lenders, especially those experiencing liquidity problems (access to cash and easily tradable assets), to increase their lending to small businesses. For example, the House report accompanying H.R. 5297 , the Small Business Lending Fund Act of 2010, argued that the SBLF was needed to enhance small business's access to capital, which, in turn, was necessary to enable those businesses to create jobs and assist in the economic recovery: There has been a dramatic decrease in the amount of bank lending in the past several quarters. On May 20, 2010, the Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile for the first quarter of 2010. The report shows that commercial and industrial loans declined for the seventh straight quarter, down more than 17% from the year before. Many companies, particularly small businesses, claim that it is becoming harder to get new loans to keep their business operating and that banks are tightening requirements or cutting off existing lines of credit even when the businesses are up to date on their loan repayments. Treasury Secretary Timothy F. Geithner recently acknowledged the problem encountered by some banks, both healthy and troubled, which have been told to maintain capital levels in excess of those required to be considered well capitalized. Some banks say they have little choice but to scale back lending, even to creditworthy borrowers, and the most recent Federal Reserve data shows banks are continuing to tighten lending terms for small businesses. A dissenting view, endorsed by the House Committee on Financial Services' minority members, was included in the report. This view argued that the SBLF does not properly deal with the lack of financing for small businesses: Instead of addressing the problem by stimulating demand for credit by small businesses, H.R. 5297 injects capital into banks with no guarantees that they will actually lend. The bill allows a qualifying bank to obtain a capital infusion from the government without even requiring the bank to make a loan for two years. In fact, if a bank reduces or fails to increase lending to small business during those first two years, it would not face any penalty. It defies logic that the Majority would support a bill to increase lending that does not actually require increased lending. A more effective response to the challenges facing America's small businesses was offered by Representatives Biggert, Paulsen, Castle, Gerlach, and King, whose amendment would have extended a series of small business tax credits before implementing the Small Business Lending Fund. Advocates also argued that even if the SBLF were authorized "the program probably would not be fully operational for months; banks could shun the program for fear of being stigmatized by its association with TARP; and many banks would avoid taking on new liabilities when their existing assets are troubled." They contended that the bill did not provide sufficient oversight for effectively monitoring the program because the Inspector General of the Department of the Treasury, who was given that oversight responsibility under the bill, "might not be able to direct sufficient attention to this task given its other responsibilities." They argued that the Special Inspector General of TARP would be in a better position to provide effective oversight of the program. These, and other, arguments were presented during House floor debate on the bill. For example, Representative Melissa Bean advocated the bill's passage, arguing that the SBLF builds on the effective financial stabilization measures Congress has previously taken by establishing a new $30 billion small business loan fund to provide additional capital to community banks that increase lending to small businesses. This $30 billion investment on which the government will be collecting dividends and earning a profit per the CBO [Congressional Budget Office] estimates can be leveraged by banks into over $300 billion in new small business loans. This is an important investment by the Federal Government in our small business that brings tremendous returns. The terms of the capital provided to banks are performance based; the more a bank increases its small business lending, the lower the dividend rate is for the SBLF capital. If a bank decreases its small business lending, it will be penalized with higher dividend rates. This legislation includes strong safeguards to ensure that banks adequately utilize available funds to increase lending to small businesses, not for other lending or to improve their balance sheet. There will be oversight consistently throughout the program, plus it requires that the capital be invested only in strong financial institutions at little risk of default and the best positioned to increase small business lending. It's important for Americans to understand that although this fund has a maximum value of $30 billion, it is estimated to make a profit for taxpayers in the long run. And the money will ultimately go not to banks, but to the small businesses and their communities that they lend to. As our financial system stabilizes and our community banks recapitalize, these funds will be repaid to Treasury with full repayment required over the next 10 years. Representative Nydia Velázquez, then-chair of the House Committee on Small Business, added that the legislation had sufficient safeguards in place to ensure that the funds were targeted at small businesses: First, banks must apply to the Treasury to receive funds, with a detailed plan on how to increase small business lending at their institution. This language was included at my insistence that we need to make sure that small businesses will get the benefit of this legislation. Second, this capital, repayment of the government loans will be at a dividend rate starting at 5% per year. This rate will be lowered by 1% for every 2.5% increase in small business lending over 2009 levels. It can go as low as a total dividend rate of just 1% if the bank increases its business lending by 10% or more, incentivizing banks to do the right thing. To ensure that banks actually use the funding they receive, the rate will increase—and there are penalties—to 7% if the bank fails to increase its small business lending at their institution within 2 years. To ensure that all federal funds are paid back within 5 years, the dividend rate will increase to 9% for all banks, irrespective of their small business lending, after 4 1/2 years. Representative Velázquez added "let me just make it clear … CBO estimates that [the SBLF] will save taxpayers $1 billion over 10 years, as banks are expected to pay back this loan over 10 years, with interest." Representative Randy Neugebauer opposed the bill's adoption, arguing that the majority is repeating the same failed initiatives that have helped our national debt grow to $13 trillion in the past 2 years. This bill follows the model of the TARP program, minus [TARP's] stronger oversight, and it puts another $30 billion into banks in the hopes that lending to small businesses will increase. In the words of Neil Barofsky, the Special Inspector General who oversees the TARP, "In terms of its basic design," he says, "its participants, its application process, from an oversight perspective, the Small Business Lending Fund would essentially be an extension of the TARP's Capital Purchase Program." From the Congressional Oversight Panel for TARP, chaired by Elizabeth Warren, she says, "The SBLF's prospects are far from certain. The SBLF also raises questions about whether, in light of the Capital Purchase Program's poor performance in improving credit access, any capital infusion program can successfully jump-start small business lending." This bill allows for another $33 billion in spending that will be added to the government's credit card. The CBO tells us that the bank lending portion will ultimately cost taxpayers $3.4 billion when market risk is taken into account. The House passed H.R. 5297 by a vote of 241-182, on June 17, 2010. The arguments presented during House floor debate on H.R. 5297 were also presented during Senate consideration of the bill. Advocates argued that the SBLF would encourage higher levels of small business lending and jobs. For example, Senator Mary Landrieu argued on July 21, 2010, that the SBLF should be adopted because it "is not a government program for banks. It is a public-private partnership lending strategy for small business." She added that as chair of the Senate Committee on Small Business and Entrepreneurship, she talked with her colleagues, including the SBLF's opponents, and revised the program to address their concerns. She also argued that the SBLF has hundreds of endorsements from independent banks, the community banks and almost every small business association in America … makes $1 billion [according to the CBO score] … is not direct lending from the federal government. It is not creating a new bureaucracy … [It is] voluntary … there are no onerous restrictions.… The small business gets the loans. We create jobs. People are employed. The recession starts ending…. It has nothing to do with TARP money. It is not a TARP program. It is not a bank program. It doesn't have anything to do with banks except that we are working in partnership with banks to lend money to small businesses which are desperate for money. Opponents argued that the SBLF could lose money, lacked sufficient oversight provisions, did not require lenders to increase their lending to small businesses, could serve as a vehicle for TARP recipients to effectively refinance their TARP loans on more favorable terms with little or no resulting benefit for small businesses, and could encourage a failing lender to make even riskier loans to avoid higher dividend payments. In addition, there were disagreements over the number of amendments that could be offered by the minority, which led several Senators to oppose further consideration of the bill until that issue was resolved to their satisfaction. For example, on July 22, 2010, Senator Olympia Snowe argued that although "under a cash-based estimate, CBO listed the official score for the lending fund as raising $1.1 billion over 10 years," SBLF proponents "fail to mention" that when CBO scored the SBLF using an alternative methodology that adjusts for market risk, it estimated that the SBLF could cost $6.2 billion. Senator Snowe also argued that the bipartisan Congressional Oversight Panel for TARP stated in its May 2010 oversight report that the proposed SBLF "substantially resembles" the TARP and "is a bank-focused capital infusion program that is being contemplated despite little, if any, evidence that such programs increase lending." Senator Snowe noted that she regretted "that we are in a position where we have not been able to reach agreement allowing the minority to offer amendments, which is confounding and perplexing as well as disappointing." Senator Snowe later added that the SBLF's incentives to encourage lending to small businesses also "could encourage unnecessarily risky behavior by banks … to avoid paying higher interest rates." Opponents also questioned the SBLF's use of quarterly call report data as submitted by lenders to their appropriate banking regulator to determine what counts as a small business loan. Call report data denotes loans of $1 million or less as small business loans, regardless of the size of the business receiving the loan. As a result, the SBLF's opponents argued that "the data used to measure small business lending in the SBLF covers an entirely different set of small businesses than those that fall within the definition set out in the Small Business Act or used by the SBA." The Senate's version of H.R. 5297 was agreed to on September 16, 2010, by a vote of 68-38. The House agreed to the Senate-passed version of H.R. 5297 on September 23, 2010, by a vote of 237-187, and the bill, retitled the Small Business Jobs Act of 2010, was signed into law by President Obama on September 27, 2010. On February 14, 2011, the Obama Administration issued its budget recommendation for FY2012. The budget anticipated that the SBLF would provide $17.399 billion in financings, well below its authorized amount of $30 billion. This was the first indication that the SBLF's implementation may not proceed as expected. The second indication that the program's implementation may not proceed as expected was an unanticipated delay in the writing of the program's regulations. The U.S. Treasury was criticized by some for not implementing the program quickly enough. The first financing took place on June 21, 2011, about nine months after the program's enactment. The delay was largely due to the Treasury's need to finalize the SBLF's investment decision process with federal banking agencies and the need to create separate SBLF regulations for financial institutions established as C corporations, Subchapter S corporations, mutual lending institutions, and Community Development Financial Institutions (CDFIs). A C corporation is a legal entity established under state law and includes shareholders, directors, and officers. The profit of a C corporation is taxed to the corporation when earned and then is taxed to the shareholders when distributed as dividends. The majority of insured depository institutions, bank holding companies, and savings and loan holding companies are C corporations. A Subchapter S c orporation refers to a section of the Internal Revenue Code (IRC) that allows a corporation to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. Mutual lending institutions , which include many thrifts, are owned by their depositors or policyholders. They have no stockholders. CDFIs are financial entities certified by the CDFI Fund in the U.S. Department of the Treasury and provide capital and financial services to underserved communities. The establishment of separate regulations for each of these different types of financial institutions was largely related to issues involving whether the SBLF's financings would be counted by banking regulatory agencies as Tier 1 capital (core capital that is relatively liquid, such as common shareholders' equity, disclosed reserves, most retained earnings, and perpetual noncumulative preferred stocks) or as Tier 2 capital (supplementary capital that consists mainly of undisclosed reserves, revaluation reserves, general provisions, hybrid instruments, and subordinated term debt). The treatment of the SBLF's financings was important given that banks must maintain a minimum total risk-based capital ratio of 8% (the ratio measures bank capital against assets, with asset values risk-weighted, or adjusted on a scale of riskiness) to be considered adequately capitalized by federal banking regulators. In addition, banks must maintain a minimum Tier 1 risk-based ratio to assets, typically 3% for banking institutions with the highest financial ratings and 4% for others. According to Treasury officials, under Internal Revenue Service (IRS) rules, S corporations can have only a single class of stock (common shares). Consequently, these institutions cannot issue preferred stock to Treasury. As a result, Treasury had to consider purchasing subordinated debt from these institutions, which the banking regulatory agencies would likely designate as Tier 2 capital. Treasury officials believed that providing Tier 2 capital would probably result in fewer S corporation participants. Additionally, because mutual lending institutions do not issue stock, Treasury officials were unable to receive preferred stock as consideration for an investment in this type of institution. Therefore, Treasury had to consider purchasing subordinated debt from these institutions as well. Treasury completed its regulations for C corporation banks first. For C corporations, SBLF funds are treated as Tier I capital and the Treasury purchases senior perpetual noncumulative preferred stock (or an equivalent). The stock pays a quarterly dividend on the first day of each quarter after closing of the SBLF capital program funding. Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view. It is composed of core capital, which consists primarily of common stock and disclosed reserves (or retained earnings) but may also include nonredeemable, noncumulative preferred stock. In contrast, S corporations and mutual lending institutions receive unsecured subordinated debentures from the Treasury, which are considered Tier 2 capital for regulatory capital requirements. The application deadline for C corporation banks was May 16, 2011. The application deadline for Subchapter S corporations and mutual lending institutions was June 6, 2011, and the application deadline for CDFIs was June 22, 2011. A total of 926 institutions applied for $11.8 billion in SBLF funding. Treasury approved more than $4.0 billion in SBLF financing to 332 lending institutions ($3.9 billion to 281 community banks and $104 million to 51 CDFIs). SBLF recipients have offices located in 47 states and the District of Columbia. The average financing was $12.1 million, ranging from $42,000 to $141.0 million. Of the 332 lending institutions which received financing, 137 institutions had participated in TARP's Community Development Capital Initiative or its Capital Purchase Program. These institutions received nearly $2.7 billion in SBLF financing (66.8% of the total). Treasury is required to publish monthly reports describing all transactions made under the SBLF program during the reporting period. It is also required to publish a semiannual report (each March and September) providing all projected costs and liabilities, operating expenses, and transactions made by the SBLF, including a list of all participating institutions and the amounts each institution has received under the program. Treasury must also publish a quarterly report describing how participating institutions have used the funds they have received. SBLF participants must submit an initial supplemental report to Treasury no later than five business days before closing. The report provides information from the institution's FDIC call reports or, for holding companies, from their subsidiaries' FDIC call reports, that Treasury uses to establish an initial baseline for measuring the SBLF participants' progress in making loans to small businesses. The initial baseline is the average amount of qualified small business lending that was outstanding for the four full quarters ending on June 30, 2010. It is derived by first adding the outstanding amount of lending reported for all commercial and industrial loans, owner-occupied nonfarm, nonresidential real estate loans, loans to finance agricultural production and other loans to farmers, and loans secured by farmland. Then, the outstanding amount of lending for large loans (defined as any loan or group of loans greater than $10 million), loans to large businesses (defined as businesses with annual revenues greater than $50 million), and the portion of any loans guaranteed by the U.S. government or for which the risk is assumed by a third party is subtracted from that amount. The lending institution then adds back any cumulative charge-offs with respect to such loans since July 1, 2010. This last adjustment is done to prevent lending institutions from being penalized for appropriately charging off loans. Each SBLF participant's small business lending baseline is also adjusted to take into account any gains in qualified small business lending during the four baseline quarters resulting from mergers, acquisitions, and loan purchases. This adjustment is designed to ensure that dividend rate reductions provided to any SBLF participant correspond to additional lending to small businesses and not to the acquisition of existing loans. In addition, the cumulative baseline for all SBLF participants will decrease over time as SBLF participants repay their SBLF loans and exit the program. For example, the initial small business lending baseline for the 332 SBLF participants as of March 31, 2011, was $35.52 billion ($34.75 billion for 281 banks and $770.48 million for 51 CDFIs). The small business lending baseline for the 50 institutions that continued to participate in the SBLF as of December 31, 2018, was $1.5 billion ($808.8 million for 7 banks and $714.5 million for 43 CDFIs). Table 3 provides the number and type of SBLF participating institutions, the small business lending baseline, the amount of small business lending by participants, the change in small business lending by participants, and the change in small business lending by both current and former participants from 2011 to 2018. The number of SBLF participating institutions is declining as institutions repay their loans and exit the program. As Treasury anticipated, this decline has accelerated following the first quarter of 2016 because the dividend rates for C corporation banks and savings associations and for S corporation banks and mutual lending institutions were increased at that time (to 9% and 13.8%, respectively). SBLF institutions are also required to submit quarterly supplemental reports, due in the calendar quarter following submission of the initial supplemental report and in each of the next nine quarters, to determine their dividend rate for the next quarter. Using information contained in the quarterly supplemental reports, Treasury announced in its April 2019 quarterly report on SBLF Participants' Small Business Lending Growth that, as of December 31, 2018 The 50 current SBLF participants (7 banks and 43 CDFIs) increased their small business lending by $1.347 billion over a $1.523 billion baseline. Since inception, the total increase in small business lending reported by both current and former SBLF participants is more than $19.1 billion over the baseline. All seven of the currently participating community banks and 39 of the 43 currently participating CDLFs increased their small business lending over baseline levels. Most current participants report that their small business lending increases have been substantial, with 43 of 50 current SBLF participants (86.0%) increasing small business lending by 10% or more. Treasury officials have praised the SBLF's performance. For example, on October 9, 2012, then-Deputy Secretary of the Treasury Neal Wolin announced that the SBLF quarterly use of funds report released that day "is further indication that the Administration's Small Business Lending Fund is continuing to help create an environment in which entrepreneurial small businesses can succeed and excel." He added that "banks in the SBLF program continue to show large increases in the lending available for small businesses to grow, create jobs, and support families in communities across the country." Some financial commentators have expressed a somewhat less sanguine view of the program's performance. For example, one commentator noted, after the release of the quarterly use of funds report in January 2012, that although the report of increased small business lending was positive news "it is difficult to isolate the proportion of new lending that would have occurred anyway" due to improvements in the economy. Another commentator noted that the data may have been skewed by SBLF participants who were entering the small business lending market for the first time, making the increases appear larger and more significant than they actually are; yet another noted that the reported growth in small business lending occurred over six quarters (since June 30, 2010) and that the results, although positive, are "not as impressive as it may seem." A commentator argued in September 2012 that "if the SBLF ends up being a success story, it will have been on a far smaller scale than either Obama or Congress had originally expected. What's more, it's become clear that even boatloads of financing won't change the fact that demand for the loans themselves has also fallen off, as small businesses themselves are reluctant to expand in a stagnant economy." In addition, on August 29, 2013, Treasury's Office of Inspector General (OIG) released an audit of Treasury's reporting of small business lending gains relative to small business lending levels prior to the lenders' participation in the program. The OIG found that "small business lending gains reported by Treasury are significantly overstated and cannot be linked directly to SBLF funding." Specifically, the OIG noted that "substantial amounts [$3.4 billion of the then reported $8.9 billion] of the reported gains occurred prior to participants receiving SBLF funding." As the OIG explained, the lending gains reported [by Treasury] were measured against the same baseline period that the Small Business Jobs Act of 2010 (the Act) instructs Treasury to use for setting dividend rates for repayment of the SBLF capital, which is the four calendar quarters [which] ended [on] June 30, 2010. However, measuring program performance against a baseline with a midpoint seven quarters prior to when most participants received funding inflates program accomplishments and is not responsive to provisions in the Act that direct Treasury to report on participant use of the SBLF funds received. The OIG also argued that the reported lending gains cannot be directly linked to the SBLF capital that Treasury invested in the financial institutions because the lending gains reported "represent all small business lending gains that institutions participating in the SBLF achieved, regardless of how the loans were funded." In addition, the OIG noted, among other findings, that "a relatively small number (35 or 11%) of SBLF participants accounted for half of small business lending increases between the baseline figure and December 31, 2012." During the 112 th Congress, several bills were introduced to change the SBLF. None of the bills were enacted. For example, then-Senator Snowe introduced S. 681 , the Greater Accountability in the Lending Fund Act of 2011, on March 30, 2011. Senator Snowe argued that While I would prefer to terminate this fund altogether, it is unlikely based on the current political environment, which is why we must work to protect taxpayers from some of its most egregious provisions. My goal with this legislation is to ensure that only healthy banks have access to taxpayer money, that they are required to repay loans within a reasonable period of time, and that small businesses find the affordable credit they need. The bill would have, among other things, required recipients to repay SBLF distributions within 10 years of the receipt of the investment; terminated the program no later than 15 years after the date of the bill's enactment; prohibited the Secretary of the Treasury from making capital investments under the program if the FDIC is appointed receiver of 5% or more of the institutions receiving an investment under the program; prohibited participation by any institution that received an investment under TARP (effective on the date of the bill's enactment); removed provisions allowing the Secretary of Treasury to make a capital investment in institutions that would otherwise not be recommended to receive the investment based on the institution's financial condition, but are able to provide a matching investment from private, nongovernmental investors; required the approval of appropriate financial regulators when determining whether an institution should receive a capital investment; and revised the benchmark against which changes in the amount of small business lending is measured from the four full quarters immediately preceding the date of enactment to calendar year 2007. In addition, H.R. 1387 , the Small Business Lending Fund Accountability Act of 2011, would have provided the Special Inspector General for TARP responsibility for providing oversight over the SBLF. S.Amdt. 279 to S. 493 , the Small Business Innovation Research, Small Business Technology Transfer Reauthorization Act of 2011, would have prevented TARP recipients from using funds received in any form under any other federal assistance program, including the SBLF program. H.R. 2807 , the Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund beginning on the date when the Secretary of the Treasury's authority to make capital investments in eligible institutions expired (on September 27, 2011). The bill's stated intent was "to increase the availability of credit for small businesses." H.R. 3147 , the Small Business Lending Extension Act, would have extended the Department of the Treasury's investment authority from one year following enactment to two years and required the Treasury Secretary to provide any institution not selected for participation in the program the reason for the rejection, ensure that the rejection reason remains confidential, and establish an appeal process that provides the institution an opportunity to contest the reason provided for the rejection of its application. During the 113 th Congress, H.R. 2474 , the Community Lending and Small Business Jobs Act of 2013, would have, among other provisions, transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund. The SBLF was enacted as part of a larger effort to enhance the supply of capital to small businesses. Advocates argued that the SBLF would help to address the decline in small business lending and create jobs. Opponents were not convinced that it would enhance small business lending and worried about the program's potential cost to the federal treasury and its similarities to TARP. Participating institutions are reporting they have increased their small business lending. However, as has been discussed, questions have been raised concerning the validity of these reported amounts. Specifically, as Treasury's OIG argued in its August 2013 audit, more than one-third of the reported lending gains at that time occurred prior to September 30, 2011, the quarter in which most SBLF participants received their SBLF funds; the reported small business lending gains reflect all of the small business lending gains that the participants achieved, regardless of how the loans were funded; and previous OIG audits "have shown that a large number of participants misreport their small business lending activity." In those previous audits, "50% or more of the institutions reviewed submitted erroneous lending data to Treasury, either overstating or understating their small business lending gains." In addition to questions related to the validity of the reported small business lending gains, any analysis of the program's influence on small business lending is likely to be more suggestive than definitive because differentiating the SBLF's effect on small business lending from other factors, such as changes in the lender's local economy, is methodologically challenging, especially given the relatively small amount of financing involved relative to the national market for small business loans. The SBLF's $4.0 billion in financing represents less than 0.7% of outstanding small business loans (as defined by the FDIC). In terms of the concerns expressed about the program's potential cost, Treasury initially estimated in December 2010 that the SBLF could cost taxpayers up to $1.26 billion (excluding administrative costs that were initially estimated at about $26 million annually but actual outlays were $4.54 million in FY2014, $9.05 million in FY2015, $5.01 million in FY2016, and $3.4 million in FY2017). Treasury based that estimate on an expectation that about $17 billion in SBLF financings would be disbursed. In October 2011, Treasury estimated the program's costs based on actual participant data. It estimated that the SBLF would generate a savings of $80 million (excluding administrative costs), with the savings coming primarily from a lower-than-expected financing level and, to a lesser extent, improvements in projected default rates "due to higher participant quality than expected" and lower market interest rates. Treasury issues a semiannual report on SBLF costs. In its latest semiannual cost report, released on August 16, 2018, Treasury estimated that the SBLF will "generate a lifetime positive return of $31 million [excluding administrative costs] for the Treasury General Fund." One issue that arose relative to the program's projected cost is the noncumulative treatment of dividends. Treasury's OIG reported in May 2011 that Under the terms set by legislation, dividend payments are non-cumulative, meaning that institutions are under no obligation to make dividend payments as scheduled or to pay off previously missed payments before exiting the program. This dividend treatment differs from the TARP programs, in which many dividend payments were cumulative. This change in dividend treatment was driven by changes in capital requirements mandated by the Collins Amendment to the Dodd-Frank Act. The amendment equalizes the consolidated capital requirements for Tier 1 capital of bank holding companies by requiring that, at a minimum, regulators apply the same capital and risk standards for FDIC-insured banks to bank holding companies. Under TARP, the FRB [Federal Reserve Board] and FDIC treated capital differently at the holding company and depository institution levels. The FRB treated cumulative securities issued by holding companies as Tier 1 capital, while FDIC treated non-cumulative securities issued by depository institutions as Tier 1 capital. In order to comply with the Dodd-Frank Act requirement that securities purchased from holding companies receive the same capital treatment as those purchased from depository institutions, Treasury made the dividends under SBLF non-cumulative. Additionally, given that Tier 1 capital must be perpetual and cannot have a mandatory redemption date, the 10-year repayment period in the Small Business Jobs Act cannot be enforced. Treasury addressed this issue by placing the following additional requirements and restrictions on participants who miss dividend payments: the participant's CEO [Chief Executive Office] and CFO [Chief Financial Officer] must provide written notice regarding the rationale of the board of directors (BOD) for not declaring a dividend; no repurchases may be affected and no dividends may be declared on any securities for the applicable quarter and the following three quarters; after four missed payments (consecutive or not), the issuer's BOD must certify in writing that the issuer used best efforts to declare and pay dividends appropriately; after five missed payments (consecutive or not), Treasury may appoint a representative to serve as an observer on the issuer's BOD; and after six missed payments (consecutive or not), Treasury may elect two directors to the issuer's BOD if the liquidation preference is $25 million or more. Treasury's OIG agreed that Treasury's equity investment policy is consistent with the legislation and that "it has reasonably structured the program to incentivize payment of dividends." However, it recommended that "Congress consider whether an amendment to the Small Business Jobs Act and/or waiver from the Collins Amendment to the Dodd-Frank Act is needed to make the repayment of dividends a requirement for exiting the program." In conclusion, congressional oversight of the SBLF is currently focused on the program's potential long-term costs and effects on small business lending. Underlying those concerns are fundamental disagreements regarding the best way to assist small businesses. Some advocate the provision of additional federal resources to assist small businesses in acquiring capital necessary to start, continue, or expand operations and create jobs. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs. The SBLF's Legislative Origin On March 16, 2009, President Obama announced the first SBLF-like proposal. Under that proposal, the Department of the Treasury would have used TARP funds to purchase up to $15 billion of SBA-guaranteed loans. The purchases were intended to "immediately unfreeze the secondary market for SBA loans and increase the liquidity of community banks." The plan was dropped after it met resistance from lenders. Some lenders objected to TARP's requirement that participating lenders comply with executive compensation limits and issue warrants to the federal government. Smaller, community banks objected to the program's paperwork requirements, such as the provision of a small-business lending plan and quarterly reports. In his January 2010 State of the Union address, President Obama proposed the creation of a $30 billion SBLF to enhance access to credit for small businesses: When you talk to small business owners in places like Allentown, Pennsylvania, or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they're mostly lending to bigger companies. Financing remains difficult for small business owners across the country, even those that are making a profit. Tonight, I'm proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat. In response to the opposition community lenders had expressed concerning TARP's restrictions in 2009, the Obama Administration proposed that Congress approve legislation authorizing the transfer of up to $30 billion in TARP spending authority to the SBLF and statutorily establish the new program as distinct and independent from TARP and its restrictions. The Administration's legislative proposal was finalized and sent to Congress on May 7, 2010. Representative Barney Frank, then-chair of the House Committee on Financial Services, introduced H.R. 5297 , the Small Business Lending Fund Act of 2010, on May 13, 2010. The House Committee on Financial Services held a hearing on H.R. 5297 on May 18, 2010, and passed the bill, as amended to include a State Small Business Credit Initiative, the following day. The House passed the bill, as amended to include a Small Business Early-Stage Investment Program, a Small Business Borrower Assistance Program, and some small business tax reduction provisions, on June 17, 2010. The House-Passed Version of the SBLF Title I of the House-passed version of H.R. 5297 authorized the Secretary of the Treasury to establish a $30 billion SBLF "to address the ongoing effects of the financial crisis on small businesses by providing temporary authority to the Secretary of the Treasury to make capital investments in eligible institutions" with total assets equal to or less than $1 billion or $10 billion (as of the end of the fourth quarter of calendar year 2009) "in order to increase the availability of credit for small businesses." The authority to make capital investments in eligible institutions was limited to one year after enactment. Eligible financial institutions having total assets equal to or less than $1 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the SBLF in an amount not exceeding 5% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application. During the fourth quarter of 2009, 7,340 FDIC-insured lending institutions reported having assets amounting to less than $1 billion. Eligible financial institutions having total assets equal to or less than $10 billion as of the end of the fourth quarter of calendar year 2009 could apply to receive a capital investment from the fund in an amount not exceeding 3% of risk-weighted assets, as reported in the FDIC call report immediately preceding the date of application. During the fourth quarter of 2009, 565 FDIC-insured lending institutions reported having assets of $1 billion to $10 billion. Risk-weighted assets are assets such as cash, loans, investments, and other financial institution assets that have different risks associated with them. FDIC regulations (12 C.F.R. §567.6) establish that cash and government bonds have a 0% risk-weighting; residential mortgage loans have a 50% risk-weighting; and other types of assets (such as small business loans) have a higher risk-weighting. Lending institutions on the FDIC problem bank list or institutions that have been removed from the FDIC problem bank list for less than 90 days were ineligible to participate in the program. Lending institutions could refinance securities issued through the Treasury Capital Purchase Program (CPP) and the Community Development Capital Incentive (CDCI) program under TARP, but only if the institution had not missed more than one dividend payment due under those programs. Participating banks would be charged a dividend rate of no more than 5% per annum initially, with reduced rates available if the bank increased its small business lending. For example, during any calendar quarter in the initial two years of the capital investments under the program, the bank's rate would be lowered if it had increased its small business lending compared to the average small business lending it made in the four previous quarters immediately preceding the enactment of the bill, minus some allowable adjustments. A 2.5% to less than 5% increase in small business lending would have lowered the rate to 4%, a 5% to less than 7.5% increase would have lowered the rate to 3%, a 7.5% to less than 10% increase would have lowered the rate to 2%, and an increase of 10% or greater would have lowered the rate to 1%. Table A-1 shows the dividend rates associated with small business lending increases for C corporation banks and savings institutions under H.R. 5297 . These rates were subsequently included in the final law. The bill also authorized the Secretary of the Treasury to adjust these dividend rates for S corporations "to take into account any differential tax treatment of securities issued by such eligible institution." Also, Community Development Financial Institutions were to be charged a dividend rate of 2% per annum for eight years, and 9% thereafter. SBLF applicants were also required to submit a small business lending plan to the appropriate federal banking agency and, for applicants that are state-chartered banks, to the appropriate state banking regulator. The plan was to describe how the applicant's business strategy and operating goals will allow it to address the needs of small businesses in the areas it serves, as well as a plan to provide linguistically and culturally appropriate outreach, where appropriate. The plan was to be treated as confidential supervisory information. The Secretary of the Treasury was required to consult with the appropriate federal banking agency or, in the case of an eligible institution that is a nondepository community development financial institution, the Community Development Financial Institution Fund, before determining if the eligible institution was to participate in the program. The bill specified that the SBLF would be "established as separate and distinct from the Troubled Asset Relief Program established by the Emergency Economic Stabilization Act of 2008. An institution shall not, by virtue of a capital investment under the Small Business Lending Fund Program, be considered a recipient of the Troubled Asset Relief Program." The bill also directed that all funds received by the Secretary of the Treasury in connection with purchases made by the SBLF, "including interest payments, dividend payments, and proceeds from the sale of any financial instrument, shall be paid into the general fund of the Treasury for reduction of the public debt." The Senate-Passed Version of the SBLF Title IV of the Senate-passed version of H.R. 5297 , which later became law, authorized the Secretary of the Treasury to establish a $30 billion SBLF to make capital investments in eligible community banks with total assets equal to or less than $1 billion or $10 billion. There were several differences between the Senate-passed version of H.R. 5297 's SBLF provisions and the SBLF provisions in the House-passed version of H.R. 5297 . Specifically, the House-passed version of H.R. 5297 indicated that eligible institutions may be insured depository institutions that are not controlled by a bank holding company or a savings and loan holding company that is also an eligible institution and is not directly or indirectly controlled by any company or other entity that has total consolidated assets of more than $10 billion, bank holding companies, savings and loan holding companies, community development financial institution loan funds, and small business lending companies, all with total assets of $10 billion or less (as of the end of 2009). The Senate-passed version of H.R. 5297 did not provide eligibility to small business lending companies. House-passed version of H.R. 5297 defined small business lending "as small business lending as defined by and reported in an eligible institution's quarterly call report, where each loan comprising such lending is made to a small business and is one the following types: (1) commercial and industrial loans; (2) owner-occupied nonfarm, nonresidential real estate loans; (3) loans to finance agricultural production and other loans to farmers; (4) loans secured by farmland; (5) nonowner-occupied commercial real estate loans; and (6) construction, land development and other land loans." The Senate-passed version of H.R. 5297 's definition of small business lending did not include nonowner-occupied commercial real estate or construction, land development and other land loans. Senate-passed version of H.R. 5297 had an exclusion provision prohibiting recipient lending institutions from using the funds to issue loans that have an original amount greater than $10 million or that would be made to a business with more than $50 million in revenues. The House-passed version of H.R. 5297 did not contain this provision. House-passed version of H.R. 5297 indicated that the incentives received in the form of reduced dividend rates during the first 4.5-year period following the date on which an eligible institution received a capital investment under the program would be contingent on an increase in the number of loans made. If the number of loans made by the institution did not increase by 2.5% for each 2.5% increase of small business lending, then the rate at which dividends and interest would be payable during the following quarter on preferred stock or other financial instruments issued to the Treasury by the eligible institution would be (i) 5%, if this quarter is within the two-year period following the date on which the eligible institution received the capital investment under the program; or (ii) 7%, if the quarter is after the two-year period. The Senate-passed version of H.R. 5297 did not contain this legislative language. House-passed version of H.R. 5297 included an alternative computation provision that would have allowed eligible institutions to compute their small business lending amounts for incentive purposes as if the definition of their small business lending amounts did not require that the loans comprising such lending be made to small business. This alternative computation would have been allowed if the eligible institution certified that all lending included by the institution for purposes of computing the increase in lending was made to small businesses. The Senate-passed version of H.R. 5297 did not contain this provision. House-passed version of H.R. 5297 indicated that an eligible institution that is a community development loan fund may apply to receive a capital investment from the SBLF in an amount not exceeding 10% of total assets, as reported in the audited financial statements for the fiscal year of the eligible institution that ended in calendar year 2009. The Senate-passed version of H.R. 5297 specifies 5%. House-passed version of H.R. 5297 would have required the Secretary of the Treasury, in consultation with the Community Development Financial Institutions Fund, to develop eligibility criteria to determine the financial ability of a Community Development Loan Fund to participate in the program and repay the investment. It provided a list of recommended eligibility criteria that the Secretary of the Treasury could use for this purpose. The Senate-passed version of H.R. 5297 provided a similar, but mandatory, list of eligibility criteria that must be used for this purpose. House-passed version of H.R. 5297 contained a temporary amortization authority provision which would have allowed an eligible institution to amortize any loss or write-down on a quarterly straight-line basis over a period of time, adjusted to reflect the institution's change in the amount of small business lending relative to the baseline. The Senate-passed version of H.R. 5297 did not contain this provision. The Senate's version of H.R. 5297 was agreed to in the Senate on September 16, 2010, after considerable debate and amendment to remove the Small Business Early-Stage Investment Program and Small Business Borrower Assistance Program, revise the SBLF, and add numerous other provisions to assist small businesses, including additional small business tax reduction provisions. The House agreed to the Senate amendments on September 23, 2010, and President Obama signed the bill, retitled the Small Business Jobs Act of 2010 ( P.L. 111-240 ), into law on September 27, 2010.	[ "Congressional interest in small business access to capital has increased in recent years because of concerns that small businesses might be prevented from accessing sufficient capital to enable them to start, continue, or expand operations and create jobs. Some have argued that the federal government should provide additional resources to assist small businesses. Others worry about the long-term adverse economic effects of spending programs that increase the federal deficit. They advocate business tax reduction, reform of financial credit market regulation, and federal fiscal restraint as the best means to assist small businesses and create jobs. Several laws were enacted during the 111th Congress to enhance small business access to capital. For example, P.L. 111-5, the American Recovery and Reinvestment Act of 2009 (ARRA), provided the Small Business Administration (SBA) an additional $730 million, including funding to temporarily subsidize SBA fees and increase the 7(a) loan guaranty program's maximum loan guaranty percentage to 90%. P.L. 111-240, the Small Business Jobs Act of 2010, authorized the Secretary of the Treasury to establish a $30 billion Small Business Lending Fund (SBLF), in which $4.0 billion was issued, to encourage community banks with less than $10 billion in assets to increase their lending to small businesses. It also authorized a $1.5 billion State Small Business Credit Initiative to provide funding to participating states with small business capital access programs, numerous changes to the SBA's loan guaranty and contracting programs, funding to continue the SBA's fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through December 31, 2010, and about $12 billion in tax relief for small businesses. P.L. 111-322, the Continuing Appropriations and Surface Transportation Extensions Act, 2011, authorized the SBA to continue its fee subsidies and the 7(a) program's 90% maximum loan guaranty percentage through March 4, 2011, or until available funding was exhausted, which occurred on January 3, 2011. This report focuses on the SBLF. It opens with a discussion of the supply and demand for small business loans. The SBLF's advocates claimed the SBLF was needed to enhance the supply of small business loans. The report then examines other arguments presented both for and against the program. Advocates argued that the SBLF would increase lending to small businesses and, in turn, create jobs. Opponents contended that the SBLF could lose money, lacked sufficient oversight provisions, did not require lenders to increase their lending to small businesses, could serve as a vehicle for Troubled Asset Relief Program (TARP) recipients to effectively refinance their TARP loans on more favorable terms with little or no resulting benefit for small businesses, and could encourage a failing lender to make even riskier loans to avoid higher dividend payments. The report concludes with an examination of the program's implementation and a discussion of bills introduced to amend the SBLF. For example, during the 112th Congress, S. 681, the Greater Accountability in the Lending Fund Act of 2011, would have limited the program's authority to 15 years from enactment and prohibited TARP recipients from participating in the program. H.R. 2807, the Small Business Leg-Up Act of 2011, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund \"to increase the availability of credit for small businesses.\" H.R. 3147, the Small Business Lending Extension Act, would have extended the Department of the Treasury's investment authority from one year to two years. During the 113th Congress, H.R. 2474, the Community Lending and Small Business Jobs Act of 2013, would have transferred any unobligated and repaid funds from the SBLF to the Community Development Financial Institutions Fund." ]	11,426	gov_report	en	null	717196b201b32c40650297b1168ac3e629cdae29538b8cd4
This report presents background information and issues for Congress concerning the Navy's force structure and shipbuilding plans. The current and planned size and composition of the Navy, the rate of Navy ship procurement, and the prospective affordability of the Navy's shipbuilding plans have been oversight matters for the congressional defense committees for many years. The Navy's proposed FY2020 budget requests funding for the procurement of 12 new ships, including one Gerald R. Ford (CVN-78) class aircraft carrier, three Virginia-class attack submarines, three DDG-51 class Aegis destroyers, one FFG(X) frigate, two John Lewis (TAO-205) class oilers, and two TATS towing, salvage, and rescue ships. The issue for Congress is whether to approve, reject, or modify the Navy's proposed FY2020 shipbuilding program and the Navy's longer-term shipbuilding plans. Decisions that Congress makes on this issue can substantially affect Navy capabilities and funding requirements, and the U.S. shipbuilding industrial base. Detailed coverage of certain individual Navy shipbuilding programs can be found in the following CRS reports: CRS Report R41129, Navy Columbia (SSBN-826) Class Ballistic Missile Submarine Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RL32418, Navy Virginia (SSN-774) Class Attack Submarine Procurement: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RS20643, Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress , by Ronald O'Rourke. (This report also covers the issue of the Administration's FY2020 budget proposal, which the Administration withdrew on April 30, to not fund a mid-life refueling overhaul [called a refueling complex overhaul, or RCOH] for the aircraft carrier Harry S. Truman [CVN-75], and to retire CVN-75 around FY2024.) CRS Report RL32109, Navy DDG-51 and DDG-1000 Destroyer Programs: Background and Issues for Congress , by Ronald O'Rourke. CRS Report R44972, Navy Frigate (FFG[X]) Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RL33741, Navy Littoral Combat Ship (LCS) Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report R43543, Navy LPD-17 Flight II Amphibious Ship Program: Background and Issues for Congress , by Ronald O'Rourke. (This report also covers the issue of funding for the procurement of an amphibious assault ship called LHA-9.) CRS Report R43546, Navy John Lewis (TAO-205) Class Oiler Shipbuilding Program: Background and Issues for Congress , by Ronald O'Rourke. For a discussion of the strategic and budgetary context in which U.S. Navy force structure and shipbuilding plans may be considered, see Appendix A . On December 15, 2016, the Navy released a force-structure goal that calls for achieving and maintaining a fleet of 355 ships of certain types and numbers. The 355-ship force-level goal replaced a 308-ship force-level goal that the Navy released in March 2015. The 355-ship force-level goal is the largest force-level goal that the Navy has released since a 375-ship force-level goal that was in place in 2002-2004. In the years between that 375-ship goal and the 355-ship goal, Navy force-level goals were generally in the low 300s (see Appendix B ). The force level of 355 ships is a goal to be attained in the future; the actual size of the Navy in recent years has generally been between 270 and 290 ships. Table 1 shows the composition of the 355-ship force-level objective. The 355-ship force-level goal is the result of a Force Structure Assessment (FSA) conducted by the Navy in 2016. An FSA is an analysis in which the Navy solicits inputs from U.S. regional combatant commanders (CCDRs) regarding the types and amounts of Navy capabilities that CCDRs deem necessary for implementing the Navy's portion of the national military strategy and then translates those CCDR inputs into required numbers of ships, using current and projected Navy ship types. The analysis takes into account Navy capabilities for both warfighting and day-to-day forward-deployed presence. Although the result of the FSA is often reduced for convenience to single number (e.g., 355 ships), FSAs take into account a number of factors, including types and capabilities of Navy ships, aircraft, unmanned vehicles, and weapons, as well as ship homeporting arrangements and operational cycles. The Navy conducts a new FSA or an update to the existing FSA every few years, as circumstances require, to determine its force-structure goal. Section 1025 of the FY2018 National Defense Authorization Act, or NDAA ( H.R. 2810 / P.L. 115-91 of December 12, 2017), states the following: SEC. 1025. Policy of the United States on minimum number of battle force ships. (a) Policy.—It shall be the policy of the United States to have available, as soon as practicable, not fewer than 355 battle force ships, comprised of the optimal mix of platforms, with funding subject to the availability of appropriations or other funds. (b) Battle force ships defined.—In this section, the term "battle force ship" has the meaning given the term in Secretary of the Navy Instruction 5030.8C. The term battle force ships in the above provision refers to the ships that count toward the quoted size of the Navy in public policy discussions about the Navy. The Navy states that a new FSA is now underway as the successor to the 2016 FSA, and that this new FSA is to be completed by the end of 2019. The new FSA, Navy officials state, will take into account the Trump Administration's December 2017 National Security Strategy document and its January 2018 National Defense Strategy document, both of which put an emphasis on renewed great power competition with China and Russia, as well as updated information on Chinese and Russian naval and other military capabilities and recent developments in new technologies, including those related to unmanned vehicles (UVs). Navy officials have suggested in their public remarks that this new FSA could change the 355-ship figure, the planned mix of ships, or both. Some observers, viewing statements by Navy officials, believe the new FSA in particular might shift the Navy's surface force to a more distributed architecture that includes a reduced proportion of large surface combatants (i.e., cruisers and destroyers), an increased proportion of small surface combatants (i.e., frigates and LCSs), and a newly created third tier of unmanned surface vehicles (USVs). Some observers believe the new FSA might also change the Navy's undersea force to a more distributed architecture that includes, in addition to attack submarines (SSNs) and bottom-based sensors, a new element of extremely large unmanned underwater vehicles (XLUUVs), which might be thought of as unmanned submarines. In presenting its proposed FY2020 budget, the Navy highlighted its plans for developing and procuring USVs and UUVs in coming years. Shifting to a more distributed force architecture, Navy officials have suggested, could be appropriate for implementing the Navy's new overarching operational concept, called Distributed Maritime Operations (DMO). Observers view DMO as a response to both China's improving maritime anti-access/area denial capabilities (which include advanced weapons for attacking Navy surface ships) and opportunities created by new technologies, including technologies for UVs and for networking Navy ships, aircraft, unmanned vehicles, and sensors into distributed battle networks. Figure 1 shows a Navy briefing slide depicting the Navy's potential new surface force architecture, with each sphere representing a manned ship or a USV. Consistent with Figure 1 , the Navy's 355-ship goal, reflecting the current force architecture, calls for a Navy with twice as many large surface combatants as small surface combatants. Figure 1 suggests that the potential new surface force architecture could lead to the obverse—a planned force mix that calls for twice as many small surface combatants than large surface combatants—along with a new third tier of numerous USVs. Observers believe the new FSA might additionally change the top-level metric used to express the Navy's force-level goal or the method used to count the size of the Navy, or both, to include large USVs and large UUVs. Table 2 shows the Navy's FY2020 five-year (FY2020-FY2024) shipbuilding plan. The table also shows, for reference purposes, the ships funded for procurement in FY2019. The figures in the table reflect a Navy decision to show the aircraft carrier CVN-81 as a ship to be procured in FY2020 rather than a ship that was procured in FY2019. Congress, as part of its action on the Navy's proposed FY2019 budget, authorized the procurement of CVN-81 in FY2019. As shown in Table 2 , the Navy's proposed FY2020 budget requests funding for the procurement of 12 new ships, including one Gerald R. Ford (CVN-78) class aircraft carrier, three Virginia-class attack submarines, three DDG-51 class Aegis destroyers, one FFG(X) frigate, two John Lewis (TAO-205) class oilers, and two TATS towing, salvage, and rescue ships. If the Navy had listed CVN-81 as a ship procured in FY2019 rather than a ship to be procured in FY2020, then the total numbers of ships in FY2019 and FY2020 would be 14 and 11, respectively. As also shown Table 2 , the Navy's FY2020 five-year (FY2020-FY2024) shipbuilding plan includes 55 new ships, or an average of 11 new ships per year. The Navy's FY2019 budget submission also included a total of 55 ships in the period FY2020-FY2024, but the mix of ships making up the total of 55 for these years has been changed under the FY2020 budget submission to include one additional attack submarine, one additional FFG(X) frigate, and two (rather than four) LPD-17 Flight II amphibious ships over the five-year period. The FY2020 submission also makes some changes within the five-year period to annual procurement quantities for DDG-51 destroyers, ESBs, and TAO-205s without changing the five-year totals for these programs. Compared to what was projected for FY2020 itself under the FY2019 budget submission, the FY2020 request accelerates from FY2023 to FY2020 the aircraft carrier CVN-81 (as a result of Congress's action to authorize the ship in FY2019), adds a third attack submarine, accelerates from FY2021 into FY2020 a third DDG-51, defers from FY2020 to FY2021 an LPD-17 Flight II amphibious ship to FY2021, defers from FY2020 to FY2023 an ESB ship, and accelerates from FY2021 to FY2020 a second TAO-205 class oiler. Table 3 shows the Navy's FY2020-FY2049 30-year shipbuilding plan. In devising a 30-year shipbuilding plan to move the Navy toward its ship force-structure goal, key assumptions and planning factors include but are not limited to ship construction times and service lives, estimated ship procurement costs, projected shipbuilding funding levels, and industrial-base considerations. As shown in Table 3 , the Navy's FY2020 30-year shipbuilding plan includes 304 new ships, or an average of about 10 per year. Table 4 shows the Navy's projection of ship force levels for FY2020-FY2049 that would result from implementing the FY2020 30-year (FY2020-FY2049) 30-year shipbuilding plan shown in Table 3 . As shown in Table 4 , if the FY2020 30-year shipbuilding plan is implemented, the Navy projects that it will achieve a total of 355 ships by FY2034. This is about 20 years sooner than projected under the Navy's FY2019 30-year shipbuilding plan. This is not primarily because the FY2020 30-year plan includes more ships than did the FY2019 plan: The total of 304 ships in the FY2020 plan is only three ships higher than the total of 301 ships in the FY2019 plan. Instead, it is primarily due to a decision announced by the Navy in April 2018, after the FY2019 budget was submitted, to increase the service lives of all DDG-51 destroyers—both those existing and those to be built in the future—to 45 years. Prior to this decision, the Navy had planned to keep older DDG-51s (referred to as the Flight I/II DDG-51s) in service for 35 years and newer DDG-51s (the Flight II/III DDG-51s) for 40 years. Figure 2 shows the Navy's projections for the total number of ships in the Navy under the Navy's FY2019 and FY2020 budget submissions. As can be seen in the figure, the Navy projected under the FY2019 plan that the fleet would not reach a total of 355 ships any time during the 30-year period. The projected number of aircraft carriers in Table 4 , the projected total number of all ships in Table 4 , and the line showing the total number of ships under the Navy's FY2020 budget submission in Figure 2 all reflect the Navy's proposal, under its FY2020 budget submission, to not fund the mid-life nuclear refueling overhaul (called a refueling complex overhaul, or RCOH) of the aircraft carrier Harry S. Truman (CVN-75), and to instead retire CVN-75 around FY2024. On April 30, 2019, however, the Administration announced that it was withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 in service past FY2024. As a result of the withdrawal of its proposal regarding the CVN-75 RCOH, the projected number of aircraft carriers and consequently the projected total number of all ships are now one ship higher for the period FY2022-FY2047 than what is shown in Table 4 , and the line in Figure 2 would be adjusted upward by one ship for those years. (The figures in Table 4 are left unchanged from what is shown in the FY2020 budget submission so as to accurately reflect what is shown in that budget submission.) As shown in Table 4 , although the Navy projects that the fleet will reach a total of 355 ships in FY2034, the Navy in that year and subsequent years will not match the composition called for in the FY2016 FSA. Among other things, the Navy will have more than the required number of large surface combatants (i.e., cruisers and destroyers) from FY2030 through FY2040 (a consequence of the decision to extend the service lives of DDG-51s to 45 years), fewer than the required number of aircraft carriers through the end of the 30-year period, fewer than the required number of attack submarines through FY2047, and fewer than the required number of amphibious ships through the end of the 30-year period. The Navy acknowledges that the mix of ships will not match that called for by the 2016 FSA but states that if the Navy is going to have too many ships of a certain kind, DDG-51s are not a bad type of ship to have too many of, because they are very capable multi-mission ships. One issue for Congress is whether the new FSA that the Navy is conducting will change the 355-ship force-level objective established by the 2016 FSA and, if so, in what ways. As discussed earlier, Navy officials have suggested in their public remarks that this new FSA could shift the Navy toward a more distributed force architecture, which could change the 355-ship figure, the planned mix of ships, or both. The issue for Congress is how to assess the appropriateness of the Navy's FY2020 shipbuilding plans when a key measuring stick for conducting that assessment—the Navy's force-level goal and planned force mix—might soon change. Another oversight issue for Congress concerns the prospective affordability of the Navy's 30-year shipbuilding plan. This issue has been a matter of oversight focus for several years, and particularly since the enactment in 2011 of the Budget Control Act, or BCA ( S. 365 / P.L. 112-25 of August 2, 2011). Observers have been particularly concerned about the plan's prospective affordability during the decade or so from the mid-2020s through the mid-2030s, when the plan calls for procuring Columbia-class ballistic missile submarines as well as replacements for large numbers of retiring attack submarines, cruisers, and destroyers. Figure 3 shows, in a graphic form, the Navy's estimate of the annual amounts of funding that would be needed to implement the Navy's FY2020 30-year shipbuilding plan. The figure shows that during the period from the mid-2020s through the mid-2030s, the Navy estimates that implementing the FY2020 30-year shipbuilding plan would require roughly $24 billion per year in shipbuilding funds. As discussed in the CRS report on the Columbia-class program, the Navy since 2013 has identified the Columbia-class program as its top program priority, meaning that it is the Navy's intention to fully fund this program, if necessary at the expense of other Navy programs, including other Navy shipbuilding programs. This led to concerns that in a situation of finite Navy shipbuilding budgets, funding requirements for the Columbia-class program could crowd out funding for procuring other types of Navy ships. These concerns in turn led to the creation by Congress of the National Sea-Based Deterrence Fund (NSBDF), a fund in the DOD budget that is intended in part to encourage policymakers to identify funding for the Columbia-class program from sources across the entire DOD budget rather than from inside the Navy's budget alone. Several years ago, when concerns arose about the potential impact of the Columbia-class program on funding available for other Navy shipbuilding programs, the Navy's shipbuilding budget was roughly $14 billion per year, and the roughly $7 billion per year that the Columbia-class program is projected to require from the mid-2020s to the mid-2030s (see Figure 3 ) represented roughly one-half of that total. With the Navy's shipbuilding budget having grown in more recent years to a total of roughly $24 billion per year, the $7 billion per year projected to be required by the Columbia-class program during those years does not loom proportionately as large as it once did in the Navy's shipbuilding budget picture. Even so, some concerns remain regarding the potential impact of the Columbia-class program on funding available for other Navy shipbuilding programs. If one or more Navy ship designs turn out to be more expensive to build than the Navy estimates, then the projected funding levels shown in Figure 3 would not be sufficient to procure all the ships shown in the 30-year shipbuilding plan. As detailed by CBO and GAO, lead ships in Navy shipbuilding programs in many cases have turned out to be more expensive to build than the Navy had estimated. Ship designs that can be viewed as posing a risk of being more expensive to build than the Navy estimates include Gerald R. Ford (CVN-78) class aircraft carriers, Columbia-class ballistic missile submarines, Virginia-class attack submarines equipped with the Virginia Payload Module (VPM), Flight III versions of the DDG-51 destroyer, FFG(X) frigates, LPD-17 Flight II amphibious ships, and John Lewis (TAO-205) class oilers, as well as other new classes of ships that the Navy wants to begin procuring years from now. The statute that requires the Navy to submit a 30-year shipbuilding plan each year (10 U.S.C. 231) also requires CBO to submit its own independent analysis of the potential cost of the 30-year plan (10 U.S.C. 231[d]). CBO is now preparing its estimate of the cost of the Navy's FY2020 30-year shipbuilding plan. In the meantime, Figure 4 shows, in a graphic form, CBO's estimate of the annual amounts of funding that would be needed to implement the Navy's FY2019 30-year shipbuilding plan. This figure might be compared to the Navy's estimate of its FY2020 30-year plan as shown in Figure 3 , although doing so poses some apples-vs.-oranges issues, as the Navy's FY2019 and FY2020 30-year plans do not cover exactly the same 30-year periods, and for the years they do have in common, there are some differences in types and numbers of ships to be procured in certain years. CBO analyses of past Navy 30-year shipbuilding plans have generally estimated the cost of implementing those plans to be higher than what the Navy estimated. Consistent with that past pattern, as shown in Table 5 , CBO's estimate of the cost to implement the Navy's FY2019 30-year (FY2019-FY2048) shipbuilding plan is about 27% higher than the Navy's estimated cost for the FY2019 plan. ( Table 5 does not pose an apples-vs.-oranges issue, because both the Navy and CBO estimates in this table are for the Navy's FY2019 30-year plan.) More specifically, as shown in the table, CBO estimated that the cost of the first 10 years of the FY2019 30-year plan would be about 2% higher than the Navy's estimate; that the cost of the middle 10 years of the plan would be about 13% higher than the Navy's estimate; and that the cost of the final 10 years of the plan would be about 27% higher than the Navy's estimate. The growing divergence between CBO's estimate and the Navy's estimate as one moves from the first 10 years of the 30-year plan to the final 10 years of the plan is due in part to a technical difference between CBO and the Navy regarding the treatment of inflation. This difference compounds over time, making it increasingly important as a factor in the difference between CBO's estimates and the Navy's estimates the further one goes into the 30-year period. In other words, other things held equal, this factor tends to push the CBO and Navy estimates further apart as one proceeds from the earlier years of the plan to the later years of the plan. The growing divergence between CBO's estimate and the Navy's estimate as one moves from the first 10 years of the 30-year plan to the final 10 years of the plan is also due to differences between CBO and the Navy about the costs of certain ship classes, particularly classes that are projected to be procured starting years from now. The designs of these future ship classes are not yet determined, creating more potential for CBO and the Navy to come to differing conclusions regarding their potential cost. For the FY2019 30-year plan, the largest source of difference between CBO and the Navy regarding the costs of individual ship classes was a new class of SSNs that the Navy wants to begin procuring in FY2034 as the successor to the Virginia-class SSN design. This new class of SSN, CBO says, accounted for 42% of the difference between the CBO and Navy estimates for the FY2019 30-year plan, in part because there were a substantial number of these SSNs in the plan, and because those ships occur in the latter years of the plan, where the effects of the technical difference between CBO and the Navy regarding the treatment of inflation show more strongly. The second-largest source of difference between CBO and the Navy regarding the costs of individual ship classes was a new class of large surface combatant (i.e., cruiser or destroyer) that the Navy wants to begin procuring in the future, which accounted for 20% of the difference, for reasons that are similar to those mentioned above for the new class of SSNs. The third-largest source of difference was the new class of frigates (FFG[X]s) that the Navy wants to begin procuring in FY2020, which accounts for 9% of the difference. The remaining 29% of difference between the CBO and Navy estimates was accounted for collectively by several other shipbuilding programs, each of which individually accounts for between 1% and 4% of the difference. The Columbia-class program, which accounted for 4%, is one of the programs in this final group. Detailed coverage of legislative activity on certain Navy shipbuilding programs (including funding levels, legislative provisions, and report language) can be found in the following CRS reports: CRS Report R41129, Navy Columbia (SSBN-826) Class Ballistic Missile Submarine Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RL32418, Navy Virginia (SSN-774) Class Attack Submarine Procurement: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RS20643, Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress , by Ronald O'Rourke. (This report also covers the issue of the Administration's FY2020 budget proposal, which the Administration withdrew on April 30, to not fund a mid-life refueling overhaul [called a refueling complex overhaul, or RCOH] for the aircraft carrier Harry S. Truman [CVN-75], and to retire CVN-75 around FY2024.) CRS Report RL32109, Navy DDG-51 and DDG-1000 Destroyer Programs: Background and Issues for Congress , by Ronald O'Rourke. CRS Report R44972, Navy Frigate (FFG[X]) Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report RL33741, Navy Littoral Combat Ship (LCS) Program: Background and Issues for Congress , by Ronald O'Rourke. CRS Report R43543, Navy LPD-17 Flight II Amphibious Ship Program: Background and Issues for Congress , by Ronald O'Rourke. (This report also covers the issue of funding for the procurement of an amphibious assault ship called LHA-9.) CRS Report R43546, Navy John Lewis (TAO-205) Class Oiler Shipbuilding Program: Background and Issues for Congress , by Ronald O'Rourke. Legislative activity on individual Navy shipbuilding programs that are not covered in detail in the above reports is covered below. The Navy's proposed FY2020 budget requests funding for the procurement of 12 new ships: 1 Gerald R. Ford (CVN-78) class aircraft carrier; 3 Virginia-class attack submarines; 3 DDG-51 class Aegis destroyers; 1 FFG(X) frigate; 2 John Lewis (TAO-205) class oilers; and 2 TATS towing, salvage, and rescue ships. As noted earlier, the above list of 12 ships reflects a Navy decision to show the aircraft carrier CVN-81 as a ship to be procured in FY2020 rather than a ship that was procured in FY2019. Congress, as part of its action on the Navy's proposed FY2019 budget, authorized the procurement of CVN-81 in FY2019. The Navy's proposed FY2020 shipbuilding budget also requests funding for ships that have been procured in prior fiscal years, and ships that are to be procured in future fiscal years, as well as funding for activities other than the building of new Navy ships. Table 6 summarizes congressional action on the Navy's FY2020 funding request for Navy shipbuilding. The table shows the amounts requested and congressional changes to those requested amounts. A blank cell in a filled-in column showing congressional changes to requested amounts indicates no change from the requested amount. Appendix A. Strategic and Budgetary Context This appendix presents some brief comments on elements of the strategic and budgetary context in which U.S. Navy force structure and shipbuilding plans may be considered. Shift in International Security Environment World events have led some observers, starting in late 2013, to conclude that the international security environment has undergone a shift over the past several years from the familiar post-Cold War era of the past 20-25 years, also sometimes known as the unipolar moment (with the United States as the unipolar power), to a new and different strategic situation that features, among other things, renewed great power competition with China and Russia, and challenges to elements of the U.S.-led international order that has operated since World War II. This situation is discussed further in another CRS report. World Geography and U.S. Grand Strategy Discussion of the above-mentioned shift in the international security environment has led to a renewed emphasis in discussions of U.S. security and foreign policy on grand strategy and geopolitics. From a U.S. perspective on grand strategy and geopolitics, it can be noted that most of the world's people, resources, and economic activity are located not in the Western Hemisphere, but in the other hemisphere, particularly Eurasia. In response to this basic feature of world geography, U.S. policymakers for the past several decades have chosen to pursue, as a key element of U.S. national strategy, a goal of preventing the emergence of a regional hegemon in one part of Eurasia or another, on the grounds that such a hegemon could represent a concentration of power strong enough to threaten core U.S. interests by, for example, denying the United States access to some of the other hemisphere's resources and economic activity. Although U.S. policymakers have not often stated this key national strategic goal explicitly in public, U.S. military (and diplomatic) operations in recent decades—both wartime operations and day-to-day operations—can be viewed as having been carried out in no small part in support of this key goal. U.S. Grand Strategy and U.S. Naval Forces As noted above, in response to basic world geography, U.S. policymakers for the past several decades have chosen to pursue, as a key element of U.S. national strategy, a goal of preventing the emergence of a regional hegemon in one part of Eurasia or another. The traditional U.S. goal of preventing the emergence of a regional hegemon in one part of Eurasia or another has been a major reason why the U.S. military is structured with force elements that enable it to cross broad expanses of ocean and air space and then conduct sustained, large-scale military operations upon arrival. Force elements associated with this goal include, among other things, an Air Force with significant numbers of long-range bombers, long-range surveillance aircraft, long-range airlift aircraft, and aerial refueling tankers, and a Navy with significant numbers of aircraft carriers, nuclear-powered attack submarines, large surface combatants, large amphibious ships, and underway replenishment ships. The United States is the only country in the world that has designed its military to cross broad expanses of ocean and air space and then conduct sustained, large-scale military operations upon arrival. The other countries in the Western Hemisphere do not design their forces to do this because they cannot afford to, and because the United States has been, in effect, doing it for them. Countries in the other hemisphere do not design their forces to do this for the very basic reason that they are already in the other hemisphere, and consequently instead spend their defense money on forces that are tailored largely for influencing events in their own local region. The fact that the United States has designed its military to do something that other countries do not design their forces to do—cross broad expanses of ocean and air space and then conduct sustained, large-scale military operations upon arrival—can be important to keep in mind when comparing the U.S. military to the militaries of other nations. For example, in observing that the U.S. Navy has 11 aircraft carriers while other countries have no more than one or two, it can be noted other countries do not need a significant number of aircraft carriers because, unlike the United States, they are not designing their forces to cross broad expanses of ocean and air space and then conduct sustained, large-scale military operations upon arrival. As another example, it is sometimes noted, in assessing the adequacy of U.S. naval forces, that U.S. naval forces are equal in tonnage to the next dozen or more navies combined, and that most of those next dozen or more navies are the navies of U.S. allies. Those other fleets, however, are mostly of Eurasian countries, which do not design their forces to cross to the other side of the world and then conduct sustained, large-scale military operations upon arrival. The fact that the U.S. Navy is much bigger than allied navies does not necessarily prove that U.S. naval forces are either sufficient or excessive; it simply reflects the differing and generally more limited needs that U.S. allies have for naval forces. (It might also reflect an underinvestment by some of those allies to meet even their more limited naval needs.) Countries have differing needs for naval and other military forces. The United States, as a country located in the Western Hemisphere that has adopted a goal of preventing the emergence of a regional hegemon in one part of Eurasia or another, has defined a need for naval and other military forces that is quite different from the needs of allies that are located in Eurasia. The sufficiency of U.S. naval and other military forces consequently is best assessed not through comparison to the militaries of other countries, but against U.S. strategic goals. More generally, from a geopolitical perspective, it can be noted that that U.S. naval forces, while not inexpensive, give the United States the ability to convert the world's oceans—a global commons that covers more than two-thirds of the planet's surface—into a medium of maneuver and operations for projecting U.S. power ashore and otherwise defending U.S. interests around the world. The ability to use the world's oceans in this manner—and to deny other countries the use of the world's oceans for taking actions against U.S. interests—constitutes an immense asymmetric advantage for the United States. This point would be less important if less of the world were covered by water, or if the oceans were carved into territorial blocks, like the land. Most of the world, however, is covered by water, and most of those waters are international waters, where naval forces can operate freely. The point, consequently, is not that U.S. naval forces are intrinsically special or privileged—it is that they have a certain value simply as a consequence of the physical and legal organization of the planet. Uncertainty Regarding Future U.S. Role in the World The overall U.S. role in the world since the end of World War II in 1945 (i.e., over the past 70 years) is generally described as one of global leadership and significant engagement in international affairs. A key aim of that role has been to promote and defend the open international order that the United States, with the support of its allies, created in the years after World War II. In addition to promoting and defending the open international order, the overall U.S. role is generally described as having been one of promoting freedom, democracy, and human rights, while criticizing and resisting authoritarianism where possible, and opposing the emergence of regional hegemons in Eurasia or a spheres-of-influence world. Certain statements and actions from the Trump Administration have led to uncertainty about the Administration's intentions regarding the U.S. role in the world. Based on those statements and actions, some observers have speculated that the Trump Administration may want to change the U.S. role in one or more ways. A change in the overall U.S. role could have profound implications for DOD strategy, budgets, plans, and programs, including the planned size and structure of the Navy. Declining U.S. Technological and Qualitative Edge DOD officials have expressed concern that the technological and qualitative edge that U.S. military forces have had relative to the military forces of other countries is being narrowed by improving military capabilities in other countries. China's improving military capabilities are a primary contributor to that concern. Russia's rejuvenated military capabilities are an additional contributor. DOD in recent years has taken a number of actions to arrest and reverse the decline in the U.S. technological and qualitative edge. Challenge to U.S. Sea Control and U.S. Position in Western Pacific Observers of Chinese and U.S. military forces view China's improving naval capabilities as posing a potential challenge in the Western Pacific to the U.S. Navy's ability to achieve and maintain control of blue-water ocean areas in wartime—the first such challenge the U.S. Navy has faced since the end of the Cold War. More broadly, these observers view China's naval capabilities as a key element of an emerging broader Chinese military challenge to the long-standing status of the United States as the leading military power in the Western Pacific. Longer Ship Deployments U.S. Navy officials have testified that fully meeting requests from U.S. regional combatant commanders (CCDRs) for forward-deployed U.S. naval forces would require a Navy much larger than today's fleet. For example, Navy officials testified in March 2014 that a Navy of 450 ships would be required to fully meet CCDR requests for forward-deployed Navy forces. CCDR requests for forward-deployed U.S. Navy forces are adjudicated by DOD through a process called the Global Force Management Allocation Plan. The process essentially makes choices about how best to apportion a finite number forward-deployed U.S. Navy ships among competing CCDR requests for those ships. Even with this process, the Navy has lengthened the deployments of some ships in an attempt to meet policymaker demands for forward-deployed U.S. Navy ships. Although Navy officials are aiming to limit ship deployments to seven months, Navy ships in recent years have frequently been deployed for periods of eight months or more. Limits on Defense Spending in Budget Control Act of 2011 as Amended Limits on the "base" portion of the U.S. defense budget established by Budget Control Act of 2011, or BCA ( S. 365 / P.L. 112-25 of August 2, 2011), as amended, combined with some of the considerations above, have led to discussions among observers about how to balance competing demands for finite U.S. defense funds, and about whether programs for responding to China's military modernization effort can be adequately funded while also adequately funding other defense-spending priorities, such as initiatives for responding to Russia's actions in Ukraine and elsewhere in Europe and U.S. operations for countering the Islamic State organization in the Middle East. Appendix B. Earlier Navy Force-Structure Goals Dating Back to 2001 The table below shows earlier Navy force-structure goals dating back to 2001. The 308-ship force-level goal of March 2015, shown in the first column of the table, is the goal that was replaced by the 355-ship force-level goal released in December 2016. Appendix C. Comparing Past Ship Force Levels to Current or Potential Future Ship Force Levels In assessing the appropriateness of the current or potential future number of ships in the Navy, observers sometimes compare that number to historical figures for total Navy fleet size. Historical figures for total fleet size, however, can be a problematic yardstick for assessing the appropriateness of the current or potential future number of ships in the Navy, particularly if the historical figures are more than a few years old, because the missions to be performed by the Navy, the mix of ships that make up the Navy, and the technologies that are available to Navy ships for performing missions all change over time; and the number of ships in the fleet in an earlier year might itself have been inappropriate (i.e., not enough or more than enough) for meeting the Navy's mission requirements in that year. Regarding the first bullet point above, the Navy, for example, reached a late-Cold War peak of 568 battle force ships at the end of FY1987, and as of May 7, 2019, included a total of 289 battle force ships. The FY1987 fleet, however, was intended to meet a set of mission requirements that focused on countering Soviet naval forces at sea during a potential multitheater NATO-Warsaw Pact conflict, while the May 2019 fleet is intended to meet a considerably different set of mission requirements centered on influencing events ashore by countering both land- and sea-based military forces of China, Russia, North Korea, and Iran, as well as nonstate terrorist organizations. In addition, the Navy of FY1987 differed substantially from the May 2019 fleet in areas such as profusion of precision-guided air-delivered weapons, numbers of Tomahawk-capable ships, and the sophistication of C4ISR systems and networking capabilities. In coming years, Navy missions may shift again, and the capabilities of Navy ships will likely have changed further by that time due to developments such as more comprehensive implementation of networking technology, increased use of ship-based unmanned vehicles, and the potential fielding of new types of weapons such as lasers or electromagnetic rail guns. The 568-ship fleet of FY1987 may or may not have been capable of performing its stated missions; the 289-ship fleet of May 2019 may or may not be capable of performing its stated missions; and a fleet years from now with a certain number of ships may or may not be capable of performing its stated missions. Given changes over time in mission requirements, ship mixes, and technologies, however, these three issues are to a substantial degree independent of one another. For similar reasons, trends over time in the total number of ships in the Navy are not necessarily a reliable indicator of the direction of change in the fleet's ability to perform its stated missions. An increasing number of ships in the fleet might not necessarily mean that the fleet's ability to perform its stated missions is increasing, because the fleet's mission requirements might be increasing more rapidly than ship numbers and average ship capability. Similarly, a decreasing number of ships in the fleet might not necessarily mean that the fleet's ability to perform stated missions is decreasing, because the fleet's mission requirements might be declining more rapidly than numbers of ships, or because average ship capability and the percentage of time that ships are in deployed locations might be increasing quickly enough to more than offset reductions in total ship numbers. Regarding the second of the two bullet points above, it can be noted that comparisons of the size of the fleet today with the size of the fleet in earlier years rarely appear to consider whether the fleet was appropriately sized in those earlier years (and therefore potentially suitable as a yardstick of comparison), even though it is quite possible that the fleet in those earlier years might not have been appropriately sized, and even though there might have been differences of opinion among observers at that time regarding that question. Just as it might not be prudent for observers years from now to tacitly assume that the 286-ship Navy of September 2018 was appropriately sized for meeting the mission requirements of 2018, even though there were differences of opinion among observers on that question, simply because a figure of 286 ships appears in the historical records for 2016, so, too, might it not be prudent for observers today to tacitly assume that the number of ships of the Navy in an earlier year was appropriate for meeting the Navy's mission requirements that year, even though there might have been differences of opinion among observers at that time regarding that question, simply because the size of the Navy in that year appears in a table like Table H-1 . Previous Navy force structure plans, such as those shown in Table B-1 , might provide some insight into the potential adequacy of a proposed new force-structure plan, but changes over time in mission requirements, technologies available to ships for performing missions, and other force-planning factors, as well as the possibility that earlier force-structure plans might not have been appropriate for meeting the mission demands of their times, suggest that some caution should be applied in using past force structure plans for this purpose, particularly if those past force structure plans are more than a few years old. The Reagan-era goal for a 600-ship Navy, for example, was designed for a Cold War set of missions focusing on countering Soviet naval forces at sea, which is not an appropriate basis for planning the Navy today, and there was considerable debate during those years as to the appropriateness of the 600-ship goal. Appendix D. Industrial Base Ability for, and Employment Impact of, Additional Shipbuilding Work This appendix presents background information on the ability of the industrial base to take on the additional shipbuilding work associated with achieving and maintaining the Navy's 355-ship force-level goal and on the employment impact of additional shipbuilding work. Industrial Base Ability The U.S. shipbuilding industrial base has some unused capacity to take on increased Navy shipbuilding work, particularly for certain kinds of surface ships, and its capacity could be increased further over time to support higher Navy shipbuilding rates. Navy shipbuilding rates could not be increased steeply across the board overnight—time (and investment) would be needed to hire and train additional workers and increase production facilities at shipyards and supplier firms, particularly for supporting higher rates of submarine production. Depending on their specialties, newly hired workers could be initially less productive per unit of time worked than more experienced workers. Some parts of the shipbuilding industrial base, such as the submarine construction industrial base, could face more challenges than others in ramping up to the higher production rates required to build the various parts of the 355-ship fleet. Over a period of a few to several years, with investment and management attention, Navy shipbuilding could ramp up to higher rates for achieving a 355-ship fleet over a period of 20-30 years. An April 2017 CBO report stated that all seven shipyards [currently involved in building the Navy's major ships] would need to increase their workforces and several would need to make improvements to their infrastructure in order to build ships at a faster rate. However, certain sectors face greater obstacles in constructing ships at faster rates than others: Building more submarines to meet the goals of the 2016 force structure assessment would pose the greatest challenge to the shipbuilding industry. Increasing the number of aircraft carriers and surface combatants would pose a small to moderate challenge to builders of those vessels. Finally, building more amphibious ships and combat logistics and support ships would be the least problematic for the shipyards. The workforces across those yards would need to increase by about 40 percent over the next 5 to 10 years. Managing the growth and training of those new workforces while maintaining the current standard of quality and efficiency would represent the most significant industrywide challenge. In addition, industry and Navy sources indicate that as much as $4 billion would need to be invested in the physical infrastructure of the shipyards to achieve the higher production rates required under the [notional] 15-year and 20-year [buildup scenarios examined by CBO]. Less investment would be needed for the [notional] 25-year or 30-year [buildup scenarios examined by CBO]. A January 13, 2017, press report states the following: The Navy's production lines are hot and the work to prepare them for the possibility of building out a much larger fleet would be manageable, the service's head of acquisition said Thursday. From a logistics perspective, building the fleet from its current 274 ships to 355, as recommended in the Navy's newest force structure assessment in December, would be straightforward, Assistant Secretary of the Navy for Research, Development and Acquisition Sean Stackley told reporters at the Surface Navy Association's annual symposium. "By virtue of maintaining these hot production lines, frankly, over the last eight years, our facilities are in pretty good shape," Stackley said. "In fact, if you talked to industry, they would say we're underutilizing the facilities that we have." The areas where the Navy would likely have to adjust "tooling" to answer demand for a larger fleet would likely be in Virginia-class attack submarines and large surface combatants, the DDG-51 guided missile destroyers—two ship classes likely to surge if the Navy gets funding to build to 355 ships, he said. "Industry's going to have to go out and procure special tooling associated with going from current production rates to a higher rate, but I would say that's easily done," he said. Another key, Stackley said, is maintaining skilled workers—both the builders in the yards and the critical supply-chain vendors who provide major equipment needed for ship construction. And, he suggested, it would help to avoid budget cuts and other events that would force workforce layoffs. "We're already prepared to ramp up," he said. "In certain cases, that means not laying off the skilled workforce we want to retain." A January 17, 2017, press report states the following: Building stable designs with active production lines is central to the Navy's plan to grow to 355 ships. "if you look at the 355-ship number, and you study the ship classes (desired), the big surge is in attack submarines and large surface combatants, which today are DDG-51 (destroyers)," the Assistant Secretary of the Navy, Sean Stackley, told reporters at last week's Surface Navy Association conference. Those programs have proven themselves reliable performers both at sea and in the shipyards. From today's fleet of 274 ships, "we're on an irreversible path to 308 by 2021. Those ships are already in construction," said Stackley. "To go from there to 355, virtually all those ships are currently in production, with some exceptions: Ohio Replacement, (we) just got done the Milestone B there (to move from R&D into detailed design); and then upgrades to existing platforms. So we have hot production lines that will take us to that 355-ship Navy." A January 24, 2017, press report states the following: Navy officials say a recently determined plan to increase its fleet size by adding more new submarines, carriers and destroyers is "executable" and that early conceptual work toward this end is already underway.... Although various benchmarks will need to be reached in order for this new plan to come to fruition, such as Congressional budget allocations, Navy officials do tell Scout Warrior that the service is already working—at least in concept—on plans to vastly enlarge the fleet. Findings from this study are expected to inform an upcoming 2018 Navy Shipbuilding Plan, service officials said. A January 12, 2017, press report states the following: Brian Cuccias, president of Ingalls Shipbuilding [a shipyard owned by Huntington Ingalls Industries (HII) that builds Navy destroyers and amphibious ships as well as Coast Guard cutters], said Ingalls, which is currently building 10 ships for four Navy and Coast Guard programs at its 800-acre facility in Pascagoula, Miss., could build more because it is using only 70 to 75 percent of its capacity. A March 2017 press report states the following: As the Navy calls for a larger fleet, shipbuilders are looking toward new contracts and ramping up their yards to full capacity.... The Navy is confident that U.S. shipbuilders will be able to meet an increased demand, said Ray Mabus, then-secretary of the Navy, during a speech at the Surface Navy Association's annual conference in Arlington, Virginia. They have the capacity to "get there because of the ships we are building today," Mabus said. "I don't think we could have seven years ago." Shipbuilders around the United States have "hot" production lines and are manufacturing vessels on multi-year or block buy contracts, he added. The yards have made investments in infrastructure and in the training of their workers. "We now have the basis ... [to] get to that much larger fleet," he said.... Shipbuilders have said they are prepared for more work. At Ingalls Shipbuilding—a subsidiary of Huntington Ingalls Industries—10 ships are under construction at its Pascagoula, Mississippi, yard, but it is under capacity, said Brian Cuccias, the company's president. The shipbuilder is currently constructing five guided-missile destroyers, the latest San Antonio-class amphibious transport dock ship, and two national security cutters for the Coast Guard. "Ingalls is a very successful production line right now, but it has the ability to actually produce a lot more in the future," he said during a briefing with reporters in January. The company's facility is currently operating at 75 percent capacity, he noted.... Austal USA—the builder of the Independence-variant of the littoral combat ship and the expeditionary fast transport vessel—is also ready to increase its capacity should the Navy require it, said Craig Perciavalle, the company's president. The latest discussions are "certainly something that a shipbuilder wants to hear," he said. "We do have the capability of increasing throughput if the need and demand were to arise, and then we also have the ability with the present workforce and facility to meet a different mix that could arise as well." Austal could build fewer expeditionary fast transport vessels and more littoral combat ships, or vice versa, he added. "The key thing for us is to keep the manufacturing lines hot and really leverage the momentum that we've gained on both of the programs," he said. The company—which has a 164-acre yard in Mobile, Alabama—is focused on the extension of the LCS and expeditionary fast transport ship program, but Perciavalle noted that it could look into manufacturing other types of vessels. "We do have excess capacity to even build smaller vessels … if that opportunity were to arise and we're pursuing that," he said. Bryan Clark, a naval analyst at the Center for Strategic and Budgetary Assessments, a Washington, D.C.-based think tank, said shipbuilders are on average running between 70 and 80 percent capacity. While they may be ready to meet an increased demand for ships, it would take time to ramp up their workforces. However, the bigger challenge is the supplier industrial base, he said. "Shipyards may be able to build ships but the supplier base that builds the pumps … and the radars and the radios and all those other things, they don't necessarily have that ability to ramp up," he said. "You would need to put some money into building up their capacity." That has to happen now, he added. Rear Adm. William Gallinis, program manager for program executive office ships, said what the Navy must be "mindful of is probably our vendor base that support the shipyards." Smaller companies that supply power electronics and switchboards could be challenged, he said. "Do we need to re-sequence some of the funding to provide some of the facility improvements for some of the vendors that may be challenged? My sense is that the industrial base will size to the demand signal. We just need to be mindful of how we transition to that increased demand signal," he said. The acquisition workforce may also see an increased amount of stress, Gallinis noted. "It takes a fair amount of experience and training to get a good contracting officer to the point to be [able to] manage contracts or procure contracts." "But I don't see anything that is insurmountable," he added. At a May 24, 2017, hearing before the Seapower subcommittee of the Senate Armed Services Committee on the industrial-base aspects of the Navy's 355-ship goal, John P. Casey, executive vice president–marine systems, General Dynamics Corporation (one of the country's two principal builders of Navy ships) stated the following: It is our belief that the Nation's shipbuilding industrial base can scale-up hot production lines for existing ships and mobilize additional resources to accomplish the significant challenge of achieving the 355-ship Navy as quickly as possible.... Supporting a plan to achieve a 355-ship Navy will be the most challenging for the nuclear submarine enterprise. Much of the shipyard and industrial base capacity was eliminated following the steep drop-off in submarine production that occurred with the cancellation of the Seawolf Program in 1992. The entire submarine industrial base at all levels of the supply chain will likely need to recapitalize some portion of its facilities, workforce, and supply chain just to support the current plan to build the Columbia Class SSBN program, while concurrently building Virginia Class SSNs. Additional SSN procurement will require industry to expand its plans and associated investment beyond the level today.... Shipyard labor resources include the skilled trades needed to fabricate, build and outfit major modules, perform assembly, test and launch of submarines, and associated support organizations that include planning, material procurement, inspection, quality assurance, and ship certification. Since there is no commercial equivalency for Naval nuclear submarine shipbuilding, these trade resources cannot be easily acquired in large numbers from other industries. Rather, these shipyard resources must be acquired and developed over time to ensure the unique knowledge and know-how associated with nuclear submarine shipbuilding is passed on to the next generation of shipbuilders. The mechanisms of knowledge transfer require sufficient lead time to create the proficient, skilled craftsmen in each key trade including welding, electrical, machining, shipfitting, pipe welding, painting, and carpentry, which are among the largest trades that would need to grow to support increased demand. These trades will need to be hired in the numbers required to support the increased workload. Both shipyards have scalable processes in place to acquire, train, and develop the skilled workforce they need to build nuclear ships. These processes and associated training facilities need to be expanded to support the increased demand. As with the shipyards, the same limiting factors associated with facilities, workforce, and supply chain also limit the submarine unique first tier suppliers and sub-tiers in the industrial base for which there is no commercial equivalency.... The supply base is the third resource that will need to be expanded to meet the increased demand over the next 20 years. During the OHIO, 688 and SEAWOLF construction programs, there were over 17,000 suppliers supporting submarine construction programs. That resource base was "rationalized" during submarine low rate production over the last 20 years. The current submarine industrial base reflects about 5,000 suppliers, of which about 3,000 are currently active (i.e., orders placed within the last 5 years), 80% of which are single or sole source (based on $). It will take roughly 20 years to build the 12 Columbia Class submarines that starts construction in FY21. The shipyards are expanding strategic sourcing of appropriate non-core products (e.g., decks, tanks, etc.) in order to focus on core work at each shipyard facility (e.g., module outfitting and assembly). Strategic sourcing will move demand into the supply base where capacity may exist or where it can be developed more easily. This approach could offer the potential for cost savings by competition or shifting work to lower cost work centers throughout the country. Each shipyard has a process to assess their current supply base capacity and capability and to determine where it would be most advantageous to perform work in the supply base.... Achieving the increased rate of production and reducing the cost of submarines will require the Shipbuilders to rely on the supply base for more non-core products such as structural fabrication, sheet metal, machining, electrical, and standard parts. The supply base must be made ready to execute work with submarine-specific requirements at a rate and volume that they are not currently prepared to perform. Preparing the supply base to execute increased demand requires early non-recurring funding to support cross-program construction readiness and EOQ funding to procure material in a manner that does not hold up existing ship construction schedules should problems arise in supplier qualification programs. This requires longer lead times (estimates of three years to create a new qualified, critical supplier) than the current funding profile supports.... We need to rely on market principles to allow suppliers, the shipyards and GFE material providers to sort through the complicated demand equation across the multiple ship programs. Supplier development funding previously mentioned would support non-recurring efforts which are needed to place increased orders for material in multiple market spaces. Examples would include valves, build-to-print fabrication work, commodities, specialty material, engineering components, etc. We are engaging our marine industry associations to help foster innovative approaches that could reduce costs and gain efficiency for this increased volume.... Supporting the 355-ship Navy will require Industry to add capability and capacity across the entire Navy Shipbuilding value chain. Industry will need to make investment decisions for additional capital spend starting now in order to meet a step change in demand that would begin in FY19 or FY20. For the submarine enterprise, the step change was already envisioned and investment plans that embraced a growth trajectory were already being formulated. Increasing demand by adding additional submarines will require scaling facility and workforce development plans to operate at a higher rate of production. The nuclear shipyards would also look to increase material procurement proportionally to the increased demand. In some cases, the shipyard facilities may be constrained with existing capacity and may look to source additional work in the supply base where capacity exists or where there are competitive business advantages to be realized. Creating additional capacity in the supply base will require non-recurring investment in supplier qualification, facilities, capital equipment and workforce training and development. Industry is more likely to increase investment in new capability and capacity if there is certainty that the Navy will proceed with a stable shipbuilding plan. Positive signals of commitment from the Government must go beyond a published 30-year Navy Shipbuilding Plan and line items in the Future Years Defense Plan (FYDP) and should include: Multi-year contracting for Block procurement which provides stability in the industrial base and encourages investment in facilities and workforce development Funding for supplier development to support training, qualification, and facilitization efforts—Electric Boat and Newport News have recommended to the Navy funding of $400M over a three-year period starting in 2018 to support supplier development for the Submarine Industrial Base as part of an Integrated Enterprise Plan Extended Enterprise initiative Acceleration of Advance Procurement and/or Economic Order Quantities (EOQ) procurement from FY19 to FY18 for Virginia Block V Government incentives for construction readiness and facilities / special tooling for shipyard and supplier facilities, which help cash flow capital investment ahead of construction contract awards Procurement of additional production back-up (PBU) material to help ensure a ready supply of material to mitigate construction schedule risk.... So far, this testimony has focused on the Submarine Industrial Base, but the General Dynamics Marine Systems portfolio also includes surface ship construction. Unlike Electric Boat, Bath Iron Works and NASSCO are able to support increased demand without a significant increase in resources..... Bath Iron Works is well positioned to support the Administration's announced goal of increasing the size of the Navy fleet to 355 ships. For BIW that would mean increasing the total current procurement rate of two DDG 51s per year to as many as four DDGs per year, allocated equally between BIW and HII. This is the same rate that the surface combatant industrial base sustained over the first decade of full rate production of the DDG 51 Class (1989-1999).... No significant capital investment in new facilities is required to accommodate delivering two DDGs per year. However, additional funding will be required to train future shipbuilders and maintain equipment. Current hiring and training processes support the projected need, and have proven to be successful in the recent past. BIW has invested significantly in its training programs since 2014 with the restart of the DDG 51 program and given these investments and the current market in Maine, there is little concern of meeting the increase in resources required under the projected plans. A predictable and sustainable Navy workload is essential to justify expanding hiring/training programs. BIW would need the Navy's commitment that the Navy's plan will not change before it would proceed with additional hiring and training to support increased production. BIW's supply chain is prepared to support a procurement rate increase of up to four DDG 51s per year for the DDG 51 Program. BIW has long-term purchasing agreements in place for all major equipment and material for the DDG 51 Program. These agreements provide for material lead time and pricing, and are not constrained by the number of ships ordered in a year. BIW confirmed with all of its critical suppliers that they can support this increased procurement rate.... The Navy's Force Structure Assessment calls for three additional ESBs. Additionally, NASSCO has been asked by the Navy and the Congressional Budget Office (CBO) to evaluate its ability to increase the production rate of T-AOs to two ships per year. NASSCO has the capacity to build three more ESBs at a rate of one ship per year while building two T-AOs per year. The most cost effective funding profile requires funding ESB 6 in FY18 and the following ships in subsequent fiscal years to avoid increased cost resulting from a break in the production line. The most cost effective funding profile to enable a production rate of two T-AO ships per year requires funding an additional long lead time equipment set beginning in FY19 and an additional ship each year beginning in FY20. NASSCO must now reduce its employment levels due to completion of a series of commercial programs which resulted in the delivery of six ships in 2016. The proposed increase in Navy shipbuilding stabilizes NASSCO's workload and workforce to levels that were readily demonstrated over the last several years. Some moderate investment in the NASSCO shipyard will be needed to reach this level of production. The recent CBO report on the costs of building a 355-ship Navy accurately summarized NASSCO's ability to reach the above production rate stating, "building more … combat logistics and support ships would be the least problematic for the shipyards." At the same hearing, Brian Cuccias, president, Ingalls Shipbuilding, Huntington Ingalls Industries (the country's other principal builder of Navy ships) stated the following: Qualifying to be a supplier is a difficult process. Depending on the commodity, it may take up to 36 months. That is a big burden on some of these small businesses. This is why creating sufficient volume and exercising early contractual authorization and advance procurement funding is necessary to grow the supplier base, and not just for traditional long-lead time components; that effort needs to expand to critical components and commodities that today are controlling the build rate of submarines and carriers alike. Many of our suppliers are small businesses and can only make decisions to invest in people, plant and tooling when they are awarded a purchase order. We need to consider how we can make commitments to suppliers early enough to ensure material readiness and availability when construction schedules demand it. With questions about the industry's ability to support an increase in shipbuilding, both Newport News and Ingalls have undertaken an extensive inventory of our suppliers and assessed their ability to ramp up their capacity. We have engaged many of our key suppliers to assess their ability to respond to an increase in production. The fortunes of related industries also impact our suppliers, and an increase in demand from the oil and gas industry may stretch our supply base. Although some low to moderate risk remains, I am convinced that our suppliers will be able to meet the forecasted Navy demand.... I strongly believe that the fastest results can come from leveraging successful platforms on current hot production lines. We commend the Navy's decision in 2014 to use the existing LPD 17 hull form for the LX(R), which will replace the LSD-class amphibious dock landing ships scheduled to retire in the coming years. However, we also recommend that the concept of commonality be taken even further to best optimize efficiency, affordability and capability. Specifically, rather than continuing with a new design for LX(R) within the "walls" of the LPD hull, we can leverage our hot production line and supply chain and offer the Navy a variant of the existing LPD design that satisfies the aggressive cost targets of the LX(R) program while delivering more capability and survivability to the fleet at a significantly faster pace than the current program. As much as 10-15 percent material savings can be realized across the LX(R) program by purchasing respective blocks of at least five ships each under a multi-year procurement (MYP) approach. In the aggregate, continuing production with LPD 30 in FY18, coupled with successive MYP contracts for the balance of ships, may yield savings greater than $1 billion across an 11-ship LX(R) program. Additionally, we can deliver five LX(R)s to the Navy and Marine Corps in the same timeframe that the current plan would deliver two, helping to reduce the shortfall in amphibious warships against the stated force requirement of 38 ships. Multi-ship procurements, whether a formal MYP or a block-buy, are a proven way to reduce the price of ships. The Navy took advantage of these tools on both Virginia-class submarines and Arleigh Burke-class destroyers. In addition to the LX(R) program mentioned above, expanding multi-ship procurements to other ship classes makes sense.... The most efficient approach to lower the cost of the Ford class and meet the goal of an increased CVN fleet size is also to employ a multi-ship procurement strategy and construct these ships at three-year intervals. This approach would maximize the material procurement savings benefit through economic order quantities procurement and provide labor efficiencies to enable rapid acquisition of a 12-ship CVN fleet. This three-ship approach would save at least $1.5 billion, not including additional savings that could be achieved from government-furnished equipment. As part of its Integrated Enterprise Plan, we commend the Navy's efforts to explore the prospect of material economic order quantity purchasing across carrier and submarine programs. At the same hearing, Matthew O. Paxton, president, Shipbuilders Council of America (SCA)—a trade association representing shipbuilders, suppliers, and associated firms—stated the following: To increase the Navy's Fleet to 355 ships, a substantial and sustained investment is required in both procurement and readiness. However, let me be clear: building and sustaining the larger required Fleet is achievable and our industry stands ready to help achieve that important national security objective. To meet the demand for increased vessel construction while sustaining the vessels we currently have will require U.S. shipyards to expand their work forces and improve their infrastructure in varying degrees depending on ship type and ship mix – a requirement our Nation's shipyards are eager to meet. But first, in order to build these ships in as timely and affordable manner as possible, stable and robust funding is necessary to sustain those industrial capabilities which support Navy shipbuilding and ship maintenance and modernization.... Beyond providing for the building of a 355-ship Navy, there must also be provision to fund the "tail," the maintenance of the current and new ships entering the fleet. Target fleet size cannot be reached if existing ships are not maintained to their full service lives, while building those new ships. Maintenance has been deferred in the last few years because of across-the-board budget cuts.... The domestic shipyard industry certainly has the capability and know-how to build and maintain a 355-ship Navy. The Maritime Administration determined in a recent study on the Economic Benefits of the U.S. Shipyard Industry that there are nearly 110,000 skilled men and women in the Nation's private shipyards building, repairing and maintaining America's military and commercial fleets.1 The report found the U.S. shipbuilding industry supports nearly 400,000 jobs across the country and generates $25.1 billion in income and $37.3 billion worth of goods and services each year. In fact, the MARAD report found that the shipyard industry creates direct and induced employment in every State and Congressional District and each job in the private shipbuilding and repairing industry supports another 2.6 jobs nationally. This data confirms the significant economic impact of this manufacturing sector, but also that the skilled workforce and industrial base exists domestically to build these ships. Long-term, there needs to be a workforce expansion and some shipyards will need to reconfigure or expand production lines. This can and will be done as required to meet the need if adequate, stable budgets and procurement plans are established and sustained for the long-term. Funding predictability and sustainability will allow industry to invest in facilities and more effectively grow its skilled workforce. The development of that critical workforce will take time and a concerted effort in a partnership between industry and the federal government. U.S. shipyards pride themselves on implementing state of the art training and apprenticeship programs to develop skilled men and women that can cut, weld, and bend steel and aluminum and who can design, build and maintain the best Navy in the world. However, the shipbuilding industry, like so many other manufacturing sectors, faces an aging workforce. Attracting and retaining the next generation shipyard worker for an industry career is critical. Working together with the Navy, and local and state resources, our association is committed to building a robust training and development pipeline for skilled shipyard workers. In addition to repealing sequestration and stabilizing funding the continued development of a skilled workforce also needs to be included in our national maritime strategy.... In conclusion, the U.S. shipyard industry is certainly up to the task of building a 355-ship Navy and has the expertise, the capability, the critical capacity and the unmatched skilled workforce to build these national assets. Meeting the Navy's goal of a 355-ship fleet and securing America's naval dominance for the decades ahead will require sustained investment by Congress and Navy's partnership with a defense industrial base that can further attract and retain a highly-skilled workforce with critical skill sets. Again, I would like to thank this Subcommittee for inviting me to testify alongside such distinguished witnesses. As a representative of our nation's private shipyards, I can say, with confidence and certainty, that our domestic shipyards and skilled workers are ready, willing and able to build and maintain the Navy's 355-ship Fleet. Employment Impact Building the additional ships that would be needed to achieve and maintain the 355-ship fleet could create many additional manufacturing and other jobs at shipyards, associated supplier firms, and elsewhere in the U.S. economy. A 2015 Maritime Administration (MARAD) report states, Considering the indirect and induced impacts, each direct job in the shipbuilding and repairing industry is associated with another 2.6 jobs in other parts of the US economy; each dollar of direct labor income and GDP in the shipbuilding and repairing industry is associated with another $1.74 in labor income and $2.49 in GDP, respectively, in other parts of the US economy. A March 2017 press report states, "Based on a 2015 economic impact study, the Shipbuilders Council of America [a trade association for U.S. shipbuilders and associated supplier firms] believes that a 355-ship Navy could add more than 50,000 jobs nationwide." The 2015 economic impact study referred to in that quote might be the 2015 MARAD study discussed in the previous paragraph. An estimate of more than 50,000 additional jobs nationwide might be viewed as a higher-end estimate; other estimates might be lower. A June 14, 2017, press report states the following: "The shipbuilding industry will need to add between 18,000 and 25,000 jobs to build to a 350-ship Navy, according to Matthew Paxton, president of the Shipbuilders Council of America, a trade association representing the shipbuilding industrial base. Including indirect jobs like suppliers, the ramp-up may require a boost of 50,000 workers." Appendix E. A Summary of Some Acquisition Lessons Learned for Navy Shipbuilding This appendix presents a general summary of lessons learned in Navy shipbuilding, reflecting comments made repeatedly by various sources over the years. These lessons learned include the following: At the outset, get the operational requirements for the program right. Properly identify the program's operational requirements at the outset. Manage risk by not trying to do too much in terms of the program's operational requirements, and perhaps seek a so-called 70%-to-80% solution (i.e., a design that is intended to provide 70%-80% of desired or ideal capabilities). Achieve a realistic balance up front between operational requirements, risks, and estimated costs. Impose cost discipline up front. Use realistic price estimates, and consider not only development and procurement costs, but life-cycle operation and support (O&S) costs. Employ competition where possible in the awarding of design and construction contracts. Use a contract type that is appropriate for the amount of risk involved , and structure its terms to align incentives with desired outcomes. Minimize design/construction concurrency by developing the design to a high level of completion before starting construction and by resisting changes in requirements (and consequent design changes) during construction. Properly supervise construction work. Maintain an adequate number of properly trained Supervisor of Shipbuilding (SUPSHIP) personnel. Provide stability for industry , in part by using, where possible, multiyear procurement (MYP) or block buy contracting. Maintain a capable government acquisition workforce that understands what it is buying, as well as the above points. Identifying these lessons is arguably not the hard part—most if not all these points have been cited for years. The hard part, arguably, is living up to them without letting circumstances lead program-execution efforts away from these guidelines. Appendix F. Some Considerations Relating to Warranties in Shipbuilding and Other Defense Acquisition This appendix presents some considerations relating to warranties in shipbuilding and other defense acquisition. In discussions of Navy (and also Coast Guard) shipbuilding, one question that sometimes arises is whether including a warranty in a shipbuilding contract is preferable to not including one. The question can arise, for example, in connection with a GAO finding that "the Navy structures shipbuilding contracts so that it pays shipbuilders to build ships as part of the construction process and then pays the same shipbuilders a second time to repair the ship when construction defects are discovered." Including a warranty in a shipbuilding contract (or a contract for building some other kind of defense end item), while potentially valuable, might not always be preferable to not including one—it depends on the circumstances of the acquisition, and it is not necessarily a valid criticism of an acquisition program to state that it is using a contract that does not include a warranty (or a weaker form of a warranty rather than a stronger one). Including a warranty generally shifts to the contractor the risk of having to pay for fixing problems with earlier work. Although that in itself could be deemed desirable from the government's standpoint, a contractor negotiating a contract that will have a warranty will incorporate that risk into its price, and depending on how much the contractor might charge for doing that, it is possible that the government could wind up paying more in total for acquiring the item (including fixing problems with earlier work on that item) than it would have under a contract without a warranty. When a warranty is not included in the contract and the government pays later on to fix problems with earlier work, those payments can be very visible, which can invite critical comments from observers. But that does not mean that including a warranty in the contract somehow frees the government from paying to fix problems with earlier work. In a contract that includes a warranty, the government will indeed pay something to fix problems with earlier work—but it will make the payment in the less-visible (but still very real) form of the up-front charge for including the warranty, and that charge might be more than what it would have cost the government, under a contract without a warranty, to pay later on for fixing those problems. From a cost standpoint, including a warranty in the contract might or might not be preferable, depending on the risk that there will be problems with earlier work that need fixing, the potential cost of fixing such problems, and the cost of including the warranty in the contract. The point is that the goal of avoiding highly visible payments for fixing problems with earlier work and the goal of minimizing the cost to the government of fixing problems with earlier work are separate and different goals, and that pursuing the first goal can sometimes work against achieving the second goal. The Department of Defense's guide on the use of warranties states the following: Federal Acquisition Regulation (FAR) 46.7 states that "the use of warranties is not mandatory." However, if the benefits to be derived from the warranty are commensurate with the cost of the warranty, the CO [contracting officer] should consider placing it in the contract. In determining whether a warranty is appropriate for a specific acquisition, FAR Subpart 46.703 requires the CO to consider the nature and use of the supplies and services, the cost, the administration and enforcement, trade practices, and reduced requirements. The rationale for using a warranty should be documented in the contract file.... In determining the value of a warranty, a CBA [cost-benefit analysis] is used to measure the life cycle costs of the system with and without the warranty. A CBA is required to determine if the warranty will be cost beneficial. CBA is an economic analysis, which basically compares the Life Cycle Costs (LCC) of the system with and without the warranty to determine if warranty coverage will improve the LCCs. In general, five key factors will drive the results of the CBA: cost of the warranty + cost of warranty administration + compatibility with total program efforts + cost of overlap with Contractor support + intangible savings. Effective warranties integrate reliability, maintainability, supportability, availability, and life-cycle costs. Decision factors that must be evaluated include the state of the weapon system technology, the size of the warranted population, the likelihood that field performance requirements can be achieved, and the warranty period of performance. Appendix G. Some Considerations Relating to Avoiding Procurement Cost Growth vs. Minimizing Procurement Costs This appendix presents some considerations relating to avoiding procurement cost growth vs. minimizing procurement costs in shipbuilding and other defense acquisition. The affordability challenge posed by the Navy's shipbuilding plans can reinforce the strong oversight focus on preventing or minimizing procurement cost growth in Navy shipbuilding programs, which is one expression of a strong oversight focus on preventing or minimizing cost growth in DOD acquisition programs in general. This oversight focus may reflect in part an assumption that avoiding or minimizing procurement cost growth is always synonymous with minimizing procurement cost. It is important to note, however, that as paradoxical as it may seem, avoiding or minimizing procurement cost growth is not always synonymous with minimizing procurement cost, and that a sustained, singular focus on avoiding or minimizing procurement cost growth might sometimes lead to higher procurement costs for the government. How could this be? Consider the example of a design for the lead ship of a new class of Navy ships. The construction cost of this new design is uncertain, but is estimated to be likely somewhere between Point A (a minimum possible figure) and Point D (a maximum possible figure). (Point D, in other words, would represent a cost estimate with a 100% confidence factor, meaning there is a 100% chance that the cost would come in at or below that level.) If the Navy wanted to avoid cost growth on this ship, it could simply set the ship's procurement cost at Point D. Industry would likely be happy with this arrangement, and there likely would be no cost growth on the ship. The alternative strategy open to the Navy is to set the ship's target procurement cost at some figure between Points A and D—call it Point B—and then use that more challenging target cost to place pressure on industry to sharpen its pencils so as to find ways to produce the ship at that lower cost. (Navy officials sometimes refer to this as "pressurizing" industry.) In this example, it might turn out that industry efforts to reduce production costs are not successful enough to build the ship at the Point B cost. As a result, the ship experiences one or more rounds of procurement cost growth, and the ship's procurement cost rises over time from Point B to some higher figure—call it Point C. Here is the rub: Point C, in spite of incorporating one or more rounds of cost growth, might nevertheless turn out to be lower than Point D, because Point C reflected efforts by the shipbuilder to find ways to reduce production costs that the shipbuilder might have put less energy into pursuing if the Navy had simply set the ship's procurement cost initially at Point D. Setting the ship's cost at Point D, in other words, may eliminate the risk of cost growth on the ship, but does so at the expense of creating a risk of the government paying more for the ship than was actually necessary. DOD could avoid cost growth on new procurement programs starting tomorrow by simply setting costs for those programs at each program's equivalent of Point D. But as a result of this strategy, DOD could well wind up leaving money on the table in some instances—of not, in other words, minimizing procurement costs. DOD does not have to set a cost precisely at Point D to create a potential risk in this regard. A risk of leaving money on the table, for example, is a possible downside of requiring DOD to budget for its acquisition programs at something like an 80% confidence factor—an approach that some observers have recommended—because a cost at the 80% confidence factor is a cost that is likely fairly close to Point D. Procurement cost growth is often embarrassing for DOD and industry, and can damage their credibility in connection with future procurement efforts. Procurement cost growth can also disrupt congressional budgeting by requiring additional appropriations to pay for something Congress thought it had fully funded in a prior year. For this reason, there is a legitimate public policy value to pursuing a goal of having less rather than more procurement cost growth. Procurement cost growth, however, can sometimes be in part the result of DOD efforts to use lower initial cost targets as a means of pressuring industry to reduce production costs—efforts that, notwithstanding the cost growth, might be partially successful. A sustained, singular focus on avoiding or minimizing cost growth, and of punishing DOD for all instances of cost growth, could discourage DOD from using lower initial cost targets as a means of pressurizing industry, which could deprive DOD of a tool for controlling procurement costs. The point here is not to excuse away cost growth, because cost growth can occur in a program for reasons other than DOD's attempt to pressurize industry. Nor is the point to abandon the goal of seeking lower rather than higher procurement cost growth, because, as noted above, there is a legitimate public policy value in pursuing this goal. The point, rather, is to recognize that this goal is not always synonymous with minimizing procurement cost, and that a possibility of some amount of cost growth might be expected as part of an optimal government strategy for minimizing procurement cost. Recognizing that the goals of seeking lower rather than higher cost growth and of minimizing procurement cost can sometimes be in tension with one another can lead to an approach that takes both goals into consideration. In contrast, an approach that is instead characterized by a sustained, singular focus on avoiding and minimizing cost growth may appear virtuous, but in the end may wind up costing the government more. Appendix H. Size of the Navy and Navy Shipbuilding Rate Size of the Navy Table H-1 shows the size of the Navy in terms of total number of ships since FY1948; the numbers shown in the table reflect changes over time in the rules specifying which ships count toward the total. Differing counting rules result in differing totals, and for certain years, figures reflecting more than one set of counting rules are available. Figures in the table for FY1978 and subsequent years reflect the battle force ships counting method, which is the set of counting rules established in the early 1980s for public policy discussions of the size of the Navy. As shown in the table, the total number of battle force ships in the Navy reached a late-Cold War peak of 568 at the end of FY1987 and began declining thereafter. The Navy fell below 300 battle force ships in August 2003 and as of April 26, 2019, included 289 battle force ships. As discussed in Appendix C , historical figures for total fleet size might not be a reliable yardstick for assessing the appropriateness of proposals for the future size and structure of the Navy, particularly if the historical figures are more than a few years old, because the missions to be performed by the Navy, the mix of ships that make up the Navy, and the technologies that are available to Navy ships for performing missions all change over time, and because the number of ships in the fleet in an earlier year might itself have been inappropriate (i.e., not enough or more than enough) for meeting the Navy's mission requirements in that year. For similar reasons, trends over time in the total number of ships in the Navy are not necessarily a reliable indicator of the direction of change in the fleet's ability to perform its stated missions. An increasing number of ships in the fleet might not necessarily mean that the fleet's ability to perform its stated missions is increasing, because the fleet's mission requirements might be increasing more rapidly than ship numbers and average ship capability. Similarly, a decreasing number of ships in the fleet might not necessarily mean that the fleet's ability to perform stated missions is decreasing, because the fleet's mission requirements might be declining more rapidly than numbers of ships, or because average ship capability and the percentage of time that ships are in deployed locations might be increasing quickly enough to more than offset reductions in total ship numbers. Shipbuilding Rate Table H-2 shows past (FY1982-FY2019) and requested or programmed (FY2020-FY2024) rates of Navy ship procurement.	[ "The current and planned size and composition of the Navy, the rate of Navy ship procurement, and the prospective affordability of the Navy's shipbuilding plans have been oversight matters for the congressional defense committees for many years. On December 15, 2016, the Navy released a force-structure goal that calls for achieving and maintaining a fleet of 355 ships of certain types and numbers. The 355-ship force-level goal is the result of a Force Structure Assessment (FSA) conducted by the Navy in 2016. The Navy states that a new FSA is now underway as the successor to the 2016 FSA. This new FSA, Navy officials state, is to be completed by the end of 2019. Navy officials have suggested in their public remarks that this new FSA could change the 355-ship figure, the planned mix of ships, or both. The Navy's proposed FY2020 budget requests funding for the procurement of 12 new ships, including one Gerald R. Ford (CVN-78) class aircraft carrier, three Virginia-class attack submarines, three DDG-51 class Aegis destroyers, one FFG(X) frigate, two John Lewis (TAO-205) class oilers, and two TATS towing, salvage, and rescue ships. The Navy's FY2020 five-year (FY2020-FY2024) shipbuilding plan includes 55 new ships, or an average of 11 new ships per year. The Navy's FY2020 30-year (FY2020-FY2049) shipbuilding plan includes 304 ships, or an average of about 10 per year. If the FY2020 30-year shipbuilding plan is implemented, the Navy projects that it will achieve a total of 355 ships by FY2034. This is about 20 years sooner than projected under the Navy's FY2019 30-year shipbuilding plan—an acceleration primarily due to a decision announced by the Navy in April 2018, after the FY2019 plan was submitted, to increase the service lives of all DDG-51 destroyers to 45 years. Although the Navy projects that the fleet will reach a total of 355 ships in FY2034, the Navy in that year and subsequent years will not match the composition called for in the FY2016 FSA. One issue for Congress is whether the new FSA that the Navy is conducting will change the 355-ship force-level objective established by the 2016 FSA and, if so, in what ways. Another oversight issue for Congress concerns the prospective affordability of the Navy's 30-year shipbuilding plan. Decisions that Congress makes regarding Navy force structure and shipbuilding plans can substantially affect Navy capabilities and funding requirements and the U.S. shipbuilding industrial base." ]	14,630	gov_report	en	null	a6b66279eee0135505b08462e35738e68080a9214e36f710
Under SBA’s 7(a) loan program, SBA guarantees loans made by commercial lenders to small businesses for working capital and other general business purposes. These lenders are mostly banks, but some are non-bank lenders, including small business lending companies— lenders whose lending activities are not subject to regulation by any federal or state regulatory agency, but were previously licensed by SBA and authorized to provide 7(a) loans to qualified small businesses. The guarantee assures the lender that if a borrower defaults on a loan, the lender will receive an agreed-upon portion (generally between 50 percent and 85 percent) of the outstanding balance. For a majority of 7(a) loans, SBA relies on lenders with delegated authority to approve and service 7(a) loans and to ensure that borrowers meet the program’s eligibility requirements. To be eligible for the 7(a) program, a business must be an operating for-profit small firm (according to SBA’s size standards) located in the United States and must meet the credit elsewhere requirement. Because the 7(a) program is required to serve borrowers who cannot obtain conventional credit at reasonable terms, lenders making 7(a) loans must take steps to ensure that borrowers meet the program’s credit elsewhere requirement. Because SBA relies on lenders with delegated authority to make these determinations, SBA’s oversight of these lenders is particularly important. However, we found in a 2009 report that SBA’s lack of guidance to lenders on how to document compliance with the credit elsewhere requirement was impeding the agency’s ability to oversee compliance with the credit elsewhere requirement. To improve SBA’s oversight of lenders’ compliance with the credit elsewhere requirement, we recommended in 2009 that SBA issue more detailed guidance to lenders on how to document their compliance with the credit elsewhere requirement. As a result, SBA revised its standard operating procedure to state that each loan file must contain documentation that specifically identifies the factors in the present financing that meet the credit elsewhere test, which we believe met the spirit of our recommendation. SBA’s current credit elsewhere criteria for determining 7(a) loan eligibility include the following factors: 1. the business needs a longer maturity than the lender’s policy permits; 2. the requested loan exceeds the lender’s policy limit regarding the amount that it can lend to one customer; 3. the collateral does not meet the lender’s policy requirements; 4. the lender’s policy normally does not allow loans to new businesses or businesses in the applicant’s industry; or 5. any other factors relating to the credit which, in the lender’s opinion, cannot be overcome except for the guarantee. When the 7(a) program was first implemented, borrowers were generally required to show proof of credit denials from banks that documented, among other things, the reasons for not granting the desired credit. Similar requirements remained in effect until 1985, when SBA amended the rule to permit a lender’s certification made in its application for an SBA guarantee to be sufficient documentation. This certification requirement remained when the rule was rewritten in 1996. SBA stated that it believed requiring proof of loan denials was demoralizing to small businesses and unenforceable by SBA. SBA and lender roles vary among 7(a) program categories—including regular 7(a), the Preferred Lenders Program, and SBA Express. Under the regular (nondelegated) 7(a) program, SBA makes the loan approval decision, including the credit determination. Under the Preferred Lenders Program and SBA Express, SBA delegates to the lender the authority to make loan approval decisions, including credit determinations, without prior review by SBA. For each 7(a) program category, lenders are required to ensure that borrowers meet the credit elsewhere requirement for all 7(a) loans. The maximum loan amount under the SBA Express program is $350,000, as opposed to $5 million for other 7(a) loans. The program allows lenders to utilize, to the maximum extent possible, their own credit analyses and loan underwriting procedures. In return for the expanded authority and autonomy provided by the program, SBA Express lenders agree to accept a maximum SBA guarantee of 50 percent. Other 7(a) loans generally have a maximum guarantee of 75 percent or 85 percent, depending on the loan amount. In fiscal year 2016, 1,991 lenders approved 7(a) loans, of which 1,321 approved at least one loan with some form of delegated authority. SBA’s Office of Credit Risk Management is responsible for overseeing 7(a) lenders, including those with delegated authority. SBA created this office in fiscal year 1999 to help ensure consistent and appropriate supervision of SBA’s lending partners. The office is responsible for managing all activities regarding lender reviews; preparing written reports; evaluating new programs; and recommending changes to existing programs to assess risk potential. Generally, the office oversees SBA lenders to identify unacceptable risk profiles using its risk rating system and enforce loan program requirements. According to SBA’s standard operating procedures, one of the agency’s purposes of its monitoring and oversight activities is to promote responsible lending that supports SBA’s mission to increase access to capital for small businesses. In the federal budget, the 7(a) program is generally required to set fees that it charges to lenders and borrowers at a level to cover the estimated cost of the program associated with borrower defaults (in present value terms). To offset some of the costs of the program, such as default costs, SBA assesses lenders two fees on each 7(a) loan. First, depending on the term of the loan, the guarantee fee must be paid by the lender within either 90 days of loan approval or 10 business days of the SBA loan number being assigned. This fee is based on the amount of the loan and the level of the guarantee, and lenders can pass the fee on to the borrower. Second, the servicing fee must be paid annually by the lender and is based on the outstanding balance of the guaranteed portion of the loan. The 7(a) program accounts for a small portion of total small business lending. According to a May 2017 report by the Consumer Financial Protection Bureau, the total debt financing available to small businesses was estimated to be $1.4 trillion. Of that amount, the Consumer Financial Protection Bureau estimated that about 7 percent was SBA loans, including 7(a) loans. SBA and some other researchers have suggested that there may be disparities in credit access among small businesses, based on characteristics of the borrower and firm. SBA lists as a strategic objective to “ensure inclusive entrepreneurship by expanding access and opportunity to small businesses and entrepreneurs in communities where market gaps remain.” In 2007, we reported that some studies had noted disparities among some races and genders in the conventional lending market, but the studies did not offer conclusive evidence on the reasons for those differences. Much of the research we reviewed in 2007 relied on the Board of Governors of the Federal Reserve System’s Survey of Small Business Finance, which was last implemented in 2003. Although this survey is no longer available, recently the 12 Federal Reserve Banks conducted the Small Business Credit Survey. In a series of reports based on the more recent survey, researchers found disparities in credit availability based on gender, the age of the firm, and minority status. From fiscal years 2007 through 2016, a majority of loan dollars guaranteed under the 7(a) program went to small businesses that were new, partially or wholly owned by women, or located in a distressed area. As previously mentioned, recent studies we reviewed by the Federal Reserve Banks and other researchers suggest that certain small business borrowers—including businesses that are new or owned by women—have difficulty obtaining conventional small business loans, which may put them at a disadvantage. As shown in figure 1, almost two-thirds of loan dollars guaranteed under the 7(a) program for this period went to small businesses that were in these two categories or located in a distressed area. The remaining 37 percent of 7(a) loan dollars went to businesses that were established, solely male-owned, and not located in economically distressed areas. See appendixes II and III for additional data on 7(a) loans, such as the total volume, percentage of lending provided by year and by state, and other borrower characteristics, including SBA’s loan- and lender-level Small Business Risk Portfolio Solutions score (predictive score) information. In the following figures, we present more detailed data on 7(a) loans to small businesses based on their status as a new business; gender of ownership; location relative to economically distressed areas; and minority ownership for fiscal years 2007 through 2016. New businesses. As shown in figure 2, the percentage of 7(a) loans that went to new businesses decreased from 36 percent in fiscal year 2007 to 23 percent in fiscal year 2011 before increasing to 35 percent by 2016. Gender. From fiscal years 2007 through 2016, the share of the total value of approved 7(a) loans by gender of owner remained fairly consistent (see fig. 3). An average of 70 percent of the total loan value went to male- owned businesses, and the remaining 30 percent went to businesses that were majority (more than 50 percent) or partially (50 percent or less) owned by women. Economically distressed areas. SBA did not provide data on whether 7(a) loans go to businesses located in economically distressed neighborhoods. However, we used data from the American Community Survey for 2011 through 2015, the most recent version available at the time of our analysis, along with zip code information provided by SBA to determine the average poverty rate by zip code (see fig. 4). From fiscal years 2007 through 2016, the proportion of the total value of 7(a) loans approved that went to borrowers in economically distressed areas remained between 23 percent and 26 percent. We defined distressed areas as zip codes where at least 20 percent of the households had incomes below the national poverty line. Minority/Nonminority status of borrower. From fiscal years 2007 through 2016, the proportion of the total value of 7(a) loans approved that went to minority borrowers decreased overall—from 43 percent to 30 percent—with the lowest share at 24 percent in fiscal year 2010 (see fig. 5). The share of approved loan dollars that went to nonminority borrowers varied, increasing to 69 percent in fiscal year 2010 before decreasing to 56 percent in fiscal year 2016. Notably, the share of the total value of loans approved that went to borrowers whose race/ethnicity was categorized as undetermined increased from 5 percent in fiscal year 2007 to 13 percent in fiscal year 2016. This increase does not fully account for the declined share for minority borrowers. However, according to SBA officials, borrowers voluntarily provide self-reported information on race and ethnicity and therefore the associated trend data should be viewed with caution. SBA relies on on-site reviews as its primary mechanism for evaluating lenders’ compliance with the credit elsewhere requirement. The reviews are performed by third-party contractors with SBA staff participation and additional oversight from SBA. According to SBA’s standard operating procedures, these reviews are generally conducted every 12 to 24 months for all 7(a) lenders with outstanding balances on the SBA- guaranteed portions of their loan portfolios of $10 million or more, although SBA may conduct on-site reviews of any SBA lender at any time as it considers necessary. In fiscal year 2016, SBA conducted 40 on-site reviews of 7(a) lenders, representing approximately 35 percent of SBA’s total outstanding 7(a) loan portfolio. As part of SBA’s on-site reviews, reviewers judgmentally selected a sample of approximately 30 to 40 loan files using a risk-based approach. These loan files accounted for approximately 6 percent to 19 percent of each lender’s total gross SBA dollars in fiscal year 2016. For each lender, approximately 70 percent to 90 percent of the loan files in the sample were reviewed to evaluate compliance with the credit elsewhere requirement. According to SBA’s contractors, loans that were selected for other reasons, such as issues related to liquidation, were not required to be reviewed for credit elsewhere compliance. SBA requires lenders to provide a narrative to support the credit elsewhere determination in the credit memorandum included in each loan file. SBA’s standard operating procedures state that lenders must substantiate that credit is not available elsewhere by (1) discussing the criteria that demonstrate an identifiable weakness in a borrower’s credit and (2) including the specific reasons why the borrower does not meet the lender’s conventional loan policy requirements. In keeping with SBA’s documentation requirement, third-party contractors and SBA staff who conduct on-site reviews are supposed to assess whether lenders have adequately documented the credit elsewhere criteria and provided specific reasons supporting the criteria in the credit memorandum. According to SBA’s contractors, adequate documentation of the credit elsewhere determination in the credit memorandum would include not just which of the criteria a borrower met but also a discussion of the basis or justification for the decision. For example, if a lender determined that a borrower needed a longer maturity, the lender should explain in the credit memorandum the reasons why a longer maturity was necessary. SBA’s contractors also told us that they carefully review a lender’s loan policies in preparation for on-site reviews and refer to a lender’s policies throughout the reviews. Reviewers do not attempt to verify the evidence given in support of the credit elsewhere reason beyond the information provided in the credit memorandum. Based on our review of fiscal year 2016 reports, on-site reviews can result in three levels of noncompliance response: Finding: This is the most severe result and is associated with a corrective action for the lender to remedy the issue. Observation: This is a deficiency recorded in the review’s summary but may not warrant a corrective action for the lender. Deficiency Noted: This is the lowest level of response. It is a deficiency noted as part of the review that is not included in the review’s summary and also may not warrant a corrective action. According to SBA officials, SBA’s policy has been that any noncompliance with SBA loan program requirements results in a finding. However, according to SBA officials and our review of the fiscal year 2016 on-site review reports, if a single instance of noncompliance was identified in fiscal year 2016, SBA generally would not issue a finding. Instead, SBA’s contractors said they would attempt to determine whether that instance was an inadvertent error, such as by examining additional loan files. Lenders that are subject to corrective actions are generally required to submit a response to SBA within 30 days to document how they have addressed or plan to address the identified issues. SBA subsequently asks for documentation to show that the lender has remedied the issue, and in some cases will conduct another review that usually includes an assessment of 5 to 10 additional loan files to determine whether the credit elsewhere reason has been adequately documented. According to SBA officials, SBA may also review lenders’ compliance with corrective actions from recent on-site reviews during targeted reviews (discussed below) and delegated authority renewal reviews (for lenders with delegated authority). In addition to on-site reviews, SBA also monitors lenders’ compliance with the credit elsewhere requirement through targeted reviews (performed on- or off-site). Targeted reviews of a specific process or issue may be conducted for a variety of reasons at SBA’s discretion, including assessing a lender’s compliance with the credit elsewhere requirement. In fiscal year 2016, SBA conducted 24 targeted reviews that included an examination of lenders’ compliance with the credit elsewhere documentation requirement. For these reviews, SBA examined loan files for 5 judgmentally selected loans that were provided to SBA electronically, as well as copies of the credit elsewhere reasoning (among other underwriting documentation) for 10 additional recently-approved loans. SBA also conducts periodic off-site reviews that use loan- and lender- level portfolio metrics to evaluate the risk level of lenders’ 7(a) portfolios. According to agency officials, SBA also began using off-site reviews to evaluate lenders’ compliance with the credit elsewhere requirement in fiscal year 2016. In that year, SBA conducted off-site reviews of 250 lenders and required these lenders to report the credit elsewhere justification for a sample of 10 loans per lender that were identified by SBA’s selection process. Lenders were not required to provide supporting documentation, and SBA did not follow up with lenders or review loan files to ensure the validity of the self-reported reasons. According to SBA, off-site reviews followed the same procedures in fiscal year 2017 as in 2016 and that the agency planned to use the same procedures for these reviews in the future. According to the agency, it also routinely evaluates and revises its review processes and procedures. In addition, SBA’s Loan Guaranty Processing Center and National Guaranty Purchase Center conduct Improper Payments Elimination and Recovery Act and quality control reviews at the time of loan approval and at the time of guaranty purchase, respectively. These reviews examine the credit elsewhere requirement, among other issues. Lastly, since 2014 SBA’s Office of Inspector General has also examined whether high-dollar or early-defaulted 7(a) loans were made in accordance with rules; regulations; policies; and procedures, including the credit elsewhere requirement. Our review of the on-site reviews conducted in fiscal year 2016 found that 17 of the 40 reviews—more than 40 percent—identified compliance issues with the credit elsewhere documentation requirement. Of those 17 reviews, 10 reviews resulted in a Finding (all with associated corrective 3 reviews resulted in an Observation (none with associated corrective actions or requirements), and 4 reviews resulted in a Deficiency Noted (one with an associated requirement). For all of the 17 on-site reviews that identified an instance of noncompliance, the issue was related to the lender’s documentation of the credit elsewhere criteria or justification. For example, one review found that the lender’s “regulatory practices demonstrate material noncompliance with SBA Loan Program requirements regarding documentation of the Credit Elsewhere Test.” Another review found that the lender “failed to demonstrate with adequate documentation that credit was not available elsewhere on reasonable terms and conditions.” For 2 of the 17 reviews, the issue was partly related to a discrepancy between the credit elsewhere justification used for some of the sample loan files and the lender’s own loan policy limits. With regard to SBA’s targeted reviews, 7 of 24 reviews (29 percent) conducted in fiscal year 2016 found a compliance issue with the credit elsewhere requirement. Of those 7 reviews, 6 reviews resulted in a Finding (all with associated corrective actions), 1 review resulted in an Observation (without an associated corrective no reviews resulted in a Deficiency Noted. For all of the 7 targeted reviews that identified a compliance issue, the issue was wholly related to the lender’s documentation of the credit elsewhere reason or justification. For example, 4 reviews found that for at least one loan reviewed, “the Lender failed to document justification that credit was unavailable elsewhere.” Another review found that for “three SBA Express loans and one Small Loan Advantage loan reported “other factors relating to the credit that in the lender’s opinion cannot be overcome except for the guaranty’ without specific identification of the factors.” Based on our review of on-site review reports and an interview with one reviewer, the key factors underlying lenders’ high rate of noncompliance with the credit elsewhere documentation requirement were lenders’ lack of proper internal controls and procedures and lack of awareness of the credit elsewhere documentation requirement. In fiscal year 2016, SBA’s corrective actions related to the credit elsewhere requirement required the lenders to establish or strengthen their policies; procedures; underwriting processes; or internal controls. In addition, contractors conducting the on- site reviews with whom we spoke stated that some lenders appeared to be unfamiliar with SBA’s standard operating procedures or were unclear on how to interpret them. For the 11 on-site reviews conducted in 2016 that included corrective actions, SBA generally required lenders to improve controls or procedures. For example, one lender was required to “correct its policy, modify its procedure, and amend its internal controls to ensure that its consideration and documentation of credit unavailable elsewhere identifies the specific fact(s) which are applicable to the specific loan and the determination is rendered and accurate for each individual SBA loan that it originates.” Another lender was required to “improve underwriting processes and controls to ensure that the borrower meets the [credit elsewhere] requirement” and to “document the loan file with the reasons for the determination.” Similarly, for the six targeted reviews in 2016 that included corrective actions, SBA issued a general requirement for the lender to “identify the causes for the Findings and implement corrective actions.” Based on our review of these targeted reviews, lenders generally remedied or intended to remedy the issue by amending their internal controls or procedures. For example, one lender stated that the “Credit Elsewhere test will be incorporated into the Credit Department process.” Another lender stated that it would “centralize all SBA underwriting and has developed an SBA addendum that will be utilized for all SBA-guaranteed loans.” Although some of SBA’s on-site reviews for fiscal year 2016 identified factors leading to noncompliance, they generally did not document reviewers’ assessment of lenders’ policies and practices for complying with the credit elsewhere documentation requirement. SBA’s standard operating procedures state that the on-site reviewers should determine whether or not lenders’ policies and practices adhere to the requirement, but they do not require them to document their assessment of these policies and practices. Only 4 of the 40 fiscal year 2016 review reports that we examined included such an assessment. As a result, although SBA required corrective actions by the lender to address deficiencies, there usually was no record of the underlying factors that resulted in the lender’s noncompliance. Federal internal control standards state that management should design control activities to achieve objectives and respond to risks, including appropriate documentation of transactions and internal control. Because SBA does not require reviewers to document their assessment of lenders’ policies and practices for complying with the credit elsewhere documentation requirement, the agency does not have good information to help explain why so many lenders are not in compliance. This hinders SBA’s ability to take informed and effective actions to improve lender compliance with the requirement and ensure that the program is reaching its intended population. SBA does not routinely collect information on the criteria lenders use in their credit elsewhere justifications. As previously discussed, lenders are required to maintain documentation of borrower eligibility (including the credit elsewhere justification) in each loan file for loans approved through lenders’ delegated authority. However, SBA cannot readily aggregate information on lenders’ credit elsewhere justifications for both delegated and nondelegated loans: For delegated loans, lenders are required to certify the loan’s credit elsewhere eligibility on E-Tran, SBA’s online portal for origination of delegated and nondelegated loans. However, lenders are only required to check a box to certify that the loan file contains the required credit elsewhere justification and are not required to submit any additional information, including which of the criteria was used to make the determination. According to SBA officials, delegated loans account for loans approved by approximately 70 percent of lenders. For nondelegated loans, lenders are required to submit credit elsewhere documentation to be reviewed by SBA’s Loan Guaranty Processing Center. For these loans, which comprise loans approved by the remaining 30 percent of lenders, SBA might maintain paper records of data on borrowers’ eligibility but does not compile such data electronically and thus cannot readily aggregate the data for analysis. Instead, SBA relies on on-site reviews or lender-reported information to review lenders’ credit elsewhere justifications and collects limited data from these reviews. For its on-site reviews, SBA does not collect sample data on lenders’ use of the credit elsewhere criteria. For its off-site reviews, SBA collected sample data on lenders’ use of the credit elsewhere criteria based on 250 such reviews conducted in fiscal year 2016. For these reviews, SBA asked lenders to self-report a short description of the credit elsewhere justifications used for an SBA-selected sample of 10 loans. However, as discussed earlier, SBA did not request or examine loan files as part of these off-site reviews and did not follow up with lenders or review loan files to ensure the validity of the self- reported reasons. One reason why SBA does not routinely collect complete information on lenders’ use of the credit elsewhere criteria is that SBA’s loan origination system, E-Tran, is not equipped to record or tabulate this information. In addition, according to an SBA official, on-site reviews do not collect data on the credit elsewhere criteria because the loans reviewed are judgmentally selected and would not accurately represent the larger population. Federal internal control standards state that management should use quality information to achieve the entity’s objectives. To do so, management should identify the information needed to achieve the objectives and address the risks, obtain relevant data from reliable internal and external sources in a timely manner, and process the obtained data into quality information. More robust information on lenders’ credit elsewhere justifications, including the credit elsewhere criteria, would allow SBA to evaluate patterns in lender practices related to the credit elsewhere requirement and, in turn, help the agency ensure compliance with the requirement. In this context, generalizable data, which can be collected through random sampling, or complete data through required reporting for every loan would allow SBA to better understand patterns in lender practices across the 7(a) program. Further, nongeneralizable data, which are available through SBA’s current off- and on-site review processes, would allow SBA to examine specific groups of lenders and could help SBA determine if it is necessary to collect additional data. SBA does not analyze the limited data it collects to help it monitor lenders’ compliance with the credit elsewhere requirement. According to agency officials, SBA has not performed lender-level analyses of the criteria lenders use for their credit elsewhere justifications. Additionally, SBA has not analyzed 7(a) lenders’ use of the “other factors” criterion— that is, factors not specified in the other criteria that, in the lender’s opinion, cannot be overcome except for the guarantee—for example, by collecting data on the frequency of its use or examining why lenders rely on it. While some 7(a) lenders told us they avoided relying on the “other factors” criterion because it was vague and open to interpretation, some lenders have used it when a borrower’s profile did not meet any of the other criteria. For example, one lender stated that this criterion was used for a borrower who was no longer a start-up but had experienced fluctuations in cash flow due to relocation or change in ownership. Another lender stated that the criterion was used more frequently during the 2007-2009 financial recession to extend financing to borrowers whose owners had experienced a home foreclosure but were otherwise sound. Federal internal control standards state that management should establish and operate monitoring activities to monitor the internal control system and evaluate the results. Analyzing data on lenders’ use of the credit elsewhere criteria as part of its monitoring procedures could help SBA determine whether there are patterns in lender practices related to the criteria that could predict lender noncompliance. For example, SBA could analyze lenders’ use of the criteria along with lender review results and other data on loan characteristics and performance to determine whether certain patterns indicate that a lender might be applying the requirement inconsistently. Additionally, such analysis could inform SBA’s selection of which lenders to review by improving its ability to identify lenders at risk of noncompliance with the credit elsewhere requirement. Better selection criteria for its lender reviews could, in turn, improve identification and remediation of such noncompliance, helping ensure that the 7(a) program serves its target population. Representatives at 8 of the 11 lenders that we contacted said they believed that SBA’s current credit elsewhere criteria are adequate in targeting small business borrowers who cannot obtain credit at reasonable terms. Representatives of these lenders also agreed that the criteria generally serve the types of small businesses that would otherwise have trouble obtaining conventional credit, such as new businesses or those with a shortage of collateral. One lender representative told us its most commonly used criterion related to the overall time in business because of the higher risk of failure. Another lender representative cited the lack of collateral as the most common criterion used. Additionally, representatives at an industry association told us that one of the most commonly used criteria was the one related to loan maturity and many small businesses seek 7(a) loans because they offer repayment terms of up to 10 years, compared to 1 to 3 years for conventional loans. Representatives of two other lenders suggested that the credit elsewhere criteria should not be overly prescriptive, which could limit lenders’ ability to make 7(a) loans to some businesses. For example, one representative said the credit elsewhere criteria should remain flexible because banks have different lending policies. In addition, representatives at three lenders indicated that they were hesitant to use the “other factors” criterion. One lender believed the requirement was open to interpretation and could be used inappropriately with lenders determining their own individual conventional loan policies. Another lender commented that the criterion was vague and rarely used by his institution, noting that SBA should provide some additional guidance on its use. Lenders consider multiple factors in determining whether to offer small businesses a conventional loan or a 7(a) loan, according to stakeholders with whom we spoke. For example, representatives at an industry association stated that a bank goes through several analyses to determine what loan product to offer the borrower. These representatives stated that the credit elsewhere requirement is embedded in the analysis a bank performs, such as whether the borrower qualifies for a loan and has a financial need for an SBA loan and whether the 7(a) program is right for that borrower. Representatives at two other lenders also stated that many small businesses have already been turned down for conventional loans before they seek a 7(a) loan. One representative noted that the “reasonable rates and terms” component of the 7(a) program was important as it allows lenders to look more broadly at a borrower’s needs. For instance, the representative explained, lenders can assess whether repayment terms are reasonable given a particular borrower’s situation and the resources the borrower will have to repay the loan. Economic conditions also affect lending policies, including whether borrowers qualify for a conventional loan, according to representatives at seven lenders with whom we spoke. For example, during the recent economic downturn, banks tightened their underwriting standards for small businesses and were less willing to lend without a government guarantee, according to one lender representative. SBA has issued revised primary operational guidance for the 7(a) program, effective January 1, 2018. As discussed previously, lenders are required to make a determination that the desired credit is not available to the applicant from nonfederal sources. Under the previous guidance, the lender had to determine that some or the entire loan was not available from nonfederal sources or the resources of the applicant business. However under the revised guidance, the scope of nonfederal sources a lender must review was further defined to include sources both related and unrelated to the applicant. The updated guidance states that lenders must consider: Nonfederal sources related to the applicant, including the liquidity of owners of 20 percent or more of the equity of the applicant, their spouses and minor children, and the applicant itself; or Nonfederal sources unrelated to the applicant, including conventional lenders or other sources of credit. Representatives of five lenders told us they have been determining how to interpret the new procedures with a few stating they would like additional guidance, including what information to retain in the file. Representatives of two lenders stated that there is some ambiguity in how to determine nonfederal resources and how to assess whether small business owners have too many available liquid resources to qualify for a 7(a) loan. One representative said that lenders can have different interpretations of what constitutes “available resources,” which is not specified in the new SOP. As a result, he said, there may be some confusion about how to assess family members of the borrower who have high net worths and whether the borrower should decline a family member contribution to qualify for an SBA loan. A representative of one lender stated that lenders will not know what SBA expects until loans are approved under the new procedures, default, and are then reviewed. Another lender’s representative suggested additional guidance on documentation, such as whether the bank must obtain a personal financial statement for each owner of the business. A SBA staff told us SBA has provided multiple training presentations to SBA staff, lenders, and trade associations on the statutory changes to the credit elsewhere requirements and standard operating procedure updates. These have included a presentation at a trade association conference, four monthly conference calls for SBA staff, and two conference calls for SBA lenders. SBA staff said SBA also plans to hold monthly training sessions with SBA field offices, quarterly training sessions with the industry, and at least four training sessions in 2018 at lender trade conferences. Additionally, a representative from an industry association told us it is providing industry training on SBA’s revised procedures, including the credit elsewhere liquidity requirement. SBA’s 7(a) loan program is required to serve creditworthy small business borrowers who cannot obtain credit through a conventional lender at reasonable terms, and SBA largely relies on lenders with delegated authority to make credit elsewhere determinations. However, although there is a high rate of lender noncompliance with the credit elsewhere documentation requirement, SBA does not require its reviewers to document their assessment of the policies and procedures lenders use to meet the requirement. Without better information from lender reviews on how lenders are implementing the requirement to document their credit elsewhere decisions, SBA may be limited in its ability to promote compliance with requirements and, in turn, use such information to help ensure that 7(a) loans are reaching their target population. Furthermore, SBA does not routinely collect or analyze information on the criteria used for credit elsewhere justifications to evaluate patterns in lender practices. SBA recently began collecting some information on lenders’ use of the criteria, but this information is limited, and SBA does not analyze the information that it does collect to better understand lenders’ practices. Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and whether 7(a) loans are reaching borrowers who cannot obtain credit from other sources at reasonable terms. We are making the following three recommendations to SBA. The Administrator of SBA should require reviewers to consistently document their assessments of a lender’s policies and practices. (Recommendation 1) The Administrator of SBA should use its on-site and off-site reviews to routinely collect information on lenders’ use of credit elsewhere criteria as part of its monitoring of lender practices related to the credit elsewhere requirement. (Recommendation 2) The Administrator of SBA should analyze information on lenders’ use of credit elsewhere criteria obtained from its reviews to identify lenders that may be at greater risk of noncompliance and to inform its selection of lenders for further review for credit elsewhere compliance. (Recommendation 3) We provided a draft of this report for review and comment. SBA’s written comments are reprinted in appendix IV. SBA generally agreed with the recommendations. SBA also provided additional comments on certain statements in the draft report, which are summarized below with our responses. SBA noted that the draft Highlights did not discuss how credit elsewhere is determined for nondelegated loans. We have not revised the Highlights in response to this comment because our review focused on delegated lenders. In the body of the report we note that approximately 70 percent of 7(a) loans are approved under delegated authority. We also refer to SBA’s nondelegated loans in the report for additional context. According to SBA, the statement on our draft Highlights did not fully reflect its monitoring of lender compliance. SBA identified a variety of reviews it uses in addition to on-site reviews by third party contractors, which we discuss in the body of the report. We have modified the Highlights to reflect these other reviews. Also in reference to the draft Highlights, SBA stated that it provides oversight on every on-site lender review and that an SBA employee is present as a subject-matter expert on every review. We revised the Highlights by adding that SBA provides oversight to the on-site reviews conducted by third-party contractors. In response to a statement in our draft report that SBA guarantees loans to small businesses for working capital and other general business purposes, SBA commented that working capital generally is not the primary purpose for SBA-guaranteed loans. We did not revise the statement because SBA’s SOP 50 10 5 (version J) specifies that SBA’s 7(a) loan proceeds may be used for permanent working capital and revolving working capital, among other things. In relation to a footnote in our report that mentions two lender reviews for which we did not receive documentation, SBA stated that on February 15, 2018, it provided documentation to us related to the reviews and that we had confirmed its receipt. However, the text in the footnote in question refers to two targeted lender reviews from 2016 that included corrective actions. The information SBA provided to us on February 15, 2018, was related to on-site reviews conducted in 2016. As a result, we did not revise the footnote. SBA’s letter also contained technical comments that we incorporated as appropriate. We are sending copies of this report to congressional committees, agencies, and other interested parties. In addition, this report will be available at no charge on our website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-8678 or shearw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. This report discusses (1) 7(a) lending to selected categories of small business borrowers from fiscal years 2007 through 2016; (2) how the Small Business Administration (SBA) monitors lenders’ compliance with the credit elsewhere requirement; (3) the extent to which SBA evaluates trends in lender practices related to the credit elsewhere requirement; and (4) lenders’ views on the criteria used to determine eligibility for 7(a) loans and other issues related to the 7(a) program. For background on the 7(a) program and the credit elsewhere requirement, we reviewed the legislative history of the 7(a) program and our previous reports. We also interviewed officials from SBA’s Office of Credit Risk Management on guidance provided to 7(a) lenders. For background on constraints in the small business credit market, we reviewed recent academic literature on the characteristics of small businesses that historically have had more difficulty accessing credit. In addition, we reviewed recent studies published by the Federal Reserve Banks of Atlanta; Cleveland; Kansas City; and New York. To describe the population of borrowers served by the 7(a) program, we selected characteristics (such as gender, minority status, and percentage of new business) that we used in our 2007 report and that were the subject of the recent studies by Federal Reserve Banks. We obtained and analyzed SBA loan-level data to describe 7(a) loans and borrowers. Specifically, SBA provided us with 581,393 records from its administrative data systems, which contained information on all loans approved and disbursed in fiscal years 2007 through 2016. The SBA data included various types of information describing each loan, including the total gross approval amount; the amount guaranteed by SBA; the loan term; and the interest rate; delivery method; and status of the loan. The SBA data also included information on borrower characteristics: Age of business. Firms were classified as new (less than 2 years in operation) or existing. Gender. Firms were classified as 100 percent male-owned; 50 percent or greater women owned; 50 percent or less women-owned; or “unknown.” Information on gender was voluntarily provided by borrowers. Economically distressed area. We identified borrowers in economically distressed areas by matching borrower zip codes provided by SBA to those in the 2011 through 2015 American Community Survey. We defined distressed areas as zip codes where at least 20 percent of households had incomes below the national poverty line. In about 1 percent of the cases, we were unable to classify a lender because a zip code had changed or had insufficient population to report a poverty rate. We consider 1 percent of unmatched cases to be low by data reliability standards. Race/ethnicity. Borrowers were placed in one of nine categories of race/ethnicity, including an “unknown” category. We aggregated these to create minority, nonminority, and undetermined categories. The minority category included all borrowers who reported being a race/ethnicity other than white. The nonminority category included borrowers who reported being white. Information on race was voluntarily provided by borrowers. Industry. Firms were assigned a North American Industrial Classification code. These six-digit codes begin with a two-digit sector code that we used to draw more general conclusions about industries. Geographic information. The data provided the state where the borrower is located. In addition, we obtained information from SBA on loan- and lender-level Small Business Risk Portfolio Solution scores (predictive scores) provided by Dunn & Bradstreet and Fair Isaac Company, for loans approved in fiscal year 2016, the latest available. We were able to obtain predictive scores for approximately 81 percent of the loans for which SBA had provided other information. According to SBA, some loans may not have been disbursed at the time we obtained the predictive scores and, as a result, we do not have scores associated with these loans. We analyzed the information to determine the range of predictive scores and the range of average predictive scores by lender. To assess the reliability of loan-level data on borrower and loan characteristics and predictive scores we received from SBA, we interviewed agency officials knowledgeable about the data and reviewed related documentation. We also conducted electronic testing, including checks for outliers, missing data, and erroneous values. We determined that the data were sufficiently reliable for the purposes of describing the characteristics of borrowers who received 7(a) loans and the distribution of predictive scores. To assess how SBA monitors lenders’ compliance with the credit elsewhere requirement and criteria, we reviewed SBA’s standard operating procedures and other guidance on 7(a) program regulations and lender oversight. Specifically, we reviewed SOP 50 10 5 (versions I and J) on Lender and Development Company Loan Programs, SOP 50 53(A) on Lender Supervision and Enforcement, and SOP 51 00, On-Site Lender Reviews/Examinations, as well as information and policy notices related to the credit elsewhere requirement. Additionally, we interviewed representatives including those at SBA’s Office of Capital Access and Office of Credit Risk Management on lender oversight and lender review processes. We reviewed all the on-site lender review reports (40 reviews), including corrective actions or requirements related to the credit elsewhere requirement (documentation for 11 lenders), and targeted review reports that had credit elsewhere findings (7 reviews) that SBA conducted in fiscal year 2016. We also interviewed officials and reviewed recent reports from SBA’s Office of Inspector General. To assess the extent to which SBA evaluates trends in lender practices related to the credit elsewhere requirement, we interviewed SBA officials and reviewed documentation for SBA’s online portal for loan origination. We also incorporated information from interviews with a nongeneralizable, nonrepresentative sample of 7(a) lenders, which we discuss below. To obtain lenders’ views on the criteria used to determine eligibility for 7(a) loans and other program-related issues, we interviewed SBA staff including from the Office of Capital Access, and representatives of the National Association of Government Guaranteed Lenders; American Bankers Association; Independent Community Bankers Association; and National Federation of Independent Businesses. We also interviewed 11 banks (one bank provided written responses) in order to obtain the lender perspective of credit elsewhere. Nine of the banks were selected by us using a random process that concentrated on larger lenders. These nine lenders selected by us represent about 13 percent of the loans approved and 16 percent of the dollars approved in 2016. In addition, we interviewed two additional banks that represented an industry group – one larger bank and one small bank. Although we partially selected at random, the lenders we interviewed should not be considered generalizable because of the small number. We conducted this performance audit from August 2017 to June 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In this appendix, we provide information on the total amount and number of approved 7(a) loans and the top eight industry sectors receiving 7(a) loans. Data are also presented on fiscal year 2016 loan volume by state and per capita. As shown in figure 6 below, the total amount of approved 7(a) loans decreased during the period associated with the Great Recession (2007 through 2009). From fiscal year 2009 on, the total amount of approved 7(a) loans increased until a decline in fiscal year 2012. During this timeframe, the American Recovery and Reinvestment Act of 2009 and the Small Business Jobs Act of 2010 provided fee relief and higher guaranties. The Small Business Jobs Act of 2010 also provided a temporary increase in Small Business Administration (SBA) Express loan limits to $1 million (instead of $350,000). These programs have since expired. 7(a) Loans by North American Industry Classification System (NAICS) code. Table 1 shows the largest eight industrial sectors by proportion of the total amount of 7(a) loans approved, using the NAICS code. The combined share of the top eight sectors declined slightly from 85 percent to 80 percent of the total lending from fiscal years 2007 through 2016, with an average of 82 percent. During this period, the Accommodation and Food Services sector had the largest average share of total loan amount at 17 percent, followed by the Retail Trade sector at 15 percent. Approved loan amount and per capita dollars by state. As shown in figure 7, California; Texas; Florida; Georgia; and New York received the highest total of approved loan dollars in fiscal year 2016. The average approval amount across all loans was $380,619. Georgia and Arkansas had the largest average approval amount in 2016. Also, during this period, Utah; Colorado; Georgia; California; and Washington received the highest per capita approved loan dollars. In fiscal-year 2016, creditworthiness varied widely among 7(a) program borrowers. We analyzed creditworthiness using the Small Business Administration’s (SBA) Small Business Risk Portfolio Solution score (predictive score), which ranges from 70 to 300, with 300 indicating the least risky loan. According to SBA, loans with scores above 180 are considered “lower risk,” scores between 140 and 179 are considered “moderate risk,” and scores 139 and lower are considered “higher risk.” There did not appear be differences in score based on the gender of the borrower or the age of the business. While SBA relies on the Predictive Score data to identify lenders that may pose excessive risk to the SBA 7(a) portfolio, the data also provide potential insights related to lender implementation of the credit elsewhere requirement. Variation. We found that some 7(a) borrowers were much more creditworthy than others. In 2016, the only year for which we obtained data, the predictive score at origination varied widely among borrowers. In 2016, the scores of borrowers ranged from a low of 91 to a high of 246. However, most scores were between 171 and 203, and the median score was 188. Race/ethnicity. We found that there were slight differences in creditworthiness by race/ethnicity, with median scores ranging from 180 to 189 depending on the category. Specifically, loans to African Americans in 2016 had a median score of 180, and loans to Hispanics had a median score of 183. In contrast, loans to whites had a median score of 188, and loans to Asian and Pacific Islanders had a median score of 189. Lender size. We found that lenders with larger numbers of SBA loans tended to have slightly more creditworthy borrowers. The top 5 percent of lenders had a median average score of 187, whereas the bottom 75 percent of lenders had a median average score of 182.5. Among the top 5 percent of lenders (with 374 loans per lender on average, collectively representing about 70 percent of the loans approved), the average score ranged from 171 to 195. Among all lenders, the average score ranged from 116 to 233. However, because many lenders only approved one or two loans in 2016, the average may reflect very few borrowers for that lender, making it difficult to tell whether the scores reflect a real difference between lenders. In addition to the contact named above, Harry Medina (Assistant Director); Janet Fong (Analyst in Charge); Benjamin A. Bolitzer; Gita DeVaney; David S. Dornisch; Amanda D. Gallear (intern); Marc W. Molino; Jennifer W. Schwartz; and Tyler L. Spunaugle made key contributions to this report.	[ "SBA's 7(a) program is required to serve creditworthy small business borrowers who cannot obtain credit through a conventional lender at reasonable terms. The Joint Explanatory Statement of the Consolidated Appropriations Act, 2017 includes a provision for GAO to review the 7(a) program. This report discusses, among other things, (1) how SBA monitors lenders' compliance with the credit elsewhere requirement, (2) the extent to which SBA evaluates trends in lender credit elsewhere practices, and (3) lenders' views on the credit elsewhere criteria for 7(a) loans. GAO analyzed SBA data on 7(a) loans approved for fiscal years 2007–2016, the latest available, and reviewed literature on small business lending; reviewed standard operating procedures, other guidance, and findings from SBA reviews performed in fiscal year 2016; and interviewed lender associations and a nonrepresentative sample of 7(a) lenders selected that concentrated on larger lenders. For its 7(a) loan program, the Small Business Administration (SBA) has largely delegated authority to lenders to make 7(a) loan determinations for those borrowers who cannot obtain conventional credit at reasonable terms elsewhere. To monitor lender compliance with the “credit elsewhere” requirement SBA primarily uses on-site reviews conducted by third-party contractors with SBA participation and oversight, and other reviews. According to SBA guidance, lenders making 7(a) loans must take steps to ensure and document that borrowers meet the program's credit elsewhere requirement. However, GAO noted a number of concerns with SBA's monitoring efforts. Specifically, GAO found the following: Over 40 percent (17 of 40) of the on-site lender reviews performed in fiscal year 2016 identified lender noncompliance with the requirement. On-site reviewers identified several factors, such as weakness in lenders' internal control processes that were the cause for lender noncompliance. Most on-site reviewers did not document their assessment of lenders' policies or procedures, because SBA does not require them to do so. As a result SBA does not have information that could help explain the high noncompliance rate. Federal internal control standards state that management should design control activities, including appropriate documentation, and use quality information to achieve the entity's objectives. Without better information on lenders' procedures for complying with the documentation requirement, SBA may be limited in its ability to promote compliance with requirements designed to help ensure that the 7(a) program reaches its target population. SBA does not routinely collect or analyze information on the criteria used by lenders for credit elsewhere justifications. SBA recently began collecting some information on lenders' use of the criteria, but this information is limited, and SBA does not analyze the information that it does collect to better understand lenders' practices. Federal internal control standards state that management should use quality information to achieve the entity's objectives. Without more robust information and analysis, SBA may be limited in its ability to understand how lenders are using the credit elsewhere criteria and identify patterns of use by certain lenders that place them at a higher risk of not reaching borrowers who cannot obtain credit from other sources at reasonable terms. In general, representatives from 8 of 11 lenders that GAO interviewed stated that SBA's credit elsewhere criteria are adequate for determining small business eligibility for the 7(a) program. These criteria help them target their lending to small businesses that would otherwise have difficulty obtaining conventional credit because they are often new businesses or have a shortage of collateral. However, they also said that other factors—such as lender policies and economic conditions—can affect their decisions to offer 7(a) loans. In January 2018, SBA issued revised guidance for the 7(a) program and has provided training on this new guidance to lenders and trade associations. Lenders told GAO they are still in the process of understanding the new requirements. GAO recommends that SBA (1) require its on-site reviewers to document their assessment of lenders' policies and procedures related to the credit elsewhere documentation requirement, (2) collect information on lenders' use of credit elsewhere criteria, and (3) analyze that information to identify trends. SBA generally agreed with the recommendations." ]	8,215	gov_report	en	null	0a835927d5d2333bd2525d5f599e81781d951896cc64ad49
Concerned that the federal government was more focused on program activities and processes than the results to be achieved, Congress passed the Government Performance and Results Act of 1993 (GPRA). GPRA sought to focus federal agencies on performance by requiring agencies to develop long-term and annual goals, and measure and report on progress towards those goals annually. Based on our analyses of the act’s implementation, we concluded in March 2004 that GPRA’s requirements had laid a solid foundation for results-oriented management. At that time, we found that performance planning and measurement had slowly yet increasingly become a part of agencies’ cultures. For example, managers reported having significantly more performance measures in 2003 than in 1997, when GPRA took effect government-wide. However, the benefit of collecting performance information is fully realized only when that information is actually used by managers to make decisions aimed at improving results. Although our 2003 survey found greater reported availability of performance information than in 1997, it also showed managers’ use of that information for various management activities generally had remained unchanged. Based on those results, and in response to a request from Congress, in September 2005, we developed a framework intended to help agencies better incorporate performance information into their decision making. As shown in figure 1, we identified five leading practices that can promote the use of performance information for policy and program decisions; and four ways agency managers can use performance information to make program decisions aimed at improving results. Our September 2005 report also highlighted examples of how agencies had used performance information to improve results. For example, we described how the Department of Transportation’s National Highway Traffic Safety Administration used performance information to identify, develop, and share effective strategies that increased national safety belt usage—which can decrease injuries and fatalities from traffic accidents— from 11 percent in 1985 to 80 percent in 2004. Subsequently, the GPRA Modernization Act of 2010 (GPRAMA) was enacted, which significantly expanded and enhanced the statutory framework for federal performance management. The Senate Committee on Homeland Security and Governmental Affairs report accompanying the bill that would become GPRAMA stated that agencies were not consistently using performance information to improve their management and results. The report cited the results of our 2007 survey of federal managers. That survey continued to show little change in managers’ use of performance information. The report further stated that provisions in GPRAMA are intended to address those findings and increase the use of performance information to improve performance and results. For example, GPRAMA requires certain agencies to designate a subset of their respective goals as their highest priorities—known as agency priority goals—and to measure and assess progress toward those goals at least quarterly through data-driven reviews. Our recent work and surveys suggest that data-driven reviews are having their intended effect. For example, in July 2015, we found that agencies reported that their reviews had positive effects on progress toward agency goals and efforts to improve the efficiency of operations, among other things. In addition, for those managers who were familiar with their agencies’ data-driven reviews, our 2013 and 2017 surveys showed that the more managers viewed their programs as being subject to a review, the more likely they were to report their agencies’ reviews were driving results and conducted in line with our leading practices. Recognizing the important role these reviews were playing in improving data-driven decision making, our management agenda for the presidential and congressional transition in 2017 included a key action to expand the use of data-driven reviews beyond agency priority goals to other agency goals. More broadly, our recent surveys of federal managers have continued to show that reported government-wide uses of performance information generally have not changed or in some cases have declined. As we found in September 2017, and as illustrated in figure 2, the 2017 update to our index suggests that government-wide use of performance information did not improve between 2013 and 2017. In addition, it is statistically significantly lower relative to our 2007 survey, when we created the index. Moreover, in looking at the government-wide results on the 11 individual survey questions that comprise the index, we found few statistically significant changes in 2017 when compared to (1) our 2013 survey or (2) the year each question was first introduced. For example, in comparing 2013 and 2017 results, two questions had results that were statistically significantly different: The percentage of managers who reported that employees who report to them pay attention to their agency’s use of performance information was statistically significantly higher (from 40 to 46 percent). The percentage of managers who reported using performance information to adopt new program approaches or change work processes was statistically significantly lower (from 54 to 47 percent). As we stated in our September 2017 report, the decline on the latter question was of particular concern as agencies were developing plans to improve their efficiency, effectiveness, and accountability, as called for by an April 2017 memorandum from OMB. In early 2017, the administration announced several efforts intended to improve government performance. OMB issued several memorandums detailing the administration’s plans to improve government performance by reorganizing the government, reducing the federal workforce, and reducing federal agency burden. As part of the reorganization efforts, OMB and agencies were to develop government-wide and agency reform plans, respectively, designed to leverage various GPRAMA provisions. For instance, the April 2017 memorandum mentioned above stated that OMB intends to monitor implementation of the reforms using, among other things, agency priority goals. While many agency-specific organizational improvements were included in the President’s fiscal year 2019 budget, released in February 2018, OMB published additional government-wide and agency reform proposals in June 2018. The President’s Management Agenda (PMA), released in March 2018, outlines a long-term vision for modernizing federal operations and improving the ability of agencies to achieve outcomes. To address the issues outlined in the PMA, the administration established a number of cross-agency priority (CAP) goals. CAP goals, required by GPRAMA, are to address issues in a limited number of policy areas requiring action across multiple agencies, or management improvements that are needed across the government. The PMA highlights several root causes for the challenges the federal government faces. Among them is that agencies do not consistently apply data-driven decision-making practices. The PMA states that smarter use of data and evidence is needed to orient decisions and accountability around service and results. To that end, in March 2018, the administration established the Leveraging Data as a Strategic Asset CAP goal to improve the use of data in decision making to increase the federal government’s effectiveness. Over the past 25 years, various organizations, roles, and responsibilities have been created by executive action or in law to provide leadership in federal performance management. At individual agencies and across the federal government, these organizations and officials have key responsibilities for improving performance, as outlined below. OMB: At least every four years, OMB is to coordinate with other agencies to develop CAP goals—such as the one described earlier on leveraging data as an asset—to improve the performance and management of the federal government. OMB is also required to coordinate with agencies to develop annual federal government performance plans to define, among other things, the level of performance to be achieved toward the CAP goals. Following GPRAMA’s enactment, OMB issued guidance for initial implementation, as required by the act, and continues to provide updated guidance in its annual Circular No. A-11, additional memorandums, and other means. Chief Operating Officer (COO): The deputy agency head, or equivalent, is designated as the COO, with overall responsibility for improving agency management and performance through, among other things, the use of performance information. President’s Management Council (PMC): The PMC is comprised of OMB’s Deputy Director for Management and the COOs of major departments and agencies, among other individuals. Its responsibilities include improving overall executive branch management and implementing the PMA. Performance Improvement Officer (PIO): Agency heads designate a senior executive as the PIO, who reports directly to the COO. The PIO is responsible for assisting the head of the agency and COO to ensure that agency goals are achieved through, among other things, the use of performance information. Performance Improvement Council (PIC): The PIC is charged with assisting OMB to improve the performance of the federal government. It is chaired by the Deputy Director for Management at OMB and includes PIOs from each of the 24 Chief Financial Officers Act agencies, as well as other PIOs and individuals designated by the chair. Among its responsibilities, the PIC is to work to resolve government-wide or cross-cutting performance issues, and facilitate the exchange among agencies of practices that have led to performance improvements. Previously, the General Service Administration’s (GSA) Office of Executive Councils provided analytical, management, and administrative support for the PIC, the PMC, and other government-wide management councils. In January 2018, the office was abolished and its functions, staff, and authorities, along with those of the Unified Shared Services Management Office, were reallocated to GSA’s newly created Shared Solutions and Performance Improvement Office. As at the government-wide level—where, as described earlier, the use of performance information did not change from 2013 to 2017—managers’ reported use of performance information at most agencies also did not improve since 2013 (illustrated in figure 3). At the agency level, 3 of the 24 agencies had statistically significant changes in their index scores—1 increase (National Science Foundation) and 2 decreases (Social Security Administration and the Office of Personnel Management). Also, in 2017, 6 agencies had results that were statistically significantly different—4 higher and 2 lower—than the government-wide average (see sidebar). Throughout the report, we highlight two different types of statistically significant results—changes from our last survey in 2013 and differences from the 2017 government-wide average. The former indicates when an agency’s reported use of performance information or leading practices has measurably improved or declined. The latter indicates when it is statistically significantly higher or lower than the rest of government. These results suggest agencies have taken actions that led to improvements in their use of performance information. For example, when a result is a statistically significant increase since 2013, as with the National Science Foundation index score in 2017, this suggests that the agency has adopted practices that led to a measurable increase in the use of performance information by managers. When a result is statistically significantly higher than the government-wide average, like GSA’s 2017 index score, this suggests that the agency’s use of performance information is among the highest results when compared to the rest of government. These agencies could also have insights into practices that led to relatively high levels of performance information use. Finally, when a result is a statistically significant decrease since 2013, as with the Social Security Administration’s index score in 2017, or statistically significantly lower than the government-wide average, like the Department of Homeland Security’s 2017 index score, this suggests the agencies face challenges that are hampering their ability to use performance information. Appendix III provides each agency’s index scores from 2007, 2013, and 2017 to show changes between survey years. When we disaggregated the index and analyzed responses from the 11 questions that comprise the index—which could help pinpoint particular actions that improved the use of performance information—we similarly found relatively few changes in agencies’ recent results. Specifically, we identified 16 instances where agency responses on individual questions were statistically significantly different from 2013 to 2017—10 increases and 6 decreases. This represents about 6 percent of the total possible responses to the 11 survey questions from each of the agencies. In addition, we found 12 instances where an agency’s result on a question was statistically significantly higher (11) or lower (1) than the government-wide average in 2017. For example, the percentage of Social Security Administration (SSA) managers reporting that their peers use performance information to share effective approaches was statistically significantly higher than the government-wide average. Although SSA’s index score had a statistically significant decline in 2017 compared to 2013, the agency’s index score remains relatively high, as it has in prior years. The scope of our work has not allowed us to determine definitively what factors caused the decline in SSA’s index score and whether the decline is likely to continue, although its result on this particular question may indicate a continued strength. Each agency’s results on the 11 questions that comprise the index are presented in appendix I. The agencies’ respective statistically significant results are identified in figure 4. While some agencies had statistically significant improvements on individual questions, and could point to actions that led to improvements in their use of performance information, these improvements should be considered in relation to the range of agency results and the government- wide average. In figure 4, there are five agencies with statistically significant increases on responses to individual questions, where those results were not statistically significantly higher than the government-wide average (see arrows without plus signs for the Departments of Agriculture, Defense, and Justice; the Environmental Protection Agency; and the National Science Foundation). While these represent improvements, they should be considered in relation to the range of agency results and the government-wide average (provided in detail in the agency summaries in appendix I). For example, in 2017, the percentage of managers at the Department of Agriculture who reported that upper management use performance information to inform decisions about program changes was statistically significantly higher than in 2013. However, the department’s 2017 result (37 percent) was relatively lower when compared to the maximum agency result on that question (60 percent). Appendix I presents the results on the index and the 11 questions that comprise it for each of the 24 agencies. When we compared government-wide and agency-level results on selected survey questions that reflect practices that promote the use of performance information, we found that results between 2013 and 2017 generally remained unchanged. As described earlier, there are 10 survey questions that both reflect the five leading practices identified in our past work and had statistically significant associations with higher index scores. As shown in figure 5, government-wide results on 2 of the 10 questions were statistically significantly different, both increases, from 2013 to 2017. Despite these two increases, the overall results suggest these practices are not widely followed government-wide. On most of the 10 questions, only about half (or fewer) of the managers reported their agencies were following them to a “great” or “very great” extent. When we analyzed agency-level responses to these 10 questions, we also found relatively few changes in recent results. Specifically, our analysis found 20 instances—16 increases and 4 decreases—where agencies’ responses on individual questions were statistically significantly different from 2013 to 2017. This represents about 8 percent of the total possible responses to the 10 survey questions from each of the agencies. In addition, we found 10 instances where an agency’s result on a question was statistically significantly higher (8) or lower (2) than the government-wide average in 2017. Each agency’s results on these 10 questions are presented in appendix I, and the statistically significant results are identified in figure 6. Those agencies with results on individual questions that are either statistically significantly higher than 2013, higher than the 2017 government-wide average, or both may have taken actions in line with our leading practices for promoting the use of performance information. For example, the National Science Foundation had both types of statistically significant results on a question about having sufficient information on the validity of their performance data. Here, the agency’s result increased 27 percentage points from 2013 to 2017. While the scope of our review does not allow us to definitively determine the reasons for the National Science Foundation’s higher results, they suggest the agency has taken recent actions that greatly improved the availability and accessibility of information on the validity of performance data. In both 2013 and 2017, our analyses found this particular question to be the strongest predictor of higher performance information use when we tested for associations between the questions that reflect leading practices and our index. Our 2017 survey results show that managers who reported their programs were subject to data-driven reviews also were more likely to report using performance information in decision making to a greater extent (see figure 7). For the 35 percent of managers who reported being familiar with data-driven reviews, those who reported their programs had been subject to data-driven reviews to a “great” or “very great” extent had index scores that were statistically significantly higher than those whose programs were subject to these reviews to a lesser extent. Similarly, we found that being subject to data-driven reviews to a greater extent was also related to greater reporting of agencies following practices that can promote the use of performance information. As figure 8 shows, managers who reported their programs were subject to these reviews to a “great” or “very great” extent more frequently reported that their agencies followed the five leading practices that promote the use of performance information, as measured by the 10 related survey questions associated with higher scores on the index. For example, of the estimated 48 percent of managers who reported their programs were subject to data-driven reviews to a “great” or “very great” extent, 72 percent also reported that managers at their level (peers) effectively communicate performance information on a routine basis to a “great” or “very great” extent. Conversely, for the 24 percent of managers who reported their programs were subject to data-driven reviews to a “small” or “no” extent, only 30 percent reported that managers at their level do this to a “great” or “very great” extent. Our past work has found that the Executive Branch has taken steps to improve the use of performance information in decision making by senior leaders at federal agencies. However, our survey results indicate those steps have not led to similar improvements in use by managers at lower levels. Through its guidance to implement GPRAMA, OMB developed a framework for performance management in the federal government that involves agencies setting goals and priorities, measuring performance, and regularly reviewing and reporting on progress. This includes expectations for how agency senior leaders should use performance information to assess progress towards achieving agency priority goals through data-driven reviews, and strategic objectives through strategic reviews. For example, GPRAMA requires, and OMB’s guidance reinforces, that data-driven reviews should involve the agency head, Chief Operating Officer, Performance Improvement Officer, and other senior officials responsible for leading efforts to achieve each goal. OMB’s guidance also identifies ways in which agency leaders should use the results of those reviews to inform various decision-making activities, such as revising strategies, formulating budgets, and managing risks. Our past work also found that agencies made progress in implementing these reviews and using performance information. In July 2015, we found that agencies generally were conducting their data-driven reviews in line with GPRAMA requirements and our related leading practices, including that agency leaders used the reviews to drive performance improvement. In addition, in September 2017, we reported on selected agencies’ experiences in implementing strategic reviews and found that the reviews helped direct leadership attention to progress on strategic objectives. Despite those findings, our survey results continue to show that the reported use of performance information by federal managers has generally not improved, and actually declined at some agencies. This could be because of the two different groups of agency officials covered by our work. GPRAMA’s requirements, and the federal performance management framework established by OMB’s guidance, apply at the agency-wide level and generally involve senior leaders. Our past work reviewing implementation of the act therefore focused on improvements in the use of performance information by senior leaders at the agency- wide level. In contrast, our surveys covered random samples of mid- and upper-level managers within those agencies, including at lower organizational levels such as component agencies. Their responses indicate that the use of performance information more broadly within agencies—at lower organizational levels—generally has not improved over time. The exception to this was managers whose programs were subject to the data-driven reviews required by GPRAMA. As described above, those managers were more likely to report greater use of performance information in their agencies. This reinforces the value of the processes and practices put in place by GPRAMA. Our survey results suggest that limited actions have been taken to diffuse processes and practices related to the use of performance information to lower levels within federal agencies, where mid-level and senior managers make decisions about managing programs and operations. Although OMB staff agreed that diffusing processes and practices to lower levels could lead to improved use of performance information, they told us they have not directed agencies to do so for a few reasons. First, OMB staff expressed concerns about potentially imposing a “one-size-fits- all” approach on agencies. They stated that agencies are best positioned to improve their managers’ use of performance information, given their individual and unique missions and cultures, and the environments in which they operate. We agree that it makes sense for agencies to be able to tailor their approaches for those reasons. OMB’s existing guidance provides an overarching framework that recognizes the need for flexibility and for agencies to tailor their approaches. Moreover, given the long- standing and cross-cutting nature of this challenge, a government-wide approach also would provide a consistent focus on improving the use of performance information more extensively within agencies. OMB staff also told us that they believed it would go beyond their mandate to direct agencies to extend GPRAMA requirements to lower levels. GPRAMA requires OMB to provide guidance to agencies to implement its requirements, which only apply at the agency-wide level. As noted earlier, however, GPRAMA also requires OMB to develop cross- agency priority (CAP) goals to improve the performance and management of the federal government. The President’s Management Agenda established a CAP goal to leverage data as a strategic asset, in part, to improve the use of data for decision making and accountability throughout the federal government. This new CAP goal presents an opportunity for OMB and agencies to identify actions to expand the use of performance information in decision making throughout agencies. As of June 2018, the action plan for implementing the Leveraging Data as a Strategic Asset CAP goal is limited. According to the President’s Management Agenda and initial CAP goal action plan, the goal primarily focuses on developing and implementing a long-term, enterprise-wide federal data strategy to better govern and leverage the federal government’s data. It is through this strategy that, among other things, the administration intends to improve the use of data for decision making and accountability. However, the strategy is under development and not expected to be released until January 2019, with a related plan to implement it expected in April 2019. The existing action plan, released in March 2018 and updated in June 2018, does not yet include specific steps needed to improve the use of data—including performance information—more extensively within agencies. According to the action plan for the goal, potential actions currently under consideration focus on establishing agency “learning agendas” that prioritize the development and use of data and other evidence for decision-making; building agency capacity to use data and other evidence; and improving the timeliness of performance information and other data, and making that information available to decision makers and the public. Although developing learning agendas and building capacity could help improve the use of performance information in agencies, improving availability of data may be less effective. For example, as our past survey results have shown, increasing the availability of performance information has not resulted in corresponding increases in its use in decision making. We recognize that the CAP goal was created in March 2018. Nonetheless, it is important that OMB and its fellow goal leaders develop the action plan and related federal data strategy consistent with all key requirements to better ensure successful implementation. The action plan does not yet include complete information related to the following GPRAMA requirements: performance goals that define the level of performance to be achieved each year for the CAP goal; the various federal agencies, organizations, programs, and other activities that contribute to the CAP goal; performance measures to assess overall progress towards the goal as well as the progress of each agency, program, and other activity contributing to the goal; and clearly defined quarterly targets. Consistent with GPRAMA, Standards for Internal Control in the Federal Government identifies information that agencies are required to include in their plans to help ensure they achieve their goals. The standards state that objectives—such as improving the use of data in decision making— should be clearly defined to enable the identification of risks. Objectives are to be defined in specific terms so they can be understood at all levels of the entity—in this case, government-wide as well as within individual agencies. This involves defining what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. Ensuring that future updates to the new CAP goal’s action plan includes all required elements is particularly important, as our previous work has found that some past CAP goal teams did not meet all planning and reporting requirements. For example, in May 2016 we found that most of the CAP goal teams we reviewed had not established targets for all performance measures they were tracking. This limited the transparency of their efforts and the ability to track progress toward established goals. We recommended that OMB, working with the Performance Information Council (PIC), report on actions that CAP goal teams are taking, or plan to take, to develop such targets and performance measures. OMB staff generally agreed and, in July 2017, told us they were working, where possible, to assist the development of measures for CAP goals. However, the recommendation has not been addressed and OMB staff said the next opportunity to address it would be when the administration established new CAP goals (which took place in March 2018). Following the initial release of the new CAP goals, CAP goal teams are to more fully develop the related action plans through quarterly updates. Given the ongoing importance of meeting these planning and reporting requirements, we will continue to monitor the status of actions to address this recommendation as implementation of the new CAP goals proceeds. While the PIC, which is chaired by OMB, has contributed to efforts to enhance the use of performance information, our survey results identify additional opportunities to further those efforts. The PIC’s past efforts have included hosting various working groups and learning events for agency officials to provide performance management guidance, and developing resources with relevant practices. For example, the PIC created a working group focused on agency performance reviews, which was used to share recommendations for how agencies can implement reviews, along with a guide with practices for effectively implementing strategic reviews. In January 2018, staff supporting the PIC joined with staff from another GSA office to create a new group called Fed2Fed Solutions. This group consults with agencies and provides tailored support, such as data analysis and performance management training for agency officials, to help them address specific challenges related to organizational transformation, data-driven decision making, and other management improvement efforts. Our survey results identify useful information related to potential promising practices and challenges that OMB and the PIC could use to inform efforts to enhance the use of performance information more extensively within agencies (e.g., at lower levels). As was previously described, the PIC has responsibilities to (1) facilitate the exchange among agencies of proven practices, and (2) work to resolve government- wide or cross-cutting performance issues, such as challenges. Our analyses of 2017 survey results identified instances where agencies may have found effective ways to enhance the use of performance information by agency leaders and managers in decision making, as well as instances where agencies (and their managers) face challenges in doing so. Specifically, based on analyses of our survey responses, we identified 14 agencies that may have insights into specific practices that led to recent improvements in managers’ use of performance information, or ways that they maintain relatively high levels of use by their managers when compared to the rest of the government. Figure 9 summarizes the agencies identified earlier in the report that had statistically significant increases, or results higher than the government-wide average, on our index or individual survey questions. As the figure shows, several agencies had statistically significant results across all three sets of analyses and therefore may have greater insights to offer: the General Services Administration, National Aeronautics and Space Administration, and the National Science Foundation. In addition, our analyses identified nine agencies where results suggest managers face challenges that have hampered their ability to use performance information. Figure 10 summarizes the agencies identified earlier in the report that had statistically significant decreases, or results lower than the government-wide average, on our index or individual survey questions. As the figure shows, the Office of Personnel Management had statistically significant decreases in all three sets of analyses. Four agencies—the Departments of the Treasury and Veterans Affairs, the Nuclear Regulatory Commission, and the Social Security Administration—were common to both of the figures above. That is, they had results that indicate they may have insights on some aspects of using performance information and face challenges in other aspects. As was mentioned earlier, to provide proper context, these results should be considered in relation to the range of agency results and the government- wide average (provided in detail in the agency summaries in appendix I). Given the prioritization of other activities, such as the recent creation of the Fed2Fed Solutions program, the PIC has not yet undertaken a systematic approach that could improve the use of performance information by managers at lower levels within agencies. Such an approach would involve identifying and sharing practices that have led to improved use, as well as identifying common or cross-cutting challenges that have hampered such use. The results of our analyses could help the PIC do so, and in a more targeted manner. By identifying and sharing proven practices, the PIC could further ensure that agency leaders and managers are aware of effective or proven ways they can use performance information to inform their decisions across the spectrum of activities they manage within their agencies. Those proven practices also may help agency leaders and managers resolve any identified challenges. Furthermore, in September 2017, we found that, for the estimated 35 percent of managers who reported familiarity with data-driven reviews, the more they viewed their programs being subject to a review, the more likely they were to report the reviews were driving results and were conducted in line with our leading practices for using performance information. Despite the reported benefits of and results achieved through data-driven reviews, they were not necessarily widespread. As noted above, GPRAMA requires agencies to conduct such reviews for agency priority goals, which represent a small subset of goals, and they are required at the departmental level. These reasons may explain why most managers reported they were not familiar with the reviews. As a result, we recommended that OMB should work with the PIC to identify and share among agencies practices for expanding the use of data-driven reviews. OMB staff agreed with our recommendation but have yet to address it. In June 2018, OMB updated its annual guidance to agencies to explicitly encourage them to expand data-driven reviews to include other goals, priorities, and management areas as applicable to improve organizational performance. However, as of June 2018, OMB and the PIC have yet to take any steps to identify and share practices for expanding the use of these reviews in line with our recommendation. Given the additional analyses we conducted for this report—which show that being subject to data-driven reviews is related to greater reported use of performance information and leading practices that promote such use—we continue to believe these further actions would help agencies implement these reviews more extensively. We reiterate the importance of the September 2017 recommendation and will continue to monitor OMB’s progress to address it. For more than 20 years, our work has highlighted weaknesses in the use of performance information in federal decision making. While the Executive Branch has taken some actions in recent years, such as establishing a framework for performance management across the federal government, our survey results underscore that more needs to be done to improve the use of performance information more extensively within agencies and government-wide. The President’s Management Agenda and its related CAP goal to leverage data as a strategic asset present an opportunity to do so, as it aims to improve data-driven decision making. As OMB and its fellow goal leaders more fully develop the action plan for achieving this goal, providing additional details for its plans to improve data-driven decision making would help provide assurance that it can be achieved. As part of those initiatives, our survey results could provide a useful guide for targeting efforts. Officials at each agency could use these results to identify areas for additional analysis and potential actions that could help improve the use of performance information across the agency and at lower levels. Similarly, OMB and the PIC could use the results to identify broader issues in need of government-wide attention. It will also be important, however, for OMB and the PIC to go beyond this analysis and work with agencies to identify and share proven practices for increasing the use of performance information at lower levels within agencies, as well as challenges that may be hampering agencies’ ability to do so. We are making the following two recommendations to OMB: The Director of OMB should direct the leaders of the Leveraging Data as a Strategic Asset CAP Goal to ensure future updates to the action plan, and the resulting federal data strategy, provide additional details on improving the use of data, including performance information, more extensively within federal agencies. The action plan should identify performance goals; contributing agencies, organizations, programs, and other activities; those responsible for leading implementation within these contributors; planned actions; time frames; and means to assess progress. (Recommendation 1) The Director of OMB, in coordination with the PIC, should prioritize efforts to identify and share among agencies proven practices for increasing, and challenges that hamper, the use of performance information in decision making more extensively within agencies. At a minimum, this effort should involve the agencies that our survey suggests may offer such insights. (Recommendation 2) We provided a draft of this report to the Director of the Office of Management and Budget for review and comment. We also provided a draft of the report to the heads of each of the 24 federal agencies covered by our survey. OMB had no comments, and informed us that it would assess our recommendations and consider how best to respond. We are sending copies of this report to congressional requesters, the Director of the Office of Management and Budget, the heads of each of the 24 agencies, and other interested parties. This report will also be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or mcneilt@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of our report. Key contributors to this report are listed in appendix IV. (USDA) (Goverment-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Commerce) (Goverment-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Goverment-wide) (DOD) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Education) (Goverment-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (Energy) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (HHS) (Goverment-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (DHS) (Goverment-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (HUD) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Interior) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (DOJ) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (DOL) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (State) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (DOT) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Treasury) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (VA) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Goverment-wide) (USAID) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (EPA) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (GSA) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (NASA) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (NSF) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (NRC) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (OPM) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (SBA) (Government-wide) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” (Government-wide) (SSA) 10. The individual I report to 11. Employees that report to me 0 Percent of managers reporting “Great” or “Very Great” This report responds to a request that we analyze agency-level results from our 2017 survey of federal managers at the 24 agencies covered by the Chief Financial Officers (CFO) Act of 1990, as amended, to determine the extent agencies are using performance information. This report assesses the extent to which: 1. the reported use of performance information and related leading practices at 24 agencies has changed compared to our prior survey in 2013; 2. being subject to data-driven reviews related to managers’ reported use of performance information and leading practices; and 3. the Executive Branch has taken actions to enhance agencies’ use of performance information in various decision-making activities. From November 2016 through March 2017, we administered our online survey to a stratified random sample of 4,395 individuals from a population of 153,779 mid- and upper-level civilian managers and supervisors at the 24 CFO Act agencies. The management levels covered general schedule (GS) or equivalent schedules at levels comparable to GS-13 through GS-15, and career Senior Executive Service (SES) or equivalent. We obtained the sample from the Office of Personnel Management’s Enterprise Human Resources Integration database as of September 30, 2015—the most recent fiscal year data available at the time. The sample was stratified by agency and whether the manager or supervisor was a member of the SES. To help determine the reliability and accuracy of the database elements used to draw our sample of federal managers for the 2017 survey, we checked the data for reasonableness and the presence of any obvious or potential errors in accuracy and completeness and reviewed our past analyses of the reliability of this database. We concluded in our September 2017 report that the data used to draw our sample were sufficiently reliable for the purpose of the survey. For the 2017 survey, we received usable questionnaires from about 67 percent of the eligible sample. The weighted response rate at each agency generally ranged from 57 percent to 82 percent, except the Department of Justice, which had a weighted response rate of 36 percent. The overall survey results are generalizable to the population of managers government-wide and at each individual agency. To assess the potential bias from agencies with lower response rates, we conducted a nonresponse bias analysis using information from the survey and sampling frame as available. The analysis confirmed discrepancies in the tendency to respond to the survey related to agency and SES status. The analysis also revealed some differences in response propensity by age and GS level; however, the direction and magnitude of the differences on these factors were not consistent across agencies or strata. Our data may be subject to bias from unmeasured sources for which we cannot control. Results, and in particular estimates from agencies with low response rates such as the Department of Justice, should be interpreted with caution. However, the survey’s results are comparable to five previous surveys we conducted in 1997, 2000, 2003, 2007, and 2013. To address the first objective, we used data from our 2017 survey to update agency scores on our use of performance information index. This index, which was last updated using data from our 2013 survey, averages managers’ responses on 11 questions related to the use of performance information for various management activities and decision making. Using 2017 survey data, we conducted statistical analyses to ensure these 11 questions were still positively correlated. That analysis confirmed that no negative correlations existed and therefore no changes to the index were needed. Figure 11 shows the questions that comprise the index. After calculating agency index scores for 2017, we compared them to previous results from 2007 and 2013, and to the government-wide average for 2017, to identify any statistically significant differences. We focus on statistically significant results because these indicate that observed relationships between variables and differences between groups are likely to be valid, after accounting for the effects of sampling and other sources of survey error. For each of the 11 questions that comprise the index, we identified individual agency results, excluding missing and no basis to judge responses, and determined when they were statistically significantly different from (1) the agency’s results on the same question in 2013, or (2) the government-wide average results on the question in 2017. In this report, we analyzed and summarized the results of our 2017 survey of federal managers. Due to the limited scope of the engagement, we did not conduct additional audit work to determine what may have caused statistically significant changes between our 2017 and past survey results. To further address this objective we completed several statistical analyses that allowed us to assess the association between the index and 22 survey questions that we determined relate to leading practices we previously found promote the use of performance information. See figure 12 for the 22 specific questions related to these five practices that we included in the analysis. When we individually tested these 22 survey questions (bivariate regression), we found that each was statistically significantly and positively related to the index in 2017. This means that each question, when tested in isolation from other factors, was associated with higher scores on the index. However, when all 22 questions were tested together (multivariate regression), we found that 5 questions continued to be positively and significantly associated with the index in 2017, after controlling for other factors. To conduct this multivariate analysis, we began with a base model that treated differences in managers’ views of agency performance management use as a function of the agency where they worked. We found, however, that a model based on agency alone had little predictive power (R-squared of 0.04). We next examined whether managers’ responses to these questions reflecting practices that promote the use of performance information related to their perceptions of agency use of performance information, independent of agency. The results of this analysis are presented in table 1 below. Each coefficient reflects the increase in our index associated with a one-unit increase in the value of a particular survey question. Our final multivariate regression model had an R-squared of 0.67, suggesting that the variables in this model explain approximately 67 percent of the variation in the use index. We also tested this model controlling for whether a respondent was a member of the SES and found similar results. As shown above in table 1, five questions related to three of the leading practices that promote agencies’ use of performance information were statistically significant in 2017. These results suggest that, when controlling for other factors, certain specific efforts to increase agency use of performance information—such as providing information on the validity of performance data—may have a higher return and lead to higher index scores. With respect to aligning agency-wide goals, objectives, and measures, we found that each increase in terms of the extent to which individuals felt that managers aligned performance measures with agencywide goals and objectives was associated with a 0.08 increase in their score on the use index. In terms of improving the usefulness of performance information, we found that having information on the validity of performance data for decision making was the strongest predictor in our model (0.18). As measured here, taking steps to ensure the performance information is useful and appropriate was associated with almost as large a change in a managers’ index score (0.16). In terms of developing agency capacity to use performance information, we found that having sufficient analytical tools to collect, analyze, and use performance information (0.07), and providing or paying for training that would help link their programs to achievement of agency strategic goals (0.10), were also statistically significantly related to a manager’s reported use of performance information. When we combined these results with what we previously found through a similar analysis of 2013 survey results in September 2014, we identified 10 questions that have had a statistically significant association with higher index scores. This reinforces the importance of the five leading practices to promote the use of performance information. For each of these questions, which are outlined in figure 13 below, we determined when agency results were statistically significantly different from 2013 results or the 2017 government-wide average. For the second objective, we examined, based on the extent they responded their programs had been subject to agency data-driven reviews, differences in managers’ use index scores and responses on questions related to practices that promote the use of performance information. We grouped managers based on the extent they reported their programs had been subject to these reviews, from “no extent” through “very great extent.” We then calculated the average index scores for the managers in each of those five categories. We also examined differences in how managers responded to the 10 questions reflecting practices that can promote the use of performance information based on the extent they reported their programs had been subject to data-driven reviews. We grouped managers into three categories based on the extent they reported their programs had been subject to these reviews (no-small extent, moderate extent, great-very great extent). We then compared how these groups responded to the ten questions. For the third objective, we reviewed our past work that assessed Executive Branch activities to enhance the use of performance information; various resources (i.e., guidance, guides, and playbooks) developed by the Office of Management and Budget (OMB) and the Performance Improvement Council (PIC) that could support agencies’ use of performance information; and the President’s Management Agenda, and related materials with information on cross-agency efforts to improve the use of data in federal decision making. Lastly, for the third objective we also interviewed OMB and PIC staff about any actions they have taken, or planned to take, to further support the use of performance information across the federal government. We conducted this performance audit from October 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the above contact, Benjamin T. Licht (Assistant Director) and Adam Miles (Analyst-in-Charge) supervised this review and the development of the resulting report. Arpita Chattopadhyay, Caitlin Cusati, Meredith Moles, Dae Park, Amanda Prichard, Steven Putansu, Alan Rozzi, Shane Spencer, and Khristi Wilkins also made key contributions. Robert Robinson developed the graphics for this report. Alexandra Edwards, Jeff DeMarco, Mark Kehoe, Ulyana Panchishin, and Daniel Webb verified the information presented in this report. Results of the Periodic Surveys on Organizational Performance and Management Issues Managing for Results: Further Progress Made in Implementing the GPRA Modernization Act, but Additional Actions Needed to Address Pressing Governance Challenges. GAO-17-775. Washington, D.C.: September 29, 2017. Supplemental Material for GAO-17-775: 2017 Survey of Federal Managers on Organizational Performance and Management Issues. GAO-17-776SP. Washington, D.C.: September 29, 2017. Program Evaluation: Annual Agency-wide Plans Could Enhance Leadership Support for Program Evaluations. GAO-17-743. Washington, D.C.: September 29, 2017. Managing for Results: Agencies’ Trends in the Use of Performance Information to Make Decisions. GAO-14-747. Washington, D.C.: September 26, 2014. Managing for Results: Executive Branch Should More Fully Implement the GPRA Modernization Act to Address Pressing Governance Challenges. GAO-13-518. Washington, D.C.: June 26, 2013. Managing for Results: 2013 Federal Managers Survey on Organizational Performance and Management Issues, an E-supplement to GAO-13-518. GAO-13-519SP. Washington, D.C.: June 26, 2013. Program Evaluation: Strategies to Facilitate Agencies’ Use of Evaluation in Program Management and Policy Making. GAO-13-570. Washington, D.C.: June 26, 2013. Government Performance: Lessons Learned for the Next Administration on Using Performance Information to Improve Results. GAO-08-1026T. Washington, D.C.: July 24, 2008. Government Performance: 2007 Federal Managers Survey on Performance and Management Issues, an E-supplement to GAO-08-1026T. GAO-08-1036SP. Washington, D.C.: July 24, 2008. Results-Oriented Government: GPRA Has Established a Solid Foundation for Achieving Greater Results. GAO-04-38. Washington, D.C.: March 10, 2004. Managing for Results: Federal Managers’ Views on Key Management Issues Vary Widely Across Agencies. GAO-01-592. Washington, D.C.: May 25, 2001. Managing for Results: Federal Managers’ Views Show Need for Ensuring Top Leadership Skills.GAO-01-127. Washington, D.C.: October 20, 2000. The Government Performance and Results Act: 1997 Governmentwide Implementation Will Be Uneven. GAO/GGD-97-109. Washington, D.C.: June 2, 1997.	[ "To reform the federal government and make it more efficient and effective, agencies need to use data about program performance. The benefit of collecting performance information is only fully realized when it is used by managers to make decisions aimed at improving results. GAO was asked to review agencies' use of performance information. This report assesses, among other things, the extent to which: (1) 24 agencies' reported use of performance information and related leading practices has changed since 2013 and (2) the Executive Branch has taken actions to enhance the use of performance information. To address the first objective, GAO analyzed results from its 2017 survey of federal managers, and compared them to 2013 results. The survey covered a stratified random sample of 4,395 managers from the 24 Chief Financial Officers Act agencies. The survey had a 67 percent response rate and results can be generalized to the population of managers government-wide and at each agency. For the second objective, GAO reviewed agency documents and interviewed staff from OMB and the PIC. Agencies' reported use of performance information to make decisions, and leading practices that can promote such use, generally has not improved since GAO's last survey of federal managers in 2013. However, GAO's survey results continue to point to certain practices that could help agencies improve managers' use of performance information. For example, as shown in the table below, GAO's survey found that managers whose programs were subject to data-driven reviews (regular reviews used to assess progress on select agency goals) to a greater extent reported statistically significantly greater use of performance information to make decisions. The Executive Branch has begun taking steps to improve the use of performance information within agencies and across the government. For example, In the President's Management Agenda and government-wide reform plan, released in March and June 2018 respectively, the administration acknowledged the need to do more, and announced a goal, among other actions, to improve the use of data in federal decision making. However, the Office of Management and Budget (OMB) and others responsible for this goal have yet to fully develop action plans to hold agencies accountable for achieving it. The Performance Improvement Council (PIC), which is chaired by OMB, has undertaken efforts to improve the use of performance information by, for example, creating a working group on agency performance reviews. But it has not yet taken a systematic approach to identify and share proven practices that led to, or challenges that may be hampering, increased use of performance information by managers. GAO's survey results identified agencies that may have insights into such practices and challenges. More fully developing action plans for the new goal, and identifying and sharing proven practices and challenges, could help ensure the Executive Branch takes further steps to improve the use of performance information by managers within agencies and across the federal government. To improve the use of performance information within agencies and across the federal government, GAO recommends that OMB work with (1) fellow goal leaders to more fully develop action plans for the new goal to improve the use of data and (2) the PIC to prioritize efforts to identify and share proven practices and challenges. OMB had no comments on this report." ]	8,501	gov_report	en	null	7a1cc68b12da91958bd7ebe2c25c69bae3cf95aee04b5e52
Implementing Telework: The Telework Enhancement Act of 2010 (the Act) establishes telework implementation requirements for agencies, including, for example, that each agency designate a Telework Managing Officer and that each agency incorporate telework into its continuity of operations plans. The Act does not mention telework specifically in the context of space planning. The Act also requires the Office of Personnel Management (OPM) to assess whether agencies have met agency- established telework outcome goals such as real estate savings. It also requires OPM to submit reports that include executive agencies’ goals for increasing telework participation to the extent practicable, assist each agency with developing qualitative- and quantitative- teleworking measures and goals, and track telework eligibility and participation rates across the government. According to OPM telework information from fiscal year 2012 through fiscal year 2015, the percentage of federal workers eligible to telework remained stable at about 45 percent, on average. However, during the same period, the percentage of eligible employees who participated in telework increased from 29 percent to 46 percent. Figure 1 shows the frequency of telework across the federal government from fiscal years 2012 through 2015 by type of telework. Reducing Space: OMB issued the National Strategy for the Efficient Use of Real Property and the Reduce the Footprint policy in 2015, which require all CFO Act agencies to improve the efficiency of real property use, control costs, and reduce holdings. These OMB initiatives also required agencies to develop Five-Year Real Property Efficiency Plans annually; develop office space standards that specify maximum square footage identify reduction targets for office space in square feet; and freeze the footprint (i.e., not increase square footage of office space). OMB’s National Strategy noted that employee telework has changed the dynamic of the federal real property portfolio and resulted in a need for less space. OMB’s Reduce the Footprint guidance memo states that agencies’ 5-year plans should include an explanation of actions the agency is taking to increase space efficiency, including cost-effective alternatives to acquisition of additional office space, such as consolidation, colocation, teleworking, and “hoteling.” Federal statute also requires that agencies consider whether space needs can be met using alternative workplace arrangements when deciding whether to acquire new space. GSA defines mobility as an overarching term describing the ability of employees, enabled by information technology (IT) and workplace policies to perform work both within and outside the agency worksite. Under this definition, mobility includes telework, desk-sharing, site work, and travel. Agencies can strategically use telework—one form of mobility—combined with desk-sharing and hoteling to reduce space needs and increase efficiency. This allows agencies to plan for fewer workstations than the number of employees. Other space efficiency strategies such as smaller workstations (e.g., reduced space standards), reconfigured office space (e.g., open-office plans instead of private offices), and mobile technology (e.g., laptops, Wi-Fi throughout the office, and smart phones) can be combined with telework and used as planning tools to reduce office space, use space more efficiently, and potentially cut costs. GSA, in a 2010 publication, described a continuum of three different scenarios for the ways agencies may use mobility, including telework. These scenarios range from limited mobility not leveraged for space planning to extensive mobility leveraged for space planning to reduce and use office space more efficiently: (1) No space changes: Some employees telework at least 2 scheduled days per week but retain assigned workstations with no changes to the existing space configuration. (2) No space reduction but different space allocation: Most employees telework at least 2 scheduled days per week and keep assigned workstations. Workstations are smaller and more densely organized; and space freed up by smaller workstations can be used for collaborative work spaces. (3) Space reduction and different space allocation: Nearly all employees telework at least 3 scheduled days per week and participate in hoteling (i.e., unassigned workstations), and workstations are also smaller and more densely organized. In this scenario, according to GSA, an agency can redesign its office and potentially reduce space by up to 30 percent. The key factors in distinguishing these scenarios illustrated in figure 2 below include the: level of employee participation in telework; changes to physical office spaces (e.g., smaller and more densely organized workstations and more emphasis on collaborative workspaces); and extent to which employees have assigned workstations or participate in desk-sharing. Under federal statute, GSA has a role in promulgating rules and developing guidance promoting the efficient use of real property. For example, the GSA Administrator may provide guidance, assistance, and oversight to client agencies regarding the establishment and operation of alternative workplace arrangements, which include leveraging telework to reduce space needs. GSA also directly assists client agencies with identifying and prioritizing opportunities to improve and implement real- property efficiency measures. In reviewing planning documents, policies, and survey data, we found that the 23 civilian CFO Act agencies reported using telework to reduce or use space more efficiently. Specifically, our analysis of (1) agency-wide space-planning policies and procedures and (2) Real Property Efficiency Plans found that all of the agencies discussed telework in the context of space planning and achieving greater space efficiencies. Agencies also provided examples in survey responses of how they have used telework to increase operational effectiveness while optimizing their use of space. Fifteen agencies’ space-planning policies and procedures included provisions for using telework and other mobility strategies, such as hoteling and desk-sharing, as a strategic space-planning tool. Three of the agencies mentioned these strategies only in the context of space planning, and five agencies did not mention them at all (see table 1). For the fifteen agencies with space planning policies that incorporated telework, the documents either expressly directed agency planners to include telework, hoteling, or desk-sharing in space planning; provided instructions and guidance for using these in space planning; or issued space allocation standards for their implementation. Several agency-wide space plans identify space reduction goals based on using telework strategically. For example, the Department of Transportation (DOT) documents identify a goal of at least a 10 percent workspace reduction in new acquisitions as a result of compressed work schedules and telework, and specifically state that employees who telework six or more days per pay period should not have a permanent workspace. Agency-wide space planning documents from three civilian CFO Act agencies mentioned telework, hoteling or desk-sharing as strategies in the context of space planning. For example, DOJ’s agency-wide policy notes that telework and hoteling could increase the efficient use of space and directs each sub-agency to maintain its own space design guidelines within agency-wide policy office space standards. The other two agencies, the Department of State and the Nuclear Regulatory Commission, either had a short provisional agency-wide space planning document that laid out space standards or mentioned telework, hoteling and desk-sharing as a tool for creating sustainable space. Five agencies’ space planning documents made no reference to telework; however, one agency, OPM, developed a maximum office space utilization rate and criteria for determining which positions require a private office. As noted above, OMB’s Reduce the Footprint policy (2015) requires agencies to establish Real Property Efficiency Plans. In our analysis of the agencies’ fiscal year 2016 or 2017 plans, we found that 19 of the 23 civilian CFO Act agencies discussed telework in the context of space planning. A few agencies’ Real Property Efficiency Plans explicitly stated that the agency reduced space as a result of telework. For example, GSA used telework to reduce space in its Heartland, Rocky Mountain, and National Capital Region offices. Some (5 of 23) Real Property Efficiency Plans discussed the telework pilot programs agencies have initiated. For example, the Department of Education’s plans reported using a pilot program to acclimate employees to teleworking and desk-sharing; as a result, the agency intends to incorporate hoteling or space-sharing opportunities into proposed space designs in future projects. The Social Security Administration (SSA) plans also reported initiating a pilot program to experiment with smaller “hoteling” workspaces. Similarly, the Nuclear Regulatory Commission’s plan reported conducting a pilot program at its headquarters offices to identify challenges, better understand telework, and evaluate the potential of shared workspaces. In response to our survey, about three-quarters of agencies reported space-planning policies that use telework to reduce office space, lower real estate costs, or reduce the size of individual workstations. Agencies reported accomplishing this by using desk-sharing and hoteling for employees who have relinquished permanent workspaces. For example, several agencies discussed strategies to reduce space in their responses to our survey. The Department of Labor reported using telework to close some small offices resulting in overall space reductions of about 16,000 square feet. OPM reported that it both reduced space and created space efficiencies by transitioning staff in its Eastern Management Development Center to full-time telework and terminating the lease, resulting in a space reduction of about 32,000 square feet. OPM’s Human Resource Solutions Program also achieved a 47 percent space reduction when it instituted desk-sharing and freed the vacated space for use by another program office. The Department of the Treasury reported that its sub-agency, the Internal Revenue Service, has aggressively used telework to help reduce its real property portfolio, while other Treasury units have leveraged telework to achieve significant space reductions. At the end of fiscal year 2016, Treasury reported agency-wide reductions of about 484,000 square feet at a cost savings of about $10 million. Two agencies––Department of Homeland Security, and the National Science Foundation––reported using telework to increase the efficiency of existing office space in sub-agencies by increasing staff without increasing the size of offices, for example: The Department of Homeland Security reported that one of its sub- agencies used telework in the planning and design of a new office, resulting in both a space reduction and more efficient use of the space. The new office is 57,573 square feet smaller than the prior office while personnel assigned to the office increased from 315 to 394. The National Science Foundation reported that it used teleworking, among other workspace strategies such as new space standards and virtual technologies, to increase staff numbers without increasing its real estate footprint. Among the agencies we reviewed in detail—GSA, OJP, CDC, and the Fiscal Service—the use of telework in office space planning varied from emerging consideration to extensive implementation. GSA and OJP have used telework extensively to both reduce space and increase space efficiency in their office spaces. CDC has leveraged telework to reduce space or use space more efficiently in more limited cases while the Fiscal Service has begun to consider telework in future space planning. Appendix II provides additional details on office spaces where these agencies reduced space or used space more efficiently, including the role of telework, if any. GSA has leveraged telework to reduce space by implementing unassigned workstations in nearly all of its regional and headquarters offices, along with other forms of “employee mobility,” complementary IT, and smaller space standards. GSA adopted telework as early as 1999 and by fiscal year 2015, more than 90 percent of all eligible GSA employees teleworked, and nearly half of all employees teleworked 3 or more days per pay period, according to OPM data. GSA’s space policy cites desk-sharing (e.g., hoteling, “hot-desking,” or other arrangements) as one strategy to help meet its space standard of 136 useable square feet (USF) per person. GSA employees may telework full-time, but may be required to give up dedicated workstations if they are on site 2 or fewer days per week. GSA has gradually transitioned to unassigned workstations at headquarters and in its regional offices, allowing the agency to implement desk-sharing and calculate space needs at less than one desk per employee. The agency also assigned laptops and mobile or soft phones to employees to further maximize mobility. The three GSA sites we visited used space-planning strategies to achieve, or nearly achieve, GSA’s space standard of 136 USF per person. For example, at its Philadelphia Regional Office, GSA leveraged existing telework levels to meet reduced space standards and move to a smaller leased space by accommodating about 600 employees in fewer than 500 workstations. According to GSA, this allowed the office to achieve a utilization rate of 139 USF per person and realize a reported annual rent cost savings of about $2 million. Similarly, at its New York Regional Office, GSA also leveraged existing telework levels to meet reduced space standards and move to a smaller leased space. This step allowed the office to achieve a utilization rate of 119 USF per person and realize a reported total rent cost savings of nearly $11 million. GSA also leveraged telework as part of its headquarters consolidation. GSA reports that it was able to move approximately 1,000 additional employees to the headquarters building by implementing a hoteling system and planning for less than one workstation per employee. This allowed GSA to achieve a utilization rate of 138 USF per person at its headquarters and realize a reported annual rent-cost savings of approximately $24 million. Similar to GSA, OJP used telework, along with complementary tools, to reduce space and use space more efficiently at its consolidated office. More than 90 percent of eligible employees teleworked in fiscal year 2015, and nearly half of all employees teleworked 3 or more days per pay period, according to OPM data. More recently, OJP reported that around 70 percent of its employees teleworked in August 2017, with just less than 40 percent doing so three or more days per pay period. At the departmental level, DOJ’s plans to improve space utilization include reduced space requirements, and, in some cases, alternative workplace strategies. DOJ’s space utilization policy mentions telework with hoteling as one way to increase efficient use of space, and DOJ’s telework policy mentions the potential of telework to create cost savings by decreasing space needs. While most OJP employees are eligible to telework, a few federal staff occupying administrative positions are not eligible. OJP took the opportunity to examine and improve its space use as three of its leases approached expiration in 2013. It leased space in two adjacent buildings under three separate leases. OJP worked with GSA to analyze space-planning options, contracting a study of the office that recommended ways to improve space utilization. This study included a survey of all employees, a complete physical space survey, and interviews with leadership. The results of this study not only indicated OJP employees’ openness to more mobility but also that they had concerns such as loss of privacy and social connectedness. For example, more than 80 percent of survey respondents said they could work off-site more often with proper tools and support, and almost half said they would give up dedicated space to work remotely more often. Furthermore, interviews with the leadership of several OJP units indicated a willingness to support increased mobility but also a need to maintain privacy and improve mobile IT. According to OJP, it alleviated these concerns by encouraging participation in the planning process, highlighting opportunities for positive changes, and maintaining open communication (e.g., communicating changes and expected benefits). Based on the analysis of space-planning options, OJP retained one of the three previous leases and leveraged telework to accommodate all employees into less space overall in one building. OJP achieved this objective by targeting 25 percent employee mobility and implementing hoteling. Concurrently, OJP officials explained that they introduced smaller workstations and used tenant-improvement allowance funds to reconfigure space for more flexible use. Physical reconfigurations included changing hard-walled office spaces with dedicated workstations to a primarily open office with few walls or dedicated workstations. According to OJP, it complemented these changes with investments in mobile IT for individual employees, improved IT capabilities in conference rooms and other collaborative spaces, and an emphasis on training employees to work well in a mobile office environment. For example, OJP officials said they installed Wi-Fi throughout the space, issued laptops and smart phones to employees, upgraded video-conferencing capabilities in conference rooms and collaborative spaces, and expanded tools for informal employee communication. According to OJP officials, through the consolidation, they said they achieved a utilization rate of 190 USF per person—a decrease of 30 USF per person from the prior 220 utilization rate. This rate remained higher than DOJ’s overall target and housed the same total number of employees—about 1,000—in about 50,000 fewer USF. OJP reports that the consolidation resulted in an estimated $3 million annual lease- cost savings. OJP also estimates additional savings from reduced transit subsidies, carbon emissions, and continuity of operations. Relative to GSA and OJP, CDC has made more limited use of telework in office space-planning. CDC officials told us that they have leveraged telework as a space-planning tool in many locations, but they have only documented doing so in one case. HHS expects each sub-agency to comply with its 170 USF per-person utilization-rate policy, and this policy suggests that planned space reductions should take telework into account. As a component of HHS, CDC has its own space policy, which states that telework, desk-sharing, and hoteling can help CDC’s units meet HHS’s utilization rate policy of 170 USF per person. CDC’s telework policy requires employees who telework frequently to agree to participate in desk-sharing, but according to CDC officials, how and to what extent this portion of the broader policy is implemented is up to the discretion of management. CDC officials cited two limitations to further implementing space sharing techniques: (1) the large number of employees’ who may be unable to telework on certain days based upon their job responsibilities and (2) the voluntary nature of telework. Some CDC employees cannot work off-site at least some of the time due to confidential data or lab-based work. Approximately 60 percent of eligible CDC employees teleworked in fiscal year 2015 and about one-quarter of all employees teleworked 3 or more days per pay period, according to OPM data. CDC officials told us that telework participation ranges from 49 to 86 percent across CDC units. CDC’s National Center for Chronic Disease Prevention and Health Promotion’s office in Chamblee, GA, provides the most clearly documented case of CDC’s leveraging telework for space efficiency. According to CDC officials, this unit accommodated more than 300 additional employees within its existing space by implementing hoteling for employees who telework 4 or more days per pay period, and it continues to use hoteling as part of its space management strategy. In contrast, CDC’s National Center for Health Statistics’ (NCHS) office in Hyattsville, MD, reduced space without leveraging telework by reconfiguring the space with smaller, soft-walled workstations. CDC officials told us that NCHS reduced its office space from seven floors to three and three-quarters floors, resulting in a reported space reduction of more than 40 percent and allowing it to achieve a 170 USF per person utilization rate. CDC officials reported that this space reduction resulted in annual rent cost savings of approximately $1 million. Hoteling was not feasible at this location because work on confidential data limits the ability of employees to work off-site, and NCHS employees also prefer dedicated workstations. CDC officials said that there is limited documentation of any additional cases of CDC’s leveraging telework as a space- planning tool because, prior to our review, there had been no formal request to connect telework and space utilization data. In contrast to GSA, OJP, and CDC, telework as a space-planning tool is an emerging consideration at the Fiscal Service. At the departmental level, Treasury has space standards that aim for efficient and effective offices that use increased telework and shared workstations to minimize the number of dedicated workstations. Similarly, objectives of the Fiscal Service telework policy include cost savings from reduced office space needs. Treasury’s space standards specify a planned maximum utilization rate of 200 USF per person for facilities with general office space, and the Fiscal Service reported that its average office space-utilization rate was 183 USF per person at the time of our review. Treasury policy also recommends hoteling for employees who are out of the office 80 or more hours per month, but the Fiscal Service told us that it would like to conduct additional desk-sharing pilots to assess their impact before negotiating broader desk-sharing with the union. At the Fiscal Service, approximately 80 percent of eligible employees teleworked in fiscal year 2015, and about one-quarter of all employees teleworked 3 or more days per pay period, according to OPM data. The Fiscal Service reported that approximately 80 percent of Fiscal Service employees telework at its Washington, D.C., Maryland, and West Virginia locations. At the time of our review, the Fiscal Service officials said the agency had reduced space without leveraging telework or implementing hoteling, instead relying on smaller space standards (i.e., fewer square feet per workstation) to lease smaller offices. For example, the Fiscal Service reduced space by giving up several floors at its Hyattsville, MD, office starting in 2012. According to Fiscal Service officials, they accomplished these reductions by consolidating data centers to other locations, conducting targeted buyouts of employees, and, most recently, by implementing a new space standard of 183 USF per person through smaller workstations. The officials said that the most recent space reduction at this location resulted in savings in annual rent costs not attributable to telework. Looking forward, the Fiscal Service reported that it has started taking preliminary steps to promote efficient space utilization through telework. These steps have included: creating an Executive Space Management Council that discussed incorporating telework and desk-sharing into space management guidelines; implementing a voluntary, informal desk-sharing pilot in one program area for employees who already telework 50 percent or more of the time; and seeking information from GSA, including discussing and visiting GSA offices that have implemented hoteling as part of their space planning model. In addition, the Fiscal Service officials told us that the agency plans to negotiate the impact and implementation of desk-sharing and hoteling for telework employees with its union, but the Fiscal Service has not yet begun this effort. Our analysis of the survey responses from the 23 civilian CFO Act agencies identified three major planning challenges agencies face with using telework to reduce space: human capital issues such as negotiating workspace changes with collective bargaining units and managing organizational change; the suitability of telework to mission work requirements; and difficulty measuring cost savings that might result from space reductions attributable to telework. This measuring difficulty may include both gross savings as well as savings net of costs, such as for renovations or IT investments. See table 3 for examples of space-planning challenges related to telework reported by the 23 agencies. To address these challenges, nearly two thirds of the agencies we surveyed reported they would like guidance on using telework programs or other alternatives to meet the federal goals of reducing space or using space more efficiently. Our review of agency survey responses, Real Property Efficiency Plans, and other agency space-planning documents, found that human capital challenges to using telework in space planning generally fell into two categories: (1) requirements to negotiate space allocation changes with collective-bargaining units; and (2) managing department workforces in adapting to new workspace designs and altered workspace allocations. Collective-bargaining challenges: Of the 23 civilian CFO Act agencies, 7 of 23 noted that changes to telework policy or workspace arrangements required negotiation with collective bargaining units, for example, The Small Business Administration (SBA) reported its greatest challenge to incorporating telework in office space planning has been with negotiating and securing agreement from all parties, including management and its union, on establishing space standards. HUD reported that it could not implement hoteling or desk-sharing as its collective-bargaining agreements require that each employee retain an assigned workstation regardless of an employee’s type of telework agreement. SSA reported that changing floor plans required negotiation with its three collective-bargaining units, which could extend the time needed for construction and relocation. DOT reported that collective-bargaining agreements posed a challenge to incorporating workforce mobility options, including telework. In addition, the collective-bargaining agreements we reviewed from the four agencies we reviewed in detail––GSA, OJP, CDC and Fiscal Service––required negotiations or the opportunity to negotiate changes to matters relating to workspace arrangements and in some cases, to telework policy. Managing change: Using telework as a strategic space-planning tool, particularly in conjunction with complementary space-saving efforts such as desk-sharing, hoteling, or open-space designs, generally involves a cultural change. Nine of the 23 agencies we surveyed reported challenges associated with managing change. For example, three agencies reported employees’ discomfort or apprehension about desk-sharing and hoteling. In 2013, we reported that organizations may also encounter concerns from agency leaders, managers, employees, or employee organizations when introducing physical space changes associated with increased workforce mobility (telework). More recently, we reported that management concerns remain the most frequently reported barrier to expanding telework. Two private sector experts we met with underscored the importance of management “buy-in” saying it was imperative that senior executives fully support the initiative to facilitate the necessary cultural change for agencies to use telework in space planning. One noted that management needed to make the business case to employees so that each layer of the organization could understand the importance of the initiative and its potential benefits. Another suggested a change management plan tailored to the work performed within a unit. This individual said that key components of such a plan might include studying existing work practices and program requirements, surveying employee preferences, and including employees in the planning process. Further, a GSA document circulated in response to the Telework Enhancement Act of 2010 mentions obtaining supervisory “buy-in” or support as key to facilitating change. According to survey responses, within agencies there are sub-agencies that have individual mission requirements that may or may not be suitable for telework. This makes it difficult for agencies to implement overarching telework and space planning policies that apply department-wide. Sub- agencies and units within sub-agencies must individually determine if telework is appropriate given their particular mission requirements. For example, the Veterans Administration reported that although it developed an agency-wide telework policy, each sub-agency and supervisor has the flexibility to implement telework based on operational needs. Moreover, because the agency’s core mission involves direct services to veterans, about 83 percent of agency staff positions are not suitable for telework. The Telework Enhancement Act of 2010 outlines two broad exceptions to telework participation for employees: (1) directly handling secure materials determined to be inappropriate for telework by the agency head and (2) on-site activity that cannot be handled remotely or at an alternative worksite. In cases where telework does not support an agency’s mission or where a particular mission may require increases or decreases in personnel, telework as a strategic space-planning tool may not work. About half (12 of 23) of the agencies we surveyed reported that office space reductions resulting from using telework in space planning led to real estate cost savings while the other half reported either that cost savings did not result or they did not know. GSA officials told us that calculating cost savings attributable to a particular aspect of space planning is complicated as several factors contribute to savings. In particular, in survey responses, the Departments of Education, Energy, and Agriculture reiterated this point. OMB’s National Strategy for the Efficient Use of Real Property and its Reduce the Footprint policy encourage agencies to increase and maximize efficiencies in office space by implementing cost-effective strategies such as telework. For example, the National Strategy outlines a framework that aims to measure real property costs and utilization to improve the efficient use of federal real property. The Reduce the Footprint policy requires agencies to measure cost savings that result from reducing space through disposals. However, neither document offers guidance or methodologies on how to measure the costs or savings that may result from using telework. We previously reported that GSA works with client agencies to develop tools to measure office space utilization and, in 2013, was developing an Excel-based tool to help agencies quantify the benefits and costs of using telework to achieve greater office space efficiencies. This tool—the Workplace Investment and Feasibility Tool—is aimed at helping agencies quantify the benefits and costs of increased telework participation and implementing other alternative-work arrangements. When completed, the tool will enable users to quickly develop rough estimates of cost and space impacts resulting from workplace changes, particularly relating to desk-sharing, workspace reconfiguration, and consolidation. Key features include the ability to compare up to three scenarios, which in turn may be used to inform a more detailed design program. As of January 2018, GSA had not yet completed the tool. GSA officials said mission needs, resource constraints, and developmental adjustments have contributed to delays in the time frame for completing the tool. They added that during this time, GSA has diverted resources to space calculation tools for individual agencies. For example, GSA worked with DHS on its Space Calculation Tool as a way to help determine workplace space requirements in a manner consistent with DHS space policies. In January 2018, GSA officials told us that they plan to make the Workplace Investment and Feasibility Tool available to GSA staff in March 2018 along with training on how to use it. However, GSA officials have not decided whether to make the tool available to other federal agencies to use as a space-planning tool. Instead, the officials plan to assess GSA’s use of the tool and then determine in late 2018 if and how it should be released to other agencies for independent use. Given the absence of a government-wide tool, in our review, we found that some agencies had used their own resources to purchase similar tools for their space-planning needs from the private sector. Without such a government-wide resource, agencies may not be able to determine how best to reduce space or use it more efficiently. In responses to our survey, nearly two-thirds of agencies reported that they would find it helpful to have additional information, assistance, or resources to assist them in using telework as a space-planning tool. As noted above, a key element of GSA’s mission is to provide guidance and services that enable agencies to improve space utilization, reduce costs, and better achieve their missions. Moreover, under federal statute, GSA may provide guidance to executive agencies on the implementation of alternative workplace arrangements, which includes telework. Federal standards for internal control also call for agencies to communicate necessary quality information such as guidance with external parties. In reviewing GSA’s websites, we found that GSA last developed formal guidance on alternative workplace arrangements in 2006 and maintains several separate informational websites on implementing telework and optimizing space utilization. Our review of this guidance and these websites found that they do not provide specific guidance for using telework as a strategic space-planning tool. For example, the 2006 guidance is generally limited to defining the factors agency heads must contemplate when considering alternative workplace arrangements along with the equipment and technical services agencies may provide for alternative worksites. However, this guidance does not address in detail the impact of such arrangements on agency office space and resulting planning issues. Similarly, our review of GSA’s teleworking and space- planning websites found that although they separately offered documented case studies along with information such as tips for implementing telework and managing a mobile workforce, GSA did not provide documents consolidating the concept of using telework as a strategic space-planning tool. For example, information on GSA’s Total Workplace Program website––intended to assist agencies in using workforce mobility (including telework) to increase space efficiencies––is generally limited. Although this website includes high-level information that describes the potential benefits of using telework with office space planning and design, it lacks a practical outline of the process agencies might use to achieve them. Because the information in the 2006 guidance and the telework and space-planning websites is neither specific nor detailed, it is of limited assistance for agencies that would like to use telework as a strategic space-planning tool to meet the goals of a more efficient use of space. While using telework to reduce space is not a new challenge, it has become more pressing with OMB’s requirement for federal agencies to explore alternatives to acquiring more office space. Most civilian CFO Act agencies reported having a telework program in place and some reported success with using it in space planning to reduce space or accommodate more employees without increasing space. However, many of the agencies continue to face challenges and do not believe that they have adequate information, assistance, or resources to assist them in using telework as a space-planning tool or assess its costs and benefits. Until agencies have access to detailed guidance and tools to help utilize various space-planning options, they may not be able to effectively identify opportunities to use telework toward the goal of reducing their real property footprint. We are making the following two recommendations to GSA: The Administrator of General Services should ensure that the appropriate GSA offices develop guidance including, but not limited to, how agencies can use telework as a strategic space-planning tool for reducing and optimizing office space efficiency and that the offices make the guidance readily available. (Recommendation 1) The Administrator of General Services should ensure the appropriate GSA offices complete the Workplace Investment and Feasibility Tool and make it available to federal agencies for use in assessing the benefits and costs of telework to achieve office space efficiencies. (Recommendation 2) We provided a draft of this report to GSA, the Department of Justice, the Department of Health and Human Services, and the Department of the Treasury. In its written comments, reproduced in Appendix III, GSA concurred with our recommendations and stated that it is developing a plan to address them. We received technical comments from the Department of Justice and the Department of Health and Human Services, which we incorporated where appropriate. The Department of the Treasury did not have comments on our draft report. We are sending copies of this report to the appropriate congressional committees; the Administrator of GSA; and the Secretaries of the Department of Health and Human Services and Department of the Treasury, and the Attorney General of the Department of Justice. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions concerning this report, please contact me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report is listed in appendix III. This report addresses: (1) how the 23 civilian Chief Financial Officer (CFO) Act agencies reported using telework in office space planning; (2) the specific ways selected agencies and GSA used telework in their office space planning; and (3) any challenges the 23 civilian CFO Act agencies faced in using telework in office space planning. To determine how the 23 civilian CFO Act agencies reported using telework in office space planning, we surveyed the agencies. The survey asked questions about agency-wide efforts to use telework in the human- capital and space-planning areas; whether agencies had achieved any cost savings as a result; the challenges agencies faced in using telework in space planning; and asked agencies to identify additional information, resources, or guidance that might be helpful. In addition to the survey questions, we asked each agency real property officer to provide copies of agency-wide space-planning documents and the Real Property Efficiency Plans agencies prepared for fiscal years 2016 and 2017 pursuant to the requirements of the Office of Management and Budget’s (OMB) Reduce the Footprint policy. We developed survey questions based on our review of the relevant literature, white papers from federal agencies and private sector entities, and past GAO reports. We pre- tested the survey instrument with three federal agencies to ascertain: (1) the clarity of survey questions; (2) the precision of language; and 3) the availability of information queried. As a result of the pre-tests we made changes to the content and format of the survey where appropriate. We received survey responses from each of the 23 civilian CFO Act agencies in addition to requested space-planning documents and Real Property Efficiency Plans, and thus achieved a 100 percent response rate. We analyzed survey results by calculating the frequency of responses to dichotomous questions (i.e., questions requiring a “yes” or “no” answer). We also conducted a content analysis on the open-ended, narrative-based questions by identifying common themes and tabulating results. We also conducted a content analysis to determine the extent to which agencies referenced telework in their agency-wide space-planning documents and in their Real Property Efficiency Plans. To accomplish these analyses, we developed separate coding schemes for each of the two types of documents. These were based on information obtained in our literature review, interviews with subject matter experts, and our professional judgment. We then identified relevant sections and common themes, and coded and tabulated the results. To validate the coding results, we used a second, independent coder. To determine the specific ways agencies include telework in their office space planning, we selected a non-generalizable sample of three CFO Act agency sub-agencies as illustrative case studies. To select sub- agencies, we analyzed data from the Office of Personnel Management’s (OPM) Public Use 2014-2015 Telework Data call. First, we applied two selection criteria: (1) agency-wide progress toward a stated goal of using telework to reduce real estate costs, and (2) agency-reported data indicating that more than 25 percent of sub-agency employees teleworked 3 or more days per pay period. Next, we considered variations in sub-agency size and percentage of employees eligible to telework. Finally, we excluded candidates that had recently been selected for related GAO work and we excluded sub-agencies related to agency administration such as Offices of Inspector General or Secretary-level offices. We assessed the reliability of the OPM’s data by interviews with knowledgeable officials and by reviewing prior assessments of the same data, and we found the data reliable for our purposes. As a result of this process, we selected (1) the Department of the Treasury’s Bureau of the Fiscal Service (Fiscal Service); (2) the Department of Health and Human Services’ (HHS) Centers for Disease Control and Prevention (CDC); and (3) the Department of Justice’s Office of Justice Programs (OJP). For each of the selected agencies, we interviewed agency officials and reviewed their telework and space- planning documents. We also visited four sub-agency office locations to determine if and how telework played a role in any space reductions or efficiencies along with any associated cost savings. In addition to these three sub-agencies, we used the General Services Administration (GSA) as a comparative example since it is responsible for providing space- planning guidance to client agencies and has experience using telework in space planning. We interviewed GSA officials, reviewed relevant documents, and visited three GSA office locations with recent space reductions or efficiencies. In total, we conducted seven site visits including two Fiscal Service locations, one location each for CDC and OJP, and three GSA locations (National Headquarters, Region 2 Office, and Region 3 Office) in Washington, D.C.; New York City; and Philadelphia, respectively. To identify any challenges the 23 civilian CFO Act agencies faced in using telework in office space planning, we analyzed results from survey questions addressed to challenges, interviewed sub-agency and GSA officials as detailed above, interviewed two private sector subject matter experts, and representatives from four private-sector entities that had reported using telework to reduce and use office space more efficiently. Statements made by knowledgeable federal officials, outside experts and private sector entities are not generalizable to the universe of civilian CFO Act agencies. We also analyzed the section of each of the 23 civilian CFO Act agencies’ Real Property Efficiency Plans devoted to challenges agency face in reducing space. We selected the two subject matter experts––representatives from Global Workplace Analytics and Fentress Facility Planning and Analytics––based on: (1) their experience working with federal agencies to incorporate telework programs into the space planning process; (2) information compiled in our literature review; (3) prior GAO reports; (4) internal GAO recommendations; and (5) industry recommendations. We selected the four private sector entities (AT&T, Deloitte, Adobe, and CapitalOne) based on our literature review, recommendations from industry experts, and reports of having achieved space efficiencies including space reduction, cost savings, or cost avoidance(s). To identify what guidance or information on using telework as a space- planning tool GSA makes available through its website, we reviewed the contents of multiple GSA websites including Telework, Total Workplace, Alternative Work, and GSA Telework Resources. We followed links and reviewed webpage contents for information on how agencies might use telework as a strategic tool to reduce space or use space more efficiently. We compared GSA’s guidance and website information to relevant statutory requirements and federal internal controls standards related to external communication. We conducted this performance audit from January 2017 to March 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, David J. Wise (Director); Amelia Bates Shachoy (Assistant Director); Lindsay Bach (Analyst-in-Charge); Geoff Hamilton; Malika Rice; Kelly Rubin; Shelia Thorpe; Elise Vaughan Winfrey; and Amelia Michelle Weathers made key contributions to this report.	[ "Federal agencies are exploring ways to use telework as a tool to reduce the federal footprint and use space more efficiently. GAO was asked to examine the effects of telework on agencies' space-planning efforts. In this report, GAO reviewed: (1) how the 23 civilian CFO Act agencies reported using telework in office space planning; (2) the specific ways selected agencies and GSA used telework in their office space planning; and (3) any challenges the civilian CFO Act agencies faced in using telework in office space planning. GAO surveyed all 23 civilian CFO Act agencies, analyzed each agency's space-planning documents, and Real Property Efficiency Plans . GAO reviewed four agencies in greater detail based on analysis of telework data and other factors. For those four agencies GAO conducted site visits, interviewed officials, and analyzed agency documents. GAO also identified challenges agencies faced in using telework in space planning, based on survey results, agency documents, and interviews. The 23 civilian Chief Financial Officer (CFO) Act agencies reported various ways of considering and using telework as a space-planning tool, by, for example, implementing desk-sharing for employees who telework in order to relinquish leased space, or increasing the number of staff working in an existing space without increasing its size. All of the 23 agencies discussed telework in the context of space planning and achieving greater space efficiencies in either their space-planning documents or Real Property Efficiency Plans . The agencies that used telework as a space-planning tool generally reported implementing smaller or unassigned workstations. Three of the four agencies GAO reviewed in greater detail––the General Services Administration (GSA); the Office of Justice Programs at the Department of Justice; the Centers for Disease Control at the Department of Health and Human Services; and the Bureau of the Fiscal Service at the Department of the Treasury––leveraged telework to reduce or use office space more efficiently. For example, GSA and the Office of Justice Programs used telework to accommodate more employees in a smaller office space as illustrated in figure 1 below. The Centers for Disease Control used telework to accommodate more employees in the same amount of space. The Bureau of the Fiscal Service reduced space without telework by reducing the size of individual workstations. The 23 civilian CFO Act agencies reported several challenges in using telework to reduce space including human capital issues, mission suitability, and measuring cost savings attributable to telework. About two-thirds of the agencies said they would find it helpful to have additional information, assistance, or resources in using telework as a space-planning tool. GSA provides guidance to improve space utilization. However, GAO found that GSA last developed relevant formal guidance in 2006. This information, and that on GSA's telework and space-planning websites, was neither specific nor detailed and therefore of limited assistance to agencies that would like to use telework as a space-planning tool. Additionally, GSA's space-planning tool—the Workplace Investment and Feasibility Tool, intended to help agencies quantify the benefits and costs of telework––remains under development after more than 4 years, and GSA officials have not decided whether to make the tool available to other federal agencies. As such, agencies reported that they lack adequate guidance to determine how best to reduce space or use it more efficiently, and how to assess the benefits and costs of using telework in space planning. GSA concurred with recommendations that GSA should: (1) develop guidance on how agencies can use telework as a strategic space-planning tool and make this guidance readily available and (2) complete and make the Workplace Investment and Feasibility Tool available to federal agencies for use in assessing the benefits and costs of telework." ]	6,903	gov_report	en	null	780de001e250947c102e770515de8b924ff9ee35597b7533
IT systems supporting federal agencies and our nation’s critical infrastructures are inherently at risk. These systems are highly complex and dynamic, technologically diverse, and often geographically dispersed. This complexity increases the difficulty in identifying, managing, and protecting the numerous operating systems, applications, and devices comprising the systems and networks. Compounding the risk, federal systems and networks are also often interconnected with other internal and external systems and networks, including the Internet. This increases the number of avenues of attack and expands their attack surface. As systems become more integrated, cyber threats will pose an increasing risk to national security, economic well-being, and public health and safety. Advancements in technology, such as data analytics software for searching and collecting information, have also made it easier for individuals and organizations to correlate data (including PII) and track it across large and numerous databases. For example, social media has been used as a mass communication tool where PII can be gathered in vast amounts. In addition, ubiquitous Internet and cellular connectivity makes it easier to track individuals by allowing easy access to information pinpointing their locations. These advances—combined with the increasing sophistication of hackers and others with malicious intent, and the extent to which both federal agencies and private companies collect sensitive information about individuals—have increased the risk of PII being exposed and compromised. Cybersecurity incidents continue to impact entities across various critical infrastructure sectors. For example, in its 2018 annual data breach investigations report, Verizon reported that 53,308 security incidents and 2,216 data breaches were identified across 65 countries in the 12 months since its prior report. Further, the report noted that cybercriminals can often compromise a system in just a matter of minutes—or even seconds, but that it can take an organization significantly longer to discover the breach. Specifically, the report stated nearly 90 percent of the reported breaches occurred within minutes, while nearly 70 percent went undiscovered for months. These concerns are further highlighted by the number of information security incidents reported by federal executive branch civilian agencies to DHS’s U.S. Computer Emergency Readiness Team (US-CERT). For fiscal year 2017, 35,277 such incidents were reported by the Office of Management and Budget (OMB) in its 2018 annual report to Congress, as mandated by the Federal Information Security Modernization Act (FISMA). These incidents include, for example, web-based attacks, phishing, and the loss or theft of computing equipment. Different types of incidents merit different response strategies. However, if an agency cannot identify the threat vector (or avenue of attack), it could be difficult for that agency to define more specific handling procedures to respond to the incident and take actions to minimize similar future attacks. In this regard, incidents with a threat vector categorized as “other” (which includes avenues of attacks that are unidentified) made up 31 percent of the various incidents reported to US-CERT. Figure 1 shows the percentage of the different types of incidents reported across each of the nine threat vector categories for fiscal year 2017, as reported by OMB. These incidents and others like them can pose a serious challenge to economic, national, and personal privacy and security. The following examples highlight the impact of such incidents: In March 2018, the Mayor of Atlanta, Georgia, reported that the city was victimized by a ransomware cyberattack. As a result, city government officials stated that customers were not able to access multiple applications that are used to pay bills or access court related information. In response to the attack, the officials noted that they were working with numerous private and governmental partners, including DHS, to assess what occurred and determine how best to protect the city from future attacks. In March 2018, the Department of Justice reported that it had indicted nine Iranians for conducting a massive cybersecurity theft campaign on behalf of the Islamic Revolutionary Guard Corps. According to the department, the nine Iranians allegedly stole more than 31 terabytes of documents and data from more than 140 American universities, 30 U.S. companies, and five federal government agencies, among other entities. In March 2018, a joint alert from DHS and the Federal Bureau of Investigation (FBI) stated that, since at least March 2016, Russian government actors had targeted the systems of multiple U.S. government entities and critical infrastructure sectors. Specifically, the alert stated that Russian government actors had affected multiple organizations in the energy, nuclear, water, aviation, construction, and critical manufacturing sectors. In July 2017, a breach at Equifax resulted in the loss of PII for an estimated 148 million U.S. consumers. According to Equifax, the hackers accessed people’s names, Social Security numbers (SSN), birth dates, addresses and, in some instances, driver’s license numbers. In April 2017, the Commissioner of the Internal Revenue Service (IRS) testified that the IRS had disabled its data retrieval tool in early March 2017 after becoming concerned about the misuse of taxpayer data. Specifically, the agency suspected that PII obtained outside the agency’s tax system was used to access the agency’s online federal student aid application in an attempt to secure tax information through the data retrieval tool. In April 2017, the agency began notifying taxpayers who could have been affected by the breach. In June 2015, OPM reported that an intrusion into its systems had affected the personnel records of about 4.2 million current and former federal employees. Then, in July 2015, the agency reported that a separate, but related, incident had compromised its systems and the files related to background investigations for 21.5 million individuals. In total, OPM estimated 22.1 million individuals had some form of PII stolen, with 3.6 million being a victim of both breaches. Safeguarding federal IT systems and the systems that support critical infrastructures has been a long-standing concern of GAO. Due to increasing cyber-based threats and the persistent nature of information security vulnerabilities, we have designated information security as a government-wide high-risk area since 1997. In 2003, we expanded the information security high-risk area to include the protection of critical cyber infrastructure. At that time, we highlighted the need to manage critical infrastructure protection activities that enhance the security of the cyber and physical public and private infrastructures that are essential to national security, national economic security, and/or national public health and safety. We further expanded the information security high-risk area in 2015 to include protecting the privacy of PII. Since then, advances in technology have enhanced the ability of government and private sector entities to collect and process extensive amounts of PII, which has posed challenges to ensuring the privacy of such information. In addition, high- profile PII breaches at commercial entities, such as Equifax, heightened concerns that personal privacy is not being adequately protected. Our experience has shown that the key elements needed to make progress toward being removed from the High-Risk List are top-level attention by the administration and agency leaders grounded in the five criteria for removal, as well as any needed congressional action. The five criteria for removal that we identified in November 2000 are as follows: Leadership Commitment. Demonstrated strong commitment and top leadership support. Capacity. The agency has the capacity (i.e., people and resources) to resolve the risk(s). Action Plan. A corrective action plan exists that defines the root cause, solutions, and provides for substantially completing corrective measures, including steps necessary to implement solutions we recommended. Monitoring. A program has been instituted to monitor and independently validate the effectiveness and sustainability of corrective measures. Demonstrated Progress. Ability to demonstrate progress in implementing corrective measures and in resolving the high-risk area. These five criteria form a road map for efforts to improve and ultimately address high-risk issues. Addressing some of the criteria leads to progress, while satisfying all of the criteria is central to removal from the list. Figure 2 shows the five criteria and illustrative actions taken by agencies to address the criteria. Importantly, the actions listed are not “stand alone” efforts taken in isolation from other actions to address high- risk issues. That is, actions taken under one criterion may be important to meeting other criteria as well. For example, top leadership can demonstrate its commitment by establishing a corrective action plan including long-term priorities and goals to address the high-risk issue and using data to gauge progress—actions which are also vital to monitoring criteria. As we reported in the February 2017 high-risk report, the federal government’s efforts to address information security deficiencies had fully met one of the five criteria for removal from the High-Risk List— leadership commitment—and partially met the other four, as shown in figure 3. We plan to update our assessment of this high-risk area against the five criteria in February 2019. Based on our prior work, we have identified four major cybersecurity challenges: (1) establishing a comprehensive cybersecurity strategy and performing effective oversight, (2) securing federal systems and information, (3) protecting cyber critical infrastructure, and (4) protecting privacy and sensitive data. To address these challenges, we have identified 10 critical actions that the federal government and other entities need to take (see figure 4). The four challenges and the 10 actions needed to address them are summarized following the table. In addition, we also discuss in more detail each of the 10 actions in appendices II through XI. The federal government has been challenged in establishing a comprehensive cybersecurity strategy and in performing effective oversight as called for by federal law and policy. Specifically, we have previously reported that the federal government has faced challenges in establishing a comprehensive strategy to provide a framework for how the United States will engage both domestically and internationally on cybersecurity related matters. We have also reported on challenges in performing oversight, including monitoring the global supply chain, ensuring a highly skilled cyber workforce, and addressing risks associated with emerging technologies. The federal government can take four key actions to improve the nation’s strategic approach to, and oversight of, cybersecurity. Develop and execute a more comprehensive federal strategy for national cybersecurity and global cyberspace. In February 2013 we reported that the government had issued a variety of strategy- related documents that addressed priorities for enhancing cybersecurity within the federal government as well as for encouraging improvements in the cybersecurity of critical infrastructure within the private sector; however, no overarching cybersecurity strategy had been developed that articulated priority actions, assigned responsibilities for performing them, and set time frames for their completion. In October 2015, in response to our recommendation to develop an overarching federal cybersecurity strategy that included all key elements of the desirable characteristics of a national strategy, the Director of OMB and the Federal Chief Information Officer issued a Cybersecurity Strategy and Implementation Plan for the Federal Civilian Government. The plan directed a series of actions to improve capabilities for identifying and detecting vulnerabilities and threats, enhance protections of government assets and information, and further develop robust response and recovery capabilities to ensure readiness and resilience when incidents inevitably occur. The plan also identified key milestones for major activities, resources needed to accomplish milestones, and specific roles and responsibilities of federal organizations related to the strategy’s milestones. Since that time, the executive branch has made progress toward outlining a federal strategy for confronting cyber threats. For example, a May 2017 presidential executive order required federal agencies to take a variety of actions, including better manage their cybersecurity risks and coordinate to meet reporting requirements related to cybersecurity of federal networks, critical infrastructure, and the nation. Additionally, the December 2017 National Security Strategy cites cybersecurity as a national priority and identifies related needed actions, such as including identifying and prioritizing risk, and building defensible government networks. Further, DHS issued a cybersecurity strategy in May 2018, which articulated seven goals the department plans to accomplish in support of its mission related to managing national cybersecurity risks. The strategy is intended to provide DHS with a framework to execute its cybersecurity responsibilities during the next 5 years to keep pace with the evolving cyber risk landscape by reducing vulnerabilities and building resilience; countering malicious actors in cyberspace; responding to incidents; and making the cyber ecosystem more secure and resilient. These efforts provide a good foundation toward establishing a more comprehensive strategy, but more effort is needed to address all of the desirable characteristics of a national strategy that we have previously recommended. The recently issued executive branch strategy documents did not include key elements of desirable characteristics that can enhance the usefulness of a national strategy as guidance for decision makers in allocating resources, defining policies, and helping to ensure accountability. Specifically, the documents generally did not include milestones and performance measures to gauge results, nor did they describe the resources needed to carry out the goals and objective. Further, most of the strategy documents lacked clearly defined roles and responsibilities for key agencies, such as DHS, the Department of Defense (DOD), and OMB, who contribute substantially to the nation’s cybersecurity programs. Ultimately, a more clearly defined, coordinated, and comprehensive approach to planning and executing an overall strategy would likely lead to significant progress in furthering strategic goals and lessening persistent weaknesses. For more information on this action area, see appendix II. Mitigate global supply chain risks. The global, geographically disperse nature of the producers and suppliers of IT products is a growing concern. We have previously reported on potential issues associated with IT supply chain and risks originating from foreign- manufactured equipment. For example, in July 2017, we reported that the Department of State had relied on certain device manufacturers, software developers, and contractor support which had suppliers that were reported to be headquartered in a cyber-threat nation (e.g., China and Russia). We further pointed out that the reliance on complex, global IT supply chains introduces multiple risks to federal agencies, including insertion of counterfeits, tampering, or installation of malicious software or hardware. In July 2018, we testified that if such global IT supply chain risks are realized, they could jeopardize the confidentiality, integrity, and availability of federal information systems. Thus, the potential exists for serious adverse impact on an agency’s operations, assets, and employees. These factors highlight the importance and urgency of federal agencies appropriately assessing, managing, and monitoring IT supply chain risk as part of their agency-wide information security programs. For more information on this action area, see appendix III. Address cybersecurity workforce management challenges. The federal government faces challenges in ensuring that the nation’s cybersecurity workforce has the appropriate skills. For example, in June 2018, we reported on federal efforts to implement the requirements of the Federal Cybersecurity Workforce Assessment Act of 2015. We determined that most of the Chief Financial Officers (CFO) Act agencies had not fully implemented all statutory requirements, such as developing procedures for assigning codes to cybersecurity positions. Further, we have previously reported that DHS and DOD had not addressed cybersecurity workforce management requirements set forth in federal laws. In addition, we have reported in the last 2 years that federal agencies (1) had not identified and closed cybersecurity skills gaps, (2) had been challenged with recruiting and retaining qualified staff, and (3) had difficulty navigating the federal hiring process. A recent executive branch report also discussed challenges associated with the cybersecurity workforce. Specifically, in response to Executive Order 13800, the Department of Commerce and DHS led an interagency working group exploring how to support the growth and sustainment of future cybersecurity employees in the public and private sectors. In May 2018, the departments issued a report that identified key findings, including: the U.S. cybersecurity workforce needs immediate and sustained improvements; the pool of cybersecurity candidates needs to be expanded through retraining and by increasing the participation of women, minorities, and veterans; a shortage exists of cybersecurity teachers at the primary and secondary levels, faculty in higher education, and training instructors; and comprehensive and reliable data about cybersecurity workforce position needs and education and training programs are lacking. The report also included recommendations and proposed actions to address the findings, including that private and public sectors should (1) align education and training with employers’ cybersecurity workforce needs by applying the National Initiative for Cybersecurity Education Cybersecurity Workforce Framework; (2) develop cybersecurity career model paths; and (3) establish a clearinghouse of information on cybersecurity workforce development education, training, and workforce development programs and initiatives. In addition, in June 2018, the executive branch issued a government reform plan and reorganization recommendations that included, among other things, proposals for solving the federal cybersecurity workforce shortage. In particular, the plan notes that the administration intends to prioritize and accelerate ongoing efforts to reform the way that the federal government recruits, evaluates, selects, pays, and places cyber talent across the enterprise. The plan further states that, by the end of the first quarter of fiscal year 2019, all CFO Act agencies, in coordination with DHS and OMB, are to develop a critical list of vacancies across their organizations. Subsequently, OMB and DHS are to analyze these lists and work with OPM to develop a government-wide approach to identifying or recruiting new employees or reskilling existing employees. Regarding cybersecurity training, the plan notes that OMB is to consult with DHS to standardize training for cybersecurity employees, and should work to develop an enterprise-wide training process for government cybersecurity employees. For more information on this action area, see appendix IV. Ensure the security of emerging technologies. As the devices used in daily life become increasingly integrated with technology, the risk to sensitive data and PII also grows. Over the last several years, we have reported on weaknesses in addressing vulnerabilities associated with emerging technologies, including: IoT devices, such as fitness trackers, cameras, and thermostats, that continuously collect and process information are potentially vulnerable to cyber-attacks; IoT devices, such as those acquired and used by DOD employees or that DOD itself acquires (e.g., smartphones), may increase the security risks to the department; vehicles that are potentially susceptible to cyber-attack through technology, such as Bluetooth; the unknown impact of artificial intelligence cybersecurity; and advances in cryptocurrencies and blockchain technologies. Executive branch agencies have also highlighted the challenges associated with ensuring the security of emerging technologies. Specifically, in a May 2018 report issued in response to Executive Order 13800, the Department of Commerce and DHS issued a report on the opportunities and challenges in reducing the botnet threat. The opportunities and challenges are centered on six principal themes, including the global nature of automated, distributed attacks; effective tools; and awareness and education. The report also provides recommended actions, including that federal agencies should increase their understanding of what software components have been incorporated into acquired products and establish a public campaign to support awareness of IoT security. For more information on this action area, see appendix V. In our previously discussed reports related to this cybersecurity challenge, we made a total of 50 recommendations to federal agencies to address the weaknesses identified. As of August 2018, 48 recommendations had not been implemented. These outstanding recommendations include 8 priority recommendations, meaning that we believe that they warrant priority attention from heads of key departments and agencies. These priority recommendations include addressing weaknesses associated with, among other things, agency-specific cybersecurity workforce challenges and agency responsibilities for supporting mitigation of vehicle network attacks. Until our recommendations are fully implemented, federal agencies may be limited in their ability to provide effective oversight of critical government-wide initiatives, address challenges with cybersecurity workforce management, and better ensure the security of emerging technologies. In addition to our prior work related to the federal government’s efforts to establish key strategy documents and implement effective oversight, we also have several ongoing reviews related to this challenge. These include reviews of: the CFO Act agencies’ efforts to submit complete and reliable baseline assessment reports of their cybersecurity workforces; the extent to which DOD has established training standards for cyber mission force personnel, and efforts the department has made to achieve its goal of a trained cyber mission force; and selected agencies’ ability to implement cloud service technologies and notable benefits this might have on agencies. The federal government has been challenged in securing federal systems and information. Specifically, we have reported that federal agencies have experienced challenges in implementing government-wide cybersecurity initiatives, addressing weaknesses in their information systems and responding to cyber incidents on their systems. This is particularly concerning given that the emergence of increasingly sophisticated threats and continuous reporting of cyber incidents underscores the continuing and urgent need for effective information security. As such, it is important that federal agencies take appropriate steps to better ensure they have effectively implemented programs to protect their information and systems. We have identified three actions that the agencies can take. Improve implementation of government-wide cybersecurity initiatives. Specifically, in January 2016, we reported that DHS had not ensured that the National Cybersecurity Protection System (NCPS) had fully satisfied all intended system objectives related to intrusion detection and prevention, information sharing, and analytics. In addition, in February 2017, we reported that the DHS National Cybersecurity and Communications Integration Center’s (NCCIC) functions were not being performed in adherence with the principles set forth in federal laws. We noted that, although NCCIC was sharing information about cyber threats in the way it should, the center did not have metrics to measure that the information was timely, relevant and actionable, as prescribed by law. For more information on this action area, see appendix VI. Address weaknesses in federal information security programs. We have previously identified a number of weaknesses in agencies’ protection of their information and information systems. For example, over the past 2 years, we have reported that: most of the 24 agencies covered by the CFO Act had weaknesses in each of the five major categories of information system controls (i.e., access controls, configuration management controls, segregation of duties, contingency planning, and agency-wide security management); three agencies—the Securities Exchange Commission, the Federal Deposit Insurance Corporation, and the Food and Drug Administration—had not effectively implemented aspects of their information security programs, which resulted in weaknesses in these agencies’ security controls; information security weaknesses in selected high-impact systems at four agencies—the National Aeronautics and Space Administration, the Nuclear Regulatory Commission, OPM, and the Department of Veterans Affairs—were cited as a key reason that the agencies had not effectively implemented elements of their information security programs; DOD’s process for monitoring the implementation of cybersecurity guidance had weaknesses and resulted in the closure of certain tasks (such as completing cyber risk assessments) before they were fully implemented; and agencies had not fully defined the role of their Chief Information Security Officers, as required by FISMA. We also recently testified that, although the government had acted to protect federal information systems, additional work was needed to improve agency security programs and cyber capabilities. In particular, we noted that further efforts were needed by agencies to implement our prior recommendations in order to strengthen their information security programs and technical controls over their computer networks and systems. For more information on this action area, see appendix VII. Enhance the federal response to cyber incidents. We have reported that certain agencies have had weaknesses in responding to cyber incidents. For example, as of August 2017, OPM had not fully implemented controls to address deficiencies identified as a result of its 2015 cyber incidents; DOD had not identified the National Guard’s cyber capabilities (e.g., computer network defense teams) or addressed challenges in its exercises; as of April 2016, DOD had not identified, clarified, or implemented all components of its support of civil authorities during cyber incidents; and as of January 2016, DHS’s NCPS had limited capabilities for detecting and preventing intrusions, conducting analytics, and sharing information. For more information on this action area, see appendix VIII. In the public versions of the reports previously discussed for this challenge area, we made a total of 101 recommendations to federal agencies to address the weaknesses identified. As of August 2018, 61 recommendations had not been implemented. These outstanding recommendations include 14 priority recommendations to address weaknesses associated with, among other things, the information security programs at the National Aeronautics and Space Administration, OPM, and the Security Exchange Commission. Until these recommendations are implemented, these federal agencies will be limited in their ability to ensure the effectiveness of their programs for protecting information and systems. In addition to our prior work, we also have several ongoing reviews related to the federal government’s efforts to protect its information and systems. These include reviews of: Federal Risk and Authorization Management Program (FedRAMP) implementation, including an assessment of the implementation of the program’s authorization process for protecting federal data in cloud environments; the Equifax data breach, including an assessment of federal oversight of credit reporting agencies’ collection, use, and protection of consumer PII; the Federal Communication Commission’s Electronic Comment Filing System security, to include a review of the agency’s detection of and response to a May 2017 incident that reportedly impacted the system; DOD’s efforts to improve the cybersecurity of its major weapon DOD’s whistleblower program, including an assessment of the policies, procedures, and controls related to the access and storage of sensitive and classified information needed for the program; IRS’s efforts to (1) implement security controls and the agency’s information security program, (2) authenticate taxpayers, and (3) secure tax information; and the federal approach and strategy to securing agency information systems, to include federal intrusion detection and prevention capabilities and the intrusion assessment plan. The federal government has been challenged in working with the private sector to protect critical infrastructure. This infrastructure includes both public and private systems vital to national security and other efforts, such as providing the essential services that underpin American society. As the cybersecurity threat to these systems continues to grow, federal agencies have millions of sensitive records that must be protected. Specifically, this critical infrastructure threat could have national security implications and more efforts should be made to ensure that it is not breached. To help address this issue, the National Institute of Standards and Technology (NIST) developed the cybersecurity framework—a voluntary set of cybersecurity standards and procedures for industry to adopt as a means of taking a risk-based approach to managing cybersecurity. However, additional action is needed to strengthen the federal role in protecting the critical infrastructure. Specifically, we have reported on other critical infrastructure protection issues that need to be addressed. For example: DHS did not track vulnerability reduction from the implementation and verification of planned security measures at the high-risk chemical facilities that engage with the department, as a basis for assessing performance. Entities within the 16 critical infrastructure sectors reported encountering four challenges to adopting the cybersecurity framework, such as being limited in their ability to commit necessary resources towards framework adoption and not having the necessary knowledge and skills to effectively implement the framework. DOD and the Federal Aviation Administration identified a variety of operations and physical security risks that could adversely affect DOD missions. Major challenges existed to securing the electricity grid against cyber threats. These challenges included monitoring implementation of cybersecurity standards, ensuring security features are built into smart grid systems, and establishing metrics for cybersecurity. DHS and other agencies needed to enhance cybersecurity in the maritime environment. Specifically, DHS did not include cyber risks in its risk assessments that were already in place nor did it address cyber risks in guidance for port security plans. Sector-specific agencies were not properly addressing progress or metrics to measure their progress in cybersecurity. For more information on this action area, see appendix IX. We made a total of 21 recommendations to federal agencies to address these weaknesses and others. These recommendations include, for example, a total of 9 recommendations to 9 sector-specific agencies to develop methods to determine the level and type of cybersecurity framework adoption across their respective sectors. As of August 2018, all 21 recommendations had not been implemented. Until these recommendations are implemented, the federal government will continue to be challenged in fulfilling its role in protecting the nation’s critical infrastructure. In addition to our prior work related to the federal government’s efforts to protect critical infrastructure, we also have several ongoing reviews focusing on: the physical and cybersecurity risks to pipelines across the country responsible for transmitting oil, natural gas, and other hazardous liquids; the cybersecurity risks to the electric grid; and the privatization of utilities at DOD installations. The federal government has been challenged in protecting privacy and sensitive data. Advances in technology, including powerful search technology and data analytics software, have made it easy to correlate information about individuals across large and numerous databases, which have become very inexpensive to maintain. In addition, ubiquitous Internet connectivity has facilitated sophisticated tracking of individuals and their activities through mobile devices such as smartphones and fitness trackers. Given that access to data is so pervasive, personal privacy hinges on ensuring that databases of PII maintained by government agencies or on their behalf are protected both from inappropriate access (i.e., data breaches) as well as inappropriate use (i.e., for purposes not originally specified when the information was collected). Likewise, the trend in the private sector of collecting extensive and detailed information about individuals needs appropriate limits. The vast number of individuals potentially affected by data breaches at federal agencies and private sector entities in recent years increases concerns that PII is not being properly protected. Federal agencies should take two types of actions to address this challenge area. In addition, we have previously proposed two matters for congressional consideration aimed toward better protecting PII. Improve federal efforts to protect privacy and sensitive data. We have issued several reports noting that agencies had deficiencies in protecting privacy and sensitive data that needed to be addressed. For example: The Department of Health and Human Services’ (HHS) Centers for Medicare and Medicaid Services (CMS) and external entities were at risk of compromising Medicare Beneficiary Data due to a lack of guidance and proper oversight. The Department of Education’s Office of Federal Student Aid had not properly overseen its school partners’ records or information security programs. HHS had not fully addressed key security elements in its guidance for protecting the security and privacy of electronic health information. CMS had not fully protected the privacy of users’ data on state- based marketplaces. Poor planning and ineffective monitoring had resulted in the unsuccessful implementation of government initiatives aimed at eliminating the unnecessary collection, use, and display of SSNs. For more information on this action area, see appendix X. Appropriately limit the collection and use of personal information and ensure that it is obtained with appropriate knowledge or consent. We have issued a series of reports that highlight a number of the key concerns in this area. For example: The emergence of IoT devices can facilitate the collection of information about individuals without their knowledge or consent; Federal laws for smartphone tracking applications have not generally been well enforced; The FBI has not fully ensured privacy and accuracy related to the use of face recognition technology. For more information on this action area, see appendix XI. We have previously suggested that Congress consider amending laws, such as the Privacy Act of 1974 and the E-Government Act of 2002, because they may not consistently protect PII. Specifically, we found that while these laws and guidance set minimum requirements for agencies, they may not consistently protect PII in all circumstances of its collection and use throughout the federal government and may not fully adhere to key privacy principles. However, revisions to the Privacy Act and the E-Government Act have not yet been enacted. Further, we also suggested that Congress consider strengthening the consumer privacy framework and review issues such as the adequacy of consumers’ ability to access, correct, and control their personal information; and privacy controls related to new technologies such as web tracking and mobile devices. However, these suggested changes have not yet been enacted. We also made a total of 29 recommendations to federal agencies to address the weaknesses identified. As of August 2018, 28 recommendations had not been implemented. These outstanding recommendations include 6 priority recommendations to address weaknesses associated with, among other things, publishing privacy impact assessments and improving the accuracy of the FBI’s face recognition services. Until these recommendations are implemented, federal agencies will be challenged in their ability to protect privacy and sensitive data and ensure that its collection and use is appropriately limited. In addition to our prior work, we have several ongoing reviews related to protecting privacy and sensitive data. These include reviews of: IRS’s taxpayer authentication efforts, including what steps the agency is taking to monitor and improve its authentication methods; the extent to which the Department of Education’s Office of Federal Student Aid’s policies and procedures for overseeing non-school partners’ protection of federal student aid data align with federal requirements and guidance; data security issues related to credit reporting agencies, including a review of the causes and impacts of the August 2017 Equifax data breach; the extent to which Equifax assessed, responded to, and recovered from its August 2017 data breach; federal agencies’ efforts to remove PII from shared cyber threat indicators; and how the federal government has overseen Internet privacy, including the roles of the Federal Communications Commission and the Federal Trade Commission, and strengths and weaknesses of the current oversight authorities. In conclusion, since 2010, we have made over 3,000 recommendations to agencies aimed at addressing the four cybersecurity challenges. Nevertheless, many agencies continue to be challenged in safeguarding their information systems and information, in part because many of these recommendations have not been implemented. Of the roughly 3,000 recommendations made since 2010, nearly 1,000 had not been implemented as of August 2018. We have also designated 35 as priority recommendations, and as of August 2018, 31 had not been implemented. The federal government and the nation’s critical infrastructure are dependent on IT systems and electronic data, which make them highly vulnerable to a wide and evolving array of cyber-based threats. Securing these systems and data is vital to the nation’s security, prosperity, and well-being. Nevertheless, the security over these systems and data is inconsistent and urgent actions are needed to address ongoing cybersecurity and privacy challenges. Specifically, the federal government needs to implement a more comprehensive cybersecurity strategy and improve its oversight, including maintaining a qualified cybersecurity workforce; address security weaknesses in federal systems and information and enhance cyber incident response efforts; bolster the protection of cyber critical infrastructure; and prioritize efforts to protect individual’s privacy and PII. Until our recommendations are addressed and actions are taken to address the four challenges we identified, the federal government, the national critical infrastructure, and the personal information of U.S. citizens will be increasingly susceptible to the multitude of cyber-related threats that exist. We are sending copies of this report to the appropriate congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Nick Marinos at (202) 512-9342 or marinosn@gao.gov or Gregory C. Wilshusen at (202) 512-6244 or wilshuseng@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix XII. Critical Infrastructure Protection: DHS Should Take Actions to Measure Reduction in Chemical Facility Vulnerability and Share Information with First Responders. GAO-18-538. Washington, D.C.: August 8, 2018. High-Risk Series: Urgent Actions Are Needed to Address Cybersecurity Challenges Facing the Nation. GAO-18-645T. Washington, D.C.: July 25, 2018. Information Security: Supply Chain Risks Affecting Federal Agencies. GAO-18-667T. Washington, D.C.: July 12, 2018. Information Technology: Continued Implementation of High-Risk Recommendations Is Needed to Better Manage Acquisitions, Operations, and Cybersecurity. GAO-18-566T. Washington, D.C.: May 23, 2018. Cybersecurity: DHS Needs to Enhance Efforts to Improve and Promote the Security of Federal and Private-Sector Networks, GAO-18-520T. Washington, D.C.: April 24, 2018. Electronic Health Information: CMS Oversight of Medicare Beneficiary Data Security Needs Improvement. GAO-18-210. Washington, D.C.: March 6, 2018. Technology Assessment: Artificial Intelligence, Emerging Opportunities, Challenges, and Implications. GAO-18-142SP. Washington, D.C.: March 28, 2018. GAO Strategic Plan 2018-2023: Trends Affecting Government and Society. GAO-18-396SP. Washington, D.C.: February 22, 2018. Critical Infrastructure Protection: Additional Actions Are Essential for Assessing Cybersecurity Framework Adoption. GAO-18-211. Washington, D.C.: February 15, 2018. Cybersecurity Workforce: Urgent Need for DHS to Take Actions to Identify Its Position and Critical Skill Requirements. GAO-18-175. Washington, D.C.: February 6, 2018. Homeland Defense: Urgent Need for DOD and FAA to Address Risks and Improve Planning for Technology That Tracks Military Aircraft. GAO-18-177. Washington, D.C.: January 18, 2018. Federal Student Aid: Better Program Management and Oversight of Postsecondary Schools Needed to Protect Student Information. GAO-18-121. Washington, D.C.: December 15, 2017. Defense Civil Support: DOD Needs to Address Cyber Incident Training Requirements. GAO-18-47. Washington, D.C.: November 30, 2017. Federal Information Security: Weaknesses Continue to Indicate Need for Effective Implementation of Policies and Practices. GAO-17-549. Washington, D.C.: September 28, 2017. Information Security: OPM Has Improved Controls, but Further Efforts Are Needed. GAO-17-614. Washington, D.C.: August 3, 2017. Defense Cybersecurity: DOD’s Monitoring of Progress in Implementing Cyber Strategies Can Be Strengthened. GAO-17-512. Washington, D.C.: August 1, 2017. State Department Telecommunications: Information on Vendors and Cyber-Threat Nations. GAO-17-688R. Washington, D.C.: July 27, 2017. Internet of Things: Enhanced Assessments and Guidance Are Needed to Address Security Risks in DOD. GAO-17-668. Washington, D.C.: July 27, 2017. Information Security: SEC Improved Control of Financial Systems but Needs to Take Additional Actions. GAO-17-469. Washington, D.C.: July 27, 2017. Information Security: Control Deficiencies Continue to Limit IRS’s Effectiveness in Protecting Sensitive Financial and Taxpayer Data. GAO-17-395. Washington, D.C.: July 26, 2017. Social Security Numbers: OMB Actions Needed to Strengthen Federal Efforts to Limit Identity Theft Risks by Reducing Collection, Use, and Display. GAO-17-553. Washington, D.C.: July 25, 2017. Information Security: FDIC Needs to Improve Controls over Financial Systems and Information. GAO-17-436. Washington, D.C.: May 31, 2017. Technology Assessment: Internet of Things: Status and implications of an increasingly connected world. GAO-17-75. Washington, D.C.: May 15, 2017. Cybersecurity: DHS’s National Integration Center Generally Performs Required Functions but Needs to Evaluate Its Activities More Completely. GAO-17-163. Washington, D.C.: February 1, 2017. High-Risk Series: An Update. GAO-17-317. Washington, D.C.: February 2017. IT Workforce: Key Practices Help Ensure Strong Integrated Program Teams; Selected Departments Need to Assess Skill Gaps. GAO-17-8. Washington, D.C.: November 30, 2016. Electronic Health Information: HHS Needs to Strengthen Security and Privacy Guidance and Oversight. GAO-16-771. Washington, D.C.: September 26, 2016. Defense Civil Support: DOD Needs to Identify National Guard’s Cyber Capabilities and Address Challenges in Its Exercises. GAO-16-574. Washington, D.C.: September 6, 2016. Information Security: FDA Needs to Rectify Control Weaknesses That Place Industry and Public Health Data at Risk. GAO-16-513. Washington, D.C.: August 30, 2016. Federal Chief Information Security Officers: Opportunities Exist to Improve Roles and Address Challenges to Authority. GAO-16-686. Washington, D.C.: August 26, 2016. Federal Hiring: OPM Needs to Improve Management and Oversight of Hiring Authorities. GAO-16-521. Washington, D.C.: August 2, 2016. Information Security: Agencies Need to Improve Controls over Selected High-Impact Systems. GAO-16-501. Washington, D.C.: May 18, 2016. Face Recognition Technology: FBI Should Better Ensure Privacy and Accuracy. GAO-16-267. Washington, D.C.: May 16, 2016. Smartphone Data: Information and Issues Regarding Surreptitious Tracking Apps That Can Facilitate Stalking. GAO-16-317. Washington, D.C.: May 9, 2016. Vehicle Cybersecurity: DOT and Industry Have Efforts Under Way, but DOT Needs to Define Its Role in Responding to a Real-world Attack. GAO-16-350. Washington, D.C.: April 25, 2016. Civil Support: DOD Needs to Clarify Its Roles and Responsibilities for Defense Support of Civil Authorities during Cyber Incidents. GAO-16-332. Washington, D.C.: April 4, 2016. Healthcare.gov: Actions Needed to Enhance Information Security and Privacy Controls. GAO-16-265. Washington, D.C.: March 23, 2016. Information Security: DHS Needs to Enhance Capabilities, Improve Planning, and Support Greater Adoption of Its National Cybersecurity Protection System. GAO-16-294. Washington, D.C.: January 28, 2016. Critical Infrastructure Protection: Sector-Specific Agencies Need to Better Measure Cybersecurity Progress. GAO-16-79. Washington, D.C.: November 19, 2015. Critical Infrastructure Protection: Cybersecurity of the Nation’s Electricity Grid Requires Continued Attention. GAO-16-174T. Washington, D.C.: October 21, 2015. Maritime Critical Infrastructure Protection: DHS Needs to Enhance Efforts to Address Port Cybersecurity. GAO-16-116T. Washington, D.C.: October 8, 2015. Cybersecurity: National Strategy, Roles, and Responsibilities Need to Be Better Defined and More Effectively Implemented. GAO-13-187. Washington, D.C.: February 14, 2014. Information Resellers: Consumer Privacy Framework Needs to Reflect Changes in Technology and the Marketplace. GAO-13-663. Washington, D.C.: September 25, 2013. Privacy: Alternatives Exist for Enhancing Protection of Personally Identifiable Information. GAO-08-536. Washington, D.C.: May 19, 2008. Federal law and policy call for a risk-based approach to managing cybersecurity within the government, as well as globally. We have previously reported that the federal government has faced challenges in establishing a comprehensive strategy to provide a framework for how the United States will engage both domestically and internationally on cybersecurity related matters. More specifically, in February 2013, we reported that the government had issued a variety of strategy-related documents that addressed priorities for enhancing cybersecurity within the federal government as well as for encouraging improvements in the cybersecurity of critical infrastructure within the private sector; however, no overarching cybersecurity strategy had been developed that articulated priority actions, assigned responsibilities for performing them, and set time frames for their completion. Accordingly, we recommended that the White House Cybersecurity Coordinator in the Executive Office of the President develop an overarching federal cybersecurity strategy that included all key elements of the desirable characteristics of a national strategy including, among other things, milestones and performance measures for major activities to address stated priorities; cost and resources needed to accomplish stated priorities; and specific roles and responsibilities of federal organizations related to the strategy’s stated priorities. In response to our recommendation, in October 2015, the Director of OMB and the Federal Chief Information Officer, issued a Cybersecurity Strategy and Implementation Plan for the Federal Civilian Government. The plan directed a series of actions to improve capabilities for identifying and detecting vulnerabilities and threats, enhance protections of government assets and information, and further develop robust response and recovery capabilities to ensure readiness and resilience when incidents inevitably occur. The plan also identified key milestones for major activities, resources needed to accomplish milestones, and specific roles and responsibilities of federal organizations related to the strategy’s milestones. Since that time, the executive branch has made progress toward outlining a federal strategy for confronting cyber threats. Table 1 identifies these recent efforts and a description of their related contents. These efforts provide a good foundation toward establishing a more comprehensive strategy, but more effort is needed to address all of the desirable characteristics of a national strategy that we recommended. The recently issued executive branch strategy documents did not include key elements of desirable characteristics that can enhance the usefulness of a national strategy as guidance for decision makers in allocating resources, defining policies, and helping to ensure accountability. Specifically: Milestones and performance measures to gauge results were generally not included in strategy documents. For example, although the DHS Cybersecurity Strategy stated that its implementation would be assessed on an annual basis, it did not describe the milestones and performance measures for tracking the effectiveness of the activities intended to meet the stated goals (e.g., protecting critical infrastructure and responding effectively to cyber incidents). Without such performance measures, DHS will lack a means to ensure that the goals and objectives discussed in the document are accomplished and that responsible parties are held accountable. According to officials from DHS’s Office of Cybersecurity and Communications, the department is developing a plan for implementing the DHS Cybersecurity Strategy and expects to issue the plan by the end of calendar year 2018. The officials stated that the plan is expected to identify milestones, roles, and responsibilities across DHS to inform the prioritization of future efforts. The strategy documents generally did not include information regarding the resources needed to carry out the goals and objectives. For example, although the DHS Cybersecurity Strategy identified a variety of actions the agency planned to take to perform their cybersecurity mission, it did not articulate the resources needed to carry out these actions and requirements. Without information on the specific resources needed, federal agencies may not be positioned to allocate such resources and investments and, therefore, may be hindered in their ability meet national priorities. Most of the strategy documents lacked clearly defined roles and responsibilities for key agencies, such as DHS, DOD, and OMB. These agencies contribute substantially to the nation’s cybersecurity programs. For example, although the National Security Strategy discusses multiple priority actions needed to address the nation’s cybersecurity challenges (e.g., building defensible government networks, and deterring and disrupting malicious cyber actors), it does not describe the roles, responsibilities, or the expected coordination of any specific federal agencies, including DHS, DOD, or OMB, or other non-federal entities needed to carry out those actions. Without this information, the federal government may not be able foster effective coordination, particularly where there is overlap in responsibilities, or hold agencies accountable for carrying out planned activities. Ultimately, a more clearly defined, coordinated, and comprehensive approach to planning and executing an overall strategy would likely lead to significant progress in furthering strategic goals and lessening persistent weaknesses. The exploitation of information technology (IT) products and services through the supply chain is an emerging threat. IT supply chain-related threats can be introduced in the manufacturing, assembly, and distribution of hardware, software, and services. Moreover, these threats can appear at each phase of the system development life cycle, when an agency initiates, develops, implements, maintains, and disposes of an information system. As a result, the compromise of an agency’s IT supply chain can degrade the confidentiality, integrity, and availability of its critical and sensitive networks, IT-enabled equipment, and data. Federal regulation and guidance issued by the National Institute of Standards and Technology (NIST) set requirements and best practices for mitigating supply chain risks. The Federal Acquisition Regulation established codification and publication of uniform policies and procedures for acquisition by all executive branch agencies. Agencies are required by the Federal Acquisition Regulation to ensure that contracts include quality requirements that are determined necessary to protect the government’s interest. In addition, the NIST guidance on supply chain risk management practices for federal information systems and organizations intends to assist federal agencies with identifying, assessing, and mitigating information and communications technology supply chain risks at all levels of their organizations. We have previously reported on risks to the IT supply chain and risks originating from foreign-manufactured equipment. For example: In July 2018, we testified that if global IT supply chain risks are realized, they could jeopardize the confidentiality, integrity, and availability of federal information systems. Thus, the potential exists for serious adverse impact on an agency’s operations, assets, and employees. We further stated that in 2012 we determined that four national security-related agencies—the Departments of Defense, Justice, Energy, Homeland Security (DHS)—varied in the extent to which they had addressed supply chain risks. We recommended that three agencies take eight actions, as needed, to develop and document policies, procedures, and monitoring capabilities that address IT supply chain risk. The agencies generally concurred with the recommendations and subsequently implemented seven recommendations and partially implemented the eighth recommendation. In July 2017, we reported that, based on a review of a sample of organizations within the Department of State’s telecommunications supply chain, we were able to identify instances in which device manufacturers, software developers and contractor support were reported to be headquartered in a leading cyber-threat nation. For example, of the 52 telecommunications device manufacturers and software developers in our sample, we were able to identify 12 that had 1 or more suppliers that were reported to be headquartered in a leading cyber-threat nation. We noted that the reliance on complex, global IT supply chains introduces multiple risks to federal agencies, including insertion of counterfeits, tampering, or installation of malicious software or hardware. Figure 5 illustrates possible manufacturing locations of typical network components. Although federal agencies have taken steps to address IT supply chain deficiencies that we previously identified, this area continues to be a potential threat vector for malicious actors to target the federal government. For example, in September 2017, DHS issued a binding operating directive which calls on departments and agencies to identify any use or presence of Kaspersky products on their information systems and to develop detailed plans to remove and discontinue present and future use of the products. DHS expressed concern about the ties between certain Kaspersky officials and Russian intelligence and other government agencies, and requirements under Russian law that allow Russian intelligence agencies to request or compel assistance from Kaspersky and to intercept communications transiting Russian networks. On May 11, 2017, the President issued an executive order on strengthening the cybersecurity of federal networks and critical infrastructure. The order makes it the policy of the United States to support the growth and sustainment of a workforce that is skilled in cybersecurity and related fields as the foundation for achieving our objectives in cyberspace. It directed the Secretaries of Commerce and Homeland Security (DHS), in consultation with other federal agencies, to assess the scope and sufficiency of efforts to educate and train the American cybersecurity workforce of the future, including cybersecurity- related education curricula, training, and apprenticeship programs, from primary through higher education. Nevertheless, the federal government continues to face challenges in addressing the nation’s cybersecurity workforce. Agencies had not effectively conducted baseline assessments of their cybersecurity workforce or fully developed procedures for coding positions. In June 2018, we reported that 21 of the 24 agencies covered by the Chief Financial Officer’s Act had conducted and submitted to Congress a baseline assessment identifying the extent to which their cybersecurity employees held professional certifications, as required by the Federal Cybersecurity Workforce Assessment Act of 2015. However, we found that the results of these assessments may not have been reliable because agencies did not address all of the reportable information and agencies were limited in their ability to obtain complete and consistent information about their cybersecurity employees and the certifications they held. We determined that this was because agencies had not yet fully identified all members of their cybersecurity workforces or did not have a consistent list of appropriate certifications for cybersecurity positions. Further, 23 of the agencies reviewed had established procedures for identifying and assigning the appropriate employment codes to their civilian cybersecurity positions, as called for by the act. However, 6 of the 23 did not address one or more of 7 activities required by OPM in their procedures, such as reviewing all filled and vacant positions and annotating reviewed position descriptions with the appropriate employment code. Accordingly, we made 30 recommendations to 13 agencies to fully implement two of the act’s requirements on baseline assessments and coding procedures. The extent to which these agencies agreed with the recommendations varied. DHS and the Department of Defense (DOD) had not addressed cybersecurity workforce management requirements set forth in federal laws. In February 2018, we reported that, while DHS had taken actions to identify, categorize, and assign employment codes to its cybersecurity positions, as required by the Homeland Security Cybersecurity Workforce Assessment Act of 2014, its actions were not timely and complete. For example, DHS did not establish timely and complete procedures to identify, categorize, and code its cybersecurity position vacancies and responsibilities. Further, DHS had not yet completed its efforts to identify all of its cybersecurity positions and accurately assign codes to all filled and vacant cybersecurity positions. Table 2 shows DHS’s progress in implementing the requirements of the Homeland Security Cybersecurity Workforce Assessment Act of 2014, as of December 2017. Accordingly, we recommended that DHS take six actions, including ensuring that its cybersecurity workforce procedures identify position vacancies and responsibilities; reported workforce data are complete and accurate; and plans for reporting on critical needs are developed. DHS agreed with our six recommendations, but had not implemented them as of August 2018. Regarding DOD, in November 2017, we reported that instead of developing a comprehensive plan for U.S. Cyber Command, the department submitted a report consisting of a collection of documents that did not fully address the required six elements set forth in Section 1648 of the National Defense Authorization Act for Fiscal Year 2016. More specifically, DOD’s 1648 report did not address an element related to cyber incident training. In addition to not addressing the training element in the report, DOD had not ensured that staff were trained as required by the Presidential Policy Directive on United States Cyber Incident Coordination or DOD’s Significant Cyber Incident Coordination Procedures. Accordingly, we made two recommendations to DOD to address these issues. DOD agreed with one of the recommendations and partially agreed with the other, citing ongoing activities related to cyber incident coordination training it believed were sufficient. However, we continued to believe the recommendation was warranted. As of August 2018, both recommendations had not yet been implemented. Agencies had not identified and closed cybersecurity skills gaps. In November 2016, we reported that five selected agencies had made mixed progress in assessing their information technology (IT) skill gaps. These agencies had started focusing on identifying cybersecurity staffing gaps, but more work remained in assessing competency gaps and in broadening the focus to include the entire IT community. Accordingly, we made a total of five recommendations to the agencies to address these issues. Four agencies agreed and one, DOD, partially agreed with our recommendations citing progress made in improving its IT workforce planning. However, we continued to believe our recommendation was warranted. As of August 2018, all five of the recommendations had not been implemented. Agencies had been challenged with recruiting and retaining qualified staff. In August 2016, we reported on the current authorities chief information security officers (CISO) at 24 agencies. Among other things, CISOs identified key challenges they faced in fulfilling their responsibilities. Several of these challenges were related to the cybersecurity workforce, such as not having enough personnel to oversee the implementation of the number and scope of security requirements. In addition, CISOs stated that they were not able to offer salaries that were competitive with the private sector for candidates with high-demand technical skills. Furthermore, CISOs stated that certain security personnel lacked the skill sets needed or were not sufficiently trained. To assist CISOs in carrying out their responsibilities and better define their roles, we made a total of 34 recommendations to the Office of Management and Budget (OMB) and 13 agencies in our review. Agency responses to the recommendations varied; as of August 2018, 18 of the 34 recommendations had not been implemented. Agencies have had difficulty navigating the federal hiring process. In August 2016, we reported on the extent to which federal hiring authorities were meeting agency needs. Although competitive hiring has been the traditional method of hiring, agencies can use additional hiring authorities to expedite the hiring process or achieve certain public policy goals. Among other things, we noted that agencies rely on a relatively small number of hiring authorities (as established by law, executive order, or regulation) to fill the vast majority of hires into the federal civil service. Further, while OPM collects a variety of data to assess the federal hiring process, neither it nor agencies used this information to assess the effectiveness of hiring authorities. Conducting such assessments would be a critical first step in making more strategic use of the available hiring authorities to more effectively meet their hiring needs. Accordingly, we made three recommendations to OPM to work with agencies to strengthen hiring efforts. OPM generally agreed with the recommendations; however, as of August 2018, two of them had not been implemented. The emergence of new technologies can potentially introduce security vulnerabilities for those technologies which were previous unknown. As we have previously reported, additional processes and controls will need to be developed to potentially address these new vulnerabilities. While some progress has been made to address the security and privacy issues associated with these technologies, such as the Internet of Things (IoT) and vehicle networks, there is still much work to be done. For example: IoT devices that continuously collect and process information are potentially vulnerable to cyber-attacks. In May 2017, we reported that the IoT has become increasingly used to communicate and process vast amounts of information using “smart” devices (such as fitness trackers, cameras, and thermostats). However, we noted that this emerging technology also presents new issues in areas such as information security, privacy, and safety. For example, IoT devices, networks, or the cloud servers where they store data can be compromised in a cyberattack. Table 3 provides examples of cyber- attacks that could affect IoT devices and networks. IoT devices may increase the security risks to federal agencies. In July 2017, we reported that IoT devices, such as those acquired and used by Department of Defense (DOD) employees or that DOD itself acquires (e.g., smartphones), may increase the security risks to the department. We noted that these risks can be divided into two categories, risks with the devices themselves, such as limited encryption, and risks with how they are used, such as unauthorized communication of information. The department has also identified notional threat scenarios, based on input from multiple DOD entities, which exemplify how these security risks could adversely impact DOD operations, equipment, or personnel. Figure 6 highlights a few examples of these scenarios. In addition, we reported that DOD had started to examine the security risks of IoT devices, but that the department had not conducted required assessments related to the security of its operations. Further, DOD had issued policies and guidance for these devices, but these did not clearly address all of the risks relating to these devices. To address these issues, we made two recommendations to DOD. The department agreed with our recommendations; however, as of August 2018, they had not yet been implemented. Vehicles are potentially susceptible to cyber-attack through networks, such as Bluetooth. In March 2016, we reported that many stakeholders in the automotive industry acknowledge that in-vehicle networks pose a threat to the safety of the driver, as an external attacker could gain control to critical systems in the car. Further, these industry stakeholders agreed that critical systems and other vehicle systems, such as a Bluetooth connection, should be separate in-vehicle networks so they could not communicate or interfere with one another. Figure 7 identifies the key interfaces that could be exploited in a vehicle cyber-attack. To enhance the Department of Transportation’s ability to effectively respond in the event of a real-world vehicle cyberattack, we made one recommendation to the department to better define its roles and responsibilities. The department agreed with the recommendation but, as of August 2018, had not yet taken action to implement it. Artificial intelligence holds substantial promise for improving cybersecurity, but also posed new risks. In March 2018, we reported on the results of a forum we convened to discuss emerging opportunities, challenges, and implications associated with artificial intelligence. At the forum, participants from industry, government, academia, and nonprofit organizations discussed the potential implications of this emerging technology, including assisting with cybersecurity by helping to identify and patch vulnerabilities and defending against attacks; creating safer automated vehicles; improving the criminal justice system’s allocation of resources; and improving how financial services govern investments. However, forum participants also highlighted a number of challenges and risks related to artificial intelligence. For example, if the data used by artificial intelligence are biased or become corrupted by hackers, the results could be biased or cause harm. Moreover, the collection and sharing of data needed to train artificial intelligence systems, a lack of access to computing resources, and adequate human capital were also challenges facing the development of artificial intelligence. Finally, forum participants noted that the widespread adoption raises questions about the adequacy of current laws and regulations. Cryptocurrencies provide an alternative to traditional government-issued currencies, but have security implications. In February 2018, we reported on trends affecting government and society, including the increased use of cryptocurrencies—digital representations of value that are not government-issued—that operate online and verify transactions using a public ledger called blockchain. We highlighted the potential benefits of this technology, such as anonymity and lower transaction costs, as well as drawbacks, including making it harder to detect money laundering and other financial crimes. Because of these capabilities and others, we noted the potential for virtual currencies and blockchain technology to reshape financial services and affect the security of critical financial infrastructures. Lastly, we pointed out that the use of blockchain technology could have more security vulnerabilities as computing power increases as a result of new advancements in quantum computing, an area of quantum information science. In January 2008, the President issued National Security Presidential Directive 54/Homeland Security Presidential Directive 23. The directive established the Comprehensive National Cybersecurity Initiative, a set of projects with the objective of safeguarding federal executive branch government information systems by reducing potential vulnerabilities, protecting against intrusion attempts, and anticipating future threats against the federal government’s networks. Under the initiative, the Department of Homeland Security (DHS) was to lead several projects to better secure civilian federal government networks. Specifically, the agency established the National Cybersecurity and Communications Integration Center (NCCIC), which functions as the 24/7 cyber monitoring, incident response, and management center. Figure 8 depicts the Watch Floor, which functions as a national focal point of cyber and communications incident integration. The United States Computer Emergency Readiness Team (US-CERT), one of several subcomponents of the NCCIC, is responsible for operating the National Cybersecurity Protection System (NCPS), which provides intrusion detection and prevention capabilities to entities across the federal government. Although DHS is fulfilling its statutorily required mission by establishing the NCCIC and managing the operation of NCPS, we have identified challenges in the agency’s efforts to manage these programs: DHS had not ensured that NCPS has fully satisfied all intended system objectives. In January 2016, we reported that NCPS had a limited ability to detect intrusions across all types of network types. In addition, we reported that the system’s intrusion prevention capability was limited and its information-sharing capability was not fully developed. Furthermore, we reported that DHS’s current metrics did not comprehensively measure the effectiveness of NCPS. Accordingly, we made nine recommendations to DHS to address these issues and others. The department agreed with our recommendations and has taken action to address one of them. However, as of August 2018, eight of these recommendations had not been implemented. DHS had been challenged in measuring how the NCCIC was performing its functions in accordance with mandated implementing principles. In February 2017, we reported instances where, with certain products and services, NCCIC had implemented its functions in adherence with one or more of its principles, as required by the National Cybersecurity Protection Act of 2014 and Cybersecurity Act of 2015. For example, consistent with the principle that it seek and receive appropriate consideration from industry sector-specific, academic, and national laboratory expertise, NCCIC coordinated with contacts from industry, academia, and the national laboratories to develop and disseminate vulnerability alerts. However, we also identified instances where the cybersecurity functions were not performed in adherence with the principles. For example, NCCIC is to provide timely technical assistance, risk management support, and incident response capabilities to federal and nonfederal entities, but it had not established measures or other procedures for ensuring the timeliness of these assessments. Further, we reported that NCCIC faces impediments to performing its cybersecurity functions more efficiently, such as tracking security incidents and working across multiple network platforms. Accordingly, we made nine recommendations to DHS related to implementing the requirements identified in the National Cybersecurity Protection Act of 2014 and the Cybersecurity Act of 2015. The department agreed with our recommendations and has taken action to address two of them. However, as of August 2018, the remaining seven recommendations had not been implemented. The Federal Information Security Modernization Act of 2014 (FISMA) requires federal agencies in the executive branch to develop, document, and implement an information security program and evaluate it for effectiveness. The act retains many of the requirements for federal agencies’ information security programs previously set by the Federal Information Security Management Act of 2002. These agency programs should include periodic risk assessments; information security policies and procedures; plans for protecting the security of networks, facilities, and systems; security awareness training; security control assessments; incident response procedures; a remedial action process, and continuity plans and procedures. In addition, Executive Order 13800 states that the President will hold agency heads accountable for managing cybersecurity risk to their enterprises. In addition, according to the order, it is the policy of the United States to manage cybersecurity risk as an executive branch enterprise because risk management decisions made by agency heads can affect the risk to the executive branch as a whole, and to national security. Over the past several years, we have performed numerous security control audits to determine how well agencies are managing information security risk to federal information systems and data through the implementation of effective security controls. These audits have resulted in the identification of hundreds of deficiencies related to agencies’ implementation of effective security controls. Accordingly, we provided agencies with limited official use only reports identifying technical security control deficiencies for their respective agency. In these reports, we made hundreds of recommendations related to improving agencies’ implementation of those security control deficiencies. In addition to systems and networks maintained by federal agencies, it is also important that agencies ensure the security of federal information systems operated by third party providers, including cloud service providers. Cloud computing is a means for delivering computing services via information technology networks. Since 2009, the government has encouraged agencies to use cloud-based services to store and process data as a cost-savings measure. In this regard, the Office of Management and Budget (OMB) established the Federal Risk and Authorization Management Program (FedRAMP) to provide a standardized approach to security assessment, authorization, and continuous monitoring for cloud products and services. FedRAMP is intended to ensure that cloud computing services have adequate information security, eliminate duplicative efforts, and reduce costs. Although there are requirements and government-wide programs to assist with ensuring the security of federal information systems maintained by federal agencies and third party providers, we have identified weaknesses in agencies’ implementation of information security programs. Federal agencies continued to experience weaknesses in protecting their information and information systems due to ineffective implementation of information security policies and practices. In September 2017, we reported that most of the 24 agencies covered by the Chief Financial Officers (CFO) Act had weaknesses in each of the five major categories of information system controls (i.e., access controls, configuration management controls, segregation of duties, contingency planning, and agency-wide security management). Weaknesses in these security controls indicate that agencies did not adequately or effectively implement information security policies and practices during fiscal year 2016. Figure 9 identifies the number of agencies with information security weaknesses in each of the five categories. In addition, we found that several agencies had not effectively implemented some aspects of its information security program, which resulted in weaknesses in these agencies’ security controls. In July 2017, we reported that the Security Exchange Commission did not always keep system security plans complete and accurate or fully implement continuous monitoring, as required by agency policy. We made two recommendations to the Security Exchange Commission to effectively manage its information security program. The agency agreed with our recommendations; however, as of August 2018, they had not been implemented. In another July 2017 report, we noted that the Internal Revenue Service (IRS) did not effectively support a risk-based decision to accept system deficiencies; fully develop, document, or update information security policies and procedures; update system security plans to reflect changes to the operating environment; perform effective tests and evaluations of policies, procedures, and controls; or address shortcomings in the agency’s remedial process. Accordingly, we made 10 recommendations to IRS to more effectively implement security-related policies and plans. The agency neither agreed nor disagreed with the recommendations; as of August 2018, all 10 recommendations had not been implemented. In May 2017, we reported that the Federal Deposit Insurance Corporation did not include all necessary information in procedures for granting access to a key financial application; fully address its Inspector General findings that security control assessments of outsourced service providers had not been completed in a timely manner; fully address key previously identified weaknesses related to establishing agency-wide configuration baselines and monitoring changes to critical server files; or complete actions to address the Inspector General’s finding that the Federal Deposit Insurance Corporation had not ensured that major security incidents are identified and reported in a timely manner. We made one recommendation to the agency to more fully implement its information security program. The agency agreed with our recommendation and has taken steps to implement it. In August 2016, we reported that the Food and Drug Administration did not fully implement certain security practices involved with assessing risks to systems; complete or review security policies and procedures in a timely manner; complete and review system security plans annually; always track and fully train users with significant security responsibilities; fully test controls or monitor them; remediate identified security weaknesses in a timely fashion based on risk; or fully implement elements of its incident response program. Accordingly, we issued 15 recommendations to the Food and Drug Administration to fully implement its agency-wide information security program. The agency agreed with our recommendations. As of August 2018, all 15 recommendations had been implemented. In May 2016, we reported that a key reason for the information security weaknesses in selected high-impact systems at four agencies—National Aeronautics and Space Administration, Nuclear Regulatory Commission, the Office of Personnel Management, and Department of Veterans Affairs—was that they had not effectively implemented elements of their information security programs. For example, most of the selected agencies had conducted information security control assessments for systems, but not all assessments were comprehensive. We also reported that remedial action plans developed by the agencies did not include all the required elements, and not all agencies had developed a continuous monitoring strategy. Table 4 identifies the extent to which the selected agencies implemented key aspects of their information security programs. Accordingly, we made 19 recommendations to the four selected agencies to correct these weaknesses. Agency responses to the recommendations varied. Further, as of August 2018, 16 of the 19 recommendations had not been implemented. DOD’s monitoring of progress in implementing cyber strategies varied. In August 2017, we reported that the DOD’s progress in implementing key strategic cybersecurity guidance—the DOD Cloud Computing Strategy, DOD Cyber Strategy, and DOD Cybersecurity Campaign—has varied. More specifically, we determined that the department had implemented the cybersecurity objectives identified in the DOD Cloud Computing Strategy and had made progress in implementing the DOD Cyber Strategy and DOD Cybersecurity Campaign. However, the department’s process for monitoring implementation of the DOD Cyber Strategy had resulted in the closure of tasks as implemented before the tasks were fully implemented. In addition, the DOD Cybersecurity Campaign lacked time frames for completion and a process to monitor progress, which together provide accountability to ensure implementation. We made two recommendations to improve DOD’s process of ensuring its cyber strategies are effectively implemented. The department partially concurred with these recommendations and identified actions it planned to take to address them. We noted that, if implemented, the actions would satisfy the intent of our recommendations. However, as of August 2018, DOD had not yet implemented our recommendations. Agencies had not fully defined the role of their Chief Information Security Officers (CISO), as required by FISMA. In August 2016, we reported that 13 of 24 agencies covered by the CFO Act had not fully defined the role of their CISO. For example, these agencies did not always identify a role for the CISO in ensuring that security controls are periodically tested; procedures are in place for detecting, reporting, and responding to security incidents; or contingency plans and procedures for agency information systems are in place. Thus, we determined that the CISOs’ ability to effectively oversee these agencies’ information security activities can be limited. To assist CISOs in carrying out their responsibilities and better define their roles, we made a total of 34 recommendations to OMB and 13 agencies in our review. Agency responses to the recommendations varied; as of August 2018, 18 of the 34 recommendations had not been implemented. Presidential Policy Directive-41 sets forth principles governing the federal government’s response to any cyber incident, whether involving government or private sector entities. According to the directive, federal agencies shall undertake three concurrent lines of effort when responding to any cyber incident: threat response; asset response; and intelligence support and related activities. In addition, when a federal agency is an affected entity, it shall undertake a fourth concurrent line of effort to manage the effects of the cyber incident on its operations, customers, and workforce. We have reviewed federal agencies’ preparation and response to cyber incidents and have identified the following weaknesses: The Office of Personnel Management (OPM) had not fully implemented controls to address deficiencies identified as a result of a cyber incident. In August 2017, we reported that OPM did not fully implement the 19 recommendations made by the Department of Homeland Security’s (DHS) United States Computer Emergency Readiness Team (US-CERT) after the data breaches in 2015. Specifically, we noted that, after breaches of personnel and background investigation information were reported, US-CERT worked with the agency to resolve issues and develop a comprehensive mitigation strategy. In doing so, US-CERT made 19 recommendations to OPM to help the agency improve its overall security posture and, thus, improve its ability to protect its systems and information from security breaches. In our August 2017 report, we determined that OPM had fully implemented 11 of the 19 recommendations. For the remaining 8 recommendations, actions for 4 were still in progress. For the other 4 recommendations, OPM indicated that it had completed actions to address them, but we noted further improvements were needed. Further, OPM had not validated actions taken to address the recommendations in a timely manner. As a result of our review, we made five other recommendations to OPM to improve its response to cyber incidents. The agency agreed with four of these and partially concurred with the one related to validating its corrective action. The agency did not cite a reason for its partial concurrence and we continued to believe that the recommendation was warranted. As of August 2018, three of the five recommendations had not been implemented. The Department of Defense (DOD) had not identified the National Guard’s cyber capabilities (e.g., computer network defense teams) or addressed challenges in its exercises. In September 2016, we reported that DOD had not identified the National Guard’s cyber capabilities or addressed challenges in its exercises. Specifically, DOD had not identified and did not have full visibility into National Guard cyber capabilities that could support civil authorities during a cyber incident because the department has not maintained a database that identifies National Guard cyber capabilities, as required by the National Defense Authorization Act for Fiscal Year 2007. In addition, we identified three types of challenges with DOD’s cyber exercises that could limit the extent to which DOD is prepared to support civilian authorities in a cyber incident: limited access because of classified exercise environments; limited inclusion of other federal agencies and critical infrastructure owners; and inadequate incorporation of joint physical-cyber scenarios. In our September 2016 report, we noted that DOD had not addressed these challenges. Furthermore, we stated that DOD had not addressed its goals by conducting a “tier 1” exercise (i.e., an exercise involving national-level organizations and combatant commanders and staff in highly complex environments), as stated in the DOD Cyber Strategy. Accordingly, we recommended that DOD (1) maintain a database that identifies National Guard cyber capabilities and (2) conduct a tier 1 exercise to prepare its forces in the event of a disaster with cyber effects. The department partially agreed with our recommendations, stating that its current mechanisms and exercises are sufficient to address the issues highlighted in our report. However, we continued to believe the recommendations were valid. As of August 2018, our two recommendations had not been implemented. DOD had not identified, clarified, or implemented all components of its incident response program. In April 2016, we also reported that DOD had not clarified its roles and responsibilities for defense support of civil authorities during cyber incidents. Specifically, we found that DOD’s overarching guidance about how it is to support civil authorities as part of its Defense Support of Civil Authorities mission did not clearly define the roles and responsibilities of key DOD entities, such as DOD components, the supported command, or the dual-status commander, if they are requested to support civil authorities in a cyber incident. Further, we found that, in some cases, DOD guidance provides specific details on other types of Defense Support of Civil Authorities-related responses, such as assigning roles and responsibilities for fire or emergency services support and medical support, but does not provide the same level of detail or assign roles and responsibilities for cyber support. Accordingly, we recommended that DOD issue or update guidance that clarifies DOD roles and responsibilities to support civil authorities in a domestic cyber incident. DOD concurred with the recommendation and stated that the department will issue or update guidance. However, as of August 2018, the department had not implemented our recommendation. DHS’s NCPS had limited capabilities for detecting and preventing intrusions, conducting analytics, and sharing information. In January 2016, we reported that NCPS had a limited ability to detect intrusions across all types of network types. In addition, we reported that the system’s intrusion prevention capability was limited and its information-sharing capability was not fully developed. Furthermore, we reported that DHS’s current metrics did not comprehensively measure the effectiveness of NCPS. Accordingly, we made nine recommendations to DHS to address these issues and others. The department agreed with our recommendations and has taken action to address one of them. However, as of August 2018, eight of these recommendations had not been implemented. The nation’s critical infrastructure include both public and private systems vital to national security and other efforts including providing the essential services, such as banking, water, and electricity—that underpin American society. The cyber threat to critical infrastructure continues to grow and represents a national security challenge. To address this cyber risk, the President issued Executive Order 13636 in February 2013 to enhance the security and resilience of the nation’s critical infrastructure and maintain a cyber environment that promotes safety, security, and privacy. In accordance with requirements in the executive order which were enacted into law in 2014, the National Institute of Standards and Technology (NIST) facilitated the development of a set of voluntary standards and procedures for enhancing cybersecurity of critical infrastructure. This process, which involved stakeholders from the public and private sectors, resulted in NIST’s Framework for Improving Critical Infrastructure Cybersecurity. The framework is to provide a flexible and risk-based approach for entities within the nation’s 16 critical infrastructure sectors to protect their vital assets from cyber-based threats. Since then, progress has been made to protect the critical infrastructure of the nation but we have reported that challenges to ensure the safety and security of our infrastructure exist. The Department of Homeland Security (DHS) had not measured the impact of its efforts to support cyber risk reduction for high- risk chemical sector entities. In August 2018, we reported that DHS had strengthened its processes for identifying high-risk chemical facilities and assigning them to tiers under its Chemical Facility Anti- Terrorism Standards program. However, we found that DHS’s new performance measure methodology did not measure reduction in vulnerability at a facility resulting from the implementation and verification of planned security measures during the compliance inspection process. We concluded that doing so would provide DHS an opportunity to begin assessing how vulnerability is reduced—and by extension, risk lowered—not only for individual high-risk facilities but for the Chemical Facility Anti-Terrorism Standards program as a whole. We also determined that, although DHS shares some Chemical Facility Anti-Terrorism Standards program information, first responders and emergency planners may not have all of the information they need to minimize the risk of injury or death when responding to incidents at high-risk facilities. This was due to first responders at the local level not having access or widely using a secure interface that DHS developed (known as the Infrastructure Protection Gateway) to obtain information about high-risk facilities and the specific chemicals they process. To address the weaknesses we identified, we recommended that DHS take actions to (1) measure reduction in vulnerability of high-risk facilities and use that data to assess program performance, and (2) encourage access to and wider use of the Infrastructure Protection Gateway among first responders and emergency planners. DHS concurred with both recommendations and outlined efforts underway or planned to address them. The federal government had identified major challenges to the adoption of the cybersecurity framework. In February 2018, we reported that there were four different challenges to adopting the cybersecurity framework, including limited resources and competing priorities, reported by entities within their sectors. We further reported that none of the 16 sector-specific agencies were measuring the implementation by these entities, nor did they have qualitative or quantitative measures of framework adoption. While research had been done to determine the use of the framework in the sectors, these efforts had yielded no real results for sector wide adoption. We concluded that, until sector-specific agencies understand the use of the framework by the implementing entities, their ability to understand implementation efforts would be limited. Accordingly, we made a total of nine recommendations to nine sector-specific agencies to address these issues. Five agencies agreed with the recommendations, while four others neither agreed nor disagreed; as of August 2018, all five recommendations had not been implemented. Agencies had not addressed risks to their systems and the information they maintain. In January 2018, we reported that the Department of Defense (DOD) and Federal Aviation Administration (FAA) identified a variety of operations and physical security risks related to Automatic Dependent Surveillance-Broadcast Out technology that could adversely affect DOD missions. These risks came from information broadcast by the system itself, as well as from potential vulnerabilities to electronic warfare- and cyber-attacks, and from the potential divestment of secondary-surveillance radars. However, DOD and FAA had not approved any solutions to address the risks they identified to the system. Accordingly, we recommended that DOD and FAA, among other things, take action to approve one or more solutions to address Automatic Dependent Surveillance- Broadcast Out-related security risks. DOD and FAA generally agreed with our recommendations; however, as of August 2018, they had not been implemented. Major challenges existed to securing the electricity grid against cyber threats. In October 2015, we testified on the status of the electricity grid’s cybersecurity, reporting that entities associated with the grid have encountered several challenges. We noted that these challenges included implementation monitoring, built-in security features in smart grid systems, and establishing metrics for cybersecurity. We concluded that continued attention to these issues and cyber threats in general was required to help mitigate these risks to the electricity grid. DHS and other agencies needed to enhance cybersecurity in the maritime environment. In October 2015, we testified on the status of the cybersecurity of our nation’s ports, concluding that steps needed to be taken to enhance their security. Specifically, we noted that DHS needed to include cyber risks in its risk assessments that are already in place as well as addressing cyber risks in guidance for port security plans. We concluded that, until DHS and the other stakeholders take steps to address cybersecurity in the ports, risk of a cyber-attack with serious consequences are increased. Sector-specific agencies were not properly addressing progress or metrics to measure their progress in cybersecurity. In November 2015, we reported that sector-specific agencies were not comprehensively addressing the cyber risk to the infrastructure, as 11 of the 15 sectors had significant cyber risk. Specifically, we noted that these entities had taken actions to mitigate their cyber risk; however, most had not identified incentives to promote cybersecurity in their sectors. We concluded that while the sector-specific agencies have successfully disseminated the information they possess, there was still work to be done to properly measure cybersecurity implementation progress. Accordingly, we made seven recommendations to six agencies to address these issues. Four of these agencies agreed with our recommendation, while two agencies did not comment on the recommendations. As of August 2018, all seven recommendations had not been implemented. Advancements in technology, such as new search technology and data analytics software for searching and collecting information, have made it easier for individuals and organizations to correlate data and track it across large and numerous databases. In addition, lower data storage costs have made it less expensive to store vast amounts of data. Also, ubiquitous Internet and cellular connectivity make it easier to track individuals by allowing easy access to information pinpointing their locations. the effectiveness of these procedures. Based on a survey of the schools, the majority of the schools had policies in place for records retention but the way these policies were implemented was highly varied for paper and electronic records. We also found that the oversight of the school’s programs was lacking, as Federal Student Aid conducts reviews but does not consider information security as a factor for selecting schools. out provisions of the Patient Protection and Affordable Care Act. We made three recommendations to CMS related to defining procedures for overseeing the security of state-based marketplaces and requiring continuous monitoring of state marketplace controls. HHS concurred with our recommendations. As of August 2018, two of the recommendations had not yet been implemented. Poor planning and ineffective monitoring had resulted in the unsuccessful implementation of government initiatives designed to protect federal data. In July 2017, we reported that government initiatives aimed at eliminating the unnecessary collection, use, and display of Social Security numbers (SSN) have had limited success. Specifically, in agencies’ response to our questionnaire on SSN reduction efforts, the 24 agencies covered by the Chief Financial Officers Act reported successfully curtailing the collection, use, and display of SSNs. Nevertheless, all of the agencies continued to rely on SSNs for important government programs and systems, as seen in figure 10. Given that access to data is so pervasive, personal privacy hinges on ensuring that databases of personally identifiable information (PII) maintained by government agencies or on their behalf are protected both from inappropriate access (i.e., data breaches) as well as inappropriate use (i.e., for purposes not originally specified when the information was collected). Likewise, the trend in the private sector of collecting extensive and detailed information about individuals needs appropriate limits. The vast number of individuals potentially affected by data breaches at federal agencies and private sector entities in recent years increases concerns that PII is not being properly protected. The emergence of IoT devices can facilitate the collection of information about individuals without their knowledge or consent. In May 2017, we reported that the IoT has become increasingly used to communicate and process vast amounts of information using “smart” devices (such as a fitness tracker connected to a smartphone). However, we noted that this emerging technology also presents new issues in areas such as information security, privacy, and safety. Smartphone tracking apps can present serious safety and privacy risks. In April 2016, we reported on smartphone applications that facilitated the surreptitious tracking of a smartphone’s location and other data. Specifically, we noted that some applications could be used to intercept communications and text messages, essentially facilitating the stalking of others. While it is illegal to use these applications for these purposes, stakeholders differed over whether current federal laws needed to be strengthened to combat stalking. We also noted that stakeholders expressed concerns over what they perceived to be limited enforcement of laws related to tracking apps and stalking. In particular, domestic violence groups stated that additional education of law enforcement officials and consumers about how to protect against, detect, and remove tracking apps is needed. The Federal Bureau of Investigation (FBI) has not ensured privacy and accuracy related to the use of face recognition technology. In May 2016, we reported that the Department of Justice had not been timely in publishing and updating privacy documentation for the FBI’s use of face recognition technology. Publishing such documents in a timely manner would better assure the public that the FBI is evaluating risks to privacy when implementing systems. Also, the FBI had taken limited steps to determine whether the face recognition system it was using was sufficiently accurate. We recommended that the department ensure required privacy-related documents are published and that the FBI test and review face recognition systems to ensure that they are sufficiently accurate. Of the six recommendations we made, the Department of Justice agreed with one, partially agreed with two, and disagreed with three. We continued to believe all the recommendations made were valid. As of August 2018, the six recommendations had not been implemented. In addition to the contacts named above, Jon Ticehurst, Assistant Director; Kush K. Malhotra, Analyst-In-Charge; Chris Businsky; Alan Daigle; Rebecca Eyler; Chaz Hubbard; David Plocher; Bradley Roach; Sukhjoot Singh; Di’Mond Spencer; and Umesh Thakkar made key contributions to this report.	[ "Federal agencies and the nation's critical infrastructures—such as energy, transportation systems, communications, and financial services—are dependent on information technology systems to carry out operations. The security of these systems and the data they use is vital to public confidence and national security, prosperity, and well-being. The risks to these systems are increasing as security threats evolve and become more sophisticated. GAO first designated information security as a government-wide high-risk area in 1997. This was expanded to include protecting cyber critical infrastructure in 2003 and protecting the privacy of personally identifiable information in 2015. This report provides an update to the information security high-risk area. To do so, GAO identified the actions the federal government and other entities need to take to address cybersecurity challenges. GAO primarily reviewed prior work issued since the start of fiscal year 2016 related to privacy, critical federal functions, and cybersecurity incidents, among other areas. GAO also reviewed recent cybersecurity policy and strategy documents, as well as information security industry reports of recent cyberattacks and security breaches. GAO has identified four major cybersecurity challenges and 10 critical actions that the federal government and other entities need to take to address them. GAO continues to designate information security as a government-wide high-risk area due to increasing cyber-based threats and the persistent nature of security vulnerabilities. GAO has made over 3,000 recommendations to agencies aimed at addressing cybersecurity shortcomings in each of these action areas, including protecting cyber critical infrastructure, managing the cybersecurity workforce, and responding to cybersecurity incidents. Although many recommendations have been addressed, about 1,000 have not yet been implemented. Until these shortcomings are addressed, federal agencies' information and systems will be increasingly susceptible to the multitude of cyber-related threats that exist. GAO has made over 3,000 recommendations to agencies since 2010 aimed at addressing cybersecurity shortcomings. As of August 2018, about 1,000 still needed to be implemented." ]	14,863	gov_report	en	null	4cb713e43fe0e8e6185cec6d49636297caf933ab15697ef8
With the passage of the NDAA in December 2016, PLCY is to be led by an Under Secretary for Strategy, Policy, and Plans, who is appointed by the President with advice and consent of the Senate. The Under Secretary is to report directly to the Secretary of Homeland Security. Prior to the NDAA, the office was headed by an assistant secretary. Since the passage of the act, the undersecretary position has been vacant, and as of June 5, 2018, the President had not nominated an individual to fill the position. According to PLCY officials, elevating the head of the office to an undersecretary was important because it equalizes PLCY with other DHS management offices and DHS headquarters components. The NDAA further authorizes, but does not require, the Secretary to establish a position of deputy undersecretary within PLCY. If the position is established, the NDAA provides that the Secretary may appoint a career employee to the position (i.e., not a political appointee). In March 2018, the Secretary named a Deputy Under Secretary, who has been performing the duties of the Deputy Under Secretary and the Under Secretary since then. As shown in figure 1, PLCY is divided into five sub- offices, each with a different focus area. As of June 5, 2018, the top position in these sub-offices was an assistant secretary and two of the five positions were vacant. As of June 5, 2018, 6 of PLCY’s 12 deputy assistant secretary positions were vacant or filled by acting staff temporarily performing the duties in the absence of permanent staff placement. The NDAA codified many of the functions and responsibilities that PLCY had been carrying out prior to the act’s enactment and, with a few exceptions as discussed later in this report, were largely consistent with the duties the office was already pursuing. According to the act and PLCY officials, one of the office’s fundamental responsibilities is to lead, conduct, and coordinate departmentwide policy development and implementation, and strategic planning. According to PLCY officials, there are four categories of policy and strategy efforts that PLCY leads, conducts, or coordinates: Statutory responsibilities: among others, the Homeland Security Act, as amended by the NDAA, includes such responsibilities as establishing standards of validity and reliability for statistical data collected by the department, conducting or overseeing analysis and reporting of such data, and maintaining all immigration statistical information of U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and U.S. Citizenship and Immigration Services; the Immigration and Nationality Act includes such responsibilities as providing for a system for collection and dissemination to Congress and the public of information useful in evaluating the social, economic, environmental, and demographic impact of immigration laws, and reporting annually on trends in lawful immigration flows, naturalizations, and enforcement actions, Representing DHS in interagency efforts: coordinating or representing departmental policy and strategy positions for larger interagency efforts (e.g., interagency policy committees convened by the White House), Secretary’s priorities: leading or coordinating efforts that correspond to the Secretary of Homeland Security’s priorities (e.g., certain immigration or law-enforcement related issues), and Self-initiated activities: opportunities to better harmonize policy and strategy or create additional efficiencies given PLCY’s ability to see across the department. For example, PLCY officials said that DHS observed an increase in e-commerce and small businesses shipping items via carriers other than the U.S. Postal Service, thus exploiting a gap in DHS monitoring, which covers the U.S. Postal Service and other traditional shipping entities. PLCY officials noted that DHS’s interest in addressing e-commerce issues occurred just before opioids and other controlled substances were being mailed through small businesses and the U.S. Postal Service. As a result, PLCY developed an e-commerce strategy for, among other things, the shipping of illegal items and how to provide information to U.S. Customs and Border Protection before parcels are shipped to the United States from abroad. In accordance with the NDAA, as PLCY leads, conducts, and coordinates policy and strategy, it is to do so in a manner that promotes and ensures quality, consistency, and integration across DHS and applies risk-based analysis and planning to departmentwide strategic planning efforts. The NDAA further provides that all component heads are to coordinate with PLCY when establishing or modifying policies or strategic planning guidance to ensure consistency with DHS’s policy priorities. In addition to the roles PLCY plays that are directly related to leading, conducting, and coordinating policy and strategy, the office is responsible for select operational functions. For example, PLCY is charged with operating the REAL ID and Visa Waiver Programs. The NDAA also conferred responsibilities to PLCY that had not been responsibilities of the DHS Office of Policy prior to the NDAA’s enactment. Among other things, the NDAA charged PLCY with responsibility for establishing standards of reliability and validity for statistical data collected and analyzed by the department, and ensuring the accuracy of metrics and statistical data provided to Congress. In conferring this responsibility, the act also transferred to PLCY the maintenance of all immigration statistical information of the U.S. Customs and Border Protection, U.S. Immigration and Customs Enforcement, and U.S. Citizenship and Immigration Services. PLCY has established five performance goals: build departmental policy-making capacity, coordination, and foster the Unity of Effort, mature the office as a mission-oriented, component-focused organization that is responsive to DHS leadership, effectively engage and leverage stakeholders, enhance productivity and effectiveness of policy personnel through appropriate alignment of knowledge, skills, and abilities, and accountability, transparency, and leadership. PLCY officials stated that the office established the performance goals in fiscal year 2015 and they were still in effect as of fiscal year 2018. As previously discussed, DHS has eight operational components. DHS also has six support components. Although each one has a distinct role to play in helping to secure the homeland, there are operational and support functions that cut across mission areas. For example, nearly every operational component has, as part of its security operations, a need for screening, vetting, and credentialing procedures and risk- targeting mechanisms. Likewise, nearly all operational components have some form of international engagement, deploying staff abroad to help secure the homeland before threats reach U.S. borders. Finally, as shown in figure 2, different aspects of broad mission areas fall under the purview of more than one DHS operational component. PLCY is responsible for coordinating three key DHS strategic efforts: the QHSR, the DHS Strategic Plan, and the Resource Planning Guidance. The QHSR is a comprehensive examination of the homeland security strategy of the nation that is to occur every 4 years and include recommendations regarding the long-term strategy and priorities for homeland security of the nation and guidance on the programs, assets, capabilities, budget, policies, and authorities of DHS. The QHSR is to be conducted in consultation with the heads of other federal agencies, key DHS officials (including the Under Secretary, PLCY), and key officials from other relevant governmental and nongovernmental entities. The DHS Strategic Plan describes how DHS can accomplish the missions it identifies in the QHSR report, identifies high-priority mission areas within DHS, and lays the foundation for DHS to accomplish its Unity of Effort Initiative as well as various cross-agency priority goals in the strategic plan, such as cybersecurity. The Resource Planning Guidance describes DHS’s annual resource allocation process in order to execute the missions and goals of the QHSR and DHS Strategic Plan. The Resource Planning Guidance contains guidance over a 5-year period and informs several forward- looking reports to Congress, including the annual fiscal year Congressional Budget Justification as well as the Future Years Homeland Security Program Report. Although PLCY has effectively carried out key coordination functions at the senior level related to strategy, PLCY’s ability to lead and coordinate policy have been limited due to ambiguous roles and responsibilities and a lack of predictable, accountable, and repeatable procedures. According to our analysis and interviews with operational components, PLCY’s efforts to lead and coordinate departmentwide and crosscutting strategies—a key organizational objective—have been effective in providing opportunities for all relevant stakeholders to learn about and contribute to departmentwide or crosscutting strategy development. In this role, PLCY routinely serves as the executive agent for the Deputies Management Action Group and the Senior Leaders Council, which involve analytical and coordination support. PLCY also provides support for deputy- and principal-level decision making. For example, the Strategy and Policy Executive Steering Committee (S&P ESC) meetings have been used to discuss components’ implementation plans for crosscutting strategies, PLCY’s requests for information from components for an upcoming strategy, and updates on departmentwide strategic planning initiatives. According to PLCY and operational component officials, PLCY also provides leadership for the Resource Planning Guidance and Winter Studies, both of which help inform departmentwide resource decision- making. For example, officials from one operational component stated that PLCY’s leadership of the Resource Planning Guidance is a helpful practice for coordination and collaboration on departmentwide or crosscutting strategies. The officials stated that PLCY reaches out to ensure that the component is covering the Secretary’s priorities and this helps the component to ensure that its budget includes them. Furthermore, PLCY develops and coordinates policy options and opinions for the Secretary to present at the National Security Council and other White House-level meetings. For example, PLCY officials told us that, in light of allegations of Russian involvement in using poisonous nerve agents on two civilians in Great Britain, PLCY coordinated the collection of information to develop a policy recommendation for the Secretary to present at a National Security Council meeting. PLCY has encountered challenges leading and coordinating efforts to develop, update, or harmonize policy—also a key organizational objective—because it does not have clearly-defined roles, responsibilities, and mechanisms to implement these responsibilities in a predictable, repeatable, and accountable way. Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. As such, an organization’s management should develop an organizational structure with an understanding of the overall responsibilities and assign these responsibilities to discrete units to enable the organization to operate in an efficient and effective manner. An organization’s management should also implement control activities through policies. It is important that an organization’s management document and define policies and communicate those policies and procedures to personnel, so they can implement control activities for their assigned responsibilities. In addition, leading collaboration practices we have identified in our prior work include defining and articulating a common outcome, clarifying roles and responsibilities, and establishing mutually-reinforcing or joint strategies to enhance and sustain collaboration, such as the work that PLCY and the components need to do together to ensure that departmentwide and crosscutting policy is effective for all relevant parties. According to PLCY officials, in general, PLCY is responsible for leading the development of a policy when it crosses multiple components or if there is a national implication, including White House interest in the policy. However, PLCY officials acknowledged that this practice does not always make them the lead and there are no established criteria that define the circumstances under which PLCY (or another organizational unit) should lead development of policies that cut across organizational boundaries. PLCY officials said the lead entity for a policy is often announced in an email from the Secretary’s office, on a case-by-case basis. According to PLCY officials, once components have been assigned responsibility for a policy, they have generally tended to retain it, and PLCY may not have oversight for crosscutting policies that are maintained by operational components. Therefore, there is no established, coordinated system of oversight to periodically monitor the need for policy harmonization, revision, or rescission. In the absence of clear roles and responsibilities, and processes and procedures to support them, PLCY and officials in 5 of the 8 components have encountered challenges in coordinating with each other. Although PLCY and most component officials we interviewed described overall positive experiences in coordinating with each other, we identified multiple instances of (1) confusion about which parties should lead and engage in policy efforts, (2) not engaging components at the right times, (3) incompatible expectations around timelines, and (4) uncertainty about PLCY’s role and the extent to which it can and should identify and drive policy in support of a more cohesive DHS. Confusion about who should lead and engage. Officials from one operational component told us that they were tasked with leading a departmentwide policy development effort they believed was outside their area of responsibility and expertise. Officials in another operational component stated that components sometimes end up coordinating among themselves, but that policy development could be more effective and efficient if PLCY took the role of convener and facilitator to ensure the departmentwide perspective is present and all relevant stakeholders participate. Officials from a third component stated that they spent significant time and resources to develop a policy directly related to their component’s mission. As the component got ready to implement the policy, PLCY became aware of it and asked the component to stop working on the policy, so PLCY could develop a departmentwide policy. According to component officials, while they were supportive of a departmentwide policy, PLCY’s timing delayed implementation of the policy the component had developed and wasted the resources it had invested. Moreover, officials from four operational components told us that sometimes counselors from outside PLCY, such as the Secretary’s office, have led policy efforts that seem like they should be PLCY’s responsibility, which created more confusion about what PLCY’s ongoing role should be. PLCY officials agreed that, at times, it has been challenging to define PLCY’s role relative to counselors for the Secretary, and acknowledged that clear guidance to define who is leading which types of policy development and coordination would be helpful. Not engaging components at the right times. Officials from 5 of 8 operational components told us that they had not always been engaged at the right times by PLCY in departmentwide or crosscutting policies that affected their missions. For example, officials from an operational component described a crosscutting policy that had significant implications for some of its key operational resources, but the component was not made aware of the policy until it was about to be presented at the White House. Officials from another component stated that they learned of a new policy after it was in place and had to find significant training and software resources to implement it even though they viewed the policy as unnecessary for their mission. PLCY officials stated that, while they intend to identify all components that should be involved in a policy, there are times when PLCY is unaware a component is developing a policy that affects other components. PLCY officials said they will involve other components when PLCY becomes aware that a component is developing such a policy. PLCY officials stated that it would be helpful to have a process and procedures for cross-component coordination on policies to help guide engagement regardless of who is developing the policy. Incompatible expectations around timelines. Officials at 4 of 8 operational components stated that short timelines from PLCY to provide input and feedback can prevent PLCY from obtaining thoughtful and complete information from components. For example, officials from one component stated that PLCY asked them to perform an analysis that would inform major, departmental decision-making and quickly provide the analysis. Component officials told us that they did not understand why PLCY needed the analysis on such an accelerated timeline, which seemed inappropriate given the level of importance and purpose of the analysis. Officials from another component told us that PLCY had not always provided enough time to provide thoughtful feedback; therefore, component officials were not sure if PLCY really wanted their feedback. Officials from a third component stated that sometimes PLCY did not provide sufficient time for thoughtful input or feedback that had cleared the component’s legal review, so component officials elected to miss PLCY’s deadline and provide late feedback. PLCY officials told us that, frequently, timelines are not within their control, a situation that some component officials also noted during our interviews with them. However, PLCY officials agreed that a documented, predictable, and repeatable process and procedures for policies may help ensure PLCY provides sufficient comment time when in its control and may provide a basis to help negotiate timelines with DHS leadership in other situations. PLCY officials stated that, even with a documented process and procedures, there would still be circumstances when short timelines are unavoidable. Uncertainty about PLCY’s role in driving policy harmonization. Policy officials at 6 of 8 operational components told us that they were unsure or not aware of PLCY’s role in harmonizing policy across the department, and stated a desire for PLCY to be more involved in harmonizing or enhancing departmentwide and crosscutting policy or for greater clarity about PLCY’s responsibility to play this role. As previously discussed, PLCY’s policy and strategy efforts fall into four categories—statutory responsibilities, interagency efforts, Secretary’s priorities, and self- initiated activities; these activities include efforts to better harmonize policies and strategies. According to PLCY officials, the category with the lowest priority is self-initiated activities. PLCY officials stated that PLCY makes tradeoffs and rarely chooses to work on self-initiated projects over its other three categories of effort. According to the officials, PLCY’s work on the other three higher-priority categories is sufficient to ensure that the office is effectively leading, conducting, and coordinating strategy and policy across the department. Given its organizational position and strategic priorities, PLCY is uniquely situated to identify opportunities to better harmonize or enhance departmentwide and crosscutting policy, a role that is in line with its strategic priority to build departmental policymaking capacity and foster Unity of Effort. In the absence of clear articulation of the department’s expectations for PLCY in this role, it is difficult for PLCY and DHS leadership to make completely informed and deliberate decisions about the tradeoffs they make across any available resources. In addition to statutory authority that PLCY received in the NDAA, PLCY officials stated that a separate, clear delegation of authority—a mechanism by which the Secretary delegates responsibilities to other organizational units within DHS—is needed to help confront the ambiguous roles it has experienced in the past. PLCY officials stated that past efforts to finalize a delegation of authority have stalled during leadership changes and that the initiative has been a lower priority, in part, due to where PLCY is in its maturation process and DHS is in its evolution into a more cohesive department under the Unity of Effort. As of May 2018, the effort had been revived, but it is not clear whether and when DHS will finalize it. According to a senior official in the Office of the Under Secretary for Management, a delegation of authority is important for PLCY. He described the creation of a delegation of authority as a process that does more than simply delegate the Secretary’s authority. He noted that defining PLCY’s roles and responsibilities in relation to other organizational units presents an opportunity to engage all relevant components and agree on appropriate roles. He said that, earlier in the organizational life of the Office of the Under Secretary for Management, it went through a process like this, which has been vital in it being able to carry out its mission. He said now that PLCY has a deputy undersecretary in place, this is a good time to restart the process to develop the delegation of authority. Until the delegation or a similar process clearly and fully articulates PLCY’s roles and responsibilities, PLCY and the operational components are likely to continue to experience limitations in collaboration on crosscutting and departmentwide policy. PLCY determines its workforce needs through the annual budget process, but systematic identification of workforce demand, capacity gaps, and strategies to address them could help ensure that PLCY’s workforce aligns with its and DHS’s priorities and goals. To determine its workforce needs each year, PLCY officials told us that, as part of the annual budget cycle, they work with PLCY staff and operational components to determine the scope of activities required for each PLCY area of responsibility and the associated staffing needs. PLCY officials said there are three skill sets needed to carry out the office’s responsibilities: policy analysis, social science analysis, and regional affairs analysis. PLCY officials explained that the office’s priorities can change rapidly as events occur and the Secretary’s and administration’s priorities shift. Therefore, according to PLCY officials, their staffing model must be flexible. They said that, rather than a defined system of full-time equivalents with set position types and levels, PLCY officials start with their budget allotment and consider current and potential emerging needs to set position types and levels, which may fluctuate significantly from year to year. In addition, PLCY officials stated that PLCY staff are primarily generalists and, given the versatility in skill sets of their workforce, PLCY has a lot of flexibility to move staff around if there is an emerging need. For example, if there is an emerging law enforcement issue that affects all law enforcement agencies, PLCY may be tasked with developing a policy to ensure the issue is addressed quickly and that the resulting policy is harmonized across the department and with other law enforcement agencies, such as the Department of Justice. While PLCY completes some workforce planning activities as part of its annual budgeting process, PLCY does not systematically address several aspects of the DHS Workforce Planning Guide that may create more efficient operations and greater alignment with DHS priorities. According to the DHS Workforce Planning Guide, workforce planning is a process that ensures the right number of people with the right skills are in the right jobs at the right time for DHS to achieve the mission. This process provides a framework to: align workforce planning to the department’s mission and goals, predict, then assess how evolving missions, new processes, or environmental conditions may impact the way that work will be performed at DHS in the future, identify gaps in capacity, develop and implement strategies and action plans to address capacity and capability gaps, and continuously monitor the effectiveness of action plans and modify, as necessary. The DHS Workforce Planning Guide stipulates that an organization’s management should not only lead and show support during the workforce planning process, but ensure alignment with the strategic direction of the agency. Moreover, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity’s objectives. For example, management uses an entity’s operational processes to make informed decisions and evaluate the entity’s performance in achieving key agency objectives. According to PLCY officials, the current staffing paradigm involves shifting the office’s staff when new and urgent issues arise from the Secretary or White House, and adding these unexpected tasks to staff’s existing responsibilities. However, this means that tradeoffs are made, resulting in some priority items taking longer to address or not getting attention at all. PLCY officials stated that they have been caught off-guard at times by changes in demands placed on PLCY and had to scramble to address the new needs. Additionally, PLCY officials said they have a number of vacancies, which hamper the office’s ability to meet certain aspects of its mission. For example, PLCY’s Office of Cyber, Infrastructure, and Resilience was created in 2015. According to PLCY officials, PLCY has had some resources to address cyber issues, however, there has not been funding to staff this office and an assistant secretary has not been appointed to lead it. Therefore, PLCY officials stated that PLCY has not been able to address its responsibilities for infrastructure resilience. Similarly, PLCY has limited capacity for risk analysis. A provision of the NDAA provides that PLCY is to: develop and coordinate strategic plans and long-term goals of the department with risk-based analysis and planning to improve operational mission effectiveness, including consultation with the Secretary regarding the quadrennial homeland security review under section 707 [6 U.S.C. § 347]. However, PLCY officials acknowledged that their focus on identifying needs for risk analyses and conducting them has been limited, in part, because DHS disbanded the risk management office. Officials from one component told us that they contribute to a report that PLCY coordinates, called Homeland Security National Risk Characteristics, which is prepared as a precursor to the DHS Strategic Plan. PLCY officials stated that, outside of these foundational documents and some risk-based analyses completed as part of specific policy development efforts, PLCY does not have the capacity to complete any additional risk analysis activities. Although PLCY officials said they conduct some analysis of potential demands as a starting point for how to allocate PLCY’s annual staffing budget, these efforts are largely informal and internal and have not resulted in a systematic analysis that provides PLCY and DHS management with the information they need to understand the effects of resource tradeoffs. Also, PLCY officials said they track accomplishments toward PLCY’s strategic priorities as part of a weekly meeting and report, however, officials acknowledged they do not analyze what role workforce decisions have played in achieving or not achieving strategic priorities. Moreover, although PLCY officials stated that they have intermittent, in- person, informal communication about resource use, they have not used the principles outlined in the DHS Workforce Planning Guide to systematically identify and communicate workforce demands, capacity gaps, and strategies to address workforce issues. According to PLCY officials, they have not conducted such analysis, in part, because the Secretary’s office has not requested it of them or the other DHS offices that are funded in the same part of the DHS budget. Regardless of whether the Secretary expects workforce analysis as part of the budgeting process, the DHS Workforce Planning Guide could be used within and outside of the budgeting process to help inform resource decision making throughout the year. PLCY officials stated that at the PLCY Deputy Under Secretary’s initiative, they recently began a review of all relevant statutory authorities, which they will map against the current organizational structure and day- to-day operations. The Deputy Under Secretary plans to use the results of the review to enhance PLCY’s efficiency and effectiveness, and the results could serve as a foundation for a more holistic and systematic analysis of workforce demand, any capacity gaps, and strategies to address them. Employing workforce planning principles—in particular, systematic identification of workforce demand, capacity gaps, and strategies to address them—consistent with the DHS Workforce Planning Guide could better position PLCY to use its workforce as effectively as possible under uncertain conditions. Moreover, using the DHS guide would help PLCY to systematically communicate information about any workforce gaps to DHS leadership, so there is transparency about how workforce tradeoffs affect PLCY’s ability to support DHS goals. As discussed earlier, officials from PLCY and DHS operational components praised existing mechanisms to coordinate and communicate at the senior level, especially about strategy. However, component officials identified opportunities for PLCY to better connect at the staff level to identify and respond to emerging policy and strategy needs. Leading practices for collaboration that we have identified in our prior work state that it is important to ensure that all relevant participants have been included in a collaborative effort, and positive working relationships among participants from different agencies or offices can bridge organizational cultures. These relationships build trust and foster communication, which facilitate collaboration. Also, as previously stated, PLCY has mechanisms like the S&P ESC to communicate and coordinate with operational components and other DHS stakeholders at the senior level (e.g., Senior Executive Service officials). However, PLCY does not have a mechanism to effectively engage in routine communication and collaboration at the staff level (e.g., program and policy specialists working at operational components to oversee or implement policy and strategy functions). Specifically, officials with responsibility for policy and strategy at 6 of 8 operational components told us that they did not have regular contact with or know who to contact at PLCY for questions about policies or strategies, or that the reason they knew who to contact was because of existing working relationships, not because of efforts PLCY had undertaken to facilitate such contacts. In addition, some component officials noted that, when they tried to use the PLCY website to coordinate, they found it to be out of date and lacking sufficient information. PLCY officials acknowledged that the website needs improvement. They stated that the office has developed improved content for the website, but does not have the necessary staff to update the website. According to the officials, the needed staff should be hired soon and improved content should be on the website by the end of summer 2018. Although officials at 5 of the 8 operational components we interviewed stated that the quality of PLCY’s coordination and collaboration has improved in the past 2 years or so, component officials offered several suggestions to enhance PLCY’s coordination and collaboration, especially at the staff level. Among these were: conduct routine information sharing meetings with staff-level officials who have policy and strategy responsibilities at each operational component, clearly articulate points of contact, their contact information, and their portfolios at PLCY as well as at other policy and strategy stakeholders, ensure the PLCY website is up-to-date with contact information for PLCY and components that work in strategy and policy areas, and with relevant information about crosscutting strategy and policy initiatives underway, host a forum—such as an annual conference—to bring together policy and strategy officials from PLCY and DHS components to share ideas and make contacts, and prepare a standard briefing for component officials with strategy and policy responsibilities to help ensure that staff at all levels understand what PLCY does, how it works, and opportunities for engagement on emerging policy and strategy needs or identified harmonization opportunities. For example, officials from one component told us that they would like PLCY officials to have in-person meetings with component staff to discuss what PLCY does, who to contact in PLCY, where to find information about policies and strategies, and other relevant information to ensure a smooth working relationship between the component and PLCY. According to PLCY officials, the office recognizes the value of creating mechanisms to connect staff, who work on policy and strategy at all levels in DHS. PLCY officials said they have historically done a better job in coordinating at the senior level, but are interested in expanding opportunities to connect other staff with policy and strategy responsibilities. PLCY officials stated that they are considering creating a working group structure that mirrors existing organizational mechanisms to coordinate at the senior level, but have not taken steps to do so. Routine collaboration among PLCY, operational components, and other DHS offices at the staff level is important to ensure that PLCY is able to carry out its functions under the NDAA, including the effective coordination of policies and strategies. A positive working relationship among these stakeholders can build trust, foster communication, and facilitate collaboration. Such enhanced communication and collaboration across PLCY and among component officials with policy and strategy responsibility could help the department more quickly and completely identify emerging, crosscutting strategy and policy needs and opportunities to enhance policy harmonization. PLCY’s efforts to lead, conduct, and coordinate departmentwide and crosscutting policies have sometimes been hampered by the lack of clearly-defined roles and responsibilities. In addition, PLCY does not have a consistent process and procedures for its strategy development and policymaking efforts. Without a delegation of authority or similar documentation from DHS leadership clearly articulating PLCY’s missions, roles, and responsibilities—along with defined processes and procedures to carry them out in a predictable and repeatable manner—there is continuing risk that confusion and uncertainty about PLCY’s authority, missions, roles, and responsibilities will limit its effectiveness. PLCY employs some workforce planning, but does not systematically apply key principles of the DHS Workforce Planning Guide to help predict workforce demand, and identify any workforce gaps and design strategies to address them. Without this analysis, PLCY faces limitations in ensuring that its workforce is aligned with its and DHS’s priorities and goals. Moreover, the results of this analysis would better position PLCY to communicate to DHS leadership any potential tradeoffs in workforce allocation that would affect PLCY’s ability to meet priorities and goals. PLCY could enhance its use of mechanisms for collaboration and communication with DHS stakeholders at the staff level. Implementation of additional mechanisms at the staff level for regular communication and coordination, including providing up-to-date information to stakeholders about the office, could help PLCY and operational components to better connect in order to identify and address emerging policy and strategy needs. We are making the following four recommendations to DHS: The Secretary of Homeland Security should finalize a delegation of authority or similar document that clearly defines PLCY’s mission, roles, and responsibilities relative to DHS’s operational and support components. (Recommendation 1) The Secretary of Homeland Security should create corresponding processes and procedures to help implement the mission, roles, and responsibilities defined in the delegation of authority or similar document to help ensure predictability, repeatability, and accountability in departmentwide and crosscutting strategy and policy efforts. (Recommendation 2) The Under Secretary for Strategy, Policy, and Plans should use the DHS Workforce Planning Guide to help identify and analyze any gaps in PLCY’s workforce, design strategies to address any gaps, and communicate this information to DHS leadership. (Recommendation 3) The Under Secretary for Strategy, Policy, and Plans should enhance the use of collaboration and communication mechanisms to connect with staff in the components with responsibilities for policy and strategy to better identify and address emerging needs. (Recommendation 4) We provided a draft of this report for review and comment to DHS. DHS provided written comments, which are reproduced in appendix I. DHS also provided technical comments, which we incorporated, as appropriate. DHS concurred with three of our recommendations and described actions planned to address them. DHS did not concur with one recommendation. Specifically, DHS did not concur with our recommendation that PLCY should use the DHS Workforce Planning Guide to help identify and analyze any gaps in PLCY’s workforce, design strategies to address any gaps, and communicate this information to DHS leadership. The letter described a number of actions, including actions that are also described in the report, which PLCY takes to help ensure alignment of its staff with organizational needs. In the letter, PLCY officials pointed to the workforce activities PLCY undertakes as part of the annual budgeting cycle. We acknowledge that the actions described to predict upcoming priorities and resource needs as part of the annual budgeting cycle are in line with the DHS workforce planning principles. However, as we noted, there are opportunities to apply the workforce planning principles outside the annual budgeting cycle to provide greater visibility and awareness of resource tradeoffs to management inside PLCY and in the Secretary’s office. In the letter, PLCY officials made note of the dynamic and changing nature of its operational environment, stating that it often required them to shift resources and priorities on a more frequent or ad hoc basis than many organizations. We acknowledged in the report that PLCY’s operating environment requires it to maintain flexibility in its staffing approach. However, PLCY has a number of important duties, including helping foster Unity of Effort throughout the department and helping to ensure the availability of risk information for departmental decision making, that require longer-term, sustained attention and strategic management. During interviews, PLCY officials acknowledged that striking a balance between these needs has been difficult and at times they have faced significant struggles. The report describes some areas where, during the time we were conducting our work, it was clear that some tasks and functions, such as risk analyses, lacked the resources or focus necessary to ensure they received sustained institutional attention. It is because of PLCY’s dynamic operating environment, coupled with the need for sustained institutional attention to other key responsibilities, that we recommended PLCY undertake workforce planning activities that would help generate better information for PLCY and DHS management to have full visibility and awareness of gaps and resource tradeoffs. Finally, the letter stated that because PLCY is a very small and flat organization, it is able to identify capacity gaps and develop action plans without obtaining all of the data collected through each recommended element, worksheet, form, and template of the model proposed in the DHS Workforce Planning Guide. We acknowledge that it would be counterproductive for PLCY to engage in data collection and analysis that are significantly more elaborate than its planning needs. Nevertheless, we continue to believe that PLCY could use the principles more robustly, outside the annual budgeting process, to help ensure that it identifies and communicates the effect that resource tradeoffs have on its ability to accomplish its multifaceted mission. We are sending copies of this report to the appropriate congressional committees and the Secretary of Homeland Security. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (404) 679-1875 or CurrieC@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in Appendix II. In addition to the contact named above, Kathryn Godfrey (Assistant Director), Joseph E. Dewechter (Analyst-in-Charge), Michelle Loutoo Wilson, Ricki Gaber, Dominick Dale, Thomas Lombardi, Ned Malone, David Alexander, Sarah Veale, and Michael Hansen made key contributions to this report.	[ "GAO has designated DHS management as high risk because of challenges in building a cohesive department. PLCY supports cohesiveness by, among other things, coordinating departmentwide policy and strategy. In the past, however, questions have been raised about PLCY's efficacy. In December 2016, the NDAA codified PLCY's organizational structure, roles, and responsibilities. GAO was asked to evaluate PLCY's effectiveness. This report addresses the extent to which (1) DHS established an organizational structure and processes and procedures that position PLCY to be effective, (2) DHS and PLCY have ensured alignment of workforce with priorities, and (3) PLCY has engaged relevant component staff to help identify and respond to emerging needs. GAO analyzed the NDAA, documents describing specific responsibilities, and departmentwide policies and strategies. GAO also interviewed officials in PLCY and all eight operational components. According to our analysis and interviews with operational components, the Department of Homeland Security's (DHS) Office of Strategy, Policy, and Plans' (PLCY) organizational structure and efforts to lead and coordinate departmentwide and crosscutting strategies—a key organizational objective–have been effective. For example, PLCY's coordination efforts for a strategy and policy executive steering committee have been successful, particularly for strategies. However, PLCY has encountered challenges leading and coordinating efforts to develop, update, or harmonize policies that affect multiple DHS components. In large part, these challenges are because DHS does not have clearly-defined roles and responsibilities with accompanying processes and procedures to help PLCY lead and coordinate policy in a predictable, repeatable, and accountable manner. Until PLCY's roles and responsibilities for policy are more clearly defined and corresponding processes and procedures are in place, situations where the lack of clarity hampers PLCY's effectiveness in driving policy are likely to continue. Development of a delegation of authority, which involves reaching agreement about PLCY's roles and responsibilities and clearly documenting them, had been underway. However, it stalled due to changes in department leadership. As of May 2018, the effort had been revived, but it is not clear whether and when DHS will finalize it. PLCY does some workforce planning as part of its annual budgeting process, but does not systematically apply key principles of the DHS Workforce Planning Guide to help ensure that PLCY's workforce aligns with its and DHS's priorities and goals. According to PLCY officials, the nature of its mission requires a flexible staffing approach. As such, a portion of the staff functions as generalists who can be assigned to meet the needs of different situations, including unexpected changing priorities due to an emerging need. However, shifting short-term priorities requires tradeoffs, which may divert attention and resources from longer-term priorities. As of June 5, 2018, PLCY also had a number of vacancies in key leadership positions, which further limited attention to certain priorities. According to PLCY officials, PLCY recently began a review to identify the office's authorities in the National Defense Authorization Act for Fiscal Year 2017 (NDAA) and other statutes, compare these authorities to the current organization and operations, and address any workforce capacity gaps. Employing workforce planning principles—in particular, systematic identification of workforce demand, capacity gaps, and strategies to address them—consistent with the DHS Workforce Planning Guide could better position PLCY to use its workforce as effectively as possible under uncertain conditions and to communicate effectively with DHS leadership about tradeoffs. Officials from PLCY and DHS operational components praised existing mechanisms to coordinate and communicate at the senior level, especially about strategy, but component officials identified opportunities to better connect PLCY and component staff to improve communication flow about emerging policy and strategy needs. Among the ideas offered by component officials to enhance communication and collaboration were holding routine small-group meetings, creating forums for periodic knowledge sharing, and maintaining accurate and up-to-date contact information for all staff-level stakeholders. GAO is making four recommendations. DHS concurred with three recommendations, including that DHS finalize a delegation of authority defining PLCY's roles and responsibilities and develop corresponding processes and procedures. DHS did not concur with a recommendation to apply the DHS Workforce Planning Guide to identify and communicate workforce needs. GAO believes this recommendation is valid as discussed in the report." ]	6,229	gov_report	en	null	eaf2acd9c4a757fefc0b0933bd274cccefa900eb9790f6aa
The Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), as amended, establishes the process for states or tribal entities to request a presidential disaster declaration. The act also generally defines the federal government’s role during the response and recovery after a disaster and establishes the programs and process through which the federal government provides disaster assistance to state, local governments, tribal entities and individuals. In addition to its central role in recommending to the President whether to declare a disaster, FEMA has primary responsibility for coordinating the federal response when a disaster is declared as well as recovery, which typically consists of providing grants to assist state and tribal entities to alleviate the damage resulting from such disasters. Once a disaster is declared, FEMA provides assistance through the IA, Public Assistance, and Hazard Mitigation Assistance programs. For instance, some declarations may provide grants only for IA and others only for Public Assistance. Hazard Mitigation Assistance grants, on the other hand, are available for all declarations if the affected area has a FEMA-approved Hazard Mitigation plan. The process for requesting assistance is the same for the three types of assistance. Under the Stafford Act, states’ governors or tribal chief executives may request federal assistance, if state and tribal resources are overwhelmed after a disaster. As part of the request to the President, a governor or tribal chief executive must affirm that the state or tribe has implemented an emergency plan and that the situation is of such severity and magnitude that effective response is beyond the capabilities of the state or tribal entity, among other things. After a state or tribe submits a request for disaster declaration through FEMA’s regional office, the regional office is to evaluate the request and make a regional recommendation through the RVAR, which is submitted to FEMA headquarters for further review. The FEMA administrator then is to review the state’s or tribe’s request and the RVAR, and recommend to the President whether a disaster declaration is warranted. Figure 1 shows the process for a disaster declaration from the time a disaster occurs until the President approves or denies a declaration request. The IA program provides financial and direct assistance to disaster victims for expenses and needs that cannot be met through other means, such as insurance. The IA comprises five different programs as shown below. When states or tribal entities request disaster declarations, they may request assistance under any or all of the five programs. Likewise, when the President makes a disaster declaration, the declaration may authorize IA which may also include any or all of the five IA programs. 1. Individuals and Households Program provides assistance to eligible disaster survivors with necessary expenses and serious needs which they are unable to meet through other means, such as insurance. According to FEMA headquarter officials, direct assistance is provided to individuals to meet housing needs. 2. Crisis Counseling Program assists individuals and communities by providing community-based outreach and psycho-educational services. 3. Disaster Legal Services provides assistance through an agreement with the Young Lawyers Division of the American Bar Association for free legal help to survivors who are unable to secure legal services adequate to meet their disaster-related needs. 4. Disaster Case Management Program involves a partnership between a FEMA disaster case manager and a survivor to develop and carry out a Disaster Recovery Plan. 5. Disaster Unemployment Assistance provides unemployment benefits and reemployment services to individuals who have become unemployed as a result of a major disaster and who are not eligible for regular state unemployment insurance. In accordance with its responsibilities under the Stafford Act, FEMA issued a regulation in 1999 that outlines the six factors regional and headquarters officials are to consider when assessing requests for a disaster declaration and when developing a recommendation to the President for a federal disaster declaration. The regulation states that FEMA considers the six factors not only to evaluate the need for IA but also to measure the severity, magnitude, and impact of the disaster. The state or tribe provides information on these factors when submitting its disaster declaration request. The six factors for IA include the following: 1. Concentration of Damages—characterizes the density of the damage in individual communities. The regulation states that highly concentrated damages “generally indicate a greater need for federal assistance than widespread and scattered damages throughout a state.” For example, concentration of damage data includes the numbers of homes destroyed, homes with major or minor damages, and homes affected. 2. Trauma—the regulation provides conditions that might cause trauma including large numbers of injuries and deaths, large-scale disruption of normal community functions, and emergency needs such as extended loss of power or water. 3. Special Populations—FEMA considers the impact of the disaster on special populations, such as low-income populations, the elderly, or the unemployed. 4. Voluntary Agency Assistance—involves the availability and capabilities of voluntary, faith, and community-based organizations, and state and local programs to help meet both the emergency and recovery needs of individuals affected by disasters. 5. Insurance Coverage—addresses the level of insurance coverage among those affected by disasters. Because disaster assistance cannot duplicate insurance coverage, as recognized in the regulation, if a disaster occurred where almost all of the damaged dwellings were fully insured for the damage that was sustained, FEMA could conclude that a disaster declaration by the President was not necessary in accordance with this factor. 6. Average Amount of Individual Assistance by State—according to the regulation, there is no set threshold for recommending IA. However, it states that the averages, depicted in table 1, may prove useful to states and voluntary agencies as they develop plans and programs to meet the needs of disaster victims. The inference is that these averages generally indicate the amount of damages that could be expected for a state based on its size (small, medium, and large). The averages contained within the regulation and depicted in table 1 are based on disasters that occurred between July of 1994 and July of 1999. The President declared 57 percent of all IA declaration requests from calendars years 2008 through 2016, with total IA obligations of approximately $8.6 billion. FEMA received 294 IA declaration requests from calendar years 2008 through 2016. Of these, the President declared 168 requests (57 percent), and 51 percent of these declarations were from Regions IV and VI, as shown in table 2. Additionally, of the 126 IA declaration requests denied by the President, Regions X and IX had the highest percentage of denials, at 71 percent (10 out of 14) and 67 percent (12 out of 18), respectively, and Region I had the lowest percentage of denials at 13 percent (2 out of 15), as shown in table 3. See appendix I for the number of IA declarations requested, declared, and denied by states and tribes from each FEMA region for disaster declarations requested from calendar years 2008 through 2016. According to a FEMA headquarters official, when a disaster declaration is denied, FEMA sends a denial letter to states or tribes based on the review of all the information available. The letter generally states that the damage was not of such severity and magnitude as to be beyond the capabilities of the state, affected local governments, and voluntary agencies, and accordingly the supplemental federal assistance is not necessary. Of the emergency management officials we interviewed in 11 states, officials in five states reported that FEMA provided a rationale behind the denial, while officials in three states reported that no rationale was provided. Among the various types of disasters for which IA declaration requests were received, severe storms, flooding, and tornados accounted for the highest number of IA requests, with drought, fishery closure, and contaminated water being the least common, as shown in table 4. FEMA obligated a total of approximately $8.6 billion in IA for disaster declarations made from calendar years 2008 through 2016. These actual obligations were provided to 46 states and they ranged from less than $1 million to more than $1 billion as shown in figure 2. See appendix II for FEMA’s IA actual obligations by state and type of disasters for disaster declarations made from calendars years 2008 through 2016. Additionally, actual obligations for IA declarations made from calendar years 2008 through 2016 varied greatly by FEMA region, as also shown in figure 3. For example, FEMA Region VI had the highest obligations at around $3.3 billion. Region X had the lowest obligations at $24.8 million. As shown in table 5, the amount of obligations for disasters declarations also varied greatly by state. For example, Louisiana had the highest obligations at approximately $2 billion, followed by New York and Texas at about $1.3 billion and $1.1 billion, respectively. The state with the lowest obligations was the U.S. Virgin Islands at about $2,100. Six of FEMA’s 10 regional offices reported using all six regulatory factors when evaluating states’ or tribes’ IA declaration requests. Officials from the other 4 regions reported using five of the six factors, with the exception being the average amount of individual assistance by state factor. These officials noted that they do not use this factor because FEMA considers the factor to be outdated or they consider all of the factors holistically. Officials from FEMA’s regional offices also generally reported that the extent to which they consider the six IA regulatory factors equally in all cases varies, depending on the circumstances of the related disaster. Specifically, officials from 7 of the 10 regions stated that they use the regulatory factors on a case-by-case basis as certain factors are more relevant than others based on the disaster. For example, if a tornado hits a rural community and completely destroys all properties within the community with no death or injury, then the regulatory factor for trauma may not be as applicable, while the concentration of damages regulatory factor would have greater relevance. On the other hand, if a tornado hits the center of a town resulting in damages with death and injuries, then the trauma regulatory factor would become more important to consider. Additionally, officials in 3 of the 10 regions reported that in addition to the six regulatory factors, they also take into account institutional knowledge and staff experience when evaluating the regulatory factors. For example, officials in one region stated that their staff have more than 10 years of IA declaration experience, and as such, they are familiar with the extent of the information needed and collect the information accordingly. Based on our analysis of RVARs from July 2012 through December 2016 used to recommend approving or denying IA requests, FEMA regional offices did not consistently obtain and document information on all elements of the IA regulatory factors. As described earlier, FEMA regions are to use the RVAR to document information on the IA factors and to recommend to the FEMA administrator whether a disaster should be declared. According to FEMA headquarters officials, FEMA developed the RVAR template in June 2012 to help ensure consistency across regions when making recommendations to headquarters on IA declaration requests. Officials stated that prior to the template, information on the six factors was mainly provided in narrative format. The new template listed the various elements found within each of the six regulatory factors, guiding the regional offices to provide information based on those elements. For example, instead of providing a general narrative on the trauma factor, the new template listed the elements to be provided under trauma, such as the number of injuries and deaths, as well as information on power outages and disruption of other community functions and services. Also, instead of summarizing the concentration of damages factor, the template allowed regional offices to categorize the damage concentration as low, medium, high, or extreme. Furthermore, the template also provided a uniform format to present quantitative information such as the number of homes destroyed; whether home damages are major or minor; the number of homes affected; and level of home ownership. See appendix III for a sample RVAR template. We analyzed 81 RVARs developed by the 10 FEMA regions from July 2012 through December 2016 and found that regions did not consistently obtain and document information on all elements related to each of the six regulatory factors in their RVARs. As shown in table 6, all 81 RVARs had at least some elements documented but not all for each of the IA regulatory factors. For example, for the IA concentration of damages regulatory factor, the six elements to be addressed include the number of homes destroyed, damaged or affected, damage concentration, and damage to critical facilities. While 44 of the 81 RVARs documented all of the six elements, 37 documented some but not all of the elements. Similarly, for the trauma regulatory factor, the four elements to be addressed include injuries, death, power outages, and disruption of community functions. While 30 of the 81 RVARs documented all of the four elements, 51 documented some but not all of the elements. For the insurance coverage factor, while five RVARs documented all of the elements, 73 RVARs documented some but not all of the elements. Elements under this factor include home ownership, insurance, and flood insurance, when applicable. None of the six regulatory factors were fully documented across all RVARs. See appendix IV for detailed information on the extent to which all of the elements of the six regulatory factors were documented in the RVARs from July 2012 through December 2016. FEMA headquarters officials acknowledged that information related to all the elements for each of the IA regulatory factors were missing from the RVARs. They stated that they had not collected all information on all factors because one factor may have more weight than another based on the specific incident that has occurred. However, they also indicated that they do not fully know and have not evaluated all of the reasons why a region may have omitted information on an element of a factor. FEMA headquarters officials agreed that having complete information on all elements of the regulatory factors in the RVARs would assist in their recommendation process. Standards for Internal Control in the Federal Government suggest that agencies should establish and operate monitoring activities to ensure that internal controls—such as the documentation of all of the elements of the IA regulatory factors FEMA regions considered—are effective, and to take corrective actions as appropriate. Because it is unclear why regions are not completely documenting all elements related to the current six regulatory factors, such an evaluation could help FEMA identify whether any corrective steps are needed. Doing so could help FEMA ensure it is achieving its stated goals in providing consistency in the evaluation process and in the types of factors it considers. Officials we interviewed in 9 of the 10 FEMA regions and state emergency management offices in all 11 states reported the positive relationship they maintain with each other as a strength in the IA declaration process. For example, both FEMA regional officials and state emergency management officials stated that they have a good working relationship and are in regular communication via telephone or in-person meetings with each other. Also, state emergency management officials we spoke to stated that whenever they are in need of assistance, they know they can reach out to FEMA regional officials for assistance. However, FEMA regional and state emergency management officials we spoke to also reported various challenges with the process. These include the subjective nature of the IA regulatory factors given the lack of eligibility thresholds, the lack of transparency in the decision-making process, and difficulty gathering information on IA regulatory factors. Subjective nature of the IA factors and lack of eligibility thresholds. Officials from 9 of 10 FEMA regions stated the subjective nature of the IA program is a challenge; and officials in 6 of the 10 regions also said they found the lack of eligibility thresholds a challenge. An official in one region stated that unlike FEMA’s Public Assistance program, which has minimum thresholds for eligibility, it is unclear when states should apply for IA funds. Under the Public Assistance program, for example, for states or tribes to qualify for assistance, they must demonstrate that they have sustained a minimum of $1 million in damages and the impact of damages must amount to $1.00 per capita in the state. An official in another region explained that although the subjectivity of the IA factors provides flexibility in determining the type of IA program needed, having some quantifiable criteria could help officials explain to states why their requests were denied or approved. Similarly, officials we interviewed in 7 of the 11 states said they found the subjective nature of the factors with no threshold to be a challenge. A state emergency management official in one state said this subjectivity makes it difficult to determine whether or not the state should make an IA request. A state emergency management official in another state reported that the subjectivity can cause the IA declaration process to be inconsistent, and it is not always clear how or why certain declarations were approved and others were not. Further, a state emergency management official in an additional state also pointed to the subjective nature of the factors with no threshold as a reason for not being able to provide a more detailed rationale behind a declaration denial. To illustrate this, table 7 shows how four states requested IA declarations related to the same tornado in 2012 and varied in what they reported across the six IA factors, such as the levels of damages incurred, special populations among their residents, and insurance coverage. Two of these four states—Kentucky and Indiana—received IA declarations and the other two—Ohio and Illinois—were denied. Lack of transparency. Another challenge reported by FEMA regional and state emergency management officials was the lack of transparency in how FEMA evaluates and provides a recommendation to the President on whether a declaration is warranted. For example, officials we interviewed in 4 of 10 regions indicated the lack of transparency as a challenge. A FEMA official in one region stated that the region would like more transparency regarding what FEMA headquarters recommends to the President and whether the President’s decision aligns with FEMA’s recommendation. State emergency management officials we interviewed in 10 of 11 states also reported that lack of transparency with the IA process is a challenge. For example, an emergency management official in one state said it is not clear how or if FEMA considers all of the factors. Also, an emergency management official in another state reported that it was unclear to him why his state’s declaration request was denied while the requests of other states with similar incidents were declared. Difficulty gathering information on IA regulatory factors. Officials in 4 of 10 FEMA regions reported difficulty gathering information, such as income or insurance coverage, as a challenge. An official in one region stated that it is difficult to obtain information related to IA factors from states. For example, the official said that calculating the concentration of damages is difficult absent technical guidance from FEMA headquarters, as the current guidance only accounts for the number of structure damage but not the impact of damage. Further, officials in two FEMA regions stated that states lack a dedicated IA official, making it difficult for state officials, who play multiple roles, to provide the necessary information related to the IA factors in their IA declaration request. Additionally, a state emergency management official in one state also reported that lack of staff resources in her state makes it difficult to verify all the local damage assessments prior to making a declaration request. Pursuant to the Sandy Recovery Improvement Act of 2013, in November 2015, FEMA issued a Notice of Proposed Rulemaking to revise the six current IA regulatory factors to the following proposed factors: state fiscal capacity and resource availability; uninsured home and personal property losses; disaster-impacted population profile; impact to community infrastructure; casualties; and disaster-related unemployment. According to FEMA headquarters officials, the revisions aim to provide more objective criteria, clarify the threshold for eligibility, and speed the declaration. The officials said the proposed rule also seeks to provide additional clarity and guidance for all the established factors. Table 8 shows FEMA’s description of current and proposed IA factors. FEMA received public comments from 14 states in the Federal Register during the comment period for the proposed rule and proposed guidance. The 14 states expressed concern about the proposed factor for state fiscal capacity and resource availability, including the reliability and relevance of data sources such as total taxable resources. These states expressed concern that the data collection necessary to meet the new requirements would fall upon them, adding to the cost burden of completing an IA disaster declaration request. They also explained that the use of total taxable resources and other similar data is not an effective way to assess a state’s current ability to provide resources following a disaster. Also, these states indicated that the data points such as total taxable resources and per capita personal income that would be used to evaluate state fiscal capacity are outdated and inaccurate and would be an inefficient way to evaluate a state’s true fiscal capacity to respond to a disaster. Regarding the other five proposed factors, several states in their comments raised questions about ambiguities in interpreting the factors or the feasibility and cost of gathering related data. For example, in regards to the factor on disaster impacted population, five states expressed concern that the data required for the disaster-impacted population factor would be a cost burden to the state or that the data would be inappropriate for evaluation. Additionally, two states said unemployment related to a disaster incident for the disaster-related unemployment factor would be hard to quantify in the first 30 days following a disaster. They stated that this was especially an issue given that states work to submit an IA disaster declaration request as soon as possible following a disaster. According to the Office of Management and Budget’s Office of Information and Regulatory Affairs website, the projected date for finalization of the proposed rule is September 2018; however, as of April 2018, FEMA officials stated that they were not certain whether that timeframe would be met. Until the proposed rule is finalized, we will not know the extent to which the various challenges FEMA regions and state officials raised in our interviews and in comments on the proposed rule will be addressed. FEMA has obligated over $8.6 billion nationwide in IA from calendar years 2008 through 2016, highlighting the importance of FEMA’s evaluation of states’ and tribes’ IA declaration requests. FEMA’s regional offices evaluate the request and make a regional recommendation through the Regional Administrator’s Validation and Recommendation, which documents information on all relevant IA regulatory factors. FEMA has developed the Regional Administrator’s Validation and Recommendation to ensure regions consistently obtain and document the information needed by FEMA to make a disaster declaration recommendation to the President based on the IA regulatory factors. However, FEMA’s regional offices do not consistently obtain and document information on all elements of the current IA regulatory factors. Because it is unclear why regions are not always documenting all of the elements related to these factors, evaluating the reasons why could help FEMA identify if any corrective steps are needed. Doing so could also help FEMA ensure it is meeting its stated goals in providing consistency in the evaluation process and in the types of factors it considers. We recommend that the Administrator of FEMA evaluate why regions are not completing the Regional Administrator’s Validation and Recommendations for each element of the current IA regulatory factors and take corrective steps, if necessary. We provided a draft of this report to DHS for its review and comment. DHS provided written comments, which are summarized below and reproduced in full in appendix V. DHS concurred with the recommendation and described planned actions to address it. In addition, DHS provided written technical comments, which we incorporated into the report as appropriate. DHS concurred with our recommendation that FEMA evaluate why regions are not completing the Regional Administrator’s Validation and Recommendations for each element of the IA regulatory factors and take corrective steps, if necessary. DHS stated that a FEMA working group consisting of headquarters stakeholders will draft survey questions for FEMA region officials to identify the common reasons why an element of an IA regulatory factor may not be addressed within a RVAR. According to DHS, the working group will also analyze, assess, and present the findings of the survey responses to FEMA senior leadership, and if needed, FEMA will develop and send a memorandum to the regions with additional guidance regarding the appropriate preparation of RVARs. DHS stated that the estimated completion date is in the fall of 2018. These actions, if implemented effectively, should address the intent of our recommendation. We will send copies of this report to the Secretary of Homeland Security, the FEMA Administrator, and the appropriate congressional committees. If you or your staff have any questions about this report, please contact me at (404) 679-1875 or curriec@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix VI. Table 9 provides the total number of Individual Assistance declaration requests made, declared, and denied, by region, state, and tribe for disaster declarations requested from calendar years 2008 through 2016. Table 10 provides Federal Emergency Management Agency’s (FEMA) Individual Assistance (IA) actual obligations for declarations made from calendar years 2008 through 2016 by state and type of disaster. As part of the Federal Emergency Management Agency’s (FEMA) declaration process, FEMA’s regional offices are to evaluate states’ or tribes’ declaration requests, including the IA declaration request, and make a recommendation called the Regional Administrator’s Validation and Recommendation (RVAR) and submit the RVAR to FEMA headquarters. In June 2012, FEMA headquarters issued a template for FEMA regional offices to use in developing the RVAR as identified in figure 3. Tables 11 through 16 provide information on each element of the 6 Individual Assistance (IA) regulatory factors documented in the Regional Administrator’s Validation and Recommendation (RVAR) from July 2012 through December 2016 by the Federal Emergency Management Agency region. In addition to the contact named above, Aditi Archer (Assistant Director), Su Jin Yon (Analyst-In-Charge), Hiwotte Amare, Eric Hauswirth, Susan Hsu, Jun S. (Joyce) Kang, Christopher Keisling, Heidi Nielson, Hadley Nobles, Anne Rhodes-Kline, and Jerome (Jerry) Sandau made significant contributions to this report.	[ "FEMA's IA program provides help to individuals to meet their immediate needs after a disaster, such as shelter and medical expenses. When a state, U.S. territory, or tribe requests IA assistance through a federal disaster declaration, FEMA evaluates the request against regulatory factors, such as concentration of damages, and provides a recommendation to the President, who makes a final declaration decision. GAO was asked to review FEMA's IA declaration process. This report examines (1) the number of IA declaration requests received, declared, and denied, and IA actual obligations from calendar years 2008 through 2016, (2) the extent to which FEMA accounts for the regulatory factors when evaluating IA requests, and (3) any challenges FEMA regions and select states reported on the declaration process and factors and any FEMA actions to revise them. GAO reviewed FEMA's policies, IA declaration requests and obligation data, and FEMA's RVARs from July 2012 through December 2016, the most recent years for which data were available. GAO also reviewed proposed rulemaking comments and interviewed FEMA officials from all 10 regions and 11 state emergency management offices selected based on declaration requests and other factors. From calendar years 2008 through 2016, the Department of Homeland Security's (DHS) Federal Emergency and Management Agency (FEMA) received 294 Individual Assistance (IA) declaration requests from states, U.S. territories, and tribes to help individuals meet their immediate needs after a disaster. Of these, the President declared 168 and denied 126 requests. Across the various types of IA declaration requests, severe storms (190) were the most common disaster type and drought (1) was among the least common. FEMA obligated about $8.6 billion in IA for disaster declarations during this period. GAO found that FEMA regions did not consistently obtain and document information on all elements of established IA regulatory factors when making IA recommendations to headquarters. Following a declaration request, a FEMA region is to prepare a Regional Administrator's Validation and Recommendation (RVAR)—a document designed to include data on each of the six IA regulatory factors for each declaration request as well as the regional administrator's recommendation. GAO reviewed all 81 RVARs from July 2012—the date FEMA began using the new RVAR template—through December 2016. GAO found that regions did not consistently obtain and document information for the elements required under the six regulatory factors (see table). For example, only 44 of the 81 RVARs documented all elements under the concentration of damage factor. By evaluating why regions are not completing all elements of each current IA regulatory factor, FEMA could identify whether any corrective steps are needed. Officials from the 10 FEMA regions and 11 states GAO interviewed, reported positive relationships with each other, but also cited various challenges with the IA declaration process and regulatory factors. For example, these officials told GAO that there are no established minimum thresholds for IA, making final determinations more subjective and the rationale behind denials unclear. However, as required by the Sandy Recovery Improvement Act of 2013, FEMA has taken steps to revise the IA factors by issuing a notice of proposed rulemaking. According to FEMA, the proposed rule aims to provide more objective criteria, clarify the threshold for eligibility, and speed up the IA declaration process. As of April 2018, the proposed rule was still under consideration. According to FEMA officials, they plan to finalize the rule in late 2018; therefore, it is too early to know the extent to which it will address these challenges. GAO recommends that FEMA evaluate why regions are not completing the RVARs for each element of the current IA regulatory factors and take corrective steps, if necessary. DHS concurred with the recommendation." ]	4,428	gov_report	en	null	caf5073d724df260e53ec2cab2e8cc627e97c0f93798cdba
The Forest Service’s mission includes sustaining the nation’s forests and grasslands; managing the productivity of those lands for the benefit of citizens; conserving open space; enhancing outdoor recreation opportunities; and conducting research and development in the biological, physical, and social sciences. The agency carries out its responsibilities in three main program areas: (1) managing public lands, known collectively as the National Forest System, through nine regional offices, 154 national forests, 20 national grasslands, and over 600 ranger districts; (2) conducting research through its network of seven research stations, multiple associated research laboratories, and 81 experimental forests and ranges; and (3) working with state and local governments, forest industries, and private landowners and forest users in the management, protection, and development of forest land in nonfederal ownership, largely through its nine regional offices. According to the Forest Service, it employs a workforce of over 30,000 employees across the country. However, this number grows by thousands in the summer months, when the agency hires seasonal employees to conduct fieldwork, respond to wildland fires, and meet the visiting public’s needs. The Office of the Chief of the Forest Service is located in Washington, D.C., with 27 offices reporting directly to the Office of the Chief, as illustrated in figure 1. The nine national forest regions, each led by a regional forester, oversee the national forests and grasslands located in their respective regions. Each national forest or grassland is headed by a supervisor, the seven research stations are each led by a station director, and a state and private forestry area is headed by an area director. The Forest Service collectively refers to its forest regions, research stations, and area as RSAs. The RSAs are organized differently according to their operations, and comparable operations within the RSAs, such as collections from reimbursable agreements, may be processed differently in the various regions and stations, resulting in highly decentralized operations. In addition, the offices of the Chief Financial Officer (CFO); Deputy Chief of Business Operations (includes the budget office); and eight other offices located in the Washington, D.C., headquarters also report directly to the Office of the Chief of the Forest Service. The Forest Service receives appropriations for its various programs and for specific purposes to meet its mission goals. Prior to fiscal year 2017, the Forest Service’s budgetary resources consisted primarily of no-year funds. Its budget office in Washington, D.C., initiates apportionment requests and monitors the receipt of Department of the Treasury (Treasury) warrants. Upon receipt of the warrant, the apportionment is recorded in the financial system and then the budget office develops an allocation summary detailing the allocation of its budget authority by fund, programs within the funds, and distribution of funds at the regional, station, and area levels. The Forest Service may also transfer funds from other appropriations to the appropriations account that funds its fire suppression activities when available funds appropriated for fire suppression and the Federal Land Assistance, Management, and Enhancement (FLAME) fund will be exhausted within 30 days. The Forest Service’s administrative policies, practices, and procedures are issued in its Directive System, which provides a unified system for issuing, storing, and retrieving internal direction that governs Forest Service programs and activities. The Directive System consists of the Forest Service’s manuals and handbooks. The manuals contain management objectives, policies, and responsibilities and provide general direction to Forest Service line officers and staff directors for planning and executing their assigned programs and activities. The handbooks provide detailed direction to employees and are the principal source of specialized guidance and instruction for carrying out directions issued in the manuals. Line officers at the national and RSA levels have authority to issue directives in the manuals and handbooks under their respective jurisdictions. The Forest Service’s policy states that the Directive System is the only place where Forest Service policy and procedures are issued. In addition to the Directive System, Forest Service staff have also developed standard operating procedures (SOP) and desk guides to supplement guidance provided in directives. However, the SOPs and desk guides are not part of the Forest Service Directive System and therefore are not official policy and procedures. While the Forest Service had documented processes for allotting its budgetary resources, it did not have an adequate process and related control activities for reasonably assuring that (1) amounts designated in appropriations acts for specific purposes are used as designated and (2) unobligated no-year appropriation balances from prior years were reviewed for their continuing need. In addition, the Forest Service did not have a properly designed and documented system for administrative control of funds. Finally, the Forest Service had not properly designed control activities for fund transfers for fire suppression activities under its Wildland Fire Management program. While the Forest Service had documented processes for allotting its budgetary resources, it did not have an adequate process and related control activities to reasonably assure that amounts designated in appropriations acts for specific purposes are used as designated—as required by the purpose statute, which states that “appropriations shall be applied only to the objects for which the appropriations were made except as otherwise provided by law.” We reviewed Forest Service documents about its budget authority processes, which included control objectives, related control activities, and processes over the allotment of its budgetary resources. We found that these documents, including manuals and handbooks, did not include an adequate process and related control activities for assuring that appropriated amounts are used for the purposes designated. For example, such a process would include the Forest Service allotting appropriated funds for specific programs or objects as provided in the applicable appropriation act, by either using specific budget line items already defined in the Forest Service’s financial system or creating new budget line items, as needed. Standards for Internal Control in the Federal Government states that management should define objectives clearly to enable the identification of risks and design appropriate control activities to achieve objectives and respond to the risks identified. As a result of the Forest Service not having an adequate process and related control activities for assuring that appropriated amounts are used for the purposes designated, the Forest Service did not properly allocate certain funds for specific purposes detailed in the appropriations acts for fiscal years 2015 and 2016. For example, in fiscal year 2015, the Forest Service did not set aside in its financial system the $65 million specified in the fiscal year 2015 appropriations act for acquiring aircraft for the next- generation airtanker fleet. According to Forest Service documents, as of January 6, 2016, $35 million of the designated funds was used for other purposes. In February 2017, we issued a legal opinion, related to the Forest Service’s use of the $65 million, which concluded that the Forest Service had failed to comply with the purpose statute. According to USDA’s Office of General Counsel, “this lack of any separate apportionment or account for the next-generation airtanker fleet was due to the fact that it was a new item, not included in the agency’s budget request, and added late in the appropriations process.” Similarly, in fiscal year 2016, the Forest Service did not create new budget line items to reserve in its financial system $75 million for the Forest Inventory and Analysis Program specified in the fiscal year 2016 appropriations act. Rather than creating a new budget line item for the program specified in the appropriations act, the funds were combined with an existing budget line item, making it difficult to track related budget amounts and actual expenditures. The lack of an adequate process and related control activities to reasonably assure that appropriated amounts are used for the purpose designated also increases the risk that the Forest Service may violate the Antideficiency Act. The Forest Service did not have a process and related control activities to reasonably assure that unobligated, no-year funds from prior years were reviewed for continuing need. We reviewed the Forest Service’s budget authority process document and related manuals and handbooks, which documented control objectives and procedures over its budgetary resources and the guidance for administrative control of funds. We found that these documents did not include a process for reviewing the Forest Service’s unobligated, no-year funds from prior years and related control activities to reasonably assure that such funds were reviewed for continuing need. Such reviews, if performed, may identify unneeded funds that could be reallocated to other programs needing additional budgetary resources, if consistent with the purposes designated in appropriations acts. The USDA Budget Manual states as a department policy that “agencies of the Department have a responsibility to review their programs continually and recommend, when appropriate, deferrals or rescissions.” The USDA Budget Manual further states the following: “Agency officials should remain alert to this responsibility since the establishment of reserves is an important phase of budgetary administration. If it becomes evident during the fiscal year that any amount of funds available will not be needed to carry out foreseeable program requirements, it is in the interest of good management to recommend appropriate actions, thereby maintaining a realistic relationship between apportionments, allotments, and obligations.” However, the Forest Service did not develop a directive addressing the control objectives, related risks, and control activities for implementing this USDA policy. Up until fiscal year 2017, Forest Service budgetary resources consisted primarily of no-year funds. At the beginning of each fiscal year, unobligated balances of no-year funds are carried forward and reapportioned to become part of budget authority available for obligation in the new fiscal year. Unobligated balances can increase during the fiscal year due to deobligation of prior years’ unliquidated obligations that the Forest Service determines it no longer needs. These resources are immediately available to the Forest Service to the extent authorized by law without further legislation or action from Office of Management and Budget (OMB) unless the apportionment states otherwise. According to Forest Service officials, unobligated funds reported in the Forest Service’s September 30, 2016, Statement of Budgetary Resources included $351 million in discretionary unobligated no-year funds, appropriated as far back as fiscal year 1999. The Forest Service did not identify and define a process and control objectives related to its review of unobligated no-year funds from prior years for continuing need. As a result, the Forest Service did not have reasonable assurance that prior no-year unobligated balances were properly managed and considered in its annual budget requests. This increased the risk that the Forest Service may make budget requests in excess of its needs. Additionally, the Forest Service could miss opportunities to use its prior year unobligated no-year funds more timely and effectively, for example, using these funds for other Forest Service program needs, if consistent with the purposes designated in appropriations acts. During our work, we brought this issue to management’s attention, and in response, Forest Service officials stated that the Forest Service is planning to develop a quarterly process to review available balances and, as needed, redirect funds to agency priorities. However, as of July 2017, the Forest Service had not yet developed this review process. Further, Congress rescinded about $18 million of the Forest Service’s prior year unobligated balances and required it to report unobligated balances quarterly within 30 days after the close of each quarter and appropriated multi-year funds instead of no- year funds to the Forest Service for fiscal year 2017. The Forest Service issued guidance related to administrative control of funds in manuals and handbooks, which USDA did not review and approve prior to their issuance. Based on our review of these documents, we found that the processes and related control activities over the administrative control of funds were dispersed in numerous manuals and handbooks, which may hamper a clear understanding of the overall system. Further, the system lacked key elements that would allow it to serve as an adequate system of administrative control of funds. For example, in its manuals and handbooks the Forest Service did not identify, by title or office, those officials with the authority and responsibility for obligating the service’s appropriated funds, such as funds for contracts, travel, and training. As a result, the responsibility for obligating funds was not clearly described and properly assigned in Forest Service policy as required by the USDA Budget Manual and OMB Circular No. A-11. OMB Circular No. A-11 states that the Antideficiency Act requires that the agency head prescribe, by regulation, a system of administrative control of funds, and OMB provided a checklist in appendix H to the circular that agencies can use for drafting their fund control regulations. This requirement is consistent with those in the USDA Budget Manual, which prescribes budgetary administration through a system of administrative controls for its component agencies, including the Forest Service. The USDA Budget Manual states that to the extent necessary for effective administration, (1) the heads of USDA component agencies may delegate to subordinate officials responsibilities in connection with the administrative distribution of funds within apportionments and allotments and the monitoring, control, and reporting of the occurrence of obligations and expenditures under apportionments and allotments and (2) the chain of such responsibility shall be clearly defined. In addition, USDA requires its component agencies to promulgate and maintain administrative control of funds regulation and to send such regulation to USDA’s Office of Program and Budget Analysis for review and approval prior to issuance. Because the Forest Service has not developed and issued a comprehensive system for administrative control of funds that considers all aspects of the budget execution processes, it cannot reasonably assure that (1) programs will achieve their intended results; (2) the use of resources is consistent with the agency’s mission; (3) programs and resources are protected from waste, fraud, and mismanagement; and (4) laws and regulations are followed. We also found that the Forest Service had not reviewed and updated most of its administrative control of funds guidance in the manuals and handbooks for over 5 years. The USDA Budget Manual requires each component to periodically review its funds control system for overall effectiveness and to assure that it is consistent with its agency programs and organizational structures. Further, Forest Service policy also requires routine review, every 5 years, of policies and procedures in its Directive System. According to Forest Service officials, when directives are up for review and update, a staff from the Office of Regulatory and Management Services (ORMS) sends an e-mail reminder to notify responsible personnel that updates to applicable directives are needed. However, we found that the Forest Service does not have adequate controls in place to monitor the reviews and any updates of the manuals and handbooks in its Directive System to reasonably assure that their efforts resulted in timely updates. As a result, the Forest Service is at risk that guidance for its system for administrative control of funds may lose relevance as processes change over time and control activities may become inadequate. The Forest Service did not have properly designed control activities over its process for fund transfers related to wildland fire suppression activities. The Forest Service receives appropriations for necessary expenses for (1) fire suppression activities on National Forest System lands, (2) emergency fire suppression on or adjacent to such lands or other lands under fire protection agreement, (3) hazardous fuels management on or adjacent to such lands, and (4) state and volunteer fire assistance. Transfer of funds from other Forest Service programs to its fire suppression activities occurs when the Forest Service has exhausted all available funds appropriated for the purpose of fire suppression and the FLAME fund. A key aspect of this process is assessing the FLAME forecast, which the Forest Service uses to predict the costs of fighting wildland fires for a given season, and developing a strategy to identify specific programs and the amounts that may be transferred to pay for fire suppression activities when needed. The process for reviewing the FLAME forecast and strategizing the fund transfers was documented in the Basic Budget Desk Guide created by staff in the Forest Service’s Strategic Planning and Budget Analysis Office. However, the desk guide did not contain evidence of review by responsible officials. As a result, the Forest Service lacked reasonable assurance that the desk guide was complete and appropriate for its use. The Basic Budget Desk Guide included a listing of actions to be performed by the analyst for reviewing the FLAME forecast report and developing a strategy for fund transfer from other programs. However, the desk guide did not specify the factors to be considered when developing the strategy. For example, it did not call for documentation addressing the rationale for the strategy or an assessment of the risk that the fund transfer could have on the programs from which the funds would be transferred. The desk guide also did not describe the review and approval of the strategy by a responsible official(s) prior to the fund transfer request sent to the Chief of the Forest Service. According to Standards for Internal Control in the Federal Government, management should design control activities to achieve objectives and respond to risks and that such control activities should be designed at the appropriate levels in the organizational structure. Further, management may design a variety of transaction control activities for operational processes, which may include verifications, authorizations and approvals, and supervisory control activities. The lack of properly designed control activities for supervisory review of the desk guide and strategy to identify the amounts for fund transfers does not provide the Forest Service reasonable assurance that the objectives of the fund transfers—including mitigating the risk of a shortfall of funding for other critical Forest Service program activities, such as payroll or other day-to-day operating costs—will be efficiently and effectively achieved. The Forest Service enters into various reimbursable agreements with agencies within USDA, other federal agencies, state and local government agencies, and nongovernment entities to carry out its mission for public benefit. The reimbursable agreements may be for the Forest Service to provide goods and services to a third party or to receive goods and services from a third party, or may be a partnership agreement with a third party for a common goal. According to Forest Service officials, the two distinct types of Forest Service reimbursable agreements are (1) fire incident cooperative agreements and (2) reimbursable and advanced collection agreements (RACA). The Forest Service did not have documented processes and related control activities for its fire incident cooperative agreements to reasonably assure the effectiveness and efficiency of its related fire incident operations. In addition, processes and related control activities applicable to RACAs were not adequately described in applicable manuals and handbooks in the Directive System, to reasonably assure that control activities could be performed consistently and effectively. Further, certain RACA processes in the Directive System had not been timely reviewed by management and did not reflect current processes. Moreover, as previously discussed, SOPs and desk guides developed in field offices related to RACA processes were not in the Forest Service’s Directive System. Finally, the Forest Service lacked control activities segregating incompatible duties performed by line officers and program managers in creating reimbursable agreements and the final disposition of related receivables. The Forest Service did not have documented processes and related control activities for its fire incident cooperative agreements to reasonably assure the effectiveness and efficiency of its related fire incident operations and reliable reporting internally and externally. As part of the service’s mission objective to suppress wildland fires, Forest Service officials stated that they enter into 5-year agreements referred to as master cooperative agreements with federal, state, and other entities. These agreements document the framework for commitment and support efficient and effective coordination and cooperation among the parties in suppressing fires, when they occur. The master cooperative agreements do not require specific funding commitments as amounts are not yet known. These agreements vary from region to region because of the differing laws and regulations pertaining to the participating states and other entities. These variations can also result in different billing and collection processes between regions. When a fire occurs, supplemental agreements, which are based on the framework established in the applicable master cooperative agreements, are signed by relevant parties for each fire incident. These agreements establish the share of fire suppression costs incurred by the Forest Service and amounts related to entities that benefitted from those fire suppression efforts. These supplemental agreements require commitment and obligation of funds. As indicated in figure 2, the Forest Service’s obligations for fire suppression activities ranged from $412 million to $1.4 billion over the 10-year period from fiscal years 2007 through 2016. In response to our request for documentation of processes and related control activities over its fire incident cooperative agreements, Forest Service officials stated that processes and related control activities over reimbursable agreements were applicable to both fire incident cooperative agreements and RACAs. However, based on our review of the Forest Service’s processes and related control activities over its reimbursable agreements, we found that the unique features of fire incident cooperative agreements (as compared to features of RACAs) were not addressed in the processes and related controls for reimbursable agreements. For example, there was no process and related control activities over the negotiation and review of (1) a fire incident master cooperative agreement, which is developed before a fire occurs, and (2) supplemental agreements, which are signed by all relevant parties after the start of a fire incident. These supplemental agreements detail, among other things, the terms for (1) fire department resource use, (2) financial arrangements, and (3) specific cost-sharing agreements. Another unique feature of fire incident cooperative agreements, which was not covered in process documents for its reimbursable agreements, was the preparation of the Cost Settlement Package. The preparation of this package does not start until after the fire has ended and the Forest Service has received and paid all bills. According to Forest Service officials, a fire incident is deemed to have ended when there are no more resources (firefighters and equipment) on the ground putting out the fire. However, this definition was not documented in the Forest Service’s manuals and handbooks in the Directive System. Based on our review of documentation that the Forest Service provided for four fire incidents, we found that for these incidents the Cost Settlement Packages and the billings took several months to years to complete after the fire incident. According to Forest Service officials, delays in preparing the Cost Settlement Package in many cases were due to parties involved in suppressing the fires taking a long time to submit their invoices to the Forest Service for payment. Because the preparation of Cost Settlement Packages was not included in the process documents, the Forest Service did not have a defined time frame for when, in relation to the end of the fire, the Cost Settlement Package must be completed. For example, in one case we reviewed, the bill for a cost settlement was sent 9 months after the fire occurred, and in another case, settlement occurred approximately 2 years after the fire occurred. For both fire incidents, based on the reports we reviewed, the fires were contained within a week or two, but the Forest Service does not have a policy for documenting the date when the fire incident is deemed to have ended. Because of the complexity of the process for negotiating and determining the reimbursable amounts from all the costs that the Forest Service pays for a fire incident, the reimbursable amounts may take time to negotiate, and subsequent billing to and collection from parties may take much longer. Forest Service officials stated that some receivables that were not going to be collected until after its financial system’s aging process for receivables deemed such receivables uncollectible and a bad debt are tracked in a spreadsheet outside its financial system. We found that the Forest Service did not have a documented process and related control activities to reasonably assure that its Budget Office was informed of these older receivables being tracked in a spreadsheet and the related progress of collection activities that local program managers and line officers perform, which could affect the reliability of the reported reimbursable receivable amounts. According to Standards for Internal Control in the Federal Government, management should internally communicate the necessary quality information to achieve the entity’s objectives. Without proper communication, important information, such as amounts that the Forest Service will receive from fire incident cost settlement negotiations, may not be considered in the Forest Service’s strategy for the effective and efficient management of fund transfers for fire suppression activities. Processes and related control activities applicable to RACAs were not adequately described in Forest Service manuals and handbooks in its Directive System. RACAs, which may be for research or other nonemergency purposes, are billed and collected based on previously agreed upon billing and collection terms. In accordance with the Forest Service’s Directive System, policies related to business processes, such as RACAs, are documented in its manuals while procedures for performing specialized activities are documented in its handbooks. We found that the manuals and handbooks in the Directive System did not adequately describe the processes and related control activities over the RACA processes to enable efficient and effective performance of the work by appropriate and responsible personnel. The manuals and handbooks related to RACAs state that a manager review the documentation to ensure that the funding supports the objective of the agreement, the agreement is the correct instrument for funding the project, all relevant terms and conditions have been included in the agreement, the entity’s financial strength and capability are acceptable, and all applicable regulations and OMB circulars have been addressed. However, there was no discussion in the manuals and handbooks about when the manager needs to perform the reviews and how these reviews were to be documented. Further, in response to our inquiry regarding procedures performed to assess the entity’s financial strength and capability are acceptable before a RACA is signed, Forest Service officials stated that there is currently no formal process for determining financial capability for RACAs. For reimbursable agreements, the Forest Service’s process documented in its handbook consisted of completing a creditworthiness checklist. However, the handbook did not describe procedures for (1) completing the checklist and (2) documenting responsible personnel’s review and approval of an entity’s acceptable financial capability. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks. Management’s design of internal control establishes and communicates the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel. Further, the standards also explain that management clearly document internal control in a manner that allows the documentation to be readily available and properly managed and maintained. In addition, the manuals and handbooks applicable to the RACAs have not been timely reviewed by management, and had not been updated to reflect current processes. For example, the document that serves as direction for Forest Service personnel on how to enter into RACAs referred to an outdated financial system that was replaced in fiscal year 2013. Further, the manuals and handbooks for the RACA processes had no indication that they had been reviewed within the past 5 years. Forest Service policy requires routine review, every 5 years, of policies and procedures in its Directive System. According to Forest Service officials, a staff member from ORMS sends an e-mail to officials responsible for updating these policies and procedures. However, appropriate control activities have not been designed to reasonably assure that updates were made, reviewed, approved, and issued as needed for continued relevance and effectiveness. Without adequate descriptions of processes and related control activities in its manuals and handbooks over RACAs, the Forest Service is at risk that processes and related control activities may not be properly, consistently, and timely performed. Further, because it lacks a process and related controls for monitoring and reviewing the updates of the guidance and various process documents in the Directive System, the Forest Service is at risk that its policies and procedures may not provide appropriate agency-wide direction in achieving control objectives, particularly when financial systems change and old processes may no longer be applicable. SOPs and desk guides related to RACA processes were not in the Directive System and are not considered official Forest Service policy and procedures. Forest Service field staff responsible for various processes generally developed SOPs and desk guides to document day-to-day procedures for employees in carrying out RACA processes to supplement the manuals and handbooks. However, the SOPs and desk guides did not reference the applicable manuals and handbooks they supplemented. Further, the SOPs and desk guides did not provide descriptions of (1) review procedures for authorization, completeness, and validity of RACAs and related receivables; (2) detailed review procedures to be performed and by whom; (3) timing of review procedures; and (4) how to document the completion of the review procedures. Finally, SOPs and desk guides did not have evidence that responsible officials reviewed and approved them to authorize their use. These SOPs and desk guides are only available in the field office where these were developed, and if similar SOPs and desk guides were developed in other field offices, control activities and how they are performed could vary. We also noted that these SOPs and desk guides were not timely updated to reflect processes and systems currently in use. For example, there were many instances where the SOPs and desk guides referred to systems that the Forest Service no longer used. Standards for Internal Control in the Federal Government states that management should establish an organizational structure, assign responsibility, and delegate authority to achieve the entity’s objectives. Effective documentation assists in management’s design of internal control by establishing and communicating the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel and to achieve the entity’s objectives. Management assigns responsibility and delegates authority to key roles throughout the entity. As a result of the issues discussed above, the Forest Service is at risk that control activities may not be properly and consistently performed and its related control objectives may not be achieved efficiently and effectively. In addition, the Forest Service is at risk that knowledge for performing the control activities may be limited to a few personnel or lost altogether in the event of employee turnover. The Forest Service lacked control activities over the segregation of incompatible duties performed by line officers and program managers for reimbursable agreements and any adjustments affecting the final disposition of related receivables. Field offices manage the majority of Forest Service projects, including authorizing the agreements and monitoring related collection. The Forest Service line officer for fire incident cooperative agreements and program managers for RACA at the RSA, unit, or field levels initiate and develop the terms of the agreements and are also responsible for any subsequent negotiation of the agreements. In the process of negotiating and settling costs, the line officer or program manager has the authority to cancel or change related receivables that they deemed uncollectible. For example, in a fire incident, the line officer at the region or field level is involved in both developing a Cost Share Agreement and after the fire incident has ended, negotiating the Cost Settlement Package with parties involved in the agreement to determine the final settlement amount that the Forest Service will be reimbursed for expenses paid in suppressing the fire incident. Therefore, the line officer is responsible for initiating the Cost Share Agreement, modifying the Cost Settlement Package, and changing or canceling the related receivable, which represent conflicting duties. We also found that the Forest Service did not have any mitigating controls, such as independent approval of any adjustments affecting the final disposition of receivables, to mitigate the risk of these incompatible duties. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks. Segregation of duties contributes to the design, implementation, and operating effectiveness of control activities. To achieve segregation of key functions, management can divide responsibilities among different people to reduce the risk of error, misuse, or fraud. This may include separating the responsibilities for authorizing or approving transactions, processing and recording them, and reviewing the transactions so that no one individual controls all key aspects of a transaction or event. Forest Service officials stated they did not consider segregating the conflicting duties related to reimbursable agreements because these line officers and program managers were most familiar with the terms of the agreement and the activities performed. However, a lack of adequate segregation of conflicting duties or proper monitoring and review of conflicting duties for receivables from reimbursable agreements could result in receivables not being collected, and an increased risk of fraud. The Forest Service’s processes and related control activities over review of unliquidated obligations were not properly designed to reasonably assure optimum utilization of funds and were inconsistent with USDA and Forest Service policy. Further, Forest Service manuals and handbooks related to the review of unliquidated obligations did not clearly describe control activities and were not timely reviewed by management. The Forest Service reported unliquidated obligations of approximately $2.6 billion and $2.5 billion in its financial statements as of September 30, 2015, and 2016, respectively. In fiscal year 2016, the Forest Service deobligated about $319 million of its unliquidated obligations from prior years. The Forest Service’s procedures related to the review of unliquidated obligations were not properly designed and were inconsistent with USDA and Forest Service policy. In accordance with USDA Departmental Regulation (Regulation 2230-001) and related Forest Service policy, the Forest Service identifies and reviews unliquidated obligations that have been inactive for at least 12 months to determine whether delivery or performance of goods or services is still expected to occur. Once a determination has been made that an unliquidated obligation can be deobligated, program or procurement personnel are to notify finance personnel, in writing, within 5 days of the determination to process the deobligation. Within 15 days of receipt of the written notification, the unliquidated obligations are to be adjusted in the financial management system. The Forest Service CFO is then to be notified in writing that the deobligation was processed. Within 1 month of the close of each quarter, the Forest Service CFO is to submit to USDA’s Associate CFO for Financial Operations a certification stating that the Forest Service has performed reviews of its unliquidated obligations and taken appropriate actions, such as promptly deobligating an unliquidated obligation that is no longer needed. However, the Forest Service’s quarterly certifications are inconsistent with USDA and Forest Service policy because the months included in each quarterly review do not line up with the months outlined in policy. For example, as shown in table 1, based on policy the certification due on October 31, covers the months July through September. However in practice, the certification that the Forest Service prepared for October 31 covers May through July. As a result, the review and certification for August and September would be delayed an entire quarter. According to Forest Service officials, it takes considerable time to produce accurate unliquidated obligations reports from USDA’s financial system and then distribute them to field offices. Therefore, there is not sufficient time for the field offices to review and deobligate amounts not needed from the unliquidated obligations balances to meet USDA’s certification timing and requirements. However, the Forest Service has not developed other processes and control activities that could help meet USDA and Forest Service policy and reasonably assure that unliquidated obligations are reviewed timely and appropriate actions are taken. As a result, there is an increased risk that the Forest Service may not achieve its control objectives of optimum utilization of funds and timely adjustments of obligated balances. The Forest Service’s process and related control activities over its review of unliquidated obligations and resulting certifications were not adequately described in manuals and handbooks in its Directive System. Further, the manuals and handbooks were not timely reviewed and updated to reflect processes and systems currently in use. In accordance with the Forest Service’s Directive System, policies are documented in its manuals while procedures for performing specialized activities are documented in its handbooks. However, we found that the Forest Service’s processes and related control activities for reviewing unliquidated obligations were not adequately described and documented in such manuals and handbooks. Although parts of the applicable section of the handbook referred to procedures, there were no detailed descriptions of the processes, and only references to objectives of the procedures for reviewing unliquidated obligations were listed. For example, in identifying unliquidated obligations for review, the narrative description of the procedures in the handbook states that the responsible obligating official must review each selected unliquidated obligation to determine whether (1) delivery or performance of goods or services has occurred or is expected to occur and (2) accounting corrections to the obligation data in the accounting system are necessary. The handbook also refers to an unliquidated obligations report listing the unliquidated obligations that must be reviewed. The narrative does not provide any detailed procedures that obligating officials or responsible personnel need to perform, how to perform those procedures, and how those control activities are to be documented. The guidance in the handbook was supplemented by two desk guides. However, the desk guides are outside the Forest Service’s Directive System and, as previously noted, the Directive System is the only place where the Forest Service’s policy and procedures are issued. In addition, these desk guides did not reference the applicable guidance in the Directive System that they were supplementing. Further, the process and related control activities for adjusting unliquidated obligations within 15 days of receipt of written notification, as stated in USDA’s policy, were not described in either the handbooks or the desk guides. Standards for Internal Control in the Federal Government states that management should design control activities to achieve objectives and respond to risks to achieve an effective internal control system. Management’s design of internal control establishes and communicates the who, what, when, where, and why of internal control execution to personnel. Documentation also provides a means to retain organizational knowledge and mitigate the risk of having that knowledge limited to a few personnel. Further, the standards also explain that management clearly document internal control in a manner that allows documentation to be readily available and that documentation be properly managed and maintained. In addition, manuals and handbooks for processes related to review and certification of unliquidated obligations had no evidence that they had been reviewed within the past 5 years for ongoing relevance and effectiveness. According to a Forest Service manual, all service-wide directives, except interim directives, shall be reviewed at least once every 5 years. The Forest Service does not have an effective process in place to monitor the reviews and any updates of the manuals and handbooks in its Directive System. As previously discussed, while ORMS sends an e- mail requesting that the applicable officials review and update the guidance in the manuals and handbooks, there is no follow-up process to help ensure that documents were reviewed and updated as needed. Because the Forest Service’s process and related control activities over its review and certification of unliquidated obligations were not adequately described in its manuals and handbooks, the Forest Service is at risk that its control activities may not reasonably assure that control objectives provide (1) optimum utilization of funds and (2) for unliquidated obligations that are no longer needed to be efficiently and effectively deobligated and made available for other program needs. Adequate processes and related control activities over the Forest Service’s budgetary resources are critical in reasonably assuring that these resources are timely and effectively available for its mission operations, including fire suppression. However, we identified deficiencies in the Forest Service’s processes and related controls over allotments, unobligated no-year funds from prior years, administrative control of funds, fund transfers, reimbursable agreements, and available funds from deobligation of unliquidated obligations. Deficiencies ranged from a lack of processes to control activities that were not properly designed, resulting in an increased risk that Forest Service funds may not be effectively and efficiently monitored and used. In addition, the Forest Service’s manuals and handbooks, which provide the directives for the areas we reviewed, had not been reviewed by management in accordance with the Forest Service’s 5-year review policy. Further, Forest Service staff prepared SOPs and desk guides that documented control activities, but they were not issued as official policy and had not been reviewed and approved by responsible officials. As a result, the Forest Service is at increased risk that the control activities may not be consistently performed across the agency and that the guidance in the SOPs and desk guides may not comply with agency policy in the Directive System. To improve internal controls over the Forest Service’s budget execution processes, we are making the following 11 recommendations: The Chief of the Forest Service should (1) revise its process and (2) design, document, and implement related control activities to reasonably assure that amounts designated in appropriations acts for specific purposes are properly used for the purposes specifically designated. (Recommendation 1) The Chief of the Forest Service should (1) develop a process and (2) design, document, and implement related control activities to reasonably assure that unobligated no-year funds from prior years are reviewed for continuing need. (Recommendation 2) The Chief of the Forest Service should (1) design, document, and implement a comprehensive system for administrative control of funds and (2) submit it for review and approval by USDA before issuance, as required by the USDA Budget Manual. (Recommendation 3) The Chief of the Forest Service should design, document, and implement control activities over the preparation and approval of a fire suppression fund transfers strategy, to specify all appropriate factors to be considered in developing and documenting the strategy, and incorporate these control activities into the Directive System. (Recommendation 4) The Chief of the Forest Service should design, document, and implement processes and related control activities for its fire incident cooperative agreements to reasonably assure efficient and effective operations and timely and reliable reporting of reimbursable receivables related to fire incident cooperative agreements, and incorporate them in the Directive System. (Recommendation 5) The Chief of the Forest Service should update the RACA manuals and handbooks to adequately describe the processes and related control activities applicable to RACAs to reasonably assure that staff will know (1) how and when to perform processes and control activities and (2) how to document their performance. (Recommendation 6) The Chief of the Forest Service should design, document, and implement segregation of duties or mitigating control activities over reimbursable agreements and any adjustments affecting the final disposition of related receivables. (Recommendation 7) The Chief of the Forest Service should modify, document, and implement control activities consistent with USDA and Forest Service policy to reasonably assure that unliquidated obligations are reviewed timely and appropriate actions are taken. (Recommendation 8) The Chief of the Forest Service should adequately describe the processes and related control activities for unliquidated obligations review and certification processes in manuals and handbooks within the Directive System. (Recommendation 9) The Chief of the Forest Service should develop, document, and implement a process and related control activities to reasonably assure that manuals and handbooks for allotments, reimbursable agreements, and review of unliquidated obligations are reviewed and updated every 5 years, consistent with Forest Service policy. (Recommendation 10) The Chief of the Forest Service should develop, document, and implement a process and related control activities to reasonably assure that SOPs and desk guides (1) clearly refer to guidance in the Directive System for allotments, reimbursable agreements, and review of unliquidated obligations and (2) are reviewed and approved by responsible officials prior to use. (Recommendation 11) We provided a draft of this report to USDA for comment. In its comments, reproduced in appendix III, the Forest Service stated that it generally agreed with the report and that it has made significant progress to address the report’s findings. Specifically, the Forest Service stated that its financial policies concerning budget execution have been revised to address our concerns with allotments, unliquidated obligations, commitments, and administrative control of funds as prescribed by OMB Circular No. A-11. Further, the Forest Service stated that it has undertaken an in-depth review of its unliquidated obligations and modified the certification process to comply with the USDA requirement. We are sending copies of this report to the appropriate congressional committees and to the Secretary of Agriculture and the Chief of the Forest Service. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-9869 or khana@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made key contributions to this report are listed in appendix IV. Our objectives were to determine the extent to which the Forest Service properly designed control activities over (1) allotments of budgetary resources, its system for administrative control of funds, and any fund transfers between Forest Service appropriations; (2) reimbursables and related collections; and (3) unliquidated obligations. We reviewed the Forest Service’s process documents and control activities, policies and procedures from its manual and handbooks in its Directive System, and other guidance in the form of standard operating procedures (SOP) and desk guides to obtain an understanding of internal controls at the Forest Service related to our three objectives. We reviewed the control activities that the Forest Service identified to determine whether the activities would achieve the control objectives that the service identified and whether the activities were consistent with Standards for Internal Control in the Federal Government. We also reviewed recent relevant GAO and U.S. Department of Agriculture (USDA) Office of Inspector General reports to obtain background information related to the Forest Service’s budget execution processes. We evaluated the design of the Forest Service’s control activities based on data for fiscal year 2016. To address our first objective, we reviewed Forest Service process documents related to allotments and budget authority to obtain an understanding of control activities over the allotments of budgetary resources, its system for administrative control of funds, and any related fund transfers between Forest Service appropriations. The process documents included a list of control objectives and related control activities that the Forest Service had used to assess its internal controls. We also reviewed the related guidance in appendix H to Office of Management and Budget Circular No. A-11, Preparation, Submission, and Execution of the Budget for Administrative Control of Funds, to identify requirements that agencies must meet to ascertain whether their controls over funds management are properly designed. We interviewed key officials from the Forest Service’s Strategic Planning, Budget and Accountability Office to gain an understanding of their processes for allotments of budgetary resources, its system for administrative control of funds, and fund transfers between Forest Service appropriations for wildland fire suppression activities, including how each of their risk assessments were performed and their plans to mitigate the risks. We reviewed and analyzed the processes documented in the manuals and handbooks collectively referred to as directives to determine whether the processes and control activities were designed to achieve the Forest Service’s stated objectives. Specifically, we examined the Forest Service’s control activities to determine whether these sufficiently communicated the procedures to be performed and the documentation to be prepared. We also reviewed USDA Budget Manual to determine whether Forest Service guidance was consistent with USDA’s requirements for all of its component agencies, specifically requirements related to the administrative control of funds. To address our second objective, we reviewed the Forest Service’s policies, procedures, and other documentation and interviewed agency officials to develop an understanding of its processes related to reimbursable agreements and related collection activities. We first identified, through interviews with Forest Service officials, the different kinds of reimbursable agreements that the Forest Service enters into with other USDA components, other federal agencies, state and local government agencies, and nongovernment entities to carry out its mission for the benefit of the public. Two distinct types of reimbursable agreements include (1) fire incident cooperative agreements and (2) reimbursable and advanced collection agreements. We reviewed Forest Service process documents and templates related to these two types of reimbursable agreements provided to obtain an understanding of control activities over reimbursable processes. We reviewed the list of control objectives and related control activities that the Forest Service identified to determine whether the control activities were designed to achieve the applicable control objectives. To address our third objective, we reviewed the Forest Service’s policies, procedures, and other documentation related to and interviewed agency officials about unliquidated obligations to develop an understanding of the Forest Service’s review and certification processes for unliquidated obligations balances. We reviewed the Forest Service’s control activities related to its process for reviewing unliquidated obligations to obtain an understanding of control activities around its process and to determine whether the control activities were designed to achieve the applicable control objectives. Based on the results of our evaluation of the Forest Service’s design of internal control activities over the budget execution processes, we did not evaluate the implementation of the control activities or whether they were operating as designed. While our audit objectives focused on certain control activities related to (1) allotments of budgetary resources, the Forest Service’s system for administrative control of funds, and related fund transfers; (2) reimbursables and related collections for reimbursable agreements; and (3) unliquidated obligations, we did not evaluate all control activities and other components of internal control. If we had done so, additional deficiencies may or may not have been identified that could impair the effectiveness of the control activities evaluated as part of this audit. We conducted this performance audit from August 2016 to January 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Standards for Internal Control in the Federal Government provides the overall framework for establishing and maintaining internal control. Internal control represents an agency’s plans, methods, policies, and procedures used to fulfill its mission, strategic plan, goals, and objectives. Internal control is a process by an entity’s oversight body, management, and other personnel to provide reasonable assurance that the objectives of the entity will be achieved. When properly designed, implemented, and operating effectively, it provides reasonable assurance that the following objectives are achieved: (1) effectiveness and efficiency of operations, (2) reliability of internal and external reporting, and (3) compliance with applicable laws and regulations. Internal control is not one event, but a series of actions that occur throughout an entity’s operations. The five components of internal control are as follows: Control Environment - The foundation for an internal control system that provides the discipline and structure to help an entity achieve its objectives. Risk Assessment - Assesses the risks facing the entity as it seeks to achieve its objectives and provides the basis for developing appropriate risk responses. Control Activities - The actions management establishes through policies and procedures to achieve objectives and respond to risks in the internal control system, which includes the entity’s information system. Information and Communication - The quality information management and personnel communicate and use to support the internal control system. Monitoring - Activities management establishes and operates to assess the quality of performance over time and promptly resolve the findings of audits and other reviews. An effective internal control system has each of the five components of internal control effectively designed, implemented, and operating with the components operating together in an integrated manner. In this audit, we assessed the design of control activities at the Forest Service related to its (1) allotments of budgetary resources and any related fund transfers between Forest Service appropriations, (2) reimbursables and related collections, and (3) review of unliquidated obligations. In addition to the contact named above, the following individuals made key contributions to this report: Roger Stoltz (Assistant Director), Meafelia P. Gusukuma (Auditor-in-Charge), Tulsi Bhojwani, Cory Mazer, Sabrina Rivera, and Randy Voorhees.	[ "The Forest Service, an agency within USDA, performs a variety of tasks as steward of 193 million acres of public forests and grasslands. Its budget execution process for carrying out its mission includes (1) allotments, which are authorizations by an agency to incur obligations within a specified amount, and (2) unliquidated obligations, which represent budgetary resources that have been committed but not yet paid. Deobligation refers to an agency's cancellation or downward adjustments of previously incurred obligations, which may result in funds that may be available for reobligation. GAO was asked to review the Forest Service's internal controls over its budget execution processes. This report examines the extent to which the Forest Service properly designed control activities over (1) allotments of budgetary resources, its system for administrative control of funds, and any fund transfers between Forest Service appropriations; (2) reimbursables and related collections; and (3) review and certification of unliquidated obligations. GAO reviewed the Forest Service's policies, procedures, and other documentation and interviewed agency officials. In fiscal years 2015 and 2016, the Forest Service received discretionary no-year appropriations of $5.1 billion and $5.7 billion, respectively. It is critical for the Forest Service to manage its budgetary resources efficiently and effectively. While the Forest Service had processes over certain of its budget execution activities, GAO found the following internal control deficiencies: Budgetary resources . The purpose statute requires that amounts designated in appropriations acts for specific purposes are used as designated. The Forest Service did not have an adequate process and related control activities to reasonably assure that amounts were used as designated. In fiscal year 2017, GAO issued a legal opinion that the Forest Service had failed to comply with the purpose statute with regard to a $65 million line-item appropriation specifically provided for the purpose of acquiring aircraft for the next-generation airtanker fleet. Further, the Forest Service lacked a process and related control activities to reasonably assure that unobligated no-year appropriation balances from prior years were reviewed for their continuing need; did not have a properly designed system for administrative control of funds, which keeps obligations and expenditures from exceeding limits authorized by law; and had not properly designed control activities for fund transfers to its Wildland Fire Management program. These deficiencies increase the risk that the Forest Service may make budget requests in excess of its needs. Reimbursable agreements . To carry out its mission, the Forest Service enters into reimbursable agreements with agencies within the U.S. Department of Agriculture (USDA), other federal agencies, state and local government agencies, and nongovernment entities. The Forest Service (1) did not have adequately described processes and related control activities in manuals and handbooks for its reimbursable agreement processes and (2) lacked control activities related to segregating incompatible duties performed by line officers and program managers. For example, line officers may be responsible for initiating cost sharing agreements, modifying cost settlement packages, and changing or canceling the related receivable, which represent incompatible duties. As a result, programs and resources may not be protected from waste, fraud, and mismanagement. Unliquidated obligations . The Forest Service's processes and control activities over the review and certification of unliquidated obligations were not properly designed to reasonably assure the best use of funds and that unliquidated obligations would be efficiently and effectively deobligated and made available for other program needs. Further, the current process, as designed, was inconsistent with USDA and Forest Service policy. In addition, the Forest Service's manuals and handbooks, which provide directives for the areas that GAO reviewed, had not been reviewed by management in accordance with the Forest Service's 5-year review policy. Further, standard operating procedures and desk guides prepared by staff to supplement the manuals and handbooks were not issued as directives and therefore were not considered official policy. This increases the risk that control activities may not be consistently performed across the agency. GAO is making 11 recommendations to improve processes and related internal control activities over the management of the Forest Service's budgetary resources, reimbursable receivables and collections, and its process for reviewing unliquidated obligations. The Forest Service generally agreed with the report and stated that it has made significant progress to address the report findings." ]	8,760	gov_report	en	null	7decb8feac7c313ba51e5813869dc0723e029c13c3a6aed1
Article II, Section 2, of the Constitution provides that the President shall appoint officers of the United States "by and with the Advice and Consent of the Senate." The method by which the Senate provides advice and consent on presidential nominations, referred to broadly as the confirmation process, serves several purposes. First, largely through committee investigations and hearings, the confirmation process allows the Senate to examine the qualifications of nominees and any potential conflicts of interest. Second, Senators can influence policy through the confirmation process, either by rejecting nominees or by extracting promises from nominees before granting consent. Also, the Senate sometimes has delayed the confirmation process in order to increase its influence with the executive branch on unrelated matters. Senate confirmation is required for several categories of government officials. Military appointments and promotions make up the majority of nominations, approximately 65,000 per two-year Congress, and most are confirmed routinely. Each Congress, the Senate also considers approximately 2,000 civilian nominations, and, again, many of them, such as appointments to or promotions in the Foreign Service, are routine. Civilian nominations considered by the Senate also include federal judges and specified officers in executive departments, independent agencies, and regulatory boards and commissions. Many presidential appointees are confirmed routinely by the Senate. With tens of thousands of nominations each Congress, the Senate cannot possibly consider them all in detail. A regularized process facilitates quick action on thousands of government positions. The Senate may approve en bloc hundreds of nominations at a time, especially military appointments and promotions. The process also allows for close scrutiny of candidates when necessary. Each year, a few hundred nominees to high-level positions are regularly subject to Senate investigations and public hearings. Most of these are routinely approved, while a small number of nominations are disputed and receive more attention from the media and Congress. Judicial nominations, particularly Supreme Court appointees, are generally subject to greater scrutiny than nominations to executive posts, partly because judges may serve for life. Among the executive branch positions, nominees for policymaking positions are more likely to be examined closely, and are slightly less likely to be confirmed, than nominees for non-policy positions. There are several reasons that the Senate confirms a high percentage of nominations. Most nominations and promotions are not to policymaking positions and are of less interest to the Senate. In addition, some sentiment exists in the Senate that the selection of persons to fill executive branch positions is largely a presidential prerogative. Historically, the President has been granted wide latitude in the selection of his Cabinet and other high-ranking executive branch officials. Another important reason for the high percentage of confirmations is that Senators are often involved in the nomination stage. The President would prefer a smooth and fast confirmation process, so he may decide to consult with Senators prior to choosing a nominee. Senators most likely to be consulted, typically by White House congressional relations staff, are Senators from a nominee's home state, leaders of the committee of jurisdiction, and leaders of the President's party in the Senate. Senators of the President's party are sometimes invited to express opinions or even propose candidates for federal appointments in their own states. There is a long-standing custom of "senatorial courtesy," whereby the Senate will sometimes decline to proceed on a nomination if a home-state Senator expresses opposition. Positions subject to senatorial courtesy include U.S. attorneys, U.S. marshals, and U.S. district judges. Over the past decade, Senators have expressed concerns over various aspects of the confirmation process, including the rate of confirmation for high-ranking executive branch positions and judgeships, as well as the speed of Senate action on routine nominations. When the Senate is controlled by the party of the President, this concern has often been raised as a complaint that minority party Senators are disputing a higher number of nominations, and have increasingly used their leverage under Senate proceedings to delay or even block their consideration. These concerns have led the Senate to make several changes to the confirmation process since 2011. The changes are taken into account in the following description of the process and are described in detail in other CRS Reports. The President customarily sends nomination messages to the Senate in writing. Once received, nominations are numbered by the executive clerk and read on the floor. The clerk actually assigns numbers to the presidential messages, not to individual nominations, so a message listing several nominations would receive a single number. Except by unanimous consent, the Senate cannot vote on nominations the day they are received, and most are referred immediately to committees. Senate Rule XXXI provides that nominations shall be referred to appropriate committees "unless otherwise ordered." A standing order of the Senate provides that some nominations to specified positions will not be referred unless a Senator requests referral. Instead of being immediately referred, the nominations are instead listed in a special section of the Executive Calendar , a document distributed daily to congressional offices and available online. This section of the Calendar is titled "Privileged Nominations." After the chair of the committee with jurisdiction over a nomination has notified the executive clerk that biographical and financial information on the nominee has been received, this is indicated in the Calendar. After 10 days, the nomination is moved from the "Privileged Nominations" section of the Calendar and placed on the "Nominations" section with the same status as a nomination that had been reported by a committee. (See " Executive Calendar " below.) Importantly, at any time that the nomination is listed in the new section of the Executive Calendar , any Senator can request that a nomination be referred, and it is then sent to the appropriate committee of jurisdiction. Formally the presiding officer, but administratively the executive clerk's office, refers the nominations to committees according to the Senate's rules and precedents. The Senate rule concerning committee jurisdictions (Rule XXV) broadly defines issue areas for committees, and the same jurisdictional statements generally apply to nominations as well as legislation. An executive department nomination can be expected to be referred to the committee with jurisdiction over legislation concerning that department or to the committee that handled the legislation creating the position. Judicial branch nominations, including judges, U.S. attorneys, and U.S. marshals, are under the jurisdiction of the Judiciary Committee. In some instances, the committee of jurisdiction for a nomination has been set in statute. The number of nominations referred to various committees differs considerably. The Committee on Armed Services, which handles all military appointments and promotions, receives the most. The two other committees with major confirmation responsibilities are the Committee on the Judiciary, with its jurisdiction over nominations in the judicial branch, and the Committee on Foreign Relations, which considers ambassadorial and other diplomatic appointments. Occasionally, nominations are referred to more than one committee, either jointly or sequentially. A joint referral might occur when the jurisdictional claim of two committees is essentially equal. In such cases, both committees must report on the nomination before the whole Senate can act on it, unless the Senate discharges one or both committees. If two committees have unequal jurisdictional claims, then the nomination is more likely to be sequentially referred. In this case, the first committee must report the nomination before it is sequentially referred to the second committee. The second referral often is subject to a requirement that the committee report within a certain number of days. Typically, nominations are jointly or sequentially referred by unanimous consent. Sometimes the unanimous consent agreement applies to all future nominations to a position or category of positions. Most Senate committees that consider nominations have written rules concerning the process. Although committee rules vary, most contain standards concerning information to be gathered from a nominee. Many committees expect a biographical resumé and some kind of financial statement listing assets and liabilities. Some specify the terms under which financial statements will or will not be made public. Committee rules also frequently contain timetables outlining the minimum layover required between committee actions. A common timing provision is a requirement that nominations be held for one or two weeks before the committee proceeds to a hearing or a vote, permitting Senators time to review a nomination before committee consideration. Other committee rules specifically mandate a delay between steps of the process, such as the receipt of pre-hearing information and the date of the hearing, or the distribution of hearing transcripts and the committee vote on the nomination. Some of the written rules also contain provisions for the rules to be waived by majority vote, by unanimous consent, or by the chair and the ranking minority Member. Committees often gather and review information about a nominee either before or instead of a formal hearing. Because the executive branch acts first in selecting a nominee, congressional committees are sometimes able to rely partially on any field investigations and reports conducted by the Federal Bureau of Investigation (FBI). Records of FBI investigations are provided only to the White House, although a report or a summary of a report may be shared, with the President's authorization, with Senators on the relevant committee. The practices of the committees with regard to FBI materials vary. Some rarely if ever request them. On other committees, the chair and ranking Member review any FBI report or summary, but on some committees these materials are available to any Senator upon request. Committee staff usually do not review FBI materials. Almost all nominees are also asked by the Office of the Counsel to the President to complete an "Executive Personnel Financial Disclosure Report, SF-278," which is reviewed and certified by the relevant agency as well as the Director of the Office of Government Ethics. The documents are then forwarded to the relevant committee, along with opinion letters from ethics officers in the relevant agency and the director of the Office of Government Ethics. In contrast to FBI reports, financial disclosure forms are made public. All committees review financial disclosure reports and some make them available in committee offices to Members, staff, and the public. To varying degrees, committees also conduct their own information-gathering exercises. Some committees, after reviewing responses to their standard questionnaire, might ask a nominee to complete a second questionnaire. Committees frequently require that written responses to these questionnaires be submitted before a hearing is scheduled. The Committee on the Judiciary sends form letters, sometimes called "blue slips," to Senators from a nominee's home state to determine whether they support the nomination. The Committee on the Judiciary also has its own investigative staff. The Committee on Rules and Administration handles relatively few nominations and conducts its own investigations, sometimes with the assistance of the FBI or the Government Accountability Office (GAO). It is not unusual for nominees to meet with committee staff prior to a hearing. High-level nominees may meet privately with Senators. Generally speaking, these meetings, sometimes initiated by the nominee, serve basically to acquaint the nominee with the Members and committee staff, and vice versa. They occasionally address substantive matters as well. A nominee also might meet with the committee's chief counsel to discuss the financial disclosure report and any potential conflict-of-interest issues. Historically, approximately half of all civilian appointees were confirmed without a hearing. All committees that receive nominations do hold hearings on some nominations, and the likelihood of hearings varies with the importance of the position and the workload of the committee. The Committee on the Judiciary, for example, which receives a large number of nominations, does not usually hold hearings for U.S. attorneys, U.S. marshals, or members of part-time commissions. The Committee on Agriculture, Nutrition, and Forestry and the Committee on Energy and Natural Resources, on the other hand, typically hold hearings on most nominations that are referred to them. Committees often combine related nominations into a single hearing. The length and nature of hearings varies. One or both home-state Senators will often introduce a nominee at a hearing. The nominee typically testifies at the hearing, and occasionally the committee will invite other witnesses, including Members of the House of Representatives, to testify as well. Some hearings function as routine welcomes, while others are directed at influencing the policy program of an appointee. In addition to policy views, hearings might address the nominee's qualifications and potential conflicts of interest. Senators also might take the opportunity to ask questions of particular concern to them or their constituents. Committees sometimes send questions to nominees in advance of a hearing and ask for written responses. Nominees also might be asked to respond in writing to additional questions after a hearing. Especially for high-level positions, the nomination hearing may be only the first of many times an individual will be asked to testify before a committee. Therefore, the committee often gains a commitment from the nominee to be cooperative with future oversight activities of the committee. Hearings, under Senate Rule XXVI, are open to the public unless closed by majority vote for one of the reasons specified in the rule. Witness testimony is sometimes made available online through the website of the relevant committee and also through several commercial services, including Congressional Quarterly. Most committees print the hearings, although no rule requires it. The number of Senators necessary to constitute a quorum for the purpose of taking testimony varies from committee to committee, but it is usually smaller than a majority of the membership. A committee considering a nomination has four options. It may report the nomination to the Senate favorably, unfavorably, or without recommendation, or it may choose to take no action at all. It is more common for a committee to take no action on a nomination than to report unfavorably. Particularly for policymaking positions, committees sometimes report a nomination favorably, subject to the commitment of the nominee to testify before a Senate committee. Sometimes, committees choose to report a nomination without recommendation. Even if a majority of Senators on a committee do not agree that a nomination should be reported favorably, a majority might agree to report a nomination without a recommendation in order to permit a vote by the whole Senate. The timing of a vote to report a nomination varies in accordance with committee rules and practice. Most committees do not vote to report a nomination on the same day that they hold a hearing, but instead wait until the next meeting of the committee. Senate Rule XXVI, clause 7(a)(1) requires that a quorum for making a recommendation on a nomination consist of a majority of the membership of the committee. In most cases, the number of Senators necessary to constitute a quorum for making a recommendation on a nomination to the Senate is the same that the committee requires for reporting a measure. Every committee reports a majority of nominations favorably. Most of the time, committees do not formally present reports on nominations on the floor of the Senate. Instead, committee staff prepare the appropriate paperwork on behalf of the committee chair and file it with the clerk. The executive clerk then arranges for the nomination to be printed in the Congressional Record and placed on the Executive Calendar . If a report were presented on the floor, it would have to be done in executive session. Executive session and the Executive Calendar will be discussed in the next section. According to Senate Rule XXXI, the Senate cannot vote on a nomination the same day it is reported except by unanimous consent. It is fairly common for the Senate to discharge a committee from consideration of an unreported nomination by unanimous consent. This removes the nomination from the committee in order to allow the full Senate to consider it. When the Senate discharges a committee by unanimous consent, it is doing so with the support of the committee for the purposes of simplifying the process. It is unusual for Senators to attempt to discharge a committee by motion or resolution, instead of by unanimous consent, and only a few attempts have ever been successful. Senate Rule XVII does permit any Senator to submit a motion or resolution that a committee be discharged from the consideration of a subject referred to it. The discharge process, however, does not allow a simple majority to quickly initiate consideration of a nomination still in committee. It requires several steps and, most notably, a motion or resolution to discharge is debatable. This means that a cloture process may be necessary to discharge a committee. Cloture on a discharge motion or resolution requires the support of three-fifths of the Senate, usually 60 Senators, and several days. The Senate handles executive business, which includes both nominations and treaties, separately from its legislative business. All nominations reported from committee, regardless of whether they were reported favorably, unfavorably, or without recommendation, are listed on the Executive Calendar , a separate document from the Calendar of Business , which lists pending bills and resolutions. Usually, the majority leader schedules the consideration of nominations on the Calendar. Nominations are considered in executive session, a parliamentary form of the Senate in session that has its own journal and, to some extent, its own rules of procedure. After a committee reports a nomination or is discharged from considering it, the nomination is assigned a number by the executive clerk and placed on the Executive Calendar . Under a standing order of the Senate, certain nominations might also be placed in this status on the Executive Calendar after certain informational and time requirements are met. The list of nominations in the Executive Calendar includes basic information such as the name and office of the nominee, the name of the previous holder of the office, and whether the committee reported the nomination favorably, unfavorably, or without recommendation. Long lists of routine nominations are printed in the Congressional Record and identified only by a short title in the Executive Calendar , such as "Foreign Service nominations (84) beginning John F. Aloia, and ending Paul G. Churchill." In addition to reported nominations and treaties, the Executive Calendar contains the text of any unanimous consent agreements concerning executive business. The Executive Calendar is distributed to Senate personal offices and committee offices when there is business on it. It is also available online by following the link to "Calendars and Schedules" on the Virtual Reference Desk under the Reference tab of the Senate website (www.Senate.gov) . Business on the Executive Calendar , which consists of nominations and treaties, is considered in executive session. In contrast, all measures and matters associated with lawmaking are considered in legislative session. Until 1929 executive sessions were also closed to the public, but now they are open unless ordered otherwise by the Senate. The Senate usually begins the day in legislative session and enters executive session either by a non-debatable motion or, far more often, by unanimous consent. Only if the Senate adjourned or recessed while in executive session would the next meeting automatically open in executive session. The motion to go into executive session can be offered at any time, is not debatable, and cannot be laid upon the table. All business concerning nominations, including seemingly routine matters such as requests for joint referral or motions to print hearings, must be done in executive session. In practice, Senators often make such motions or unanimous consent requests "as if in executive session." These usually brief proceedings during a legislative session do not constitute an official executive session. In addition, at the start of each Congress, the Senate adopts a standing order, by unanimous consent, that allows the Senate to receive nominations from the President and for them to be referred to committees even on days when the Senate does not meet in executive session. The majority leader, by custom, makes most motions and requests that determine when or whether a nomination will be called up for consideration. For example, the majority leader may move or ask unanimous consent to "immediately proceed to executive session to consider the following nomination on the Executive Calendar.... " By precedent, the motion to go into executive session to take up a specified nomination is not debatable. The nomination itself, however, is debatable. It is not in order for a Senator to move to consider a nomination that is not on the Calendar, and, except by unanimous consent, a nomination on the Calendar cannot be taken up until it has been on the Calendar at least one day (Rule XXXI, clause 1). A day for this purpose is a calendar day. In other words, a nomination reported and placed on the Calendar on a Monday can be considered on Tuesday, even if it is the same legislative day. If the Senate simply resolved into executive session, the business immediately pending would be the first item on the Executive Calendar . A motion to proceed to another matter on the Calendar would be debatable and subject to a filibuster. For this reason, the Senate does not begin consideration of executive business this way. Instead, the motion made to call up a nomination is a motion to proceed to executive session to consider that specific nomination. If the Senate is already in executive session, and the Leader wishes to call up a nomination, the Leader will first move that the Senate enter legislative session and then that the Senate enter executive session to take up the nomination. Both motions (to enter legislative session and to enter executive session) are not subject to debate and are decided by a simple majority. Typically they are approved by voice vote. The question before the Senate when a nomination is taken up is "will the Senate advise and consent to this nomination?" The Senate can approve or reject a nomination. A majority of Senators present and voting, a quorum being present, is required to approve a nomination. According to Senate Rule XXXI, any Senator who voted with the majority on the nomination has the option of moving to reconsider a vote on the day of the vote or the next two days the Senate meets in executive session. Only one motion to reconsider is in order on each nomination, and often the motion to reconsider is laid upon the table, by unanimous consent, shortly after the vote on the nomination. This action prevents any subsequent attempt to reconsider. After the Senate acts on a nomination, the Secretary of the Senate attests to a resolution of confirmation or disapproval and transmits it to the White House. Many nominations are brought up by unanimous consent and approved without objection; routine nominations often are grouped by unanimous consent in order to be brought up and approved together, or en bloc . A small proportion of nominations, generally to higher-level positions, may need more consideration. When there is debate on a nomination, the chair of the committee usually makes an opening speech. For positions within a state, Senators from the state may wish to speak on the nominee, particularly if they were involved in the selection process. Under Senate rules, there are no time limits on debate except when conducted under cloture or a unanimous consent agreement. Senate Rule XXII provides a means to bring debate on a nomination to a close, if necessary. Under the terms of Rule XXII, at least 16 Senators sign a cloture motion to end debate on a pending nomination. The motion proposed is "to bring to a close the debate upon [the pending nomination]." A Senator can interrupt a Senator who is speaking to present a cloture motion. Cloture may be moved only on a question that is pending before the Senate; therefore, absent unanimous consent, the Senate must be in executive session and considering the nomination when the motion is filed. After the clerk reads the motion, the Senate returns to the business it was considering before the presentation of the motion. Unless a unanimous consent agreement provides otherwise, the Senate does not vote on the cloture motion until the second day of session after the day it is presented; for example, if the motion was presented on a Monday, the Senate would act on it on Wednesday. One hour after the Senate has convened on the day the motion "ripened," the presiding officer can interrupt the proceedings during an executive session to present a cloture motion for a vote. If the Senate is in legislative session when the time arrives for voting on the cloture motion, it proceeds into executive session prior to taking action on the cloture petition. According to Rule XXII, the presiding officer first directs the clerk to call the roll to ascertain that a quorum is present, although this requirement is often waived by unanimous consent. Senators then vote either yea or nay on the question: "Is it the sense of the Senate that the debate shall be brought to a close?" In April 2017, the Senate reinterpreted Rule XXII in order to allow cloture to be invoked on all nominations by a majority of Senators voting (a quorum being present), including Supreme Court justice nominations. This expanded the results of similar actions taken by the Senate in November 2013, which changed the cloture vote requirement to a majority for nominations except to the Supreme Court. Once cloture is invoked, for most nominations there can be a maximum of two hours of post-cloture consideration. The two hour maximum includes debate as well as any actions taken while the nomination is formally pending, including quorum calls. If cloture is invoked on nominations to the highest ranking executive branch positions, or on nominations to the Supreme Court or the U.S. Circuit Court of Appeals, then the maximum time for consideration after cloture is invoked is 30 hours (see Table 1 ). Under the rule, the 2 or 30 hours is floor time spent considering the nomination in the Senate, not simply the passage of time. Thus, for time to count against the 2 or 30-hour maximum, the Senate must be in session and the question must be pending. Time spent in recess or adjournment does not count, and if the Senate were to take up other business by unanimous consent, the time spent on that other business also would not count against the post-cloture time. A hold is a request by a Senator to his or her party leader to prevent or delay action on a nomination or a bill. Holds are not mentioned in the rules or precedents of the Senate, and they are enforced only through the agenda decisions of party leaders. A standing order of the Senate aims to ensure that any Senator who places a hold on any matter (including a nomination) make public his or her objection to the matter. Senators have placed holds on nominations for a number of reasons. One common purpose is to give a Senator more time to review a nomination or to consult with the nominee. Senators may also place holds because they disagree with the policy positions of the nominee. Senators have also admitted to using holds in order to gain concessions from the executive branch on matters not directly related to the nomination. The Senate precedents reducing the threshold necessary to invoke cloture on nominations, and the recent precedent reducing the time necessary for a cloture process, could affect the practice of holds. In some sense, holds are connected to the Senate traditions of mutual deference, since they may have originated as requests for more time to examine a pending nomination or bill. The effectiveness of a hold, however, ultimately has been grounded in the power of the Senator placing the hold to filibuster the nomination and the difficulty of invoking cloture to overcome a filibuster. Invoking cloture is now easier because the support of fewer Senators is necessary, and in most cases, the floor time required for a cloture process is less. The large number of nominations submitted by the President for Senate consideration, however, might still lead Senators to seek unanimous consent to quickly approve nominations. On April 3, 2019, the Senate reinterpreted Senate Rule XXII to reduce, from 30 hours to 2 hours, the maximum time allowed for consideration of most nominations after cloture is invoked. The Senate took this step by reversing two rulings by the Presiding Officer. The first vote established that "postcloture time under rule XXII for all executive branch nominations other than a position at level 1 of the Executive Schedule under section 5312 of title 5 of the United States Code is 2 hours." On the second vote, the Senate established that "postcloture time under rule XXII for all judicial nominations, other than circuit courts or Supreme Court of the United States, is 2 hours" (see Table 1 ). It is uncommon for the Senate to reverse a decision by the Presiding Officer. Any Senator can attempt to reverse a ruling by making an appeal, and except in specific cases, appeals are decided by majority vote. In most circumstances, however, appeals are debatable, and therefore supermajority support (through a cloture process) is typically necessary to reach a vote to reverse a decision of the Presiding Officer. In the April 3 proceedings, however, the appeal was raised after cloture had been invoked. Senate Rule XXII states that after a successful cloture vote, "appeals from the decision of the Presiding Officer, shall be decided without debate." Therefore, when the Majority Leader appealed the rulings of the Presiding Officer, the questions on whether the ruling should stand as the judgment of the Senate received a vote without an opportunity for extended debate. The Senate voted that the ruling should not stand, and thereby upheld instead the position of the Majority Leader. The future impact of these decisions on the nominations process is difficult to assess. The immediate and obvious expected impact is that the time between a cloture vote and a confirmation vote will decrease. In recent years, a vote to confirm a nominee has typically occurred the day after cloture was invoked (or on the next day of Senate session). Usually, Senators did not spend all of the time between the votes debating the nomination. Instead, Senators typically debated the nomination for some time post-cloture, but also usually entered into unanimous consent agreements that affected when the vote would occur. For example, it became common in recent Congresses for the Senate to agree, by unanimous consent, to consider the time the Senate spent in adjournment or recesses (e.g., overnight) to count as post-cloture time. The cloture rule affected the time of the vote set by unanimous consent: the rule provided for up to 30 hours of consideration of the nomination, and the Senate would agree to vote on the nomination a day later—reflecting the approximate time that the Senate could have debated the nomination under the rule. Assuming the Senate continues to establish times for voting on nominations by unanimous consent, those negotiations will be affected by the reinterpretation of the rule. In the absence of a unanimous consent agreement, most nominations can now receive a vote two hours after a vote to invoke cloture. The two hours is not formally divided between the parties pursuant to the rule (or pursuant to the reinterpretation of the rule), but it might be divided, by unanimous consent, between the Majority and Minority Leader. Even without an explicit unanimous consent agreement, the Majority and Minority Leaders are recognized before any other Senators. In addition, a Senator can speak for a maximum of one hour post-cloture. As a result, the Majority Leader could claim the first hour, and the Minority Leader the second, or vice versa. (Of course, Senators could speak on a nomination at times other than after cloture has been invoked, even when the nomination is not formally pending before the Senate. ) It is also possible that the recent reinterpretation of the rule will affect how often the Senate relies on the cloture process to approve nominations. After the first reinterpretation of the cloture rule in 2013, the number of nominations subjected to cloture motions increased significantly in both of the Congresses when the Senate was controlled by the same party as the President (113 th (2013-2014) and 115 th (2017-2018) Congresses). Nominations that are not confirmed or rejected are returned to the President at the end of a session or when the Senate adjourns or recesses for more than 30 days (Senate Rule XXXI, paragraph 6). If the President still wants a nominee considered, he must submit a new nomination to the Senate. The Senate can, however, waive this rule by unanimous consent, and it often does to allow nominations to remain "in status quo" between the first and second sessions of a Congress or during a long recess. The majority leader or his designee also may exempt specific nominees by name from the unanimous consent agreement, allowing them to be returned during the recess or adjournment. The Constitution, in Article II, Section 2, grants the President the authority to fill temporarily vacancies that "may happen during the Recess of the Senate." These appointments do not require the advice and consent of the Senate; the appointees temporarily fill the vacancies without Senate confirmation. In most cases, recess appointees have also been nominated to the positions to which they were appointed. Furthermore, when a recess appointment is made of an individual previously nominated to the position, the President usually submits a new nomination to the Senate in order to comply with a provision of law affecting the pay of recess appointees (5 U.S.C. 5503(a)). Recess appointments have sometimes been controversial and have occasionally led to inter-branch conflict.	[ "Article II, Section 2, of the Constitution provides that the President shall appoint officers of the United States \"by and with the Advice and Consent of the Senate.\" This report describes the process by which the Senate provides advice and consent on presidential nominations, including receipt and referral of nominations, committee practices, and floor procedure. Committees play the central role in the process through investigations and hearings. Senate Rule XXXI provides that nominations shall be referred to appropriate committees \"unless otherwise ordered.\" Most nominations are referred, although a Senate standing order provides that some \"privileged\" nominations to specified positions will not be referred unless requested by a Senator. The Senate rule concerning committee jurisdictions (Rule XXV) broadly defines issue areas for committees, and the same jurisdictional statements generally apply to nominations as well as legislation. A committee often gathers information about a nominee either before or instead of a formal hearing. A committee considering a nomination has four options. It can report the nomination to the Senate favorably, unfavorably, or without recommendation, or it can choose to take no action. It is more common for a committee to take no action on a nomination than to reject a nominee outright. The Senate handles executive business, which includes both nominations and treaties, separately from its legislative business. All nominations reported from committee are listed on the Executive Calendar, a separate document from the Calendar of Business, which lists pending bills and resolutions. Generally speaking, the majority leader schedules floor consideration of nominations on the Calendar. Nominations are considered in \"executive session,\" a parliamentary form of the Senate in session that has its own journal and, to some extent, its own rules of procedure. The Senate can call up a nomination expeditiously, because a motion to enter executive session to consider a specific nomination on the Calendar is not debatable. This motion requires a majority of Senators present and voting, a quorum being present, for approval. After a nomination has been called up, the question before the Senate is \"will the Senate advise and consent to this nomination?\" A majority of Senators voting is required to approve a nomination. However, Senate rules place no limit on how long a nomination may be debated, and ending consideration could require invoking cloture. On April 6, 2017, the Senate reinterpreted Rule XXII in order to allow cloture to be invoked on nominations to the Supreme Court by a majority of Senators voting. This expanded the results of similar actions taken by the Senate in November 2013, which changed the cloture vote requirement to a majority for nominations other than to the Supreme Court. After the 2013 decision, the number of nominations subjected to a cloture process increased. On April 3, 2019, the Senate reinterpreted Rule XXII again. The Senate reduced, from 30 hours to 2 hours, the maximum time nominations can be considered after cloture has been invoked. This change applied to all executive branch nominations except to high-level positions such as heads of departments, and it applied to all judicial nominations except to the Supreme Court and the U.S. Circuit Court of Appeals. The full impact of this change is difficult to assess at this time, but it is likely to shorten the time between a cloture vote and a vote on the nomination. If Senators respond as they did to the last reinterpretation of the cloture rule, it might also increase the number of nominations subjected to a cloture process. Nominations that are pending when the Senate adjourns sine die at the end of a session or recesses for more than 30 days are returned to the President unless the Senate, by unanimous consent, waives the rule requiring their return (Senate Rule XXXI, clause 6). If a nomination is returned, and the President still desires Senate consideration, he must submit a new nomination." ]	5,595	gov_report	en	null	df430577a7eaa9e6745391a4fe8c576cac1cad10fde42515
The Longshore and Harbor Workers' Compensation Act (LHWCA) requires that private-sector firms provide workers' compensation coverage for their employees engaged in longshore, harbor, or other maritime occupations on or adjacent to the navigable waters of the United States. Although the LHWCA program is administered by the Department of Labor (DOL), most benefits are paid either through private insurers or self-insured firms. The LHWCA is a workers' compensation system and not a federal benefits program. Like other workers' compensation systems in the United States, the LHWCA ensures that all covered workers are provided medical and disability benefits in the event they are injured or become ill in the course of their employment, and it provides benefits to the survivors of covered workers who die on the job. In 2016, the LHWCA paid approximately $1.41 billion in cash and medical benefits to injured workers and the families of deceased workers. Nearly all private- and public-sector workers in the United States are covered by some form of workers' compensation. The federal government has a limited role in workers' compensation and administers workers' compensation programs only for federal employees and several classes of private-sector workers, including longshore and harbor workers. For most occupations, workers' compensation is mandated by state laws and administered by state agencies. There is no federal mandate that states provide workers' compensation. However, every state and the District of Columbia has a workers' compensation system. There are no federal standards for state workers' compensation systems. However, all U.S. workers' compensation systems provide for limited wage replacement and full medical benefits for workers who are injured or become ill as a result of their work and survivors benefits to the families of workers who die on the job. Workers' compensation in the United States is a no-fault system that pays workers for employment-related injuries or illnesses without considering the culpability of any one party. In exchange for this no-fault protection and the guarantee of benefits in the event of an employment-related injury, illness, or death, workers give up their rights to bring actions against employers in the civil court system and give up their rights to seek damages for injuries and illnesses, including pain and suffering, outside of those provided by the workers' compensation laws. Workers' compensation is mandatory in all states and the District of Columbia, with the exception of Texas. In Texas, employers may, under certain conditions, opt out of the workers' compensation system, but in doing so subject themselves to civil actions brought by injured employees. Prior to the enactment of the LHWCA in 1927, longshore and harbor workers were not covered by any workers' compensation system. Although persons who worked entirely on land were covered by workers' compensation laws in those states that enacted such laws, pursuant to the Supreme Court's 1917 decision in Southern Pacific Co. v. Jensen , state workers' compensation systems did not have jurisdiction over persons working on the "navigable waters" of the United States because the Constitution granted the authority over "matters of admiralty and maritime jurisdiction" to the federal government. The LHWCA created a federal workers' compensation program to cover these workers. In 1972, the LHWCA zone of coverage was extended to include areas adjacent to navigable waters that are used for loading, unloading, repairing, or building vessels. The LHWCA provisions apply to any private firm with any covered employees who work, full- or part-time, on the navigable waters of the United States, including in any of the following adjoining areas: piers; wharves; dry docks; terminals; building ways; marine railways; or other areas customarily used in the loading, unloading, repairing, or building of vessels. With the exception of workers excluded by statute (listed below), the LHWCA covers any maritime employee of a covered firm, including longshore workers (those who load and unload ships) and harbor workers (i.e., ship repairmen, ship builders, and ship breakers). Sections 2(3) and 3(b) of the LHWCA exclude the following workers from coverage: Workers covered by a state workers' compensation law, including employees exclusively engaged in clerical, secretarial, security, or data processing work; persons employed by a club, camp, recreational operation, museum, or retail outlet; marina employees not engaged in the construction, replacement, or expansion of the marina; suppliers, transporters, and vendors doing business temporarily at the site of a covered employer; aquaculture workers; and employees who build any recreational vessel under 65 feet in length, or repair any recreational vessel, or dismantle any part of a recreational vessel in connection with the repair of the vessel. Workers, whether covered or not covered by a state workers' compensation law, including masters and crew members of vessels; persons engaged by the master of a vessel to unload any vessel under 18 tons net; and employees of the federal government, or any state, local, or foreign government or any subdivision of such a government. Section 803 of the American Recovery and Reinvestment Act of 2009 (ARRA) modified one of the excluded classes of workers under the LHWCA by adding additional exclusions for persons who work on recreational vessels over 65 feet in length. Prior to the amendment, Section 2(3)(F) of the LHWCA read as follows: (3) The term "employee" means…but such term does not include… (F) individuals employed to build, repair, or dismantle any recreational vessel under sixty-five feet in length. This section, as amended, reads as follows (with additions in italics): (3) The term "employee" means…but such term does not include… (F) individuals employed to build any recreational vessel under sixty-five feet in length, or individuals employed to repair any recreational vessel, or to dismantle any part of a recreational vessel in connection with the repair of such vessel. By granting an exemption from the LHWCA to persons engaged in the repair of any recreation vessel, regardless of its size, this amendment limits the scope of the LHWCA and increases the types of workers excluded from coverage. In 2011, the DOL promulgated implementing regulations for the new recreational vessel provision provided by Section 803 of ARRA. These regulations provided definitions of recreational vessel for the purposes of the determination of LHWCA coverage. These definitions are based on the classification of vessels used by the U.S. Coast Guard (USCG) and provided in statute and regulation. Specifically, under these current DOL regulations, a vessel is considered a recreational vessel if the vessel is being manufactured or operated mainly for pleasure or leased, rented, or chartered to another person for his or her pleasure. In addition, for a vessel being built or repaired under warranty by its manufacturer or builder, the vessel is considered a recreational vessel if it appears based on its design and construction to be intended for recreational uses. The manufacturer or builder bears the burden under this regulation to establish that the vessel is a recreational vessel. For a vessel being repaired, dismantled for repair, or dismantled at the end of its life (ship breaking), the vessel is not considered a recreational vessel if it was operating, more than infrequently, in one of the following categories provided in the U.S. Code : "passenger vessel" (46 U.S.C. §2101(22)); "small passenger vessel" (46 U.S.C. §2101(35)); "uninspected passenger vessel" (46 U.S.C. §2101(42)); vessel routinely engaged in "commercial service" (46 U.S.C. §2101(5)); or vessel that routinely carries "passengers for hire" (46 U.S.C. §2101(21a)). A vessel being repaired, dismantled for repair, or dismantled at the end of its life is considered a recreational vessel if the vessel is a public vessel owned, or bareboat chartered, by the federal government or a state or local government and shares elements of design and construction with traditional recreational vessels and is not used for military or commercial purposes. Since the promulgation of the DOL's 2011 rules providing regulatory definitions of recreational vessels for the purposes of the LHWCA, numerous bills have been introduced that would, if enacted, remove the existing regulatory definitions for a vessel being repaired, dismantled for repair, or dismantled at the end of its life so that the USCG categories of vessels provided in Section 2101 of Title 46 of the United States Code would no longer be used in the classification of such a vessel under the LHWCA. This legislation would expand the types of recreational vessels. Because persons who work on recreational vessels are not covered by the LHWCA, the legislation would allow employers to purchase workers' compensation for these workers under state laws rather than the LHWCA, which, due to the more generous benefits frequently offered by the LHWCA and the limited number of providers, may be more expensive. In the 115 th Congress, Section 3509 of H.R. 2810 , the National Defense Authorization Act for 2018 (NDAA), as initially passed by the House of Representatives on July 14, 2017, contained this legislative provision. This provision was not included in the Senate version of the bill nor in the final NDAA enacted into law. The LHWCA has been amended four times to extend coverage to occupations outside the original scope of the law. In 1928, coverage was extended to employees of the District of Columbia . The provision was repealed, effective for all injuries occurring on or after July 26, 1982, with the enactment by the District of Columbia government of the District of Columbia Workers' Compensation Act of 1982. Benefits for injuries that occurred prior to July 26, 1982, continue to be paid under the LHWCA. Coverage was extended to overse a s military and public works contractors in 1941 with the enactment of the Defense Base Act. In 1952, coverage was extended to civilian employees of nonappropriated fund instrumentalities of the armed forces , such as service clubs and post exchanges. Coverage was extended in 1953 to employees working on the Outer Continental Shelf in the exploration and the development of natural resources , such as workers on offshore oil platforms. Employers required by the LHWCA to provide workers' compensation coverage to their employees may either purchase private insurance or self-insure. The DOL is responsible for authorizing insurance carriers to provide coverage under the LHWCA program and for authorizing companies to self-insure. However, the DOL does not set or regulate insurance premiums. These insurance arrangements are the primary means of providing LHWCA benefits to injured, sick, and deceased workers and their families. General revenue is not used to pay any LHWCA benefits. The DOL operates the Special Fund to provide LHWCA benefits in cases in which the responsible employer or insurance carrier cannot pay or in which benefits must be paid for a second injury under Section 8(f) of the LHWCA. The Special Fund is financed through an annual assessment charged to employers and insurance carriers based on the previous year's claims, payments required when an employee dies without any survivors, disability payments due to an employee without survivors after his or her death, and penalties and fines assessed for noncompliance with LHWCA program rules. The administrative costs associated with the LHWCA are largely provided by general revenue. General revenue is used to pay for most oversight functions associated with the LHWCA and the processing of LHWCA claims. General revenue is also used to pay legal and investigative costs associated with the DOL Office of the Solicitor and Office of the Inspector General. Revenue from the Special Fund is used to finance oversight activities related to the Special Fund and the program's vocational rehabilitation activities. In 2016, total administrative costs associated with the LHWCA were approximately $15.8 million, of which $13.6 million, or 86%, was paid by general revenue and $2.2 million, or 14%, was paid by the Special Fund. The LHWCA provides medical benefits for covered injuries and illnesses and disability benefits to partially cover wages lost due to covered injuries or illnesses, and it provides survivors benefits to the families of workers who die on the job. The LHWCA provides medical benefits to fully cover the cost of any medical treatment associated with a covered injury or illness. These medical benefits are provided without any deductibles, copayments, or costs paid by the injured worker. Prescription drugs and medical procedures are fully covered, as are costs associated with travelling to and from medical appointments. A covered worker may select his or her own treating physician, provided the physician has not been debarred from the LHWCA program for violating program rules. Covered workers are entitled to vocational rehabilitation services provided under the LHWCA. Vocational rehabilitation services are designed to assist the covered worker in returning to employment. There is no cost to the covered worker for vocational rehabilitation and workers actively participating in a rehabilitation program are entitled to an additional benefit of $25 per week. All costs associated with vocational rehabilitation under the LHWCA are paid out of the Special Fund. Vocational rehabilitation services may be provided by public or private rehabilitation agencies. The LHWCA provides disability benefits to covered workers to partially cover wages lost due to the inability to work because of a covered injury or illness. The amount of disability benefits is based on the worker's pre-disability wage, subject to maximum and minimum benefits based on the National Average Weekly Wage (NAWW) as determined by the DOL. The NAWW is updated October 1 of each year and is based on average wages across the United States for the three calendar quarters ending on June 30 of that year. The minimum weekly benefit that can be paid to a covered employee is equal to 50% of the NAWW and the maximum weekly benefit that can be paid is equal to 200% of the NAWW. Disability benefits under the LHWCA, like all workers' compensation benefits, are not subject to federal income taxes. Unlike most state workers' compensation benefits, however, LHWCA benefits are adjusted based on wage inflation rather than price inflation. Benefits are adjusted annually each October 1 to reflect the change in the NAWW from the previous year, up to a maximum increase of 5%. The LHWCA provides benefits in cases of total disability. Under the LHWCA, a worker is considered totally disabled if he or she is unable to earn his or her pre-injury wage because of a covered injury or illness. In addition, a worker is also considered totally disabled if he or she loses both hands, arms, feet, legs, or eyes, or any two of these body systems, such as the loss of one arm and one leg. Total disability benefits under the LHWCA are equal to two-thirds of the covered worker's wage at the time of the injury or illness. Total disability benefits continue until the worker is no longer totally disabled or dies. If a covered worker is able to partially return to work or return to work at a wage level less than his or her wage at the time of injury, then he or she is considered partially disabled. In cases of temporary partial disability, the LHWCA benefit is equal to two-thirds of the difference between the workers' pre-injury wage and his or her current earning capacity or actual earnings. Section 8(c) of the LHWCA provides a schedule of benefits to be paid in cases of permanent partial disability (PPD), such as the loss of a limb. The benefit schedule provides the number of weeks of compensation, at two-thirds of the pre-injury wage, for each type of PPD. For example, the LHWCA schedule provides that a worker who loses an arm is entitled to 312 weeks of compensation. Benefits in cases not listed on the schedule are paid at two-thirds of the difference between the pre-injury wage and current earning capacity for the duration of the disability. Schedule benefits for PPD are paid regardless of the current work status or earnings capacity of the employee. Thus, an employee with a PPD can fully return to work and earn his or her wage in addition to the PPD compensation. A copy of the LHWCA PPD schedule can be found in the Appendix to this report. If a worker has an illness that was caused by his or her covered employment but did not manifest itself until after his or her retirement, then he or she is entitled to disability benefits equal to two-thirds of the NAWW multiplied by the percentage of his or her impairment. The percentage of impairment is determined using the current edition of the American Medical Association's Guides to the Evaluation of Permanent Impairment (AMA Guides ), or another professionally recognized source if the condition is not listed in the AMA Guides. The LHWCA provides cash benefits to the surviving spouses and minor children of workers killed on the job. Benefits for a surviving spouse end when the spouse remarries or dies and benefits for surviving children continue until the children reach the age of 18, age 23 if a full-time student, or for the life a child with a disability. A surviving spouse with no eligible children is entitled to one-half of the deceased worker's wage at the time of death under the LHWCA. A surviving spouse with one or more eligible children is entitled to two-thirds of the deceased worker's wage at the time of death. Once all children become ineligible for benefits because of their ages, the surviving spouse's benefit is reduced to the level of a spouse without any eligible children. If an eligible spouse becomes ineligible for benefits because of death or remarriage, or if there is no surviving spouse, benefits are still paid to any surviving children. Under the LHWCA, a single surviving eligible child is entitled to one-half of the deceased worker's wage at the time of death, and two or more surviving children are eligible for a combined two-thirds of the wage at the time of death. The survivors of a covered worker killed on the job are entitled under the LHWCA to a cash payment to provide for the burial and funeral of the deceased. The burial and funeral allowance is capped by Section 9(a) of the LHWCA at $3,000, and this cap not adjusted to reflect changes in prices or wages. If a covered worker who is receiving scheduled PPD benefits dies of a cause unrelated to his or her illness or injury, then the balance of any remaining PPD benefits is paid to his or her survivors. If a covered worker who dies on the job leaves no survivors, his or her employer or the employer's insurance carrier is required to pay $5,000 into the Special Fund. Although the responsibility for the payment of benefits under the LHWCA rests with the employer or the employer's insurance company, decisions on benefit eligibility and the amount of benefits are made by the DOL. Upon the report of an injury, illness, or death, the LHWCA claims process begins. If the employer or insurance carrier does not controvert the claim, then arrangements are made by the DOL for the claim to be paid. If, however, the employer controverts any part of the claim, then the DOL sets up an informal conference, either in person or by phone, between the employer or insurance carrier and worker with the goal of resolving any disputes over the claim. If this informal conference fails to resolve all outstanding disputes, then a formal hearing before a DOL administrative law judge (ALJ) is scheduled. If the employer or insurance carrier or the worker is dissatisfied with the decision of the ALJ, then this decision may be appealed to the Benefits Review Board (BRB). The BRB is made up of five members appointed by the Secretary of Labor. Either party dissatisfied with the decision of the BRB may file a petition with the U.S. Court of Appeals for the circuit in which the injury occurred praying that the BRB's decision be set aside or modified. If an employer or insurance carrier fails to pay compensation in accordance with a final decision on a claim, the covered worker or the DOL may request that the U.S. District Court order that payment be made.	[ "The Longshore and Harbor Workers' Compensation Act (LHWCA) is a federal workers' compensation program that covers certain private-sector maritime workers. Firms that employ these workers are required to purchase workers' compensation or self-insure and are responsible for providing medical and disability benefits to covered workers who are injured or become ill on the job and survivors benefits to the families of covered workers who die on the job. The LHWCA is administered by the Department of Labor (DOL), and all benefit costs are paid by employers and their insurance carriers. In 2016, more than $1.4 billion in LHWCA benefits were paid to beneficiaries. Congress has extended the LHWCA provisions to cover workers outside of the maritime industry, such as overseas government contractors and civilian employees of military post exchanges. As part of the American Recovery and Reinvestment Act of 2009 (ARRA), persons who repair recreational vessels of any size were added to the LHWCA exemption list. In 2011, the DOL implemented this provision; since then, those regulations have proven controversial and numerous bills have been introduced to modify the regulatory definition to increase the number of workers exempted from the LHWCA. The LHWCA pays for all medical care associated with a covered injury or illness. Disability benefits are based on a worker's pre-injury wage, and, unlike comparable state workers' compensation benefits, are adjusted annually to reflect national wage growth." ]	3,317	gov_report	en	null	16ff170b05fee2ae75fd88537151adb7172c5aee0b809511
This report describes and analyzes annual appropriations for the Department of Homeland Security (DHS) for FY2019. It compares the enacted FY2018 appropriations for DHS, the Donald J. Trump Administration's FY2019 budget request, and the appropriations measures developed and considered by Congress in response to it. This report identifies additional informational resources, reports, and products on DHS appropriations that provide context for the discussion, and it provides a list of Congressional Research Service (CRS) policy experts with whom clients may consult on specific topics. The suite of CRS reports on homeland security appropriations tracks legislative action and congressional issues related to DHS appropriations, with particular attention paid to discretionary funding amounts. These reports do not provide in-depth analysis of specific issues related to mandatory funding—such as retirement pay—nor do they systematically follow other legislation related to the authorizing or amending of DHS programs, activities, or fee revenues. Discussion of appropriations legislation involves a variety of specialized budgetary concepts. The Appendix to this report explains several of these concepts, including budget authority, obligations, outlays, discretionary and mandatory spending, offsetting collections, allocations, and adjustments to the discretionary spending caps under the Budget Control Act (BCA; P.L. 112-25 ). A more complete discussion of those terms and the appropriations process in general can be found in CRS Report R42388, The Congressional Appropriations Process: An Introduction , coordinated by James V. Saturno, and the Government Accountability Office's A Glossary of Terms Used in the Federal Budget Process . All amounts contained in the suite of CRS reports on homeland security appropriations represent budget authority. For precision in percentages and totals, all calculations in these reports used unrounded data, which are presented in each report's tables. However, amounts in narrative discussions are rounded to the nearest million (or 10 million, in the case of numbers larger than 1 billion), unless noted otherwise. Data used in this report for FY2018 amounts are derived from the explanatory statement accompanying P.L. 115-141 , the Consolidated Appropriations Act, 2017—Division F of which is the Department of Homeland Security Appropriations Act, 2018. The explanatory statement also includes data on FY2018 supplemental appropriations for DHS enacted prior to the development of the consolidated appropriations act for FY2018. Data for the FY2019 requested levels and enacted levels are drawn from H.Rept. 116-9 , the explanatory statement accompanying P.L. 116-6 . Data on the Senate Appropriations Committee recommendation are drawn from S.Rept. 115-283 , and data for the House Appropriations Committee recommendation are drawn from H.Rept. 115-948 . Scoring methodology is consistent across this report, relying on data provided by the Appropriations Committees that has been developed with Congressional Budget Office (CBO) methodology. CRS does not attempt to compare this data with Office of Management and Budget (OMB) data because technical scoring differences do not allow precise comparisons. This section provides an overview of the process of enactment of appropriations for the Department of Homeland Security for FY2019, from the Administration's initial request, through committee action in the House and Senate, continuing appropriations (and their lapse), and enactment of the consolidated appropriations bill that contained DHS annual appropriation. On February 12, 2018, the Trump Administration released its budget request for FY2019. The enactment of the Bipartisan Budget Act of 2018 ( P.L. 115-123 ) three days before had established discretionary spending limits for FY2018 and FY2019, replacing the limits prescribed by the Budget Control Act of 2011 ( P.L. 112-25 ). The Administration chose to submit an addendum to their request in a letter accompanying the formal request documentation, which included additional requests for resources for DHS and several other departments and agencies. The Trump Administration requested $47.43 billion in adjusted net discretionary budget authority for DHS for FY2019, as part of an overall budget that the Office of Management and Budget estimated to be $74.88 billion (including fees, trust funds, and other funding that is not annually appropriated or does not score against discretionary budget limits). The request amounted to a $0.29 billion (0.6%) decrease from the $47.72 billion in annual appropriations enacted for FY2018 through the Department of Homeland Security Appropriations Act, 2018 ( P.L. 115-141 , Division F). The Trump Administration also requested discretionary funding for DHS components that does not count against discretionary spending limits set by the Budget Control Act (BCA; P.L. 112-25 ) and is not reflected in the above totals. The Administration requested an additional $6.65 billion for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the BCA, and in the budget request for the Department of Defense, $165 million in Overseas Contingency Operations/Global War on Terror designated funding (OCO), to be transferred to the Coast Guard. On June 21, 2018, the Senate Appropriations Committee reported out S. 3109 , the Department of Homeland Security Appropriations Act, 2019, accompanied by S.Rept. 115-283 . Committee-reported S. 3109 included $48.33 billion in adjusted net discretionary budget authority for FY2019. This was $901 million (1.9%) above the level requested by the Administration, and $611 million (1.3%) above the enacted level for FY2018. The Senate committee-reported bill also included the Administration-requested levels for disaster relief funding, and $163 million in OCO-designated funding directly for the Coast Guard, as had been done in FY2018, rather than as a transfer, as had been requested by the Administration. This bill was never taken up for action on the Senate floor. On July 26, 2018, the House Appropriations Committee marked up H.R. 6776 , its version of the Department of Homeland Security Appropriations Act, 2019. H.Rept. 115-948 was filed September 12, 2018. Committee-reported H.R. 6776 included $51.44 billion in adjusted net discretionary budget authority. The House committee-reported bill included the Administration-requested levels for disaster relief funding, but unlike S. 3109 , did not include the OCO funding for the Coast Guard. This bill did not see action on the House floor. As some of the annual appropriations for FY2019 remained unfinished, a consolidated appropriations bill that included a continuing resolution was passed by Congress and signed into law on September 28, 2018, as P.L. 115-245 . The continuing resolution (Division C) continued funding for DHS at a rate of operations equal to that of the Department of Homeland Security Appropriations Act, 2018, with some exceptions. The continuing resolution was extended through December 21, 2018, at which point it expired, and annual appropriations for DHS lapsed, resulting in a partial shutdown of DHS for 35 days. Continuing appropriations were restored at the FY2018 rate of operations with the enactment of P.L. 116-4 on January 25, 2019. On February 14, 2019, the House took up H.J.Res. 31 , a consolidated appropriations bill that included eight annual appropriations bills. Division A, the Department of Homeland Security Appropriations Act, 2019, included $49.41 billion in adjusted net discretionary budget authority, $1.69 billion (3.5%) more than had been provided for FY2018, and $2.04 billion more than had been requested by the Administration in February 2018. In addition to that total, the bill included $12 billion designated for the costs of major disasters—$5.35 billion (80.4%) more than had been requested, and the requested $165 million in OCO funding appropriated for the Coast Guard operating budget, rather than a transfer from the Navy. The bill passed the House by a vote of 300-128, and the Senate that same day by a vote of 83-16. The President signed it into law the next day. Generally, the homeland security appropriations bill includes all annual appropriations provided for DHS, allocating resources to every departmental component. Discretionary appropriations provide roughly two-thirds to three-fourths of the annual funding for DHS operations, depending how one accounts for disaster relief spending and funding for overseas contingency operations. The remainder of the budget is a mix of fee revenues, trust funds, and mandatory spending. Appropriations measures for DHS typically have been organized into five titles. The first four are thematic groupings of components, while the fifth provides general direction to the department, and sometimes includes provisions providing additional budget authority. Prior to the FY2017 act, the legislative language of many appropriations included directions to components or specific conditions on how the budget authority it provided could be used. Similarly, general provisions provided directions or conditions to one or more components. In the FY2017 act, a number of these provisions within appropriations and component-specific general provisions were grouped at the ends of the titles where their targeted components are funded, and identified as "administrative provisions." This practice has continued in subsequent years. When DHS was established in 2003, components of other agencies were brought together over a matter of months, in the midst of ongoing budget cycles. Rather than developing a new structure of appropriations for the entire department, Congress and the Administration continued to provide resources through existing account structures when possible. At the direction of Congress, in 2014 DHS began to work on a new Common Appropriations Structure (CAS), which would standardize the format of DHS appropriations across components. In an interim report in 2015, DHS noted that operating with "over 70 different appropriations and over 100 Programs, Projects, and Activities ... has contributed to a lack of transparency, inhibited comparisons between programs, and complicated spending decisions and other managerial decision-making." After several years of work and negotiations with Congress, DHS made its first budget request in the CAS for FY2017, and implemented it while operating under the continuing resolutions funding the department in October 2016. For FY2017 and FY2018, all DHS components requested appropriations under the CAS except for the Coast Guard, due to constraints of its financial management system. For FY2019, all the components' requests generally conformed to the CAS. A visual representation of the FY2019 requested funding in this new structure follows in Figure 1 . On the left, CAS appropriations categories are listed next to a black bar representing the total FY2018 funding levels requested for DHS for each category. A catch-all "other" category is included for budget authority associated with the legislation that does not fit the CAS categories. Colored lines flow to the DHS components listed on the right, showing how the amount of funding for each appropriations category is distributed across DHS components. Wider lines indicate greater funding levels, so it is possible to understand how components may be funded differently. For example, while Customs and Border Protection (CBP) gets most of its funding from Operations and Support appropriations, the Federal Emergency Management Agency (FEMA) receives most of its discretionary funding from the Disaster Relief Fund appropriation. The following sections present textual and tabular comparisons among FY2018 enacted appropriations, FY2019 requested appropriations, the FY2019 appropriations bills developed by the appropriations committees, and the final enacted annual appropriation in Division A of the FY2019 Consolidated Appropriations Act ( P.L. 116-6 ). The structure of the appropriations reflects the organization outlined in the detail table of the explanatory statement accompanying the act ( H.Rept. 116-9 ). The tables summarize enacted appropriations for FY2018, and those requested by the Administration, and proposed in appropriations committee-developed legislation under development for FY2019. Only the formal request for FY2019 annual appropriations is reflected in the "Request" column. The tables include data on enacted annual and supplemental appropriations. Instances where appropriations are provided for a title's components in other parts of the bill (such as in general provisions or by transfer) are shown separately. Supplemental appropriations provided with an emergency designation for a given component in FY2018 are displayed after the subtotal of annual appropriations. Following the methodology used by the appropriations committees, totals of "appropriations" do not include resources provided by transfer or under adjustments to discretionary spending limits (i.e., for emergency requirements, overseas contingency operations for the Coast Guard or the cost of major disasters under the Stafford Act for the Federal Emergency Management Agency). Amounts covered by adjustments are included with discretionary appropriations in a separate total for "discretionary funding." A subtotal for each component of total estimated budgetary resources that would be available under the legislation and from other sources (such as fees, mandatory spending, and trust funds) for the given fiscal year is also provided at the end of each component section. Totals at the bottom of each table indicate the total net discretionary appropriation for the title on its own, the total net discretionary funding from the annual appropriations bill and any supplemental appropriations (when such were provided), and the projected total estimated budgetary resources for each phase in the appropriations process shown in the table. Title I, Departmental Management and Operations, the smallest of the component-specific titles, contains appropriations for the Office of the Secretary and Executive Management, the Management Directorate, Analysis and Operations (A&O), and the Office of the Inspector General (OIG). For FY2018, these components received $1.36 billion in net discretionary funding through the appropriations process, including $25 million in FY2018 supplemental appropriations. The Trump Administration requested $1.60 billion in FY2019 net discretionary funding for components included in this title. In addition, $24 million was requested as a transfer from the FY2019 appropriation for the Disaster Relief Fund to the OIG. Not including the transfer, the appropriations request was $241 million (17.7%) more than the amount provided for FY2018. Senate Appropriations Committee-reported S. 3109 included $1.47 billion in FY2019 net discretionary funding for the components funded in this title. This was $137 million (8.6%) less than requested by the Trump Administration and $103 million (7.6%) more than the amount provided for FY2018. S. 3109 included $72 million in discretionary budget authority drawn from unobligated prior-year balances from the DRF, but did not include the proposed transfer of FY2019 DRF resources to the OIG. As a result, the gross budgetary resources provided to components funded in Title I was $89 million (5.5%) less than the request, and $176 million (12.9%) more than provided in FY2018. House Appropriations Committee-reported H.R. 6776 included $1.48 billion in FY2019 net discretionary funding for the components funded in this title. This was $119 million (7.4%) less than requested by the Trump Administration and $122 million (8.9%) more than the amount provided for FY2018. H.R. 6776 , like the Senate committee-reported bill, did not include the proposed transfer of FY2019 DRF resources to the OIG. As a result, the gross budgetary resources provided to components funded in Title I were $143 million (8.8%) less than the request, and $122 million (8.9%) more than provided in FY2018. P.L. 116-6 included a total of $1.88 billion in FY2019 net discretionary funding for the components funded in this title. This included $51 million in a general provision for financial systems modernization, controlled by the management directorate. The total was $513 million (37.7%) more than was provided in FY2018, and $248 million (15.2%) more than was requested by the Administration, if one included the Administration's proposed transfer of $24 million from the Disaster Relief Fund to the Office of the Inspector General. Table 1 shows these comparisons in greater detail. As resources were requested or provided for the Management Directorate and Office of the Inspector General in some cases from outside Title I, separate lines are included for each of those components showing a total for what is provided solely within Title I, then the individual items funded outside the title, followed by the total annual appropriation for the components. Title II, Security, Enforcement, and Investigations, contains appropriations for U.S. Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Transportation Security Administration (TSA), the Coast Guard (USCG), and the U.S. Secret Service (USSS). Title II funding represents the majority of DHS's budget, comprising roughly three-quarters of the funding appropriated annually for the department. For FY2018, these components received $39.52 billion in net discretionary funding, as part of $47.13 billion in projected total budget authority. This included $1.06 billion in supplemental appropriations. The Trump Administration formally requested $38.41 billion in FY2019 net discretionary funding for components included in this title, as part of a total budget request for these components of $47.08 billion for FY2019. The funding request was $45 million (0.1%) less than the amount provided for FY2018, setting aside FY2018 supplemental appropriations. Again setting aside FY2018 supplemental appropriations, the total resources proposed for FY2019 was $1.01 billion (2.2%) more than projected for FY2018. The Administration reportedly sought additional funding in this title for construction of border barriers, above the formally requested level. In January 2019, the acting director of the Office of Management and Budget sent a letter to congressional leaders officially seeking an additional $4.1 billion. Those amounts are not included in these comparative calculations or in the table below. Senate Appropriations Committee-reported S. 3109 included $38.68 billion in FY2019 net discretionary funding for the components funded in this title. This was $271 million (0.7%) more than formally requested by the Trump Administration and $227 million (0.6%) more than the amount provided for FY2018, setting aside FY2018 supplemental appropriations. The total budgetary resources projected under S. 3109 were $614 million (1.3%) less than the Administration's request (largely due to rejection of a proposed TSA fee increase), but $391 million (0.8%) more than projected for FY2018, again setting aside FY2018 supplemental appropriations. House Appropriations Committee-reported H.R. 6776 included $41.28 billion in FY2019 net discretionary funding for the components funded in this title. This was $2.87 billion (7.5%) more than formally requested by the Trump Administration and $2.82 billion (7.3%) more than the amount provided for FY2018, setting aside FY2018 supplemental appropriations. The total budgetary resources projected under H.R. 6776 were $2.08 billion (4.4%) more than formally requested by the Administration and $3.12 billion (6.8%) more than projected for FY2018, again setting aside FY2018 supplemental appropriations. H.R. 6776 would have provided $2.59 billion (6.7%) more than S. 3019 , largely due to the House Appropriations Committee recommending $3.35 billion more than its Senate counterpart for CBP's Border Security Assets and Infrastructure activity. P.L. 116-6 included $40.00 billion in net discretionary funding for the components funded in this title. The enacted annual appropriations were $1.59 billion (4.1%) more than requested, and $486 million (1.2%) more than the amount provided in FY2018. Setting aside FY2018 supplemental funding, FY2019 enacted net discretionary funding exceeded FY2018 levels by $1.55 billion (4.0%). The total budgetary resources projected for components funded in this title were $47.82 billion, $704 million (1.5%) more than was formally requested by the Administration, and $1.75 billion (3.8%) more than was provided in FY2018, setting aside the FY2018 supplemental funding. Table 2 shows these comparisons in greater detail. Title III, Protection, Preparedness, Response, and Recovery, contains appropriations for the Cybersecurity and Infrastructure Security Agency (CISA), the Office of Health Affairs (OHA), and the Federal Emergency Management Agency (FEMA). It is the second largest of the component-specific titles. For FY2018, these components received $7.22 billion in net discretionary appropriations and $7.37 billion in specially designated funding for disaster relief through the annual appropriations process. In addition to that annual funding, $58.23 billion was provided for FEMA in emergency supplemental appropriations in FY2018. Incorporating all these elements, the total net discretionary funding level for all Title III components was $72.61 billion for FY2018. The Trump Administration requested $6.19 billion in FY2019 net discretionary appropriations for components included in this title, and $6.65 billion in specially designated funding for disaster relief as part of a total net discretionary funding level for these components of $12.84 billion for FY2019. Setting aside the $58.23 billion in FY2018 supplemental appropriations, the appropriations request was $1.54 billion (10.7%) less than the amount provided for FY2018 in net discretionary funding. Senate Appropriations Committee-reported S. 3109 included $13.54 billion in FY2019 net discretionary funding for the components funded in this title. This was $694 million (5.4%) more than requested by the Trump Administration and $847 million (5.9%) less than the amount provided for FY2018, setting aside supplemental funding. The total budgetary resources projected would be $718 million (3.8%) more than the Administration's request, but $1.29 billion (6.2%) less than projected for FY2018, setting aside supplemental funding. The Senate committee-reported bill included within these totals the requested disaster relief funding of $6.65 billion, and offset $228 million in its Federal Assistance appropriation from unobligated DRF balances. House Appropriations Committee-reported H.R. 6776 included $13.70 billion in FY2019 net discretionary funding for the components funded in this title. This was $861 million (6.7%) more than requested by the Trump Administration and $681 million (4.7%) less than the amount provided for FY2018, setting aside supplemental funding. The total budgetary resources projected would be $885 million (4.7%) more than the Administration's request, but $1.13 billion (5.4%) less than projected for FY2018, setting aside supplemental funding. The House committee-reported bill included within these totals the requested disaster relief funding of $6.65 billion. P.L. 116-6 included $18.27 billion in FY2019 net discretionary funding for the components funded in this title. The enacted discretionary funding level was $5.43 billion (42.3%) more than requested, and $3.89 billion (27.1%) more than the amount provided for FY2018, setting aside the historically high level of supplemental appropriations. The total budgetary resources projected for FY2019 was $5.46 billion (29.0%) more than was requested, and $3.44 billion (16.5%) more than was projected for FY2018, setting aside FY2018 supplemental funding. Table 3 shows these comparisons in greater detail. As some annually appropriated resources were provided for FEMA from outside Title III in FY2018, a separate line is included for FEMA showing a total for what is provided solely within Title III, then the non-Title III appropriation, followed by the total annual appropriation for FEMA. Title IV, Research and Development, Training, and Services, the second smallest of the component-specific titles, contains appropriations for the U.S. Citizenship and Immigration Services (USCIS), the Federal Law Enforcement Training Center (FLETC), the Science and Technology Directorate (S&T), and the Domestic Nuclear Detection Office (DNDO). In FY2018, these components received $1.57 billion in net discretionary funding, as part of a projected total budget of $5.92 billion. This included $10 million in supplemental appropriations for FLETC. The Trump Administration requested $1.53 billion in FY2019 net discretionary funding for components included in this title, as part of a total budget for these components of $6.11 billion for FY2018. The funding request was $36 million (2.3%) less than the amount provided for FY2018, setting aside supplemental appropriations, although the overall budget request was $201 million (3.3%) higher than the annual budget projected for FY2018 (again, setting aside supplemental funding). This is due to changes in anticipated fee collections for USCIS and reorganization of most of the Office of Health Affairs and DNDO into the new CWMD component reflected in the request. Senate Appropriations Committee-reported S. 3109 included $1.53 billion in net discretionary funding for components included in this title, as part of a projected total budget of $6.23 billion. This was $115 million (7.5%) more than requested, and $79 million (5.0%) less than the amount provided for FY2018, not including supplemental funding. The total budgetary resources projected under S. 3109 would have been $115 million (1.9%) more than the Administration's request, and $316 million (5.3%) more than projected for FY2018, setting aside supplemental funding. House Appropriations Committee-reported H.R. 6776 included $1.64 billion in net discretionary funding for components included in this title, as part of a projected total budget of $6.21 billion. This was $97 million (6.3%) more than requested, and $60 million (3.9%) more than the amount provided for FY2018, not including supplemental funding. The total budgetary resources projected under H.R. 6776 would have been $97 million (1.6%) more than the Administration's request, and $297 million (5.0%) more than projected for FY2018, setting aside supplemental funding. P.L. 116-6 included $1.62 billion in FY2019 net discretionary funding for the components funded in this title. Enacted FY2019 appropriations were $199 million (3.3%) more than was requested by the Administration, and $163 million (10.4%) more than was provided in FY2018, setting aside FY2018 supplemental funding. Total budgetary resources projected for FY2019 are $199 million (3.3%) more than were requested by the Administration, and $400 million (6.8%) more than was projected for FY2018, setting aside FY2018 supplemental funding. Table 4 shows these comparisons in greater detail. As noted above, the fifth title of the FY2019 DHS appropriations act contains general provisions, the impact of which may reach across the entire department, affect multiple components, or focus on a single activity. Rescissions of prior-year appropriations—cancellations of budget authority that reduce the net funding level in the bill—are found in this title. For FY2018, Division F of P.L. 115-141 included $489 million in rescissions. For FY2019, the Administration proposed rescinding $300 million in prior-year funding from the DRF. S. 3109 included $137 million in rescissions from other appropriations, but specifically directed the $300 million the Administration had proposed rescinding from the DRF to other activities within DHS. H.R. 6776 did not include any rescissions, although an amendment from Representative Palazzo was passed in full committee markup on a voice vote redirecting unobligated balances from the Science and Technology Directorate to the Coast Guard. Division A of P.L. 116-6 included $303 million in rescissions, and a provision directing that $300 million of DRF unobligated balances be used to offset new DRF appropriations. In FY2018, funding was also included in Title V for the Financial Systems Modernization initiative and a grant program for Presidential Residence Protection costs, which are reflected in the tables for Title I and Title III, respectively, as those titles fund the components that manage these resources. For FY2019, Title V of S. 3109 only funded the Financial Systems Modernization initiative, and Title V of H.R. 6776 only funded Presidential Residence Protection costs. Title V of P.L. 116-6 , Division A, included funding for both the Financial Systems Modernization initiative and Presidential Residence Protection costs. The detail table in the back of H.Rept. 115-948 also notes the discretionary cost of several policy changes in H.R. 6776 . Four amendments adopted in House Appropriations Committee markup resulted in a net $13 million increase in the score of the bill, which is reflected in the detail table, but not in the tables of this report. No such costs are reflected in the detail table of H.Rept. 116-9 . For additional perspectives on FY2019 DHS appropriations, see the following: CRS Report R44604, Trends in the Timing and Size of DHS Appropriations: In Brief ; CRS Report R44052, DHS Budget v. DHS Appropriations: Fact Sheet ; and CRS Report R45262, Comparing DHS Component Funding, FY2019: In Brief . Congressional clients also may wish to consult CRS's experts directly. The following table lists CRS analysts and specialists who have expertise in policy areas linked to DHS appropriations. Budget Authority, Obligations, and Outlays Federal government spending involves a multistep process that begins with the enactment of budget authority by Congress. Federal agencies then obligate funds from enacted budget authority to pay for their activities. Finally, payments are made to liquidate those obligations; the actual payment amounts are reflected in the budget as outlays. Budget authority is established through appropriations acts or direct spending legislation and determines the amounts that are available for federal agencies to spend. The Antideficiency Act prohibits federal agencies from obligating more funds than the budget authority enacted by Congress. Budget authority also may be indefinite in amount, as when Congress enacts language providing "such sums as may be necessary" to complete a project or purpose. Budget authority may be available on a one-year, multiyear, or no-year basis. One-year budget authority is available for obligation only during a specific fiscal year; any unobligated funds at the end of that year are no longer available for spending. Multiyear budget authority specifies a range of time during which funds may be obligated for spending, and no-year budget authority is available for obligation for an indefinite period of time. Obligations are incurred when federal agencies employ personnel, enter into contracts, receive services, and engage in similar transactions in a given fiscal year—which create a legal requirement for the government to pay. Outlays are the funds that are actually spent during the fiscal year. Because multiyear and no-year budget authorities may be obligated over a number of years, outlays do not always match the budget authority enacted in a given year. Additionally, budget authority may be obligated in one fiscal year but spent in a future fiscal year, especially with certain contracts. In sum, budget authority allows federal agencies to incur obligations and authorizes payments, or outlays, to be made from the Treasury. Discretionary funded agencies and programs, and appropriated entitlement programs, are funded each year in appropriations acts. Discretionary and Mandatory Spending Gross budget authority , or the total funds available for spending by a federal agency, may be composed of discretionary and mandatory spending. Discretionary spending is not mandated by existing law and is thus appropriated yearly by Congress through appropriations acts. The Budget Enforcement Act of 1990 defines discretionary appropriations as budget authority provided in annual appropriations acts and the outlays derived from that authority, but it excludes appropriations for entitlements. Mandatory spending , also known as direct spending , consists of budget authority and resulting outlays provided in laws other than appropriations acts and is typically not appropriated each year. Some mandatory entitlement programs, however, must be appropriated each year and are included in appropriations acts. Within DHS, Coast Guard retirement pay is an example of appropriated mandatory spending. Offsetting Collections Offsetting funds are collected by the federal government, either from government accounts or the public, as part of a business-type transaction such as collection of a fee. These funds are not considered federal revenue. Instead, they are counted as negative outlays. DHS net discretionary budget authority , or the total funds appropriated by Congress each year, is composed of discretionary spending minus any fee or fund collections that offset discretionary spending. Some collections offset a portion of an agency's discretionary budget authority. Other collections offset an agency's mandatory spending. These mandatory spending elements are typically entitlement programs under which individuals, businesses, or units of government that meet the requirements or qualifications established by law are entitled to receive certain payments if they establish eligibility. The DHS budget features two mandatory entitlement programs: the Secret Service and the Coast Guard retired pay accounts (pensions). Some entitlements are funded by permanent appropriations, and others are funded by annual appropriations. Secret Service retirement pay is a permanent appropriation and, as such, is not annually appropriated. In contrast, Coast Guard retirement pay is annually appropriated. In addition to these entitlements, the DHS budget contains offsetting Trust and Public Enterprise Funds. These funds are not appropriated by Congress. They are available for obligation and included in the President's budget to calculate the gross budget authority. 302(a) and 302(b) Allocations In general practice, the maximum budget authority for annual appropriations (including DHS) is determined through a two-stage congressional budget process. In the first stage, Congress sets overall spending totals in the annual concurrent resolution on the budget. Subsequently, these totals are allocated among the appropriations committees, usually through the statement of managers for the conference report on the budget resolution. These amounts are known as the 302(a) allocations . They include discretionary totals available to the House and Senate Committees on Appropriations for enactment in annual appropriations bills through the subcommittees responsible for the development of the bills. In the second stage of the process, the appropriations committees allocate the 302(a) discretionary funds among their subcommittees for each of the appropriations bills. These amounts are known as the 302(b) allocations . These allocations must add up to no more than the 302(a) discretionary allocation and form the basis for enforcing budget discipline, since any bill reported with a total above the ceiling is subject to a point of order. The 302(b) allocations may be adjusted during the year by the respective appropriations committee issuing a report delineating the revised suballocations as the various appropriations bills progress toward final enactment. No subcommittee allocations are developed for conference reports or enacted appropriations bills. Table A-1 shows comparable figures for the 302(b) allocation for FY2018, based on the adjusted net discretionary budget authority included in Division F of P.L. 115-141 , the President's request for FY2019, and the House and Senate subcommittee allocations for the Homeland Security appropriations bills for FY2019. The Budget Control Act, Discretionary Spending Caps, and Adjustments The Budget Control Act established enforceable discretionary limits, or caps, for defense and nondefense spending for each fiscal year from FY2012 through FY2021. Subsequent legislation, including the Bipartisan Budget Act of 2013, amended those caps. Most of the budget for DHS is considered nondefense spending. In addition, the Budget Control Act allows for adjustments that would raise the statutory caps to cover funding for overseas contingency operations/Global War on Terror, emergency spending, and, to a limited extent, disaster relief and appropriations for continuing disability reviews and control of health care fraud and abuse. Three of the four justifications outlined in the Budget Control Act for adjusting the caps on discretionary budget authority have played a role in DHS's appropriations process. Two of these—emergency spending and overseas contingency operations/Global War on Terror—are not limited. The third justification—disaster relief—is limited. Under the Budget Control Act, the allowable adjustment for disaster relief was determined by the Office of Management and Budget (OMB), using the following formula until FY2019: Limit on disaster relief cap adjustment for the fiscal year = Rolling average of the disaster relief spending over the last ten fiscal years (throwing out the high and low years) + the unused amount of the potential adjustment for disaster relief from the previous fiscal year. The Bipartisan Budget Act of 2018 amended the above formula, increasing the allowable size of the adjustment by adding 5% of the amount of emergency-designated funding for major disasters under the Stafford Act, calculated by OMB as $6.296 billion. The act also extended the availability of unused adjustment capacity. In August 2018, OMB released a sequestration update report for FY2019 that provided a preview estimate of the allowable adjustment for FY2019 of $14.965 billion —the second-largest allowable adjustment for disaster relief in the history of the mechanism. $12 billion of that adjustment was exercised in P.L. 116-6 , Division A, in appropriations for the Disaster Relief Fund. No other annual appropriations used the disaster relief adjustment for FY2019.	[ "This report provides an overview and analysis of FY2019 appropriations for the Department of Homeland Security (DHS). The primary focus of this report is on congressional direction and funding provided to DHS through the appropriations process. It includes an Appendix with definitions of key budget terms used throughout the suite of Congressional Research Service reports on homeland security appropriations. It also directs the reader to other reports providing context for specific component appropriations. As part of an overall DHS budget that the Office of Management and Budget (OMB) estimated to be $74.88 billion, the Trump Administration requested $47.43 billion in adjusted net discretionary budget authority through the appropriations process for DHS for FY2018. The request amounted to a $0.29 billion (0.6%) decrease from the $47.72 billion in annual appropriations enacted for FY2018 through the Department of Homeland Security Appropriations Act, 2018 (P.L. 115-141, Division F). The Administration also requested discretionary funding for DHS components that does not count against discretionary spending limits and is not reflected in the adjusted net discretionary budget authority total. The Administration requested an additional $6.65 billion for the Federal Emergency Management Agency (FEMA) in disaster relief funding, as defined by the Budget Control Act (P.L. 112-25; BCA), and in the budget request for the Department of Defense (DOD), $165 million in Overseas Contingency Operations designated funding (OCO) from the Operations and Maintenance budget of the U.S. Navy. On June 21, 2018, the Senate Committee on Appropriations reported out S. 3109, the Department of Homeland Security Appropriations Act, 2019, accompanied by S.Rept. 115-283. Committee-reported S. 3109 included $48.33 billion in adjusted net discretionary budget authority for FY2019. This was $901 million (1.9%) above the level requested by the Administration, and $611 million (1.3%) above the enacted level for FY2018. The Senate committee-reported bill included the Administration-requested levels for disaster relief funding, and included the OCO funding in an appropriation to the Coast Guard, rather than as a transfer from the U.S. Navy. On July 26, 2018, the House Appropriations Committee marked up H.R. 6776, its version of the Department of Homeland Security Appropriations Act, 2019. H.Rept. 115-948 was filed September 12, 2018. Committee-reported H.R. 6776 included $51.44 billion in adjusted net discretionary budget authority. The House committee-reported bill included the Administration-requested levels for disaster relief funding, but unlike S. 3109, did not include the OCO funding for the Coast Guard. As some of the annual appropriations for FY2019 remained unfinished, a consolidated appropriations bill that included a continuing resolution was passed by Congress and signed into law on September 28, 2018. The resolution, which covered DHS along with several other departments and agencies, continued funding at a rate of operations equal to FY2018 with some exceptions. This continuing resolution was extended through December 21, 2018, after which point annual appropriations lapsed. A partial government shutdown ensued for 35 days until continuing appropriations were resumed January 25, 2019, by P.L. 116-5. P.L. 116-6, the Consolidated Appropriations Act, 2019, was passed by Congress on February 14, 2019, and signed into law the following day. Division A of the act included the Homeland Security Appropriations Act, 2019, which included $49.41 billion in adjusted net discretionary budget authority, $12 billion designated for the costs of major disasters, and $165 million in OCO funding for the Coast Guard. This report will be updated in the event of FY2019 supplemental appropriations actions." ]	5,686	gov_report	en	null	3f0558c30e60591ddf9f0e401f8c86c7e1b5be72c90ba50a
The last several years have seen renewed debate over the role that race plays in higher education—a debate over "affirmative action." A high-profile lawsuit challenging Harvard University's consideration of race in admitting its incoming classes, and the recent withdrawal of Obama Administration-era guidance addressing similar race-conscious policies, have focused the debate on "affirmative action" in perhaps its more familiar sense: the voluntary consideration of student applicants' race as a way of increasing the participation of racial minorities in higher education. Meanwhile, a recent lawsuit involving Maryland's university system has brought renewed attention to "affirmative action" in its other, original sense: the mandatory use of race by public higher education systems to eliminate the remnants of state-imposed racial segregation. This report addresses "affirmative action" in each of these two senses and discusses how the federal courts have analyzed them under the Fourteenth Amendment's guarantee of "equal protection." The report first considers "affirmative action" in its original sense: the mandatory race-conscious measures that the federal courts have imposed on de jure segregated public university systems. The Supreme Court has made clear that a state that had a segregated system of education must eliminate all "vestiges" of that system, including through expressly race-conscious remedies. In its consequential 1992 decision United States v. Fordice , the Court charted a three-step inquiry for assessing whether a state has fulfilled that constitutional obligation, examining whether a current policy is traceable to the de jure segregated system, has continued discriminatory effect, and can be modified or practicably eliminated consistent with sound educational policy. Outside this de jure context, "affirmative action" has come to refer to a different category of race-conscious policies. These involve what the Court once called the "benign" use of racial classifications —voluntary measures designed not directly to remedy past governmental discrimination, but to increase the representation of racial minorities previously excluded from various societal institutions. And in the context of higher education the Court has addressed one type of policy in particular: the use of race as a factor in admissions decisions, a practice now observed by many public and private colleges and universities. As this report explains, the federal courts have come to subject these voluntary "affirmative action" policies to a particularly searching form of review, known today as strict scrutiny. And they have so far upheld those policies under a single theory: that the educational benefits that flow from a diverse student body uniquely justify some consideration of race when deciding how to assemble an incoming class. To rely on that diversity rationale, however, the Court now requires universities to articulate in concrete and precise terms what their diversity-related goals are, and why they have chosen those goals in particular. And even once those goals are established, a university must still show that its admissions policy achieves its diversity-related goals as precisely as possible, while ultimately "treat[ing] each applicant as an individual." Because both lines of cases discussed here have their roots in the Equal Protection Clause, this report focuses primarily on public universities, all of which are directly subject to constitutional requirements. But those same requirements apply equally to private colleges and universities that receive federal funds pursuant to Title VI of the Civil Rights Act of 1964 (Title VI or the Act), which similarly prohibits recipients of federal dollars from discriminating on the basis of race. This report concludes by discussing the role that Title VI plays in ensuring equal protection in higher education, both public and private, including several avenues for congressional action under the Act. Though government-sanctioned racial segregation in public education is commonly associated with primary and secondary schools, numerous states had also mandated or permitted racial segregation in institutions of higher education, including through the latter part of the 20 th century, categorically excluding black students solely because of their race. Though the Supreme Court held decades ago that state-sanctioned racial segregation in higher education violates the Equal Protection Clause, such intentional segregation, or practices arising from formerly de jure segregated university systems and their discriminatory effects, may still persist. Addressing such circumstances, the Supreme Court has held the Equal Protection Clause to require states to eliminate all vestiges of their formerly de jure segregated public university systems that continue to have discriminatory effect. As the Court concluded in United States v. Fordice , state actors "shall be adjudged in violation of the Constitution and Title VI [of the Civil Rights Act]" to the extent they have failed to satisfy this affirmative duty to dismantle a de jure segregated public university system. A state actor therefore remains in violation of the Equal Protection Clause today if it maintains a policy or practice "traceable" to a formerly de jure segregated public university system that continues to foster racial segregation. Where such a violation is shown, race-conscious measures are not only constitutionally permissible, but may be constitutionally required to remedy and eliminate such unconstitutional remnants. As in the K-12 context, a number of states maintained racially segregated public university systems and denied black students admission to post-secondary schools—including colleges, law schools, and doctoral programs —on the basis that these institutions educated white students only. Prior to 1954—the year of the Supreme Court's landmark Brown v. Board of Education decision ( Brown I ) —the Court had interpreted the Equal Protection Clause to permit state-sanctioned racially segregated public educational systems, provided that the separate schools for black students were substantially equal to those reserved for white students. For example, in its 1950 decision Sweatt v. Painter , the Court addressed an equal protection claim raised by a black student challenging the University of Texas Law School's denial of his admission based on his race, pursuant to its white-only admissions policy. At the time of the plaintiff's application in 1946, the state did not have a law school that admitted black students. Denying the plaintiff's requested relief for admission, the state trial court instead granted additional time to Texas to create a law school for black students; the state thereafter created a law school at the Texas State University for Negroes. The Supreme Court, however, held that the law school—which, among other features, lacked accreditation —did not offer an education "substantially equal" to that which the plaintiff would receive at the University of Texas Law School. On that basis—the absence of a separate but equivalent legal education—the Court held that the Equal Protection Clause required the plaintiff's admission to the University of Texas Law School. A decisive turn in the Court's interpretation and application of the Equal Protection Clause, however, came by way of its 1954 decision in Brown I . There, the Court held for the first time that race-based segregation "in the field of public education" violates the Equal Protection Clause. The Court concluded that race-based segregation in public schools deprives minority students of equal educational opportunities, and observed that segregation commonly denotes inferiority of the minority group. Segregated educational facilities, the Court concluded, are "inherently unequal." The Court's holding in Brown I applies with equal force to public higher education—that is, to public colleges and universities —as does the Court's subsequent 1955 decision in the same case (" Brown II "), in which the Court addressed how school authorities and federal courts were to implement the mandate of Brown I . Indeed, one of the Court's earliest applications of Brown I and Brown II was in the higher education context. In that case, State of Fla. Ex. Rel. Hawkins v. Board of Control , the Supreme Court vacated a Florida supreme court decision that declined to order the state's white-only law school to admit a black student. Relying on language in Brown II that courts could consider practical obstacles to a school's transition to desegregation, the Florida court refused to order the plaintiff's admission. The Supreme Court vacated the state court's decision, concluding that in the case of admitting a black student "to a graduate professional school, there [wa]s no reason for delay" and that he was "entitled to prompt admission under the rules and regulations applicable to other qualified candidates." Following Brown I and Brown II , the Court's equal protection jurisprudence in the public education context expanded significantly to address questions regarding the scope and sufficiency of state actions to "dismantle" racially segregated systems in public school districts across the country, and various challenges to district court-ordered remedies. As the Court revisited these legal standards over time, it continued to describe the affirmative duty of formerly segregated public school entities as the duty to "take all steps necessary to eliminate the vestiges of the unconstitutional de jure system" to the extent practicable. Turning to the context of higher education, the Court addressed, in its 1992 decision United States v. Fordice , how these equal protection principles and legal standards apply to a state's affirmative duty to dismantle a formerly de jure segregated public university system. Though it had "many occasions to evaluate whether a public school district has met its affirmative obligation to dismantle its prior de jure segregated system in elementary and secondary schools," the Court explained, Fordice presented the issue of "what standards to apply" in determining whether the state has met this obligation in the university context. At issue before the Court was Mississippi's prior de jure public university system. The Court observed that since establishing the University of Mississippi as an institution of "higher education exclusively of white persons" in 1848, Mississippi had created four more exclusively white institutions and three exclusively black institutions through 1950. Thereafter, it continued to maintain its racially segregated public university system, and admitted its first black student to the University of Mississippi in 1962 "only by court order." For the "next 12 years," the state's segregated university system "remained largely intact." Around 1987, when the case went to trial, over 99 percent of the state's white students attended the five universities that had been formerly white-only, while the three formerly black-only institutions had student bodies between 92 percent to 99 percent black. Citing its precedent addressing de jure segregation in the K-12 context, the Court stated that "[o]ur decisions establish that a [s]tate does not satisfy its constitutional obligations until it eradicates policies and practices traceable to its prior de jure dual system that continue to foster segregation." Perhaps critically, in the context of remedying a formerly de jure segregated system, a state's "adoption and implementation of race-neutral policies alone " is not sufficient to demonstrate that it has "completely abandoned its prior dual system." Aside from segregative admissions policies, the Court explained, a state's other policies may shape and determine student choice and attendance, and continue to foster segregation. Instead, to determine whether a state has satisfied its affirmative duty to dismantle its de jure public university system, the Court set out a three-step analysis. First , the analysis examines whether the challenged policy or practice maintained by the state is "traceable to its prior [ de jure ] system." By way of example, the Court identified four policies that, in its view, were "readily apparent" vestiges of de jure segregation: admissions standards based on a test-score range originally adopted for discriminatory reasons; unnecessary program duplication throughout the university system (e.g., multiple institutions offering the same "nonbasic" courses); the state's academic mission assignments to its higher education institutions (e.g., assigning the broadest academic missions to only formerly white-only institutions and the narrowest academic mission to a formerly black-only institution); and the continued operation of all public universities established in the de jure segregated system. With respect to traceability, the Court's analysis reflects that where a current policy functions based on distinctions or a framework created in a formerly de jure system, traceability can be shown. For example, when concluding that the state's designation of academic missions to its universities was traceable to de jure segregation, the Court cited evidence that the state's current method of assigning its universities into three academic missions levels largely mirrored a three-tiered grouping of its universities in the de jure system. In addition and more generally, an interim change or new, nondiscriminatory justification for a current policy does not necessarily sever its traceability to a de jure system. Where the traceability of a policy or policies is shown, a party need not show discriminatory intent with respect to those challenged policies. Where traceability is not shown—that is, where the policies "do not have such historical antecedents" to de jure segregation—an equal protection challenge would then require "a showing of discriminatory purpose." In those instances, the Court explained, "the question becomes whether the fact of racial separation establishes a new violation of the Fourteenth Amendment under traditional principles." Second , once traceability is shown, the analysis turns to whether those traceable policies have continued discriminatory or "segregative" effects in student choice, enrollment, or other facets of the university system. At this stage, the Court noted that a court should not consider "this issue in isolation," but rather examine the "combined effects" of all the challenged policies together "in evaluating whether the State ha[s] met its duty to dismantle its prior de jure segregated system." In light of this instruction, it appears the focus of the second step of the test is not on establishing causation between specific racial disparities and specific policies—by this stage, a court has already found traceability—but rather to evaluate whether a state has sufficiently dismantled its formerly de jure system. Consistent with the state's burden of proving it has dismantled its de jure segregated system, the state must show the absence of segregative effects; plaintiffs are not required to establish this second element. Third , because traceable policies that have discriminatory effects "run afoul of the Equal Protection Clause," such policies must accordingly "be reformed to the extent practicable and consistent with sound educational practices." Thus, at the third step, a court assesses whether traceable policies can be "practicably eliminated" "consistent with sound educational practices," with the burden on the state to show that the challenged policies are "not susceptible to elimination without eroding sound educational policy." Because the Court remanded the case to the lower court to address practicable elimination, its analysis in Fordice on this point is limited. The Court suggested, however, that if a current policy lacks sound educational justification, it reasonably follows that it can be practicably eliminated in part or in whole. In addition, the Court observed that in some cases, a merger or closure of institutions could be constitutionally required to eliminate vestiges, should other methods fail to eliminate their discriminatory effects. Finally, the Court repeatedly stated that so long as vestiges remain, which have discriminatory effects, the state remains in violation of the Equal Protection Clause unless it can show it cannot practicably eliminate those policies or practices. In addition, Justice O'Connor, in a separate concurring opinion in Fordice , emphasized the "narrow" circumstances under which a state could maintain a traceable policy or practice with segregative effects. In her view, courts may "infer lack of good faith" on the part of the state if it could accomplish educational objectives through less segregative means, and the state has a "'heavy burden'" to explain its preference for retaining the challenged practice. Moreover, even if the state shows that retaining certain traceable policies or practices is "essential to accomplish its legitimate goals," Justice O'Connor asserted that the state must still prove it has "counteracted and minimized the segregative impact of such policies to the extent possible." The Court in Fordice observed that the closure or merger of certain institutions may be constitutionally required, consistent with its holding that any vestige of a de jure segregated system that continues to have discriminatory effect must be eliminated to the extent practicable and consistent with sound educational policy. Yet that invited a new—and more difficult—set of questions: which institutions would be most subject to closure or merger, and under what circumstances would such action be required? Significantly, the Court did not categorically identify which institutions would be most subject to such remedial action —a state's flagship, formerly white-only institutions from which a de jure system originated, for example, or formerly black-only institutions created to preserve white-only admission at other institutions. Instead, the Court concluded that it was unable to determine—on the record presented in Fordice —whether closures or mergers were required in that case and directed the lower court on remand to "carefully explore" several considerations. This instruction to the lower court, while not part of the holding in Fordice , suggests that several factors are relevant for determining whether merger or closure is constitutionally required. In addition, the Court observed that maintaining all eight higher education institutions in Mississippi was "wasteful and irrational," particularly in light of the close geographic proximity between some of the universities. This observation suggests that close proximity between institutions offering similar programs could be a relevant factor in assessing remedial closure or merger as well. Regarding the fate of a state's historically black institutions, Justice Thomas, in a concurring opinion, did not read Fordice to "forbid[]" those institutions' continued operation or "foreclose the possibility that there exists 'sound educational justification' for maintaining historically black colleges as such ." Justice Thomas emphasized that "[d]espite the shameful history of state-enforced segregation," historically black colleges and universities were and remain institutions critical to the academic flourishing and leadership development of many students, and observed that "[i]t would be ironic, to say the least, if the institutions that sustained blacks during segregation were themselves destroyed in an effort to combat its vestiges." In his view, though a state is not constitutionally required to maintain its historically black institutions as such, their continued operation is constitutionally permissible, so long as admission is open to all students "on a race-neutral basis, but with established traditions and programs that might disproportionately appeal to one race or another." Following Fordice , plaintiffs, including the United States in Title VI enforcement actions, have brought suit challenging practices allegedly traceable to a state's de jure segregated university system. Challenged practices have included unnecessary program duplication, which the Court identified in Fordice as one of the "readily apparent" remnants of de jure segregation, as well as others such as scholarship policies, funding practices, and the use of curricula at formerly white-only institutions with little representation of black history and culture. More recently, in 2018, a legal challenge against the State of Maryland alleged that practices relating to capital and operational funding, unnecessary program duplication, and the limited institutional missions of the state's formerly black-only institutions are traceable to the state's formerly de jure segregated higher education system. To date, however, only a few federal appellate courts have had occasion to analyze Fordice -based claims, and the Supreme Court has not, since its 1992 decision, addressed claims challenging higher education policies or practices as unconstitutional vestiges of de jure segregation. Though development of the Fordice standard in federal case law is limited, the few appellate decisions applying Fordice provide at least some analytical examples and reflect discernible differences in approach, particularly with respect to the evidence sufficient to satisfy the third element of the Fordice standard—that elimination of a practice is not possible, despite being traceable and having continued discriminatory effect. As discussed above, the Supreme Court in Fordice identified "unnecessary program duplication" as a practice traceable to the prior de jure segregated system of higher education at issue in that case, stating that "it can hardly be denied" that such duplication was a requisite feature of the prior dual system because "the whole notion of 'separate but equal' required duplicative programs in two sets of schools." Drawing upon that rationale, courts that have addressed unnecessary program duplication have generally had little difficulty tracing duplicative courses and degree programs to prior de jure segregation. On the matter of if and how program duplication might be eliminated, however, there is lesser consensus. Generally, federal courts have considered several methods for eliminating program duplication, such as transferring existing programs from one institution to another, eliminating certain programs altogether, creating cooperative programs, and—perhaps most drastically—merging institutions. Plaintiffs have also raised equal protection challenges to state funding practices that allocate all or most of their federal and state land grants to institutions that were formerly white-only in a de jure system while dedicating significantly less or no funds to formerly black-only institutions. More specifically, these cases have concerned a state's allocation of federal land grants provided annually to support research on agricultural issues and the dissemination or "extension" of that research. At issue in Knight v. Alabama , for example, was the State of Alabama's allocation of federal funds between its two land grant universities, Auburn University, formerly white-only in the de jure system, and Alabama A&M University (A&M), formerly established as black-only. The state allocated to Auburn the entirety of Alabama's approximately $4 million in federal aid for agricultural research, and allocated an additional $14 million to Auburn in state funds. Meanwhile, the state had "for years" allocated no federal aid to A&M and given state funds for agricultural research in amounts that "today still totals less than $200,000 each year." The U.S. Court of Appeals for the Eleventh Circuit held that the state's current funding allocation was traceable to de jure segregation and instructed the lower court on remand to make determinations with respect to the second and third parts of the Fordice test. On the issue of practicable elimination, the Eleventh Circuit observed that reduced efficiency would not necessarily render a proposed modification impracticable or educationally unsound. By contrast, the Fifth Circuit affirmed a district court's ruling that permitted a state to retain its traceable funding practices. There, despite finding traceability and discriminatory effects, the district court had concluded, based on inefficiencies related to running more than one agricultural research program, that it was not practicable for the state to eliminate its exclusive funding allocation to its formerly white-only land grant institution. The Supreme Court has not revisited its analysis in Fordice , leaving open questions about the permissible applications of its three-part legal standard to an array of fact patterns and legal theories. Similarly, as discussed above, few courts of appeals have addressed claims under Fordice , limiting the development and interpretation of Fordice in federal case law. One such unresolved question is under what circumstances, if any, traceability can be established under Fordice when a state makes changes to an originally discriminatory policy such that the current policy functions differently, but there is still some evidence of traceability between the two, or perpetuation of similar segregative effects under the changed policy as under the original policy. In addition, the Supreme Court and circuit courts have not yet expressly addressed how far a district court may go in remedying an unconstitutional vestige or remnant of a prior de jure public university system. In the K-12 context, the Supreme Court has upheld district court orders that set certain faculty and student ratios at schools in noncompliant school districts, to desegregate them pursuant to Brown and its progeny . It remains unclear, however, whether the district courts enjoy similar authority under Fordice to order similarly extensive remedies. Indeed, the few cases alleging Fordice -type claims that did reach the federal appellate courts ultimately resolved in settlements, thus leaving little judicial guidance on the scope of a court's authority to mandate specific remedies if a state fails to dismantle its formerly de jure segregated public university system. With respect to these unresolved questions, the Supreme Court's express reliance in Fordice on precedent addressing de jure segregation in the primary and secondary school context suggests that at least some of this same precedent should inform future analyses, with adaptation to the higher education context. A finding of a state entity's intent to segregate students by race in the higher education context is critical to showing a violation of the Equal Protection Clause, and has significant legal consequences. In such cases of de jure —that is, intentional, state-imposed —segregation, the state has an affirmative duty under the Equal Protection Clause to eliminate all vestiges of its de jure system by dismantling the infrastructure and other mechanisms that produced the discriminatory segregation. According to the Supreme Court's 1992 Fordice decision, this duty commands more than just the repeal of state laws sanctioning racial segregation in higher education. The state must also uproot or reform any policy or practice "traceable" to its formerly de jure system that continues to have discriminatory effect. In Fordice , the state's intent to racially segregate its higher education system was plain: with the founding of the University of Mississippi in 1848, Mississippi explicitly set out to create a public university "dedicated to the higher education exclusively of white persons," and racially segregated its public university system over the next 100 years through the creation of other "exclusively white institutions" and "solely black institutions." Nor was Mississippi's system unique in this regard. "[D]ual system[s]" of public higher education—one for black students, another for white—were codified in other state and local laws throughout the country. Thus far, federal courts that have addressed de jure segregation in higher education have done so in the context of such codified segregation, as in Fordice . The absence of a codified dual system of higher education, however, may not mean that a university system was not or is not intentionally segregated. As reflected in the Supreme Court decision Keyes v. School District No. 1, Denver, Colorado , even when state authorities have not segregated their public schools by statute, they may still have engaged in unconstitutional racial segregation. Thus, in the K-12 context, federal courts have found de jure segregation based on evidence reflecting a state actor's impermissible segregative intent. This line of cases would appear to apply in the context of higher education as well. As the Court noted in Fordice , where a plaintiff is unable to show that a policy or practice is a vestige of prior de jure segregation, she may nonetheless prove a "new" constitutional violation with evidence of a present-day intent to racially segregate students "under traditional principles" governing discriminatory intent. This would be consistent with the Court's application of Brown and its progeny broadly across "the field of public education," including higher education, as reflected in Fordice . Because the Supreme Court has yet to address segregative intent in higher education, it is unclear what intent evidence would be sufficient to establish a de jure segregated public university or institution, apart from a law codifying such segregation. As a general matter, though, a court's determination of discriminatory intent is a fact-intensive, "sensitive inquiry." And the Supreme Court has observed that this is even more so in cases alleging de jure segregation in public education. Where the evidence indicates, for example, that a state actor undertook a policy or practice knowing that doing so would have the "foreseeable" effect of segregating students by race, that evidence may support an inference of de jure segregation. In addition, at least in the K-12 context, a finding of a state entity's segregative intent in one part of a school system creates a rebuttable presumption that segregation found in other parts of the same system was also intentional. De jure segregation proved by such nonstatutory evidence generally triggers the same affirmative obligation on the state to eliminate the vestiges of its state-imposed segregation, as when de jure segregation is shown through state or local laws. Though segregative intent analyses at the K-12 level may be instructive, the guidance these decisions provide may be limited by the nature of the evidence at issue in those particular cases: the method of student assignment to elementary or secondary schools, for example, or the drawing of attendance zones to create racially segregated schools. It appears unlikely that such evidence would be at issue or directly applicable in cases alleging segregative intent at the collegiate or graduate level. Nonetheless, these decisions generally suggest that categorical distinctions—between evidence indicative of de jure segregation and evidence of existing segregation insufficiently linked to state intent—are difficult to draw. Indeed, given the difficulties that can arise in a court's analysis of "segregative intent," over the years a number of Justices have called into question the rationale and basis for the distinction between de jure and so-called de facto segregation, though the majority of the Court has recognized and continues to recognize this distinction. Whatever the open questions may be regarding the evidence sufficient to show segregative intent, particularly in the higher education context, Fordice instructs that a plaintiff need not provide evidence of new discriminatory intent when alleging that a state has failed to eliminate vestiges of a prior de jure segregated system. And with respect to remedying intentional racial segregation, the Court has repeatedly held that a state not only may use a broad array of explicit race-conscious policies and practices to remedy its constitutional violation, but often must do so. By themselves, race-neutral measures simply may not be enough, the Court has explained, to provide equitable, make-whole relief for intentionally segregative acts. This affirmative obligation to consider race arises, however, only in the context of de jure segregation. Outside that de jure context, institutions of higher education subject to the Equal Protection Clause have no such duty to remedy racial segregation. Nor may they—or the federal courts, for that matter—use the same broad array of race-conscious measures available for remedying de jure segregation. De jure segregation, however, is not the only context in which race-conscious measures in higher education may be used. For over forty years colleges and universities have considered race as a way of increasing the racial diversity of their student bodies, independent from a legal basis relating to de jure segregation. Thus far, however, the Supreme Court has addressed only one type of discretionary race-conscious measure in the higher education context: admissions policies. And when evaluating these discretionary policies, the Court reviews them under a notably different analytical lens, looking to their precision in achieving certain concretely defined and "compelling" educational interests, as explained more fully below. "Affirmative action" in its original sense grew out of the states' affirmative obligation under the Equal Protection Clause to rid their public institutions of the lingering vestiges of de jure segregation. But "affirmative action" has also come to refer to race-conscious policies developed outside this de jure context. These are policies voluntarily adopted by institutions to help racial minorities overcome the effects of their earlier exclusion. And unlike the measures ordered by the courts to right the wrongs of de jure segregation, these policies are strictly voluntary, with their legality consequently turning on constitutional considerations unlike those involved in the de jure context. "Affirmative action" in this more familiar, voluntary sense has also been among the most contentious subjects in constitutional law. In the forty years since Regents of the University of California v. Bakke , when the Court first addressed those programs' constitutionality, the Justices have divided sharply over when or whether such programs can survive constitutional scrutiny. And a major point of disagreement among the Justices—lingering to this day —is how strictly to review those policies and what the government or other state entity must do to justify its use of "benign" racial classifications. In recent decisions, the Court has reviewed such classifications under a seemingly "elastic" regime of strict scrutiny, accepting those classifications only where they have been narrowly tailored to serve compelling government interests. The constitutional guarantee of equal protection broadly prohibits the government from employing "arbitrary classification[s]." And the use of racial classifications in particular has long been of special concern for the courts. Indeed, this "heightened judicial solicitude" for racial categorizing has roots nearly as old as the Fourteenth Amendment itself. As the Supreme Court explained in an early decision under the Amendment, the "spirit and meaning" of the Equal Protection Clause was "that the law in the States shall be the same for the black as for the white; that all persons, whether colored or white, shall stand equal before the laws of the States, and, in regard to the colored race, ... that no discrimination shall be made against them by law because of their color." In the decades since, the Court has only made clearer that it regards the government's use of racial classifications as "inherently suspect" and therefore subject to more demanding scrutiny than other classifications, which are typically reviewed only for basic rationality. There has been significant disagreement, however, over just how rigidly the courts should scrutinize a racial classification, especially when the point of the classification is to benefit racial minorities, as in the case of affirmative action. That issue came before the Court for the first time in Bakke , involving a challenge to an affirmative action admissions program begun at the then newly created medical school at the University of California at Davis (the Medical School). And the Court's fractured decision there prefigured the central disagreements that the Justices still face in reviewing so-called "benign" racial classifications. In the early 1970s, not long after the Medical School opened, it adopted a race-conscious admissions policy to increase its enrollment of certain "disadvantaged" students. Under that policy, the school each year would set aside 16 seats in its entering class of 100 specifically for members of this "disadvantaged" group, to be admitted by a "special admissions" committee. Although many white students sought admission under this "special" policy, the committee considered only students of specifically identified racial minorities. After Allan Bakke, a white male, twice sought—and was denied—admission to the school, he brought suit challenging the set-aside under the Equal Protection Clause as well as Title VI, which prohibits institutional recipients of federal funds—like the Medical School—from discriminating on the basis of race. Bakke's case eventually found its way to the Supreme Court and into the hands of a divided bench. The Justices found themselves particularly at odds over the case's threshold question—what level of scrutiny the Court should apply in reviewing Bakke's challenge. Justice Stevens, writing for a quartet of Justices, concluded that the program violated Title VI, sidestepping the constitutional question. Another four Justices would have reached the equal protection challenge, and in doing so would have required the Medical School to point to "important governmental objectives" that justified its admissions policy's use of "remedial" racial classifications, along with evidence that their use was "substantially related to" achieving those important objectives . Under that standard—a form of intermediate scrutiny —these Justices would have upheld the policy. Justice Powell, announcing the Court's judgment but writing for himself, insisted that all "racial and ethnic distinctions" drawn by the government must be regarded as "inherently suspect," calling for "the most exacting judicial examination." What that meant in Bakke , according to Justice Powell, was that the Medical School would need to prove that its use of the "special admissions" carve-out was "precisely tailored to serve a compelling governmental interest"—the standard of review now known simply as strict scrutiny . And because, in his view, the school could come forward with no such proof, Justice Powell concluded that its affirmative-action policy could not survive the Court's scrutiny, whether under the Fourteenth Amendment or the overlapping standards of Title VI. Because Bakke yielded no majority opinion, it could only hint at how the Court might treat other "benign" race-conscious policies that did not involve the sort of apparent quota invalidated in that case or cases outside the unique context of higher education. That uncertainty would last another decade, as the Court, in another series of splintered decisions, weighed constitutional challenges to differently structured affirmative action policies in other contexts, each time without resolving the appropriate standard of review. That uncertainty appeared to abate with the Court's 1989 decision in Richmond v. J.A. Croson , Co. There, for the first time, five Justices clearly signaled that they would apply strict scrutiny to affirmative action plans implemented at the state and local levels, including the program they invalidated in that case, involving the City of Richmond's set-aside of public work funds for minority-owned businesses. But the next year, in Metro Broadcasting, Inc. v. FCC , the Court, in another 5-4 ruling, suggested that it would review federal affirmative action plans differently. In the Court's view there, "benign race-conscious measures mandated by Congress " need only "serve important governmental objectives" and be "substantially related to the achievement of those objectives"—satisfying an intermediate level of scrutiny. Just a few years later, however, in Adarand Constructors, Inc. v. Peńa , the Supreme Court reversed course. There, in a federal contracting case, the Court drew a different lesson from its pre- Metro line of race-classification cases: in the view of the Adarand majority, "any person, of whatever race, has the right to demand that any governmental actor subject to the Constitution justify any racial classification subjecting that person to unequal treatment under the strictest judicial scrutiny." That simple rule therefore precluded the divided regime upheld in Metro Broadcasting , subjecting the states' use of racial classifications to strict scrutiny, while relaxing the review of comparable classifications enacted by Congress. Instead, the Adarand Court held, "[f]ederal racial classifications, like those of a State, must serve a compelling governmental interest, and must be narrowly tailored to further that interest." And to the extent that Metro Broadcasting was "inconsistent" with that uniform rule, it was accordingly overruled. After Adarand strict scrutiny therefore became the test of any classification that subjected individuals to unequal treatment based on their race, no matter which state actor was doing the classifying. And the Court expressly extended that holding to the context of higher education. As the Court reaffirmed in Fisher v. University of Texas , "because racial characteristics so seldom provide a relevant basis for disparate treatment," "[r]ace may not be considered [by a university] unless [its] admissions process can withstand strict scrutiny." It therefore appears that a classification that subjects individuals to unequal treatment because of their race, even if for a "benign" purpose, will have to satisfy strict scrutiny. In its canonical formulation, that test calls for measuring such classifications along the two dimensions Justice Powell identified in Bakke : (1) the classification must serve a compelling governmental interest and (2) the use of that classification must also be narrowly tailored to achieving that interest. The government has the burden of proving both, and neither is easy to do. Indeed, in the sixty years that separated the Court's now-repudiated decision in Korematsu v. United States from Grutter v. Bollinger , when the Court first upheld an affirmative action policy at a public university, the only other "racial classifications upheld under strict scrutiny [have been] race-based remedies for prior racial discrimination by the government." To many commentators "strict scrutiny" has thus come to seem rather more "strict in theory, but fatal in fact" —a point sometimes echoed by the Justices themselves. Strict scrutiny may typically be fatal in fact, but affirmative action policies in higher education have been a notable exception. Partly this has to do with the Equal Protection Clause itself, and the often crucial difference that a particular context makes in deciding cases under that "broad provision[]." And for several Justices the context of affirmative action, involving the arguably "benign" use of race, has seemed particularly distinctive. Yet, despite this contextual difference, the Court has made it clear that its scrutiny of race-conscious admission policies is still every bit as strict. Or, as Justice Kennedy put the point in the first Fisher case, even though "[s]trict scrutiny must not be 'strict in theory, but fatal in fact,'" it must also "not be strict in theory but feeble in fact." This seeming tension—between the strictness of the Court's scrutiny and its approval of race-conscious admissions policies—has led the Court to adjust its framework for scrutinizing similar policies over the years. And since Bakke that framework appears to have shifted in two significant respects, corresponding to each of the two prongs of strict scrutiny. First, the Court now requires public universities that adopt affirmative action admissions policies to explain in increasingly "concrete and precise" terms what diversity-related educational goals those policies serve and why the university has chosen to pursue them. Anything less, the Court has held, would fail to present an interest sufficiently compelling under strict scrutiny. Second, the Court also now expects universities to prove that their policies achieve those "concrete and precise goals" in an appropriately "flexible" way, as most clearly exemplified by the Harvard plan that Justice Powell singled out in Bakke . That model has yielded "five hallmarks" of an appropriately tailored affirmative action policy, criteria that have since guided lower courts in assessing other affirmative action plans. For a university's affirmative action policy to survive strict scrutiny, a university must first "demonstrate with clarity that its 'purpose or interest is both constitutionally permissible and substantial." The Court has recognized only a single interest that meets that standard: "the attainment of a diverse student body." What exactly that interest amounts to—and how, consequently, a university should ensure it has appropriately tailored its policy to achieve that interest—has been a point of uncertainty since Bakke . With its two decisions in Fisher v. University of Texas , however, the Court appears now to require a more "concrete and precise" articulation of the diversity-related educational goals a university hopes to achieve through its affirmative action admissions policy. In addition, the Court also now appears to expect a university to provide a reasoned and principled explanation of why the school believes it important to achieve those goals. The diversity rationale emerged with the Court's first encounter with a voluntary affirmative-action policy, in Bakke . There—in an opinion for the Court joined by no other Justice—Justice Powell explained what interests clearly would not count as compelling enough to satisfy strict scrutiny. Those included the Medical School's alleged interest in having "some specified percentage" of certain racial or ethnic groups in a student body and its interest in "remedying ... the effects of societal discrimination," as well as the school's particular interest in "the delivery of health-care services to communities currently underserved." None of these interests, Justice Powell concluded, provided a reason substantial enough to justify turning to race-conscious measures. Nor has the Court said otherwise since. But Justice Powell was also clear about what interest he believed would satisfy strict scrutiny: "student body diversity." And just as importantly, he also explained why: colleges and universities, he suggested, had a uniquely academic interest in promoting an "atmosphere of speculation, experiment, and creation"—an interest, more simply, in "academic freedom." That interest, Justice Powell observed, was not only "essential to the quality of higher education," but had also long "been viewed as a special concern of the First Amendment." Thus the "right to select those students who will contribute the most to the robust exchange of ideas" not only allowed a university "to achieve a goal that is of paramount importance in the fulfillment of its mission," it also represented a "countervailing constitutional interest" that, in Justice Powell's view, called for the Court's respect. In Bakke , Justice Powell set out the basic theory for why diversity could justify an affirmative action policy, at least "in the context of a university's admissions program. But he gave few details about what that interest encompassed. As he saw it, that interest must have its limits: pursuing diversity would not allow a university to resort to racial quotas, for example, nor could the school disregard other "constitutional limitations protecting individual rights." But Justice Powell declined to indicate where those other limitations fell or how they circumscribed the goals a university could permissibly seek in the name of a diverse student body. And because the Bakke Court fractured as it did, with no one opinion commanding a majority of the Justices' votes, the lessons of that case have been hard to discern, especially after the Court appeared to decline a similar diversity rationale in later cases outside higher education. Perhaps unsurprisingly, the lower courts soon came to reflect this uncertain division of opinion in later cases involving affirmative action programs at other public universities. Some clarity over Bakke 's diversity theory came in 2003, with a pair of decisions reviewing affirmative action policies of the University of Michigan: Grutter v. Bollinger , challenging the university's law school admission program, and Gratz v. Bollinger , challenging the policy used by the university's undergraduate program. Grutter , especially, helped clarify what an interest in diversity involved, and how a university could rely on that interest to defend a race-conscious admissions policy. Under the admissions policy of the University of Michigan Law School ( the Law School) challenged in Grutter , applicants to incoming classes were admitted under a policy that weighed a composite of the applicant's LSAT score and undergraduate GPA along with several more individualized factors, including the applicant's race. The Law School set out to create classes with what it called a "critical mass of underrepresented minority students," to ensure that those students felt "encourage[d] ... to participate in the classroom and not feel isolated." The school, however, never explicitly assigned a numerical target for any particular racial group, though it did track, on an ongoing basis, "the racial composition of the developing class." A rejected white applicant claimed the Law School's admission policy discriminated against her based on her race, in violation of the Equal Protection Clause and Title VI. And her challenge eventually reached the Supreme Court, alongside its companion case, Gratz , challenging the university's admissions policy for its undergraduate program. Given the uncertainties surrounding Bakke 's bottom line, the first major question in Grutter centered on the basic goal of the Law School's policy: Is achieving student diversity an interest compelling enough to justify a school's use of race at all in its admissions decisions? And for the first time the Supreme Court held that it was. Writing for a clear majority, Justice O'Connor adopted the view Justice Powell set out in Bakke : "student body diversity is a compelling state interest that can justify the use of race in university admissions." More than that, the Court made clear that it was willing to defer to the Law School's understanding of that interest, and its goal of "enroll[ing] a 'critical mass' of minority students.'" As Justice O'Connor explained for the Court, by enrolling a "critical mass" of students, the Law School was trying to achieve the "substantial" "educational benefits that diversity is designed to produce"—benefits such as "promot[ing] cross-racial understanding," "break[ing] down racial stereotypes," "promot[ing] learning outcomes," and "better prepar[ing students] as professionals." Achieving a "critical mass" of underrepresented students, the Court agreed, was simply one way that the Law School could try to vindicate those diversity-related educational benefits. And because this interest was deemed compelling enough to satisfy strict scrutiny, the Court was therefore willing to treat the school's use of the "critical mass" target as a permissible proxy for achieving those benefits. Not all the Justices agreed, however, that the university's invocation of "critical mass" made the diversity interest more concrete or compelling. In dissent, Justice Kennedy sided with Chief Justice Rehnquist's view that "the concept of critical mass [was] a delusion used by the Law School to mask its attempt to make race an automatic factor in most instances and to achieve numerical goals indistinguishable from quotas." That "delusion," according to Justice Kennedy, did not just make the school's appeal to "critical mass" "inconsistent with [the] individual consideration" of applicants. It also, in his view, turned the school's admissions policy into a veiled form of racial balancing. And all four dissenting Justices found that result incompatible with the Equal Protection Clause. Grutter appeared to settle the major question left open by the fractured decision in Bakke : whether achieving student diversity was a compelling enough interest for a public university to justify its consideration of race in its admissions policies. Grutter confirmed not only that the Court still viewed student diversity as a compelling interest, but also that a school could vindicate that interest by seeking to enroll a "critical mass" of underrepresented minorities in its incoming classes. The ruling also effectively swept aside contrary lower court decisions that struck down other state universities' affirmative action policies, including in Texas. In the wake of Grutter , the University of Texas (UT Austin) decided to revisit its applicant review process, eventually choosing to introduce race as one of the factors considered in its admissions policy. Under the revised policy, UT Austin would continue to admit all Texas high school students who graduated in the top ten percent of their class, and fill in the rest of its incoming undergraduate classes using an index score incorporating two assessments: (1) an "Academic Index" (AI) that weighed the applicant's SAT score and academic record; and (2) a "Personal Achievement Index" (PAI) that included a more holistic appraisal of the student's character and, following post- Grutter revisions, also factored in the applicant's race. Abigail Fisher, a white Texas student whose application to UT Austin was rejected under this process, challenged the AI-PAI system. That system, she argued, had discriminated against her as a white applicant by allegedly allowing race to figure in the decision to reject her application, in violation of the Equal Protection Clause. Her challenge eventually made its way to the Supreme Court as Fisher v. University of Texas , where the Supreme Court remanded the challenge to the lower court to review UT Austin's policy under strict scrutiny ( Fis her I ), and then upon appeal upheld the school's admission policy ( Fis her II ). In her suit, Fisher did not challenge Grutter 's basic holding—that the university had a compelling interest in student diversity, or even that the school could pursue that interest in diversity by enrolling a "critical mass" of underrepresented minorities. But when the Court finally took up her challenge on the merits in Fisher II , Justice Kennedy also took the occasion to revisit Grutter 's analysis, offering several "controlling principles" on behalf of the four-Justice majority that would guide its review of UT Austin's race-conscious admissions policy. In Fisher II , as in Fisher I , Justice Kennedy confirmed that Grutter 's bottom line remained good law: "obtaining 'the educational benefits that flow from student body diversity,'" he confirmed, was still an interest compelling enough to satisfy strict scrutiny. But perhaps mindful of his dissent in Grutter , Justice Kennedy also clarified that "asserting an interest in the educational benefits of diversity writ large" would not suffice. That, he explained, would make the "university's goals" too "elusory or amorphous" "to permit judicial scrutiny of the policies adopted to reach them." The Court thus cut two new benchmarks for reviewing a university's asserted interest in resorting to race as a factor in its admissions policy. First, the university had to articulate "precise and concrete goals" that its race-conscious policy served, goals "sufficiently measurable" under "judicial scrutiny." And, second, the university had to provide a "'reasoned, principled explanation' for its decision to pursue those goals"—a sound academic rationale, in other words, for wanting to achieve whatever diversity-related goals it set for itself. In the majority's view, UT Austin's use of race in its admissions decisions measured up to both benchmarks. According to the Court, the first benchmark was straightforwardly met: the goals UT Austin articulated, Justice Kennedy pointed out, effectively "mirror[ed] the 'compelling interest' th[e] Court ha[d] approved in its prior cases." And under Grutter , the majority concluded, those benefits passed constitutional muster. Notably, however, achieving critical mass was not among those Justice Kennedy listed. Nor did Justice Kennedy return to the question he raised in Grutter : whether the "critical mass" concept even has a place among the "concrete and precise goals" that could survive strict scrutiny. But that question was also arguably beside the point in Fisher II . As Justice Kennedy emphasized for the Court, the goals that UT Austin articulated were clearly constitutionally adequate, having come nearly verbatim from the Court's case law. And the university's officials had all offered "the same, consistent 'reasoned, principled explanation'" for pursuing them—meeting the Court's second benchmark. That was apparently enough for the Court to conclude that a compelling interest justified the university's diluted use of race in its holistic review of applications. With Fisher I and II , the Court reiterated that the educational benefits that come with a racially diverse student body count among the few interests compelling enough to survive strict scrutiny. But Fisher I and II also narrowed that interest: seeking student body diversity had to involve objectives more specific than the simple desire for "diversity writ large." Rather, under the Fisher formulation, the university must articulate the "concrete and precise goals" it expects its affirmative action policy to accomplish, along with a "reasoned, principled explanation" of why it has chosen to pursue them. So long as a university does that, it will likely have a strong case, under Fisher I and II , that a compelling interest supports its use of a race-conscious admissions policy. That, however, is only the first of two tests that a policy has to pass under strict scrutiny. The second—probing whether the university has narrowly tailored its policy to achieve those diversity-related benefits—has proved equally critical in the Court's review of affirmative action policies. And once again owing to Justice Powell's opinion in Bakke , the Court appears to have embraced a model of what a narrowly tailored policy looks like: Harvard College's admissions program endorsed in Bakke , now more commonly known as the "Harvard plan." The Harvard plan has also provided the Court with a basis for developing more specific criteria for evaluating other affirmative action policies—what one court has described as the "five hallmarks of a narrowly tailored affirmative action plan." The first affirmative action program to come before the Court—the policy challenged in Bakke at U.C. Davis's Medical School—was also the first to falter under the Court's scrutiny. But because the Justices were unable to cobble together a majority there, they also settled on no single rationale for why the Medical School's policy could not survive the Court's scrutiny. This uncertainty left the lower courts without clear guidance on the permissibility of race-conscious admissions policies structured differently than the one struck down in Bakke . In announcing the judgment in Bakke , however, Justice Powell offered a clear reason why, in his view, the Medical School's policy could not survive a challenge under the Equal Protection Clause. The school's 16-seat set-aside for minority students was not "the only effective means of serving [the school's] interest in diversity" —in constitutional parlance, the set-aside was not narrowly tailored. And to explain why not, Justice Powell pointed to the Harvard plan as an example of an appropriately tailored affirmative action policy. That plan, according to Justice Powell, had several significant features that distinguished it—favorably—from the set-aside struck down in Bakk e : In [Harvard's] admissions program, race or ethnic background [is] deemed a "plus" in a particular applicant's file, yet it does not insulate the individual from comparison with all other candidates for the available seats. The file of a particular black applicant may be examined for his potential contribution to diversity without the factor of race being decisive when compared, for example, with that of an applicant identified as an Italian-American if the latter is thought to exhibit qualities more likely to promote beneficial educational pluralism. Such qualities could include exceptional personal talents, unique work or service experience, leadership potential, maturity, demonstrated compassion, a history of overcoming disadvantage, ability to communicate with the poor, or other qualifications deemed important ... [And] the weight attributed to a particular quality may vary from year to year depending upon the 'mix' both of the student body and the applicants for the incoming class. Unlike this "flexible" system of review, the Medical School policy at issue in Bakke was rigid: reserving a predetermined number of seats for a "selected ethnic group." In Justice Powell's view, that technique effectively precluded a more holistic review, that "treats each applicant as an individual." "[R]ace or ethnic origin," as he saw it, did not serve as "a single though important element" of an applicant's file in the Medical School's policy; it had instead become a factor that "foreclosed" other applicants "from all consideration for [certain] seat[s] simply because [they were] not the right color or had the wrong surname." A program like that, Justice Powell concluded, could not be narrowly tailored—precisely because another more individualized and "holistic" model, like Harvard's, could serve instead. Even if Bakke suggested that the Court's scrutiny of a race-conscious admissions policy would be every bit as strict as for other racial classifications, later cases have made clear that such scrutiny need not always be fatal. The companion cases of Grutter v. Bollinger and Gratz v. Bollinger offer clear examples: each involved affirmative action admissions policies at the University of Michigan, and each yielded a different bottom line, with the Court upholding the Law School's policy in Grutter while striking down the university's undergraduate admissions policy in Gratz . But those diverging results appeared to proceed from a common starting point: how closely the challenged admissions policy resembled the Harvard plan. In the case of the Law School's admissions policy, the Court found the resemblance quite close. As Justice O'Connor explained for the Court in Grutter , "the Law School engages in a highly individualized, holistic review of each applicant's file, giving serious consideration to all the ways an applicant might contribute to a diverse educational environment." It therefore did not award "mechanical, predetermined diversity 'bonuses' based on race or ethnicity." And "[l]ike the Harvard Plan, the Law School's admissions policy" accorded each applicant the same sort of flexible consideration that Justice Powell had called for in Bakke . That "policy st[ood] in sharp contrast," however, with the way the Court viewed the university's undergraduate admissions policy in Gratz . Under the undergraduate policy, admissions officers automatically awarded "20 points, or one-fifth of the points needed to guarantee admission, to every single 'underrepresented minority' applicant solely because of race." As Chief Justice Rehnquist explained for the Court, that policy therefore violated a basic feature of "[t]he admission program Justice Powell described" in Bakke —a program that "did not contemplate that any single characteristic automatically ensured a specific and identifiable contribution to a university's diversity." The result was a policy that did not "offer applicants the individualized selection process described in Harvard's example," and that could consequently not pass strict scrutiny. On that point Justice O'Connor also agreed. As she explained in supplying her decisive fifth vote, the undergraduate policy simply did not "enable[] admissions officers to make nuanced judgments with respect to the contributions each applicant is likely to make to the diversity of the incoming class," unlike the Law School's more holistic policy. This was true even though the undergraduate policy "assign[ed] 20 points to some 'soft' variables other than race," such as "leadership and service, personal achievement, and geographic diversity." None of that, in Justice O'Connor's view, could counteract the more problematic effect of those factors' being "capped at much lower levels," so that "even the most outstanding national high school leader could never receive more than five points for his or her accomplishments—a mere quarter of the points automatically assigned to an underrepresented minority solely based on the fact of his or her race." That weighting, though not problematic in all cases, had all but ensured there "that the diversity contributions of applicants [could not] be individually assessed." A thumb pressed that heavily on the racial scale, Justice O'Connor concluded, came too close to the "nonindividualized, mechanical" balancing condemned by Bakke to survive strict scrutiny. Despite their contrasting results, Gratz and Grutter gestured at several basic criteria by which to assess a university's race-conscious admissions policy. Those criteria, as the U.S. Court of Appeals for the Ninth Circuit later described them, could be summed up in "five hallmarks of a narrowly tailored affirmative action plan." And all five can be traced in one way or another to Justice Powell's analysis of the Harvard plan. 1. No Quotas. Perhaps the clearest violation of the requirement that a policy be narrowly tailored is the use of racial quotas. As Justice O'Connor explained in Grutter , a "'quota' is a program in which a certain fixed number or proportion of opportunities are reserved exclusively for certain minority groups," consequently "insulat[ing] the individual [applicant] from comparison with all other candidates for the available seats." And as Justice Powell emphasized in Bakke , and as has been consistently reaffirmed by the Court since, "[t]o be narrowly tailored, a race-conscious admissions program cannot use a quota system." This ban on quotas therefore precludes the use of a rigid set-aside like the one challenged in Bakke . And it likewise rules out the sort of "mechanical," automatic points system that was once in place at the University of Michigan's undergraduate college and was later invalidated in Gratz . 2. Individualized Consideration. The flip side of the Court's refusal to accept racial quotas has been its insistence on individualizing the consideration of applicants. As Justice Kennedy reaffirmed in Fisher I , echoing Justice Powell's description of the Harvard plan in Bakke , an appropriately tailored program "must 'remain flexible enough to ensure that each applicant is evaluated as an individual and not in a way that makes an applicant's race or ethnicity the defining feature of his or her application.'" And as the Court suggested in Gratz and Grutter , an acceptable plan will therefore engage in a "highly individualized, holistic review of each applicant's file, giving serious consideration to all the ways an applicant might contribute to a diverse educational environment." Such review allows "the use of race as one of many 'plus factors' in an admissions program," like in the University of Michigan Law School's policy upheld in Grutter . It also appears to bar a school from "automatically award[ing] points to applicants from certain racial minorities" as an effectively decisive factor, as it became under the university's undergraduate policy. 3. Serious, Good-Faith Consideration of Race-Neutral or More Flexible Alternatives. Neither of these two criteria, however, implies that a university must exhaust "every conceivable race-neutral alternative" before turning to a race-conscious policy. Instead, a university need only provide evidence that it undertook "serious, good faith consideration of workable race-neutral alternatives" before resorting to its choice of a race-conscious plan, but that those alternatives either did not suffice to meet its approved educational goals or would have required some sacrifice of its "reputation for academic excellence." The same holds true, moreover, of more flexible race-conscious alternatives. Thus Justice Powell explained in Bakke that the Medical School's program was not narrowly tailored when the school could have adopted the more individualized, holistic program then in use at Harvard, an option the Medical School apparently did not consider. 4. No Undue Harm. Even though the Court has allowed the use of race-conscious admissions policies under the exacting standard of strict scrutiny, it has also long "acknowledge[d] that 'there are serious problems of justice connected with the idea of preference itself.'" In Grutter , Justice O'Connor drew another corollary from that apparent discomfort with racial preferences. "[A] race-conscious admissions program," she explained, must "not unduly harm members of any racial group." What this corollary means more specifically remains unclear; so far it has received only passing attention from the Court. At the least, Justice O'Connor suggested, a race-conscious admissions policy must not "unduly burden individuals who are not members of the favored racial and ethnic groups." And in Grutter , Justice O'Connor put more flesh on that analysis: an affirmative action policy that closely resembled the Harvard plan, she suggested, would not "unduly harm" other applicants. It remains to be seen, however, whether this principle might take on new life in the Court's review of other plans. 5. Ongoing Review. In Grutter , Justice O'Connor also drew a fifth and final corollary from the basic premise that the Fourteenth Amendment was meant "to do away with all governmentally imposed discrimination based on race." "[R]ace-conscious admissions policies," she concluded, "must be limited in time." This requirement, Justice O'Connor explained for the Court, reflected a consideration apparently unique to racial classifications: "however compelling their goals, [they] are potentially so dangerous that they may be employed no more broadly than the interest demands." Doctrinally, this meant there could be no "permanent justification" for race-conscious admissions policies in higher education; sooner or later they had to end, as the university conceded in its briefing. Practically, this "logical end point" could come in one of several ways. It could take the form of an explicit "durational limit," such as a sunset provision. Or it could arrive as a result of "periodic reviews to determine whether racial preferences are still necessary to achieve student body diversity." But, however a university chooses to pursue that end, it has an "ongoing obligation to engage in constant deliberation and continued reflection regarding its admissions policies" and the role race plays in them, or whether it should continue to play one at all. For several Justices this ongoing obligation of review also pointed to something more definite—an expiration date, when "the use of racial preferences will no longer be necessary to further [the school's] interest" in student body diversity. Looking back over the quarter-century since Bakke , Justice O'Connor "expect[ed]" that day to come twenty-five years after casting her deciding votes in Gratz and Grutter —ten years from this writing. What exactly this meant, as either a practical or doctrinal matter, also remains unclear. Indeed, even then several of her fellow Justices seemed less sure, or simply unsure, what to make of that unusually specific constitutional deadline. But with six Justices having since departed the Court, Justices O'Connor and Kennedy included, it remains to be seen whether in the next ten years race-conscious admissions policies will reach this foreordained "logical end point." What seems clear for now, however, is that the Harvard plan described in Bakke remains the Court's working model of a constitutionally satisfactory race-conscious admissions policy. And that, as the Court has consistently said since, is a policy capable of achieving the diversity "essential" to the life of a modern university, while still "treat[ing] each applicant as an individual." Race has come to play two major doctrinal roles in higher education today, mirroring the two senses of "affirmative action" discussed in this report: the mandatory role, rooted in the affirmative obligation states have to eliminate the vestiges of de jure segregation, and the voluntary role, particularly in admissions decisions at selective colleges and universities. In the context of higher education, the Court has so far considered these two forms of "affirmative action" only in relation to public universities, and then primarily as a matter of constitutional law, under the Fourteenth Amendment's Equal Protection Clause. But many of those cases have also involved claims brought under Title VI of the Civil Rights Act of 1964 (Title VI or the Act). And while the Court has read Title VI's protections to overlap with the Equal Protection Clause, Congress still has a significant say over the substantive scope of Title VI as well as its enforcement. Title VI generally protects participants in federally funded "program[s] or activit[ies]" from discrimination based on their "race, color, or national origin." To ensure that statutory right, the Act grants all federal funding agencies the authority to issue implementing regulations, and the power to enforce the regulations they issue. In practice, much of the interpretive authority falls to the U.S. Department of Justice (DOJ), and for educational programs, the U.S. Department of Education (ED). Both DOJ and ED have also established their own processes for receiving and investigating complaints of suspected Title VI violations. ED, meanwhile, has also issued its own set of rules to govern the federal education dollars it disburses each year, reaching some 4,700 colleges and universities. Every agency that awards federal funds—ED included—has the authority not just to issue implementing regulations but to enforce those rules against noncompliant recipients, including through an investigation that may, upon a finding of noncompliance, result in the termination, suspension, or refusal to grant federal funds. Thus, for example, where ED finds a school in violation of Title VI or its implementing regulations the department may seek to cut off federal funding through an "administrative fund termination proceeding," as it has in at least some cases. And since the passage of the Civil Rights Restoration Act of 1987, the courts have read the scope of liability under Title VI broadly. With respect to the termination of funds, a Title VI violation in one program at a college or university could therefore jeopardize funding for the institution as a whole. Withdrawing funds may be the ultimate means of enforcing Title VI, but it is far from exclusive. DOJ, for its part, has also sought to achieve compliance through the federal courts, intervening in some private suits alleging Title VI violations and otherwise representing executive branch agencies, such as ED, in lawsuits seeking enforcement of Title VI. DOJ has participated in cases challenging practices of formerly de jure segregated public university systems as well as in settlements resolving such Fordice -related claims. DOJ has also taken a position in cases challenging affirmative action admissions policies, most recently in the ongoing litigation surrounding Harvard College's admissions policies. ED has ventured into this area as well, having recently opened investigations into the admissions decisions at several prominent private universities. Congress continues to have considerable say over how Title VI works—at least within the parameters of the Supreme Court's equal protection jurisprudence. Perhaps the most direct way of doing so is by amendment. As a general matter, Congress could revise Title VI in one of two directions, to make the statute either (1) more restrictive than the Court's current Equal Protection jurisprudence or (2) expressly permissive of race-conscious measures that the Court has upheld or has thus far not addressed. In the more restrictive direction, Congress could prohibit recipients of federal funds from using voluntary race-conscious measures at all—a result that four Justices in Bakke argued Title VI already requires, but which the Court has so far not embraced. A statutory revision of that kind would also implicitly reject the Harvard Plan discussed in Bakke , by excluding race as a permissible factor in admissions decisions at the many universities subject to Title VI, including the many private universities that receive federal funds. And, consequently, an amendment along these lines would make unlawful the type of admissions policies that the Court has approved under the Equal Protection Clause, like those at issue in Grutter and Fisher II . On the other hand, Congress could expressly open other avenues for effectuating Title VI's antidiscrimination mandate. This could include incorporating a private right of action to bring suit under Title VI, which, at present, is an implied right with no statutorily defined remedies. More consequentially, Congress could also amend Title VI to provide for disparate impact liability—that is, a Title VI violation based on a funding recipient's use of certain policies or practices that disproportionately and negatively impact members of a protected class, as already exists under Title VII of the same Act. A provision addressing disparate impact liability—either its availability or foreclosure under Title VI—would resolve a significant and ongoing debate on the issue. Such an addition would also be one way of clarifying whether Congress does in fact intend for Title VI to be read coextensively with the Equal Protection Clause. Beyond legislative amendments, Congress also exercises oversight over the agencies charged with carrying out Title VI's antidiscrimination mandate. As discussed earlier, DOJ and ED are primarily responsible for enforcing Title VI in educational programs. For its part, ED investigates and seeks compliance through its Office for Civil Rights, while the Educational Opportunities Section of the Department of Justice's (DOJ's) Civil Rights Division typically enforces Title VI in educational programs for the department. Both offices maintain public archives documenting their past and current investigations, as well as wider-ranging reports detailing their enforcement priorities and investigatory procedures. And because Title VI applies to a wide variety of entities that receive federal financial assistance, not just colleges and universities, DOJ also publishes news and updates on Title VI enforcement activity in other programmatic areas, from agencies across the federal government. Race has come to play two major doctrinal roles in higher education today, reflecting the two senses of "affirmative action" discussed in this report. "Affirmative action" in its original sense grew out of the affirmative obligation imposed on the states by the Equal Protection Clause to eliminate the vestiges of de jure segregation from their public schools. And in that sense, "affirmative action" involves the mandatory use of race-conscious measures in higher education to right the enduring wrongs of state-sanctioned segregation. But "affirmative action" has also come to refer to race-conscious policies outside this de jure context—policies voluntarily adopted by institutions to help racial minorities overcome the effects of their earlier exclusion. In higher education, none has been more salient—or stirred more debate—than the race-conscious admissions policies that colleges and universities across the country have used to diversify their student bodies. Thus far, remedial measures addressing de jure segregation, and voluntary measures designed to promote student-body diversity, have been the only race-conscious measures that the Court has approved under the Equal Protection Clause. And both remain areas of active litigation and administrative enforcement. Over the years, however, the Court has made it clear that it will subject voluntary "affirmative action" policies to especially close scrutiny, approving them only when they can be shown to be narrowly tailored to serve compelling educational goals. It has approved such polices twice already, most recently in 2016. Still, several Justices have suggested that the rationales supporting these voluntary race-conscious measures will one day run out. But for the time being, at least, these two lines of authority nevertheless provide a place for affirmative action in higher education today. This authority, however, leaves questions as of yet unexplored. It appears to be an open question, for example, whether a public institution of higher education can cite its own history of intentional exclusion, or else its "past discrimination," as a basis for adopting a race-conscious admissions policy, among other measures. Whether—and how—the courts might assess such untested arguments would likely turn on a range of factors, including the further development of the two lines of authority addressed in this report. Regardless of those and other possible developments, however, Congress still has a significant say in in this area, through its authority not just to revise Title VI but to oversee the Act's enforcement.	[ "When federal courts have analyzed and addressed \"affirmative action\" in higher education, they have done so in two distinct but related senses, both under the Fourteenth Amendment's guarantee of \"equal protection.\" The first has its roots in the original sense of \"affirmative action:\" the mandatory use of race by public education systems to eliminate the remnants of state-imposed racial segregation. Because state-sanctioned race segregation in public education violates the Fourteenth Amendment's Equal Protection Clause, in certain cases involving a state's formerly de jure segregated public university system, a state's consideration of race in its higher education policies and practices may be an affirmative obligation. As the U.S. Supreme Court explained in its consequential 1992 decision United States v. Fordice, equal protection may require states that formerly maintained de jure segregated university systems to consider race for the purpose of eliminating all vestiges of their prior \"dual\" systems. Drawing upon its precedent addressing racially segregated public schools in the K-12 context, the Court established a three-part legal standard in Fordice for evaluating the sufficiency and effectiveness of a state's efforts in \"dismantl[ing]\" its formerly de jure segregated public university system. To that remedial end, mandatory race-conscious measures—in this de jure context—are not limited to admissions. Instead, remedies may also address policies and practices relating to academic programs, institutional missions, funding, and other aspects of public university operations. Outside this de jure context, \"affirmative action\" has come to refer to a different category of race-conscious policies. These involve what the Court at one time called the \"benign\" use of racial classifications—voluntary measures designed not to remedy past de jure discrimination, but to help racial minorities overcome the effects of their earlier exclusion. And for institutions of higher education, the Court has addressed one type of affirmative action policy in particular: the use of race as a factor in admissions decisions, a practice now widely observed by both public and private colleges and universities. The federal courts have come to subject these voluntary race-conscious policies—\"affirmative action\" in its perhaps more familiar sense—to a particularly searching form of review known as strict scrutiny. And even though this heightened judicial scrutiny has long been regarded as strict in theory but fatal in fact, the Court's review of race-conscious admissions policies in higher education has proved a notable exception, with the Court having twice upheld universities' use of race as one of many factors considered when assembling their incoming classes. The Court has long grappled with this seeming tension—between the strictness of its scrutiny and its approval of race-conscious admissions policies—beginning with its landmark 1978 decision in Regents of the University of California v. Bakke through its 2016 decision in Fisher v. University of Texas. Though the Equal Protection Clause generally concerns public universities and their constitutional obligations under the Fourteenth Amendment, federal statutory law also plays a role in ensuring equal protection in higher education. To that end, Title VI of the Civil Rights Act of 1964 prohibits recipients of federal funding—including private colleges and universities—from, at a minimum, discriminating against students and applicants in a manner that would violate the Equal Protection Clause. Federal agencies, including the Departments of Justice and Education, investigate and administratively enforce institutions' compliance with Title VI." ]	12,474	gov_report	en	null	96b798b0de90fbfdfec8755d41a218bde7e0439dd5a8bc98
The Rehabilitation Act of 1973 (Rehabilitation Act), as amended by WIOA, authorizes a number of grant programs to support employment and independent living for persons with disabilities, including the State Vocational Rehabilitation Services program. This program is the primary federal government effort to help individuals with disabilities prepare for and obtain employment. An individual who is deemed eligible works with state VR agency staff to prepare an individualized plan for employment, which describes the employment goal and the specific services needed to achieve that goal. Education’s Rehabilitation Services Administration (RSA) awards funds to state VR agencies through the program to help individuals with disabilities engage in gainful employment. States must provide a 21.3 percent nonfederal match of these funds. In fiscal year 2016, total program funds for VR—including state match funds—were $3.81 billion. States, territories, and the District of Columbia generally designate a single agency to administer the program, although, depending on state law, states may designate more than one agency. Twenty-three states have two separate agencies, one that exclusively serves blind and visually impaired individuals (known as agencies for the blind) and another that serves individuals who are not blind or visually impaired (known as general agencies). Twenty-seven states, the District of Columbia, and the five territories have a single combined agency that serves both blind and visually impaired individuals and individuals with other types of impairments (known as combined agencies). In total, there are 79 state VR agencies. In 2014, WIOA amended the Rehabilitation Act to require state VR agencies to provide students with disabilities with pre-employment transition services. According to information Education provided with its regulations, WIOA emphasized the provision of services to students with disabilities to ensure that they have meaningful opportunities to receive training and other supports and services they need to achieve employment outcomes. WIOA requires states to make pre-employment transition services available statewide to all students with disabilities in need of such services, who are eligible or potentially eligible, regardless of whether a student has submitted an application for services from a state VR agency. In this context, students with disabilities include those with an individualized education program (IEP) for special education services through the school system, those receiving an accommodation for their disability, and others. In information provided with the regulations, Education stated that state VR agencies should work closely with school systems and others to identify these students. WIOA requires each state to reserve at least 15 percent of a state’s VR allotment for a fiscal year for pre-employment transition services for students with disabilities. If a state cannot use or match all of its VR funding, it relinquishes funds to the federal government and the state’s total award amount is then reduced. However, the state must still reserve 15 percent of what it did not relinquish for the provision of pre- employment transition services. WIOA established required activities under pre-employment transition services that states must make available to students with disabilities. Education has provided states with additional information about each of the activities (see table 1). After making the required pre-employment transition services available, if a state has funding remaining, WIOA lists nine other “authorized” activities that a state may implement. For example, in providing the authorized activities, states may, among other things, provide training to local VR and educational service providers; coordinate transition services with local educational agencies; and disseminate information about innovative, effective, and efficient approaches to achieve the goals (see appendix II for a full listing of authorized activities). Education’s guidance indicates that such authorized activities should improve the transition of students with disabilities from school to postsecondary education or an employment outcome and support the arrangement or provision of the required activities. WIOA also requires local offices of state VR agencies to conduct coordination responsibilities, which includes coordinating with state and local educational agencies to ensure the provision of pre-employment transition services. These can be conducted concurrently with the “required” activities, and states can use the reserved funds for them. Examples of coordination responsibilities that local offices of state VR agencies must undertake are attending meetings, when invited, about IEPs; and working with the local public workforce system and employers to develop work opportunities for students with disabilities. In support of this coordination and in recognition that VR and educational agencies both offer transition services to students, WIOA requires that VR agencies establish or update their interagency agreements with states educational agencies. Interagency agreements between the state VR and educational agencies are intended to describe the steps each agency will take to implement pre-employment transition services and determine the roles and responsibilities of each agency, including financial responsibilities and procedures for identifying students in need of pre- employment transition services. Following the passage of WIOA, Education, through its Rehabilitation Services Administration (RSA), issued regulations and guidance to implement pre-employment transition services requirements (see fig. 1). Education also provided technical assistance to state VR agencies through webinars, conference calls, and presentations at conferences. For example, Education presented information to state officials in a series of webinars about the new programmatic and financial processes and procedures related to pre-employment transition services just after the final regulations were issued in 2016. In addition, Education funded technical assistance centers to help state VR agencies and their partners answer questions and provide training about WIOA. Two of these centers are the Workforce Innovation Technical Assistance Center (WINTAC) and the National Technical Assistance Center on Transition (NTACT). Each center focuses its efforts on a specific set of issues: WINTAC on helping state VR agencies implement WIOA requirements, including pre- employment transition services; and NTACT on helping state VR and educational agencies improve outcomes for students receiving transition services. RSA is to conduct periodic monitoring visits to assess state VR agencies’ implementation of the VR program, including pre-employment transition services. RSA is to monitor states for compliance with the administrative, financial, and performance requirements of the program, as well as identify technical assistance needs at individual state VR agencies. According to Education officials, RSA plans to follow a 5-year monitoring cycle that began in fiscal year 2017 and will generally include monitoring visits to 10 states per year through fiscal year 2021. In fiscal year 2017, Education visited 14 VR agencies in 10 states, and in fiscal year 2018, Education plans to visit 15 VR agencies in 12 states. Most state VR agencies that responded to our survey reported expanding services for students with disabilities since WIOA’s enactment in July 2014 by either serving more students through pre-employment transition services or by initiating new or additional services. Most state VR agencies that responded to our survey reported that they provided the five required activities to more students with disabilities since WIOA’s enactment (see fig. 2). State VR agencies indicated in their survey responses that they had previously provided and continue to provide transition services to students who apply and are eligible for the VR program, and many of the activities were not entirely new to state VR agencies. Most agencies that responded to our survey reported providing each of the required activities to students with disabilities before the enactment of WIOA, while fewer reported initiating these services since enactment (see fig. 3). Of the five required activities, instruction in self-advocacy saw the biggest expansion during this time. In information provided with the regulations, Education described instruction in self-advocacy as, for example, classroom lessons in which students learn about their rights, responsibilities, and how to request accommodations or services and supports needed during transition. In written comments on our survey, 10 state VR agencies reported partnering with other organizations, such as universities or centers for independent living, to provide instruction in self- advocacy. One agency reported on our survey that it offers peer mentoring as an additional component of self-advocacy services, and another reported providing self-advocacy and mentoring for deaf-blind students by deaf-blind adults. In October 2016, based on views of an expert panel that we convened on autism spectrum disorders and transitioning youth, we reported that it is critically important that all transitioning youth, regardless of their level of disability, be given the opportunity to state their own preferences to the extent of their capabilities to reach their maximum independence. State VR agencies reported developing additional programming as a result of WIOA’s enactment, including expanding programs for more students, adding new opportunities and experiences, and creating new partnerships. Officials from all four of the state VR agencies we interviewed said they had programs in place prior to WIOA that offered activities similar to pre-employment transition services, but they have since expanded these services or created additional programs for students with disabilities. For example, an official we interviewed from the Idaho Division of Vocational Rehabilitation said the agency had previously worked to enroll students in the VR program prior to graduation, but has since begun developing new programming and instruction aimed at serving larger groups and providing other services, such as a paid work experience. An official from Maryland’s Division of Rehabilitation Services said many of the services they previously offered were during school hours, and students had limited access to these services if they wanted to stay in class. The agency has since added services after school and during the summer, such as opportunities for students to meet with employers, according to Maryland officials. Officials from the Illinois Department of Human Services, Division of Rehabilitation Services, said that while the agency had previously provided work-based learning experiences, it has since expanded the number of spots available for students in an existing program and created a new work-based learning program that is a collaboration between school districts, a community rehabilitation partner, and businesses. Providing new services with specific requirements to an expanded population has been a significant change, according to officials in one of the state VR agencies we interviewed and in all three of our discussion groups. For example, officials from Maryland’s Division of Rehabilitation Services said that, while they provided all five required activities before WIOA, they now provide the activities to a younger population and make the activities available statewide. State VR officials in all three of our discussion groups said that providing pre-employment transition services allows them to provide these services to more students with disabilities or at an earlier age, which will likely have positive effects on students’ transition from school to work. For example, officials in one discussion group noted that the provision of pre-employment transition services is increasing awareness, enhancing services, and increasing the likelihood that VR program outcomes will improve. In another discussion group, officials said their agencies had already seen benefits from pre- employment transition services and the services have raised students’ expectations for the types of jobs they might obtain. While 32 of the state VR agencies responding to our survey reported that they had identified all potentially eligible students, another 37 reported that they were currently in the process of identifying these students. State VR officials in all three of our discussion groups and who we interviewed in two of four state VR agencies said they have had challenges finding the population eligible for services. In written comments on our survey, one agency reported that while statewide information on students was not readily available, officials worked with the state educational agency to identify potentially eligible students, including more than 137,000 students with an IEP and an estimated 13,000 additional students that do not have an IEP. We previously reported on the difficulties state VR officials faced in obtaining data they could use to identify other youth with disabilities. Compared to combined and general agencies, more agencies for the blind reported in our survey that they did not provide the five required activities to more students with disabilities, and officials in some of these agencies said they can serve a much smaller population. For example, 57 percent (12 of 21) of agencies for the blind reported providing job exploration counseling to more students, compared to 83 percent (25 of 30) of combined agencies and 91 percent (20 of 22) of general agencies since WIOA enactment. Similarly, 67 percent (14 of 21) of agencies for the blind reported providing work-based learning experiences to more students, compared to 83 percent (25 of 30) for combined agencies and 86 percent (19 of 22) for general agencies. Officials in some of these agencies for the blind and from the National Council of State Agencies for the Blind (NCSAB) told us in interviews that agencies for the blind have far fewer potentially eligible students they could serve compared to other types of agencies. For example, officials we interviewed with Idaho’s Commission for the Blind and Visually Impaired said that Idaho has only 40 students being provided pre-employment transition services. In contrast, the Idaho Division of Vocational Rehabilitation reportedly provided at least one pre-employment transition service to approximately 700 students in a one-year period. The ability of agencies for the blind to serve more students may also be restricted because they are not able to provide pre-employment transition services to younger students in some cases, according to officials with NCSAB and Idaho’s Commission for the Blind and Visually Impaired. NCSAB officials told us that state VR agencies have traditionally provided VR services to youth who are blind or visually impaired at younger ages compared to general agencies that serve youth with other types of disabilities. The ages at which students may be provided pre-employment transition services varied by agency, based on responses to our survey, but the most common age range reported across all types of agencies was 14 to 21 years old. According to Education officials, as a result of WIOA, two agencies in the same state must agree on a common age range during which students can be provided pre-employment transition services. Most agencies in states with two VR agencies responding to our survey (35 of 44) reported agreeing on an age range for receiving pre- employment transition services. NCSAB officials said that in some cases agencies for the blind have had to raise the minimum age at which they would begin providing services to students. Officials with Idaho’s Commission for the Blind and Visually Impaired, for example, said they would prefer to begin services at younger ages because their agency has the resources to do so. However, officials with Idaho’s Division of Vocational Rehabilitation said they do not have the resources to provide pre-employment transition services to the relatively large number of students with disabilities at a younger age. State VR agencies reported taking a range of actions to build their administrative capacity to implement pre-employment transition services. These actions included building staff capacity and expanding contracts with services providers. Building staff capacity. Most state VR agencies reported building staff capacity to facilitate and carry out the requirements of pre- employment transition services by: Establishing a new specialist position. More than half (45 of 74) of VR agencies reported in our survey establishing at least one new transition specialist position specifically for pre-employment transition services. For example, the Idaho Division of Vocational Rehabilitation reported establishing this position and officials told us that they hired a specialist who was previously the transition coordinator for the state’s educational agency. In written comments on our survey, a respondent from another state commented that their agency has hired 20 pre-employment transition services specialists to provide the five required activities. Officials we interviewed from Maryland’s Division of Rehabilitation Services said they added six salaried positions dedicated to providing pre-employment transition services. Another agency responding to our survey reported dedicating a supervisor and 15 percent of their counselors exclusively to this purpose. Training staff. All 74 state VR agencies reported providing training on pre-employment transition services to their staff. For example, in written comments, one agency reported developing training tools for its counselors, such as answers to frequently asked questions, posting guidance on its intranet, and having WINTAC provide training. Expanding contracts and agreements with service providers. In addition to being provided by state VR agency staff, pre-employment services can be offered through a variety of methods and service providers, and many state VR agencies reported entering into new or additional contracts with service providers or expanding contracts with existing providers. Pre-employment transition services can be provided directly by state VR agency staff or through agreements with third parties, such as community rehabilitation programs, independent living agencies, public colleges and universities, and school districts. In our survey, 62 of 74 agencies reported entering into new or additional contracts with third-party providers to provide pre- employment transition services. Officials we interviewed from three of four state VR agencies said they either established or expanded existing contracts and agreements. For example, officials from the Illinois Department of Human Service, Division of Rehabilitation Services told us that after the enactment of WIOA, they expanded arrangements with independent living centers and initiated a new program that provides students with work experiences. Agencies reported several examples of approaches using third parties: establishing contracts with community rehabilitation programs to partnering with independent living agencies to work with youth on entering into provider agreements with local workforce centers to assist with providing job preparation and a paid work experience, developing programs with public colleges and universities focused on financial literacy and self-advocacy, and contracting with individual school districts to deliver services in the school environment. Twenty-one of 56 states (50 states, 5 territories, and the District of Columbia) reported using the full amount of grant funds they reserved for pre-employment transition services for students with disabilities for fiscal year 2016, according to the most recent full year of data available from Education (see fig. 4). In aggregate, states reportedly expended approximately $357 million out of the approximately $465 million reserved (about $108 million less than the target) for fiscal year 2016. For fiscal year 2015, states reportedly expended approximately $324 million on pre-employment transition services out of the approximately $453 million reserved for that purpose (about $130 million less than the target). Results from our 2017 survey of state VR agencies revealed similar trends: Fewer than half the 74 agencies reported that they used at least 15 percent of their VR grant allotment each year. Thirty-two of the 74 agencies responding to our survey reported using the minimum required 15 percent of federal VR grant funds reserved for the provision of pre- employment transition services for fiscal years 2016 and 2017. For fiscal year 2015, 25 agencies reported using the required 15 percent minimum reserved funds. Officials we interviewed in two of four state VR agencies and officials in all three discussion groups explained that some of the services they generally provided to participants in the VR program are not allowable for the funds reserved for pre-employment transition services. These expenditures included transportation, tuition, and others associated with individualized services. For example, officials in Maryland’s Division of Rehabilitation Services told us that transportation costs for students to get to the place where the services are provided are not covered. VR agency officials in two of our discussion groups told us that assistive technology, such as hearing aids, could not be paid for with the 15 percent of funds reserved for pre-employment transition services. In another group, participants said that some expenditures, such as tuition or for the services of a job coach to help students with the most significant disabilities, could not be paid with reserved funds. In information provided with the regulations, Education stated that it does not have the statutory authority to allow these expenditures to be paid for with the funds reserved for pre-employment transition services and these services must be paid with other VR funds. When it promulgated its final regulations, Education noted that state VR agencies would experience challenges in using their funds because many of the services provided to students with disabilities prior to WIOA’s enactment would not qualify as pre-employment transition services. Education reviewed past expenditures for a subset of students and estimated that 82 percent of state VR agencies’ reported purchases for those students would not meet the statutory definition of pre-employment services under WIOA. Education concluded that states would have to reach a larger number of students with disabilities in order to meet the spending requirement and that state VR agencies would need to develop and implement aggressive strategies to expend these funds in these initial years of implementation. According to WINTAC officials, state VR agency officials are commonly unclear about what kinds of activities they can provide using the funds reserved for pre-employment transition services. For instance, they said that states must make required activities (e.g. work-based learning experiences and self-advocacy) available to all students with disabilities before providing authorized activities (e.g. model projects, partnerships), in accordance with WIOA. However, state officials have commonly interpreted that to mean that all students must actually receive the required activities before the agency can begin providing other activities, according to WINTAC officials. WINTAC officials explained that states may have been conducting authorized or coordination activities without knowing these activities could be paid for with the reserved funds. None of the state VR agency officials we interviewed said they had yet moved beyond providing required activities to providing authorized activities. Officials from two of the agencies we interviewed told us they were in the process of planning authorized activities. For example, officials with the Idaho Division of Vocational Rehabilitation said they were completing an assessment of their needs, which would help them plan authorized activities. Officials we interviewed from the other two agencies—the Idaho Commission for the Blind and Visually Impaired and the Illinois Division of Rehabilitation Services—said they did not have the resources to provide authorized activities or were unsure about how to properly transition from required to authorized activities under the current guidance. Education communicated with states on broad requirements but provided little detailed information directly to states on the allowable use of funds reserved for pre-employment transition services. Education provided information when it promulgated final regulations, in grant award notifications, on its website, and in presentations at conferences. In each of these formats, Education described activities on which states could not spend funds, but provided little detailed information on what expenditures are allowed. Regulations: Education’s final regulations restate many provisions in WIOA, including the prohibition on using any of the reserved funds for administrative costs. In responding to comments it received on its proposed regulations, Education provided examples of services that commenters requested would be considered pre-employment transition services, such as, postsecondary education, on-the-job supports, job coaching, travel expenses, and uniforms. In information provided with the regulations, Education explained that it had no statutory authority to expand or limit the pre-employment transition services listed in WIOA. Education stated that a state VR agency can allocate costs associated with staff time spent providing pre- employment transition services, including an employee’s salary and fringe benefits, to the funds reserved for pre-employment transition services. However, Education did not provide additional information on what specific types of expenditures states were permitted to spend funds on in providing pre-employment transition services as required by WIOA. Grant award notification: The notification that accompanies each state’s VR grant award lists the three sets of activities for which the reserved money can be used: required, authorized, and coordination; it lists each of the activities as they are listed in WIOA. It also discusses the prohibition on using any of the reserved funds for administrative costs. It does not list or describe what specific expenditures the reserved funds can be used for to undertake each of the listed activities. Education’s website: A list of frequently asked questions on Education’s website outlines the requirements of WIOA and explains that the reserved funds must only be used to provide pre-employment transition services as listed in WIOA. Similar to the regulations, the website explains that the total costs of an employee’s salary and fringe benefits may be allocated to the reserved funds if that employee is providing only pre-employment transition services to students with disabilities but does not include additional detail for any other expenditures. Presentation materials: In one set of presentation materials, Education provided an example of a potential allowable expenditure for one of the required activities, work-based learning. It did not include information on allowable expenditures for the other four required activities, or any of the nine authorized activities. In another set of presentation materials, Education provided examples of services for each of the five required pre-employment transition services activities. According to Education officials, these examples would be allowable expenditures. Education, however, provided the most detailed information through WINTAC. WINTAC’s website provided answers to some specific questions on the use of funds reserved for pre-employment transition services. In one set of frequently asked questions, WINTAC included a list of 28 questions with detailed answers, including what specific expenditures may be charged to the reserved funds. For example, based upon guidance issued by RSA, the website explains that reserved funds may be used to pay for auxiliary aids and services, such as interpreters, if they are directly related to one of the five required pre-employment transition services activities. However, the reserved funds may not be used to pay for the costs of foreign language interpreters because they are not an auxiliary aid or serve that is required due to the individual’s disability. WINTAC’s website also included answers provided by Education on 13 other frequently asked questions. Information included that reserved funds cannot be used to pay for the cost of an assessment to determine whether a student met the definition of a student with a disability; they can be used to pay for items required by an employer for work-based learning activities. Some state VR agencies we surveyed and those that participated in one of our three discussion groups said they would like more detailed information directly from Education. Seven survey respondents reported that they would like Education to provide answers to their specific questions. In one discussion group, participants noted that when states approach WINTAC with a new question, the technical assistance center sometimes needs to obtain the answer from Education. This process can be inefficient at times. In addition, the answer may not be broadly shared with all the states, limiting its benefit, whereas information issued directly from Education could help communicate the answer more efficiently and broadly. One survey respondent reported, for example, that guidance varied by source—training, Education’s RSA staff, or technical assistance center websites—and said that Education should provide all state VR agencies with the same information at the same time. According to standards for federal internal control, management should communicate externally through reporting lines so that external parties can help the entity achieve its objectives and address related risks. Management should also periodically evaluate its methods of communication so it has the appropriate tools to communicate quality information throughout and outside of the entity on a timely basis. Education officials said that during fiscal years 2015 and 2016, states were unclear about allowable expenditures using reserved funds, and that they plan to clarify guidance as they learn about the issues from states during their monitoring. According to Education officials, they respond to issues that need clarification and provide answers to questions as part of formal monitoring visits or through other communications with state agencies. Education officials said they expect to complete a round of monitoring visits to all states by the end of fiscal year 2021. However, an Education official said they have no timeframe for providing further information on allowable costs to states. With better information on timeframes for when this information will be provided, states would be able to better plan their use of the remaining funds reserved for pre- employment transition services. Most state VR agencies (61 of 74) that responded to our survey reported providing training on pre-employment transition services along with their state’s educational agency since WIOA’s enactment in 2014. Joint training may help coordination between state VR and educational agencies, as state VR officials participating in our discussion groups said that some educators were not familiar with pre-employment transition services. Similarly, an official we interviewed from Idaho’s state educational agency said it was common in the past for teachers and VR counselors not to know one another. Joint trainings provided to VR staff and teachers have improved these relationships, and teachers can invite VR counselors to students’ IEP meetings, the official said. Joint training includes staff presentations at conferences and participation in other training sessions. For example, officials we interviewed from the Idaho Division of Vocational Rehabilitation said their transition coordinator has given presentations to education directors around the state about changes resulting from WIOA and how the inclusion of pre-employment transition services can affect special education for the school districts. In written comments on our survey, one agency reported that it co-sponsors an annual conference with VR, special education, developmental services, and other public and private entities. During this conference, they plan how to improve services for students with disabilities. About one-third of state VR agencies (23 of 74) reported issuing joint guidance with their state’s educational agency, a recommended practice according to WINTAC. The other two-thirds of survey respondents reported that joint guidance was either in progress (27 of 74) or that they had not issued such guidance (23 of 74). Joint guidance can include written policies and procedures that are created by and provided to state VR and educational agency staff. For example, in written comments on our survey, one agency reported developing written policies and guidance for transition counselors that the state educational agency endorses and provides to special education staff. In Maryland, VR and special education officials told us that they issued guidance through jointly created materials on pre-employment transition services. Less than half the state VR agencies that responded to our survey (34 of 74) reported updating their interagency agreement with their state’s educational agency, which is intended to facilitate collaboration and coordination on delivery of pre-employment transition services. The majority of agencies reported that their agreement is either in progress (37 of 74) or not yet updated (3 of 74). These required agreements outline how VR agencies and schools will plan and coordinate service provision, provide for each agency’s responsibilities, including financial responsibilities, and provide for student outreach procedures, among other things. Discussion group participants and CSAVR representatives emphasized the value of completing their interagency agreements with the state educational agency. In one group, officials whose agencies had completed their agreements said they are essential for state VR agencies to provide services in schools. Participants in another discussion group explained that once they have a state-level agreement in place, they can discuss what services school districts need for students and then determine how to provide those services. According to state educational agency officials we interviewed, Individuals with Disabilities Education Act (IDEA) requirements are similar to requirements for pre-employment transition services, and they need to coordinate with VR officials at both the state and local levels to agree on each agency’s assigned tasks and expectations. These officials said state VR and educational agencies should coordinate funding to make services available where they are needed and to complement each other’s transition efforts. Illinois’s agreement, for example, specifies that the state educational agency is responsible for providing outreach, guidance, and coordination to local educational agencies regarding the provision of pre-employment transition services. According to the agreement, Illinois’s VR agency is responsible for providing pre-employment transition services, both directly and through cooperative agreements with local educational agencies, and for providing written information to the state educational agency regarding services available to students with disabilities. Officials we interviewed with CSAVR said state VR agencies that have made progress in developing their interagency agreements with state educational agencies tend to be more successful in implementing pre-employment transition services. According to Education officials, Education provides guidance and technical assistance on interagency agreements to states as part of Education’s monitoring or when asked by states. Education officials said they provide technical assistance during periodic monitoring visits, which are currently limited to about 10 states per year from fiscal years 2017- 2021; by helping state VR agencies develop policies and procedures; and by making sure pre-employment transition services are coordinated with the state educational agency and through interagency agreements. According to Education officials, there is no statutory provision authorizing Education to identify states that have not updated their interagency agreement. Education officials said they do not collect information from state VR agencies on the status of these agreements except when they conduct monitoring visits in specific states. In addition, Education officials said that when monitoring, they may meet with state educational agency partners to help them understand the new components of pre- employment transition services in an agreement, or they may refer the state agencies to WINTAC or NTACT resources. Providing assistance during monitoring may be helpful for some states. However, given that less than half of state VR agencies we surveyed reported updating and finalizing their agreements and Education officials say they will take another three years to complete this round of monitoring, additional action by Education may be needed to raise awareness among the remaining states about the importance of these agreements to help states coordinate services to students with disabilities. Additional action could include, for example, conducting earlier state outreach or monitoring to assess state progress on finalizing the interagency agreements and offering technical assistance when appropriate. However, Education officials said there is no requirement that state educational agencies provide pre-employment transition services to meet their obligations to IDEA-eligible students with disabilities under part B of the Individuals with Disabilities Education Act. As a result, WINTAC and participants in our discussion groups explained that it can be difficult to get state educational agencies to work with state VR agencies to update interagency agreements. Education officials said that WIOA requires state VR agencies to update these interagency agreements to include pre- employment transition services but they do not track their completion because states are not required to report when the agreements are finalized. Moreover, Education officials said they have heard from states that some reasons that interagency agreements are not specifically updated are that the agreements are written broadly enough so that they can remain in effect when there are additional changes to the law, the details of actual practices are rarely reflected in the high level of an interagency agreement, and that modifications to agreements are time- consuming and would not result in changes to the interagency coordination practice. Without an updated agreement between the state VR and educational agencies, efforts to collaborate on pre-employment transition services may be hindered. Officials with the National Technical Assistance Center on Transition (NTACT) told us that some of the state agencies for which they provided in-depth technical assistance were not working closely together. Officials from two of the three state educational agencies we interviewed said they viewed pre-employment transition services as primarily the responsibility of the VR agency. State VR officials in all three of our discussion groups said they have experienced coordination challenges, including difficulty determining each agency’s responsibilities for providing pre-employment transition services, obtaining data needed to identify and provide services to students, and determining which agency will pay for which services, among other challenges. Interagency agreements can help to address these types of issues. Federal internal controls recommend that management communicate with and obtain information to identify, analyze, and respond to risks related to achieving defined objectives, such as those that can arise from new laws and regulations. Moreover, we found in prior work that it is important to establish ways to operate across agency boundaries, with measures such as developing common terminology and fostering open lines of communication. A lack of collaboration between state VR and educational agencies increases the risk that some students will not successfully transition from school to post-school activities. In addition, our prior work has identified lack of collaboration among and between federal agencies and state and local governments as a challenge to effective grant implementation. Interagency agreements are intended to serve as a mechanism related to collaboration practices, which include defining a common outcome, establishing joint strategies, and agreeing on roles and responsibilities of each agency. By taking additional steps, such as discussing the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements, Education would help raise awareness about the importance of the agreements and be better positioned to help states efficiently and effectively coordinate services to students with disabilities. Most state VR agencies (63 of 74) that responded to our survey reported that additional assistance with identifying best practices would be useful to their agencies. Similarly, state VR officials in all three of our discussion groups spoke to the need for Education to develop and disseminate best practices to help states, for example, comply with program requirements. WIOA requires Education to highlight best state practices on pre-employment transition services. Best practices may also help states address the challenges they reported facing in implementing and administering pre-employment transition services for students with disabilities, such as (1) coordinating with state educational agencies, (2) using VR resources more efficiently and effectively to help states balance providing pre-employment services with the full VR program, and (3) collecting data on services provided, and (4) updating data tracking systems. Coordinating service delivery with state educational agencies. Over half (41 of 74) of state VR agencies reported in our survey that additional assistance on coordinating with state educational agencies would be useful for them. Similarly, officials from all three state educational agencies we interviewed said they would like additional assistance on interagency collaboration. Officials with NTACT told us that some of the state agencies for which they provided in-depth technical assistance were not working closely together. Officials from two of the three state educational agencies we interviewed said they viewed pre-employment transition services as primarily the responsibility of the VR agency. State VR officials in all three of our discussion groups said they have experienced coordination challenges, including difficulty determining each agency’s responsibilities for providing pre-employment transition services, obtaining data needed to identify and provide services to students, and determining which agency will pay for which services, among other challenges. An official we interviewed from the Idaho Department of Education said it would be helpful to have more clearly defined roles, obligations, and means of sharing data between the state-level agencies. In written responses to our survey, one respondent said having examples of highly successful collaborations between a state educational agency and state VR agencies would be helpful. According to Education’s guidance, a student’s transition from school to post-school activities is a shared responsibility and coordination and collaboration between the state VR and educational agencies is essential. However, according to information Education provided with the regulations, while some have sought clarification and additional guidance in this area, Education determined that decisions on agencies’ responsibilities must be made at the state level to allow states maximum flexibility allowed under the law. In the absence of more specific guidelines for how state agencies should collaborate, best practices from other states could provide helpful examples. Balancing pre-employment transition services with VR services. Several state VR agencies in both our written survey responses and in discussion groups noted that by increasing services mandated for pre-employment transition services for students, they have had to reduce VR services to adults, which has made it difficult to balance the two programs. In issuing its final regulations, Education acknowledged that reserving funds would decrease amounts available for the full VR program, resulting in a transfer of benefits from individuals historically served by VR to students with disabilities in need of transition services. According to state VR directors with the National Council of State Agencies for the Blind (NCSAB), agencies for the blind have had to restrict VR services while also not being able to use all of the funds reserved for pre-employment transition services for students with disabilities because VR services cannot be paid with reserved funds. Most state VR agencies that completed our survey (50 of 74) reported that balancing pre-employment transition services with other vocational rehabilitation services was moderately difficult, very difficult, or extremely difficult during federal fiscal year 2017. Collecting data. Data collection was one of the top challenges identified by state VR agencies in our survey, with 48 of 74 reporting that collecting data on the provision of pre-employment transition services was moderately difficult, very difficult, or extremely difficult during fiscal year 2017. Prior to WIOA, agencies collected and reported data only on individuals who had applied and enrolled in the VR program. For pre-employment transition services, agencies now collect data on who provided and received each of the five required activities, including for individuals who have not submitted a VR application. State VR officials in two of our three discussion groups said that they have experienced challenges collecting sensitive information (such as social security numbers) for minors and collecting data on individuals for group services. Officials in one of the three discussion groups also said that these problems are particularly significant when trying to collect information on potentially eligible students for whom they do not have open VR cases. These students could include all those with an IEP and those that receive accommodations in school based on their disability, among others. Updating data tracking systems. Updating data systems was also one of the top challenges reported in our survey, and was cited as an additional administrative burden by state VR officials in our discussion groups. Specifically, 53 of 74 state VR agencies reported that it was moderately difficult, very difficult, or extremely difficult to update tracking systems to collect and report financial and service data on pre-employment transition services during fiscal year 2017. According to a state VR agency official we interviewed, updating that state’s tracking system is difficult because data collected on pre-employment transition services—such as the type of service provider and how the service was provided—do not fit well into a case management system designed for the full VR program. Updating these tracking systems also created an additional administrative burden for VR agency staff, according to officials from all three discussion groups and three of the four state agencies that we interviewed. Officials in two of our three discussion groups said that they have one or more full-time staff members doing only administrative tasks or that they have had to hire additional staff to handle data tracking. Education officials said that they plan to document and share best practices with states; however, they said the agency does not have a final written plan for managing these efforts because plans are still under discussion in light of inquiries received. Education officials said they are collecting information on state VR agencies’ practices through monitoring and they are sharing this information with WINTAC—information that could be useful for sharing best practices across states—but a comprehensive summary of states’ efforts will not be available until after Education officials conduct monitoring visits of all states by the end of fiscal year 2021. In addition, in a 2015 technical assistance circular, Education recommended that state VR agencies consult with other federal, state, and local agencies to identify best practices for providing pre-employment transition services to students and youth with a variety of disabilities. Education officials also said that they are looking for opportunities, such as webinars and conferences, to share information with states. However, Education does not have set timeframes and has not detailed the specific steps and activities for fully leveraging knowledge to address common challenges, or for finalizing and disseminating best practices. By doing so, Education would be better positioned to provide best practices information to state VR agencies to better serve students with disabilities who are transitioning from high school. Pre-employment transition services are designed to help students with disabilities begin to identify career interests and move from high school to post-secondary education or employment. Using federal funding, state VR agencies reported that they have generally enhanced their services and staff capacity and begun to coordinate with state educational agencies. As a result, state VR agencies generally reported serving an increased number of students. However, most states reported they have not used all the funds reserved for pre-employment transition services or updated interagency agreements between state VR and educational agencies. Education has developed multiple forms of guidance and made presentations, either directly or through its technical assistance centers. Education officials said they plan to issue additional guidance as needed. However, without clear timeframes for the issuance of this guidance, states do not know when information will become available to help them make decisions on allowable expenditures for pre-employment transition services. As a result, opportunities may be missed to identify and serve all students who might be eligible, and unserved students could continue to face difficulties preparing for a future of meaningful post-secondary education or employment. In addition, agreements between state VR and educational agencies can help facilitate the effective coordination of and financial responsibility for services. Finally, WIOA requires Education to highlight best state practices for implementing pre-employment transition services. Developing a written plan with specific timeframes would help Education provide states with information on best practices, such as balancing service delivery between pre-employment transition services and other VR services and collecting data that other states may have successfully addressed. We are making the following three recommendations to Education: The Secretary of Education should establish timeframes for providing states with additional information on allowable expenditures of funds reserved for pre-employment transition services. (Recommendation 1) The Secretary of Education should take additional steps to provide states assistance on updating and finalizing their interagency agreements with state educational agencies to include pre-employment transition services. These steps could include, for example, accelerating their efforts to discuss the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements. (Recommendation 2) The Secretary of Education should develop a written plan with specific timeframes and activities for identifying and disseminating best practices that address, as appropriate, implementation challenges for pre- employment transition services, such as those identified in this report. (Recommendation 3) We provided a draft of this report to Education for review and comment. Education’s written comments are reproduced in appendix III. Education also provided technical comments, which we incorporated into our report where appropriate. Education concurred with recommendation 1 and disagreed with recommendations 2 and 3 in the draft report. With regard to recommendation 1, Education stated that it agreed and will establish projected timeframes for providing states with additional information on allowable expenditures for the provision of pre- employment transition services. Education also stated that it intends to provide states with additional information in at least two forums before the end of calendar year 2018 and to review and analyze previous guidance provided to states on allowable expenditures. With regard to the draft report’s recommendation 2, which called for Education to identify states that have not updated and finalized their interagency agreements to include pre-employment transition services, Education stated that it disagreed, in large part, because there is no statutory provision authorizing the agency to identify such states. However, Education is taking some steps as part of its ongoing monitoring of the VR program to provide assistance to states that have not updated their interagency agreements, which is consistent with the intention of our recommendation, but more could be done. Education stated that it will continue to offer and provide technical assistance if it becomes known through the onsite monitoring of the VR program or through other means that states have not updated their interagency agreements between VR agencies and state educational agencies. It also noted that the Rehabilitation Services Administration (RSA) and its Office of Special Education Programs will provide information related to sources of technical assistance, as appropriate, to VR agencies and state educational agencies. While these steps may be helpful, given the number of states that have not updated and finalized their agreements and the length of time Education officials say they will take to complete this round of monitoring where Education asks state VR agencies about these agreements, additional action by Education may be needed to help states more efficiently and effectively coordinate services to students with disabilities. Education also wrote that while the Rehabilitation Act requires an interagency agreement, the Individuals with Disabilities Education Act does not contain a parallel requirement for state and local educational agencies with respect to the provision of pre-employment transition services or the incorporation of such discussion into the interagency agreement. In light of these differing requirements, as we state in our report, stakeholders with whom we spoke indicated it can be difficult to get state educational agencies to work with state VR agencies to update interagency agreements. Therefore, it is all the more important for Education to take additional action to engage with VR agencies regarding interagency agreements and to work closely with VR agencies as Education becomes aware of states that have not updated their agreements. Education suggested a modified recommendation that removed reference to Education identifying states that have not updated and finalized their agreements. We modified the recommendation and the report to address Education’s concerns about its authority to identify states. By taking additional steps, such as discussing the benefits of finalizing interagency agreements, and reminding states of existing technical assistance resources pertaining to updating and finalizing interagency agreements, Education would help raise awareness about the importance of the interagency agreements and be better positioned to help states efficiently and effectively coordinate services to students with disabilities. With regard to recommendation 3, Education stated that it disagreed because it is premature to develop a timeline for the dissemination of best practices. Education stated that the identification of “best” practices, meaning those that are clearly supported by a body of evidence derived from valid and reliable research findings, is still emerging as states implement the requirements. Education suggested a modified recommendation that included planning for the dissemination of best practices identified by states as they become available. Education stated in its comments that as RSA identifies best practices through its monitoring and technical assistance activities, it will, in collaboration with its Office of Special Education Programs, consider when and how best to disseminate this information to state VR and educational agencies. With regard to including specific timeframes and activities in a written plan, by detailing the specific steps Education is taking and plans to take along with the amount of time it expects them to take, Education would be better positioned to complete those steps in a timely manner and meet the statutory requirement that Education highlight best state practices and support state agencies. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees and the Secretary of Education. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Elizabeth H. Curda at (202) 512-7215 or curdae@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. The objectives of this report are to examine (1) the steps states have reported taking to implement pre-employment transition services, and (2) the implementation challenges, if any, states reported facing, and how the Department of Education (Education) has addressed them. To address these objectives, we reviewed federal laws and regulations, and Education’s guidance and technical assistance documents, including circulars, policy directives, and transition guides. We also reviewed expenditure data reported by state vocational rehabilitation (VR) agencies to Education for fiscal years 2015 and 2016, the most recent full years of data available. To assess the reliability of the data, we interviewed Education officials about their collection of the data and their opinion of the data’s quality, completeness, and accuracy. We also electronically tested the data for any obvious errors. We determined that the data were reliable for the purposes of our review. We interviewed representatives from the Council of State Administrators of Vocational Rehabilitation (CSAVR) and the National Council of State Agencies for the Blind. In addition, we interviewed officials from Education’s Office of Special Education and Rehabilitation Services, Rehabilitation Services Administration, Office of Special Education Programs, and the Workforce Innovation Technical Assistance Center and National Technical Assistance Center on Transition—two technical assistance centers funded by Education. To address both of the objectives, we conducted a survey of all 79 state VR agencies from October through December 2017. Seventy-four of the 79 agencies (94 percent) responded. The survey questionnaire included open-ended and closed-ended questions about agencies’ efforts to train staff, update interagency agreements, expand services to students with disabilities, and other issues. We took steps to minimize the potential errors that may be introduced by the practical difficulties of conducting any survey. Because we selected the entire population of VR agencies for our survey, our estimates are not subject to sampling error. We conducted pretests of the draft questionnaire with three agencies in the population and made revisions to reduce the possibility of measurement error from differences in how questions were interpreted and the sources of information available to respondents. We reviewed state officials’ submitted survey responses and conducted follow-up, as necessary, to determine that their responses were complete, reasonable, and sufficiently reliable for the purposes of this report. A second independent analyst checked the accuracy of all computer analyses we performed to minimize the likelihood of errors in data processing. We made multiple follow-up attempts during the survey with agencies that had not yet responded. The five agencies that did not respond had smaller values, on average, on three characteristics related to size, than those that did respond. The nonrespondents tended to be smaller than respondent agencies. The sums totals for each of these three characteristics across the five nonresponding agencies comprised less than 1 percent of the totals for the population, suggesting a lower possibility of material error in our results from nonresponse. For more in-depth information on both of the objectives, we conducted interviews and held discussion groups. We conducted interviews with officials in Idaho, Illinois, and Maryland. For each state, we interviewed state VR officials and state educational agency officials. We selected these states for variety using the following criteria: size of the special education population (large, medium, and small); state agency organization, for example, whether the VR agency was organized under the state’s educational or other department; and whether the state had a second agency for serving individuals who are blind or visually impaired. We convened three discussion groups with state VR agency directors or their designated officials, with a total of 39 participants from 29 separate agencies (10 to 12 agencies represented per discussion group). These discussion groups took place during a conference of state VR directors in November 2017 in Greenville, South Carolina. To select participants, we worked with the conference organizer, CSAVR, to send invitations for our discussion groups to all conference attendees. We additionally included a question in our survey asking respondents whether they would like to participate in discussion groups at the conference, and contacted those who responded affirmatively via phone and email. We moderated each discussion to keep participants focused on the specified issues within discussion timeframes. To assess Education’s efforts to address state VR agencies’ challenges in providing pre-employment transition services, we applied standards for internal control in the federal government. Specifically, we applied principle 15 related to communicating with external parties. In addition, regarding Education’s assistance to state VR agencies’ efforts to update interagency agreements with state educational agencies, we also applied key considerations for implementing interagency collaborative mechanisms that we have previously identified. We conducted this performance audit from February 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Elizabeth H. Curda, (202) 512-7215 or curdae@gao.gov. In addition to the contact named above, Sara Schibanoff Kelly (Assistant Director), Paul Schearf (Analyst-In-Charge), Matthew Rabe, and Paul Wright made key contributions to this report. Also contributing to this report were James Bennett, Kristy Kennedy, Sheila R. McCoy, Thomas James, Jessica Orr, Sam Portnow, Carl Ramirez, Monica Savoy, Kate Van Gelder, Adam Wendel, and James Whitcomb. Workforce Innovation and Opportunity Act: States and Local Areas Report Progress in Meeting Youth Program Requirements. GAO-18-475. Washington, D.C.: June 15, 2018. Supplemental Security Income: SSA Could Strengthen Its Efforts to Encourage Employment for Transition-Age Youth. GAO-17-485. Washington, D.C.: May 17, 2017. Youth with Autism: Federal Agencies Should Take Additional Action to Support Transition-Age Youth. GAO-17-352. Washington, D.C.: May 4, 2017. Youth with Autism: Roundtable Views of Services Needed During the Transition into Adulthood. GAO-17-109. Washington, D.C.: October 18, 2016. Students with Disabilities: Better Federal Coordination Could Lessen Challenges in the Transition from High School. GAO-12-594. Washington, D.C.: July 12, 2012.	[ "WIOA requires states to reserve at least 15 percent of their total State Vocational Rehabilitation Services program funds to provide pre-employment transition services to help students with disabilities transition from school to work. GAO was asked to review how states were implementing these services. This report examines (1) steps states reported taking to implement pre-employment transition services, and (2) implementation challenges states reported and how Education has addressed them. GAO reviewed documents and funding data from Education, and federal laws and regulations; surveyed all 79 state VR agencies (74 responded); held discussion groups with representatives of 29 state VR agencies; and interviewed officials from Education and three states (Idaho, Illinois, and Maryland) GAO selected for variety in size and type of agencies, among other factors. Of the 74 state vocational rehabilitation (VR) agencies that responded to GAO's survey, most reported expanding services to help students with disabilities transition from school to work as required under the Workforce Innovation and Opportunity Act (WIOA), enacted in July 2014. Most state agencies reported serving more students and providing work-based learning experiences and other activities, referred to as pre-employment transition services (see figure). State VR agencies reported two key challenges with implementing pre-employment transition services for students as required by WIOA. Spending reserved funds : States reported spending about $357 million out of the $465 million reserved for these services in fiscal year 2016. Education officials said that states had difficulty determining what expenditures were allowable, and some state officials said they would like more detailed information from Education. Education officials said they plan to clarify guidance but have no timeframe for providing further information, which would help states to better plan their use of reserved funds. Finalizing interagency agreements : Fewer than half the state VR agencies that responded to GAO's survey (34 of 74) reported updating their interagency agreement with their state's educational agency. Interagency agreements can help promote collaboration by, for example, establishing roles and responsibilities of each agency. Although Education offers technical assistance on interagency agreements, without increased efforts to raise awareness about the importance of these agreements and provide assistance to states where needed, Education may miss opportunities to help state VR and educational agencies efficiently and effectively coordinate services. In addition, WIOA requires Education to highlight best state practices, and most VR agencies responding to GAO's survey (63 of 74) reported this would be useful. Education does not have a written plan or timeframe for identifying and disseminating best practices. As a result, Education may miss opportunities to help more students with disabilities successfully transition from school to work. GAO is recommending that Education (1) establish timeframes for providing additional information on allowable expenditures, (2) take additional steps to assist states that have not updated and finalized their interagency agreements, and (3) develop a written plan with specific timeframes and activities for identifying and disseminating best practices. Education agreed with the first recommendation and disagreed with the other two. GAO revised the second recommendation and maintains that specific information is needed for the third, as discussed in the report." ]	9,550	gov_report	en	null	c325a40777333d0e9c79489ab40a509f45e261d2054ea3d7
Medicare is a federal program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under 65. The program is administered by the Centers for Medicare & Medicaid Services (CMS), within the U.S. Department of Health and Human Services (HHS). Medicare consists of four distinct parts: Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. The HI trust fund is mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers. Since 2013, workers with income of more than $200,000 per year for single tax filers (or more than $250,000 for joint tax filers) pay an additional 0.9% on income over those amounts. Part B (Supplementary Medical Insurance, or SMI) covers physician services, outpatient services, and some home health and preventive services. The SMI trust fund is funded through beneficiary premiums (set at 25% of estimated program costs for the aged) and general revenues (the remaining amount, approximately 75%). Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries that covers all Parts A and B services, except hospice. Individuals choosing to enroll in Part C must also enroll in Part B. Part C is funded through the HI and SMI trust funds. Part D covers outpatient prescription drug benefits. Funding is included in the SMI trust fund and is financed through beneficiary premiums, general revenues, and state transfer payments. Medicare serves approximately one in six Americans and virtually all of the population aged 65 and older. In 2019, the program will cover an estimated 61 million persons (52 million aged and 9 million disabled). The Congressional Budget Office (CBO) estimates that total Medicare spending in 2019 will be about $772 billion; of this amount, approximately $749 billion will be spent on benefits. About 28% of Medicare benefit spending is for hospital inpatient and hospital outpatient services (see Figure 1 ). CBO also estimates that federal Medicare spending (after deduction of beneficiary premiums and other offsetting receipts) will be about $637 billion in 2019, accounting for about 14% of total federal spending and 3% of GDP. Medicare is required to pay for all covered services provided to eligible persons, so long as specific criteria are met. Spending under the program (except for a portion of administrative costs) is considered mandatory spending and is not subject to the appropriations process. Medicare is expected to be a high-priority issue in the current Congress. The program has a significant impact on beneficiaries and other stakeholders as well as on the economy in general through its coverage of important health care benefits for the aged and disabled, the payment of premiums and other cost sharing by those beneficiaries, its payments to providers who supply those health care services, and its interaction with other insurance coverage. Projections of future Medicare expenditures and funding indicate that the program will place increasing financial demands on the federal budget and on beneficiaries. In response to these concerns, Congress may consider a range of Medicare reform options, from making changes within the current structure, including modifying provider payments and revising existing oversight and regulatory mechanisms, to restructuring the entire program. The committees of jurisdiction for the mandatory spending (benefits) portion of Medicare are the Senate Committee on Finance, the House Committee on Ways and Means, and the House Committee on Energy and Commerce. The House and Senate Committees on Appropriations have jurisdiction over the discretionary spending used to administer and oversee the program. Medicare was enacted in 1965 (P.L. 89-97) in response to the concern that only about half of the nation's seniors had health insurance, and most of those had coverage only for inpatient hospital costs. The new program, which became effective July 1, 1966, included Part A coverage for hospital and posthospital services and Part B coverage for doctors and other medical services. As is the case for the Social Security program, Part A is financed by payroll taxes levied on current workers and their employers; persons must pay into the system for 40 quarters to become entitled to premium-free benefits. Medicare Part B is voluntary, with a monthly premium required of beneficiaries who choose to enroll. Payments to health care providers under both Part A and Part B were originally based on the most common form of payment at the time, namely "reasonable costs" for hospital and other institutional services or "usual, customary and reasonable charges" for physicians and other medical services. Medicare is considered a social insurance program and is the second-largest such federal program, after Social Security. The 1965 law also established Medicaid, the federal/state health insurance program for the poor; this was an expansion of previous welfare-based assistance programs. Some low-income individuals qualify for both Medicare and Medicaid. In the ensuing years, Medicare has undergone considerable change. P.L. 92-603, enacted in 1972, expanded program coverage to certain individuals under 65 (the disabled and persons with end-stage renal disease (ESRD)), and introduced managed care into Medicare by allowing private insurance entities to provide Medicare benefits in exchange for a monthly capitated payment. This law also began to place limitations on the definitions of reasonable costs and charges in order to gain some control over program spending which, even initially, exceeded original projections. During the 1980s and 1990s, a number of laws were enacted that included provisions designed to further stem the rapid increase in program spending through modifications to the way payments to providers were determined, and to postpone the insolvency of the Medicare Part A trust fund. This was typically achieved through tightening rules governing payments to providers of services and limiting the annual updates in such payments. The program moved from payments based on reasonable costs and reasonable charges to payment systems under which a predetermined payment amount was established for a specified unit of service. At the same time, beneficiaries were given expanded options to obtain covered services through private managed care arrangements, typically health maintenance organizations (HMOs). Most Medicare payment provisions were incorporated into larger budget reconciliation bills designed to control overall federal spending. This effort culminated in the enactment of the Balanced Budget Act of 1997 (BBA 97; P.L. 105-33 ). This law slowed the rate of growth in payments to providers and established new payment systems for certain categories of providers, including establishing the sustainable growth rate (SGR) methodology for determining the annual update to Medicare physician payments. It also established the Medicare+Choice program, which expanded private plan options for beneficiaries and changed the way most of these plans were paid. BBA 97 further expanded preventive services covered by the program. Subsequently, Congress became concerned that the BBA 97 cuts in payments to providers were somewhat larger than originally anticipated. Therefore, legislation was enacted in both 1999 (Balanced Budget Refinement Act of 1999, or BBRA; P.L. 106-113 ) and 2000 (Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, or BIPA; P.L. 106-554 ) to mitigate the impact of BBA 97 on providers. In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA; P.L. 108-173 ), which included a major benefit expansion and placed increasing emphasis on the private sector to deliver and manage benefits. The MMA included provisions that (1) created a new voluntary outpatient prescription drug benefit to be administered by private entities; (2) replaced the Medicare+Choice program with the Medicare Advantage (MA) program and raised payments to plans in order to increase their availability for beneficiaries; (3) introduced the concept of income testing into Medicare, with higher-income persons paying larger Part B premiums beginning in 2007; (4) modified some provider payment rules; (5) expanded covered preventive services; and (6) created a specific process for overall program review if general revenue spending exceeded a specified threshold. During the 109 th Congress, two laws were enacted that incorporated minor modifications to Medicare's payment rules. These were the Deficit Reduction Act of 2005 (DRA; P.L. 109-171 ) and the Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-432 ). In the 110 th Congress, additional changes were incorporated in the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA; P.L. 110-173 ) and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA; P.L. 110-275 ). In the 111 th Congress, comprehensive health reform legislation was enacted that, among other things, made statutory changes to the Medicare program. The Patient Protection and Affordable Care Act (ACA; P.L. 111-148 ), enacted on March 23, 2010, included numerous provisions affecting Medicare payments, payment rules, covered benefits, and the delivery of care. The Health Care and Education Affordability Reconciliation Act of 2010 (the Reconciliation Act, or HCERA; P.L. 111-152 ), enacted on March 30, 2010, made changes to a number of Medicare-related provisions in the ACA and added several new provisions. Included in the ACA, as amended, are provisions that (1) constrain Medicare's annual payment increases for certain providers; (2) change payment rates in the MA program so that they more closely resemble those in fee-for-service; (3) reduce payments to hospitals that serve a large number of low-income patients; (4) create an Independent Payment Advisory Board (IPAB) to make recommendations to adjust Medicare payment rates; (5) phase out the Part D prescription drug benefit "doughnut hole"; (6) increase resources and enhance activities to prevent fraud and abuse; and (7) provide incentives to increase the quality and efficiency of care, such as creating value-based purchasing programs for certain types of providers, allowing accountable care organizations (ACOs) that meet certain quality and efficiency standards to share in the savings, creating a voluntary pilot program that bundles payments for physician, hospital, and post-acute care services, and adjusting payments to hospitals for readmissions related to certain potentially preventable conditions. In the 112 th and 113 th Congresses, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ), the Continuing Appropriations Resolution of 2014 ( P.L. 113-67 ), and the Protecting Access to Medicare Act of 2014 (PAMA; P.L. 113-93 ) primarily made short-term modifications to physician payment updates and payment adjustments for certain types of providers. PAMA also established a new skilled nursing facility (SNF) value-based purchasing program and a new system for determining payments for clinical diagnostic laboratory tests. The Improving Medicare Post-Acute Care Transformation Act of 2014 (IMPACT; P.L. 113-185 ) required that post-acute care providers—defined in the law as long-term care hospitals (LTCHs), inpatient rehabilitation facilities (IRFs), SNFs, and home health agencies (HHAs)—report standardized patient assessment data and data on quality measures and resource use. IMPACT also modified the annual update to the hospice aggregate payment cap and required that hospices be reviewed every three years to ensure that they are compliant with existing regulations related to patient health and safety and quality of care. In the 114 th Congress, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10 ) repealed the SGR formula for calculating updates to Medicare payment rates to physicians and other practitioners and established an alternative set of methods for determining the annual updates . MACRA also introduced alternatives to the current fee-for-service (FFS) based physician payments by creating a new merit-based incentive payment system (MIPS) and put in place processes for developing, evaluating, and adopting alternative payment models (APMs). Additionally, MACRA reduced updates to hospital and post-acute care provider payments, extended several expiring provider payment adjustments, made adjustments to income-related premiums in Parts B and D, and prohibited using Social Security numbers on beneficiaries' Medicare cards. Among other changes, the Increasing Choice, Access, and Quality in Health Care for Americans Act (Division C of the 21 st Century Cures Act; P.L. 114-255 ) made adjustments to LTCH reimbursement and modified the average length of stay criteria, which determines whether a hospital qualifies as an LTCH. It also delayed payment reductions and required the Secretary of Health and Human Services (the Secretary) to make changes to how payments are determined for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS). Lastly, it allowed beneficiaries with ESRD to enroll in MA beginning January 1, 2021. In the 115 th Congress, the Bipartisan Budget Act of 2018 (BBA 18; P.L. 115-123 ) made a number of changes to federal health care programs, including Medicare. For example, BBA 18 included provisions designed to expand care for beneficiaries with chronic health conditions, such as promoting team-based care by providers, increasing the use of telehealth services, and expanding certain MA supplemental benefits. In addition, BBA 18 extended for five years a number of existing Medicare provisions that were set to expire (or that had temporarily expired), including the Medicare dependent hospital program and add-on payments for low-volume hospitals, rural home health services, and certain ambulance services. BBA 18 also specified payment updates for the Medicare physician fee schedule, SNFs, and home health services; reduced payments for non-emergency ambulance transports; and required modification of the home health prospective payment system starting in 2020. In addition, the act provided for indefinite authority for MA special needs plans, repealed limits on outpatient therapy services, and eliminated the IPAB. Starting in 2019, the act will require that pharmaceutical manufacturers participating in Medicare Part D provide a larger discount on brand-name drugs purchased by enrollees in the coverage gap and will create a new high-income premium category under Parts B and D. Most persons aged 65 or older are automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (about 10 years) on earnings covered by either the Social Security or the Railroad Retirement systems. Persons under the age of 65 who receive cash disability benefits from Social Security or the Railroad Retirement systems for at least 24 months are also entitled to Part A. (Since there is a five-month waiting period for cash payments, the Medicare waiting period is effectively 29 months.) The 24-month waiting period is waived for persons with amyotrophic lateral sclerosis (ALS, "Lou Gehrig's disease"). Individuals of any age with ESRD who receive dialysis on a regular basis or a kidney transplant are generally eligible for Medicare. Medicare coverage for individuals with ESRD usually starts the first day of the fourth month of dialysis treatments. In addition, individuals with one or more specified lung diseases or types of cancer who lived for six months during a certain period prior to diagnosis in an area subject to a public health emergency declaration by the Environmental Protection Agency (EPA) as of June 17, 2009, are also deemed entitled to benefits under Part A and eligible to enroll in Part B. Persons over the age of 65 who are not entitled to premium-free Part A may obtain coverage by paying a monthly premium ($437 in 2019) or, for persons with at least 30 quarters of covered employment, a reduced monthly premium ($240 in 2019). In addition, disabled persons who lose their cash benefits solely because of higher earnings, and subsequently lose their extended Medicare coverage, may continue their Medicare enrollment by paying a premium, subject to limitations. Generally, enrollment in Medicare Part B is voluntary. All persons entitled to Part A (and persons over the age of 65 who are not entitled to premium-free Part A) may enroll in Part B by paying a monthly premium. In 2019, the monthly premium is $135.50; however, about 3.5% of Part B enrollees pay less, due to a "hold-harmless" provision in the Social Security Act. Since 2007, higher-income Part B enrollees pay higher premiums. (See " Part B Financing .") Although enrollment in Part B is voluntary for most individuals, in most cases, those who enroll in Part A by paying a premium also must enroll in Part B. Additionally, ESRD beneficiaries and Medicare Advantage enrollees (discussed below) also must enroll in Part B. Together, Parts A and B of Medicare comprise "original Medicare," which covers benefits on a fee-for-service basis. Beneficiaries have another option for coverage through private plans, called the Medicare Advantage (MA or Part C) program. When beneficiaries first become eligible for Medicare, they may choose either original Medicare or they may enroll in a private MA plan. Each fall, there is an annual open enrollment period during which time Medicare beneficiaries may choose a different MA plan, or leave or join the MA program. Beneficiaries are to receive information about their options to help them make informed decisions. In 2019, the annual open enrollment period runs from October 15 to December 7 for plan choices starting the following January. Since 2012, MA plans with a 5-star quality rating have been allowed to enroll Medicare beneficiaries who are either in traditional Medicare or in an MA plan with a lower quality rating at any time. Finally, each individual enrolled in either Part A or Part B is also entitled to obtain qualified prescription drug coverage through enrollment in a Part D prescription drug plan. Similar to Part B, enrollment in Part D is voluntary and the beneficiary pays a monthly premium. Since 2011, some higher-income enrollees pay higher premiums, similar to enrollees in Part B. Generally, beneficiaries enrolled in an MA plan providing qualified prescription drug coverage (MA-PD plan) must obtain their prescription drug coverage through that plan. In general, individuals who do not enroll in Part B or Part D during an initial enrollment period (when they first become eligible for Medicare) must pay a permanent penalty of increased monthly premiums if they choose to enroll at a later date. Individuals who do not enroll in Part B during their initial enrollment period may enroll only during the annual general enrollment period, which occurs from January 1 to March 31 each year. Coverage begins the following July 1. However, the law waives the Part B late enrollment penalty for current workers who have primary coverage through their own or a spouse's employer-sponsored plan. These individuals have a special enrollment period once their employment ends; as long as they enroll in Part B during this time, they will not be subject to penalty. Individuals who do not enroll in Part D during their initial enrollment period may enroll during the annual open enrollment period, which corresponds with the Part C annual enrollment period—from October 15 to December 7, with coverage effective the following January. Individuals are not subject to the Part D penalty if they have maintained "creditable" drug coverage through another source, such as retiree health coverage offered by a former employer or union. However, once employees retire or have no access to "creditable" Part D coverage, a penalty will apply unless they sign up for coverage during a special enrollment period. Finally, for persons who qualify for the low-income subsidy for Part D, the delayed-enrollment penalty does not apply. Medicare Parts A, B, and D each cover different services, with Part C providing a private plan alternative for all Medicare services covered under Parts A and B, except hospice. The Parts A-D covered services are described below, along with a description of Medicare's payments. Part A provides coverage for inpatient hospital services, posthospital skilled nursing facility (SNF) services, hospice care, and some home health services, subject to certain conditions and limitations. Approximately 20% of fee-for-service enrollees use Part A services during a year. Medicare inpatient hospital services include (1) bed and board; (2) nursing services; (3) use of hospital facilities; (4) drugs, biologics, supplies, appliances, and equipment; and (5) diagnostic and therapeutic items and services. (Physicians' services provided during an inpatient stay are paid under the physician fee schedule and discussed below in the " Physicians and Nonphysician Practitioner Services " section.) Coverage for inpatient services is linked to an individual's benefit period or "spell of illness" (defined as beginning on the day a patient enters a hospital and ending when he or she has not been in a hospital or skilled nursing facility for 60 days). An individual admitted to a hospital more than 60 days after the last discharge from a hospital or SNF begins a new benefit period. Coverage in each benefit period is subject to the following conditions: Days 1-60. Beneficiary pays a deductible ($1,364 in 2019). Days 61-90. Beneficiary pays a daily co-payment charge ($341 in 2019). Days 91-150. After 90 days, the beneficiary may draw on one or more of 60 lifetime reserve days, provided they have not been previously used. (Each of the 60 lifetime reserve days can be used only once during an individual's lifetime.) For lifetime reserve days, the beneficiary pays a daily co-payment charge ($682 in 2019); otherwise the beneficiary pays all costs. Days 151 and over. Beneficiary pays for all costs for these days. Inpatient mental health care in a psychiatric facility is limited to 190 days during a patient's lifetime. Cost sharing is structured similarly to that for stays in a general hospital (above). Medicare makes payments to most acute care hospitals under the inpatient prospective payment system (IPPS), using a prospectively determined amount for each discharge. Medicare's payments to hospitals is the product of two components: (1) a discharge payment amount adjusted by a wage index for the area where the hospital is located or where it has been reclassified, and (2) the weight associated with the Medicare severity-diagnosis related group (MS-DRG) to which the patient is assigned. This weight reflects the relative costliness of the average patient in that MS-DRG, which is revised annually, generally effective October 1 st of each year. Additional payments are made to hospitals for cases with extraordinary costs (outliers), for indirect costs incurred by teaching hospitals for graduate medical education, and to disproportionate share hospitals (DSH) which provide a certain volume of care to low-income patients. Additional payments may also be made for qualified new technologies that have been approved for special add-on payments. Medicare also makes payments outside the IPPS system for direct costs associated with graduate medical education (GME) for hospital residents, subject to certain limits. In addition, Medicare pays hospitals for 65% of the allowable costs associated with beneficiaries' unpaid deductible and co-payment amounts as well as for the costs for certain other services. IPPS payments may be reduced by certain quality-related programs based on a hospital's quality performance. These quality-related programs include the Hospital Readmissions Reduction Program, the Hospital-Acquired Condition Reduction Program, and the Hospital Value-Based Purchasing Program. Further, hospitals may receive Medicare payment reductions for failing to demonstrate meaningful use of certified electronic health record (EHR) technology. Additional payment adjustments or special treatment under the IPPS may apply for hospitals meeting one of the following designations: (1) sole community hospitals (SCHs), (2) Medicare dependent hospitals, (3) rural referral centers, and (4) low-volume hospitals. Certain hospitals or distinct hospital units are exempt from IPPS and paid on an alternative basis, including (1) inpatient rehabilitation facilities, (2) long-term care hospitals, (3) psychiatric facilities including hospitals and distinct part units, (4) children's hospitals, (5) cancer hospitals, and (6) critical access hospitals. Medicare covers up to 100 days of posthospital care for persons needing skilled nursing or rehabilitation services on a daily basis. The SNF stay must be preceded by an inpatient hospital stay of at least 3 consecutive calendar days, and the transfer to the SNF typically must occur within 30 days of the hospital discharge. Medicare requires SNFs to provide services for a condition the beneficiary was receiving treatment for during his or her qualifying hospital stay (or for an additional condition that arose while in the SNF). There is no beneficiary cost sharing for the first 20 days of a Medicare-covered SNF stay. For days 21 to 100, beneficiaries are subject to daily co-payment charges ($170.50 in 2019). The 100-day limit begins again with a new spell of illness. SNF services are paid under a prospective payment system (PPS), which is based on a per diem urban or rural base payment rate, adjusted for case mix (average severity of illness) and area wages. The per diem rate generally covers all services, including room and board, provided to the patient that day. The case-mix adjustment is made using the resource utilization groups (RUGs) classification system, which uses patient assessments to assign a beneficiary to one of 66 groups that reflect the beneficiary's expected use of services. Patient assessments are done at various times during a patient's stay and a beneficiary's designated RUG category can change with changes in the beneficiary's condition. Extra payments are not made for extraordinarily costly cases ("outliers"). The Medicare hospice benefit covers services designed to provide palliative care and management of a terminal illness; the benefit includes drugs and medical and support services. These services are provided to Medicare beneficiaries with a life expectancy of six months or less for two 90-day periods, followed by an unlimited number of 60-day periods. The individual's attending physician and the hospice physician must certify the need for the first benefit period, but only the hospice physician needs to recertify for subsequent periods. Since January 1, 2011, a hospice physician or nurse practitioner must have a face-to-face encounter with the individual to determine continued eligibility prior to the 180 th day recertification, and for each subsequent recertification. Hospice care is provided in lieu of most other Medicare services related to the curative treatment of the terminal illness. Beneficiaries electing hospice care from a hospice program may receive curative services for illnesses or injuries unrelated to their terminal illness, and they may disenroll from the hospice at any time. Nominal cost sharing is required for drugs and respite care. Payment for hospice care is based on one of four prospectively determined rates (which correspond to four different levels of care) for each day a beneficiary is under the care of the hospice. The four rate categories are routine home care, continuous home care, inpatient respite care, and general inpatient care. Payment rates are adjusted to reflect differences in area wage levels, using the hospital wage index. Payments to a hospice are limited by two caps; the first limits the number of days of inpatient care to 20% or less of total patient care days, and the second limits the average annual payment per beneficiary. Home health services and services for individuals with end-stage renal disease are covered under both Parts A and B of Medicare. Medicare covers visits by participating home health agencies for beneficiaries who (1) are confined to home and (2) need either skilled nursing care on an intermittent basis or physical or speech language therapy. After establishing such eligibility, the continuing need for occupational therapy services may extend the eligibility period. Covered services include part-time or intermittent nursing care, physical or occupational therapy or speech language pathology services, medical social services, home health aide services, and medical supplies and durable medical equipment. The services must be provided under a plan of care established by a physician, and the plan must be reviewed by the physician at least every 60 days. There is no beneficiary cost sharing for home health services (though some other Part B services provided in connection with the visit, such as durable medical equipment, may be subject to cost-sharing charges). Home health services are covered under both Medicare Parts A and B. There are special eligibility requirements and benefit limits for home health services furnished under Part A to beneficiaries who are enrolled in both Parts A and B. For such a beneficiary, Part A pays for only postinstitutional home health services furnished for up to 100 visits during a spell of illness, while Part B covers any medically necessary home health services that exceed the 100-visit limit, as well as medically necessary home health services that do not qualify as "postinstitutional." For beneficiaries enrolled in only Part A or only Part B, the requirements described above do not apply. Part A or Part B, as applicable, covers all medically necessary episodes of home health care, without a visit limit, regardless of whether the episode follows a hospitalization. Regardless of whether the beneficiary is enrolled in Part A only, in Part B only, or in both parts, the scope of the Medicare home health benefit is the same, Medicare's payments to HHAs are calculated using the same methods, and beneficiaries have no cost-sharing. Home health services are paid under a home health PPS, based on 60-day episodes of care; a patient may have an unlimited number of episodes. The physician's certification of an initial 60-day episode of home health must be supported by a face-to-face encounter with the patient related to the primary reason that the patient needs home health services. Under the PPS, for episodes with five or greater visits, a nationwide base payment amount is adjusted by differences in wages (using the hospital wage index). This amount is then adjusted for case mix using the applicable Home Health Resource Group (HHRG) to which the beneficiary has been assigned. The HHRG applicable to a beneficiary is determined following an assessment of the patient's condition and care needs using the Outcome and Assessment Information Set (OASIS); there are 153 HHRGs. For episodes with four or fewer visits, the PPS reimburses the provider for each visit performed. Further payment adjustments may be made for services provided in rural areas, outlier visits (for extremely costly patients), a partial episode for beneficiaries that have an intervening event during their episode, or an agency's failure to submit quality data to CMS. Since January 1, 2016, home health agencies in nine states are being reimbursed under a home health value-based purchasing (HHVBP) model. These home health agencies can receive increased or decreased home health reimbursements depending on their performance across certain quality measures. Individuals with end-stage renal disease (ESRD) are eligible for all services covered under Parts A and B. Kidney transplantation services, to the extent they are inpatient hospital services, are subject to the inpatient hospital PPS and are reimbursed by both Parts A and B. However, kidney acquisition costs are paid on a reasonable cost basis under Part A. Dialysis treatments, when an individual is admitted to a hospital, are covered under Part A. Part B covers their dialysis services, drugs, biologicals (including erythropoiesis stimulating agents used in treating anemia as a result of ESRD), diagnostic laboratory tests, and other items and services furnished to individuals for the treatment of ESRD. In effect since January 1, 2011, the ESRD prospective payment system (PPS) makes no payment distinction as to the site where renal dialysis services are provided. With the implementation of the ESRD PPS, Medicare dialysis payments provide a single "bundled" payment for Medicare renal dialysis services that includes (1) items and services included in the former payment system's base rate as of December 31, 2010; (2) erythropoiesis stimulating agents (ESAs) for the treatment of ESRD; (3) other drugs and biologicals for which payment was made separately (before bundling); and (4) diagnostic laboratory tests and other items and services furnished to individuals for the treatment of ESRD. The system is case-mix adjusted based on factors such as patient weight, body mass index, comorbidities, length of time on dialysis, age, race, ethnicity, and other appropriate factors as determined by the Secretary. Under the ESRD Quality Incentive Program, dialysis facilities that fail to meet certain performance standards receive reduced payments. Medicare Part B covers physicians' services, outpatient hospital services, durable medical equipment, and other medical services. Initially, over 98% of the eligible population voluntarily enrolled in Part B, but in recent years the percentage has fallen to about 91%. About 89% of enrollees in original (FFS) Medicare use Part B services during a year. The program generally pays 80% of the approved amount (most commonly, a fee schedule or other predetermined amount) for covered services in excess of the annual deductible ($185 in 2019). The beneficiary is liable for the remaining 20%. Most providers and practitioners are subject to limits on amounts they can bill beneficiaries for covered services. For example, physicians and some other practitioners may choose whether or not to accept "assignment" on a claim. When a physician signs a binding agreement to accept assignment for all Medicare patients, the physician accepts the Medicare payment amount as payment in full and can bill the beneficiary only the 20% coinsurance plus any unmet deductible. The physician agrees to accept assignment on all Medicare claims in a given year and is referred to as a "participating physician." There are several advantages to being a participating provider, including higher payment under the Medicare fee schedule, a lower beneficiary co-payment, and automatic forwarding of Medigap claims. Physicians who do not agree to accept assignment on all Medicare claims in a given year are referred to as nonparticipating physicians. Nonparticipating physicians may or may not accept assignment for a given service. If they do not, they may charge beneficiaries more than the fee schedule amount on nonassigned claims; however, these "balance billing" charges are subject to certain limits. Alternatively, physicians may choose not to accept any Medicare payment and enter into private contracts with their patients where no Medicare restrictions on payment or balance billing apply; however, this requires that physicians "opt out" of Medicare for two years. For some providers, such as nurse practitioners and physician assistants, assignment is mandatory; these providers can only bill the beneficiary the 20% coinsurance and any unmet deductible. For other Part B services, such as durable medical equipment, assignment is optional; for these services, applicable providers may bill beneficiaries for amounts above Medicare's recognized payment level and may do so without limit. Medicare Part B covers medically necessary physician services and medical services provided by some nonphysician practitioners. Covered nonphysician practitioner services include, but are not limited to, those provided by physician assistants, nurse practitioners, certified registered nurse anesthetists, and clinical social workers. Certain limitations apply for services provided by chiropractors and podiatrists. Beneficiary cost sharing is typically 20% of the approved amount, although most preventive services require no coinsurance from the beneficiary. A number of Part B services are paid under the Medicare physician fee schedule (MPFS), including services of physicians, nonphysician practitioners, and therapists. There are over 7,000 service codes under the MPFS. The fee schedule assigns relative values to each service code. These relative values reflect physician work (based on time, skill, and intensity involved), practice expenses (e.g., overhead and nonphysician labor), and malpractice expenses. The relative values are adjusted for geographic variations in the costs of practicing medicine. These geographically adjusted relative values are converted into a dollar payment amount by a national conversion factor. Annual updates to payments are determined through changes in the conversion factor. MACRA made several fundamental changes to how Medicare pays for physician and practitioner services by (1) changing the methodology for determining the annual updates to the conversion factor, (2) establishing a merit-based incentive payment system (MIPS) to consolidate and replace several existing incentive programs and to apply value and quality adjustments to the MPFS, and (3) establishing the development of, and participation in, alternative payment models (APMs). Prior to MACRA, the SGR system, which had been in place since BBA 97, tied annual updates to the Medicare fee schedule to cumulative Part B expenditure targets. MACRA repealed the SGR methodology, established annual fee schedule updates in the short term, and put in place a new method for determining updates thereafter. As a result of the MACRA changes, the update to physician payments under the MPFS was 0% from January 2015 through June 2015; for the remainder of that year—July 2015 through December 2015—the payments were increased by 0.5%. In each of the next four years, 2016 through 2019, the payments were to increase by 0.5% each year; however, the BBA 18 reduced the 2019 update to 0.25%. For the next six years, from 2020 through 2025, the payment update will be 0%. In addition to changes to the annual update, MACRA established two pathways for payment reform, collectively referred to as the Quality Payment Program (QPP). Medicare payment to all physicians and other practitioners will be determined by which conditions of the QPP, either MIPS or APM, the participant satisfies. The MIPS is a new program that remains based on FFS rates but combines four categories of performance measures (quality of care, cost/resource use, clinical practice improvement activities, and promoting interoperability) into a single adjustment to the base MPFS payment. Following several years of data collection and feedback on measures, the MIPS adjustments will affect actual payments for the first time in 2019. In contrast, qualified advanced APMs are intended to be alternatives to FFS, incorporating new approaches to paying for medical care that reward quality and efficiency while de-emphasizing the number of services billed (volume of care). Proposed advanced APMs are evaluated by an ad hoc committee (the Physician-Focused Payment Models Technical Advisory Committee), which provides comments and recommendations to the Secretary as to whether new payment models meet the criteria of APMs. For 2019, there are 13 advanced APMs under the QPP, though not all are available to all physicians and practitioners, as some are restricted to certain special services (e.g., oncology care, joint replacement) or geographic locations (e.g., Vermont's Medicare ACO Initiative, Maryland's Total Cost of Care Model). MACRA established incentives to make APMs more attractive than MIPS. First, qualifying participants in advanced APMs are eligible for an annual prepaid bonus (paid 2019-2024). Second, beginning in 2026, there will be two update factors, one for items and services furnished by a participant in an advanced APM and another for those electing to remain in the modified FFS payment system (MIPS) that do not participate in an advanced APM. The update factor for the advanced APM participants will be 0.75%, and the update factor for MIPS will be 0.25%, causing a difference between the payment levels that will grow over time. Medicare covers medically necessary outpatient physical and occupational therapy and speech-language pathology services. Beginning in 1997 and for many years subsequently but intermittently, beneficiaries faced limits ( therapy caps ) on how much Medicare would pay for outpatient therapy services in a calendar year. BBA 18 permanently repealed the outpatient therapy caps beginning January 1, 2018, and established a requirement that therapy services exceeding $3,000 would trigger a manual medical review (MMR) of the medical necessity of these services, in years 2018-2028. Beginning with 2029, the annual MMR threshold limit is to be increased by the percentage increase in the MEI, and it is to be applied separately for (1) physical therapy services and speech-language pathology services combined and (2) occupational therapy services. Medicare statute prohibits payments for covered items and services that are "not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member," which would effectively exclude the coverage of preventive and screening services. However, Congress has explicitly added and expanded Medicare coverage for a number of such services through legislation, including through MMA, MIPPA, and ACA. Under current law, if a preventive service is recommended for use by the U.S. Preventive Services Task Force (USPSTF, an independent evidence-review panel) and Medicare covers the service, all cost sharing must be waived. Also, the Secretary may add coverage of a USPSTF-recommended service that is not already covered. Coverage for preventive and screening services currently includes, among other services, (1) a "welcome to Medicare" physical exam during the first year of enrollment in Part B and an annual visit and prevention plan thereafter; (2) flu vaccine (annual), pneumococcal vaccine, and hepatitis B vaccine (for persons at high risk); (3) screening tests for breast, cervical, prostate, and colorectal cancers; (4) screening for other conditions such as depression, alcohol misuse, heart disease, glaucoma, and osteoporosis; and (5) intensive behavioral therapy for heart disease and for obesity. Payments for these services are provided under the physician fee schedule and/or the clinical laboratory fee schedule. Part B covers outpatient clinical laboratory tests, such as certain blood tests, urinalysis, and some screening tests, provided by Medicare-participating laboratories. These services may be furnished by labs located in hospitals and physician offices, as well as by independent labs. Beneficiaries have no co-payments or deductibles for covered clinical lab services. From 1984 until recently, payments for outpatient clinical laboratory services were made on the basis of the Medicare clinical laboratory fee schedule (CLFS), which set payment amounts as the lesser of the amount billed, the local fee for a geographic area, or a national limit amount. Most clinical lab services were paid at the national limit amount. The national limits were set at a percentage (74%) of the median of all local fee schedule amounts for each laboratory test code; therefore, fee schedule amounts may differ by region. In general, annual increases in clinical lab fees have been based on the percentage change in the CPI-U. However, since 1987, Congress has specified lower updates. Beginning in 2014, with certain exceptions, laboratory tests provided in hospital outpatient departments are no longer paid separately under the CLFS and are instead included in the OPPS payments. PAMA introduced a new method for determining clinical laboratory payments and required CMS to base Medicare CLFS reimbursement on reported private insurance payment amounts. Medicare has been using weighted median private insurer rates to calculate Medicare payment rates for laboratory tests paid under the CLFS since January 1, 2018. These payment rates are national and do not vary by geographic area. Part B also covers diagnostic nonlaboratory x-ray tests and other diagnostic tests, as well as x-ray, radium, and radioisotope therapy. Generally, these services are paid for under the physician fee schedule, with beneficiaries responsible for a 20% coinsurance payment. Medicare covers a wide variety of equipment and devices under the heading of durable medical equipment (DME), prosthetics, and orthotics (PO) if they are medically necessary and are prescribed by a physician. DME is defined as equipment that (1) can withstand repeated use, (2) has an expected life of at least three years (effective for items classified as DME after January 1, 2012), (3) is used primarily to serve a medical purpose, (4) is not generally useful in the absence of an illness or injury, and (5) is appropriate for use in the home. DME includes such items as hospital beds, wheelchairs, blood glucose monitors, and oxygen and oxygen equipment. It also includes related supplies (S), such as drugs and biologics that are necessary for the effective use of the product. Prosthetics (P) are items that replace all or part of a body organ or its function, such as colostomy bags, pacemakers, and artificial eyes, arms, or legs. Orthotics (O) are braces that support a weak or deformed body member, such as leg or back braces. Except in competitive bidding areas (CBAs, described below), Medicare pays for most durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) based on fee schedules. Medicare pays 80% of the lower of the supplier's charge for the item or the fee schedule amount. The beneficiary is responsible for the remaining 20%. In general, fee schedule amounts are updated each year by a (1) measure of price inflation, and (2) a measure of economy-wide productivity, which may result in lower fee schedule amounts from one year to the next. Since 2016, the fee schedule rates that applied outside of competitive bidding areas for certain DMEPOS have been reduced based on price information from the competitive bidding program. The reductions were phased in during 2016, and fully phased in starting in January 2017. In response to concerns that the adjusted rates were too low, the Secretary again applied the phase-in rate for rural and noncontiguous areas not subject to competitive bidding starting in June 2018. Currently, two different fee schedules apply outside of CBAs. First, in rural or noncontiguous areas, the fee schedule is a 50/50 blend of the fee schedule with and without the reductions based on information from competitive bidding (i.e., the phase-in methodology). Second, in nonrural and contiguous areas, the fee schedule amounts are fully adjusted by information from the competitive bidding program. Numerous studies and investigations indicated that Medicare paid more for certain items of DME and PO than some other health insurers and some retail outlets. Such overpayments were attributed, in part, to the fee schedule mechanism of payment. MMA required the Secretary to establish a Competitive Acquisition Program for certain DMEPOS in specified areas. Instead of paying for medical equipment based on a fee schedule established by law, payment for items in competitive bidding areas was based on the supplier bids. The program started in 9 metropolitan areas in January 2011 and had expanded to 130 competitive bidding areas in 2018. However, the program has been suspended while a new bidding methodology is established. During the gap, the payments for previously competitively bid items in competitive bidding areas will be the amounts that applied on December 31, 2018, increased, yearly, by a measure of inflation. Certain specified outpatient prescription drugs and biologics are covered under Medicare Part B. (However, most outpatient prescription drugs are covered under Part D, discussed below.) Covered Part B drugs and biologics include drugs furnished incident to physician services, immunosuppressive drugs following a Medicare-covered organ transplant, erythropoietin for treatment of anemia for individuals with ESRD when not part of the ESRD composite rate, oral anticancer drugs (provided they have the same active ingredients and are used for the same indications as chemotherapy drugs that would be covered if furnished incident to physician services), certain vaccines under selected conditions, and drugs administered through DME. Generally, Medicare reimburses physicians and other providers, such as hospital outpatient clinics, for covered Part B drugs and biologics at 106% of the volume weighted average sales price of all drugs billed under the same billing code, although some Part B drugs, such as those administered through DME, are reimbursed at 95% of the drug's average wholesale price. Health care providers also are paid separately for administering Medicare Part B drugs. Medicare pays 80% of the amount paid to providers, and beneficiaries are responsible for the remaining 20%. A hospital outpatient is a person who has not been admitted by the hospital as an inpatient but is registered on the hospital records as an outpatient. Generally, payments under the hospital outpatient prospective payment system (OPPS) cover the operating and capital-related costs that are directly related and integral to performing a procedure or furnishing a service on an outpatient basis. These payments cover services such as the use of an operating suite, treatment, procedure, or recovery room; use of an observation bed as well as anesthesia; certain drugs or pharmaceuticals; incidental services; and other necessary or implantable supplies or services. Payments for services such as those provided by physicians and other professionals as well as therapy and clinical diagnostic laboratory services, among others, are separate. Under the OPPS, the unit of payment for acute care hospitals is the individual service or procedure as assigned to an ambulatory payment classification (APC). To the extent possible, integral services and items (excluding physician services paid under the physician fee schedule) are bundled within each APC. Specified new technologies are assigned to "new technology APCs" until clinical and cost data are available to permit assignment into a "clinical APC." Medicare's hospital outpatient payment is calculated by multiplying the relative weight associated with an APC by a conversion factor. For most APCs, 60% of the conversion factor is geographically adjusted by the wage index used for the inpatient prospective payment system. Except for new technology APCs, each APC has a relative weight that is based on the median cost of services in that APC. The OPPS also includes pass-through payments for new technologies (specific drugs, biologicals, and devices) and payments for outliers. The Medicare Payment Advisory Commission (MedPAC) has recommended site-neutral payment policies that base payments on the resources needed to provide high-quality care in the most efficient setting. The Bipartisan Budget Act of 2015 (BBA 15; P.L. 114-74 ) gave CMS the authority to add new restrictions on Medicare payments for services furnished in provider-based off-campus hospital outpatient departments (HOPDs) to address discrepancies between payments under the MPFS and the OPPS for similar services. In its 2019 OPPS Final Rule, CMS explicitly applies the site-neutral policy to clinic visits, the most commonly billed service in hospital outpatient departments. An ambulatory surgical center (ASC) is a distinct entity that furnishes outpatient surgical procedures to patients who do not require an overnight stay after the procedure. According to MedPAC, most ASCs are freestanding facilities rather than part of a larger facility, such as a hospital. Medicare covers surgical and medical services performed in an ambulatory surgical center that are (1) commonly performed on an inpatient basis but may be safely performed in an ASC; (2) not of a type that are commonly performed or that may be safely performed in physicians' offices; (3) limited to procedures requiring a dedicated operating room or suite and generally requiring a postoperative recovery room or short-term (not overnight) convalescent room; and (4) not otherwise excluded from Medicare coverage. Medicare pays for surgery-related facility services provided in ASCs using a prospective payment system based on the OPPS. (Associated physician fees are paid for separately under the physician fee schedule.) Each of the approximately 3,500 procedures approved for payment in an ASC is classified into an APC group on the basis of clinical and cost similarity. The ASC system primarily uses the same payment groups as the OPPS; however, ASC payment rates are generally lower. The ASC weights are scaled (reduced) to account for the different mix of services in an ASC, and the ASC conversion factor (the base payment amount) is lower. A different payment method is used to set ASC payment for office-based procedures, separately payable radiology services, separately payable drugs, and device-intensive procedures. In addition, separate payments are made for certain ancillary items and services when they are integral to surgical procedures, including corneal tissue acquisition, brachytherapy sources, certain radiology services, many drugs, and certain implantable devices. The application of the site-neutral payment policy to clinic visits also affects such payments to ASCs (see discussion above). Medicare Part B covers emergency and nonemergency ambulance services to or from a hospital, a critical access hospital, a skilled nursing facility, or a dialysis facility for End-Stage Renal Disease (ESRD) beneficiaries who require dialysis when other modes of transportation could endanger the Medicare beneficiary's health. In most cases, the program covers 80% of the allowed amount for the service, and the beneficiary is responsible for the remaining 20%. Generally, ambulance services are covered if (1) transportation of the beneficiary occurs; (2) the beneficiary is taken to an appropriate location (generally, the closest appropriate facility); (3) the ambulance service is medically necessary (other forms of transportation are contraindicated); (4) the ambulance provider or supplier meets state licensing requirements; and (5) the transportation is not part of a Medicare Part A covered stay. Medicare covers both scheduled and nonscheduled nonemergency transports if the beneficiary is bed-confined or meets other medical necessity criteria. Medicare may also cover emergency ambulance transportation by airplane or helicopter if the beneficiary's location is not easily reached by ground transportation or if long distance or obstacles, such as heavy traffic, would prevent the individual from obtaining needed care. Medicare pays for ambulance services according to a national fee schedule. The fee schedule establishes seven categories of ground ambulance services and two categories of air ambulance services. Medicare pays for different levels of ambulance services, which reflect the staff training and equipment required to meet the patient's medical condition or health needs. Generally, basic life support is provided by emergency medical technicians (EMTs). Advanced life support is provided by EMTs with advanced training or by paramedics. Some rural ground and air ambulance services may qualify for increased payments. Also, ambulance providers that are CAHs, or that are entities that are owned and operated by a CAH, are paid on a reasonable-cost basis rather than the fee schedule if they are the only ambulance provider within a 35-mile radius. Medicare covers Part B services in rural health clinics (RHCs) and federally qualified health centers (FQHCs) provided by (1) physicians and specified nonphysician practitioners; (2) visiting nurses for homebound patients in home health shortage areas; (3) registered dieticians or nutritional professionals for diabetes training and medical nutrition therapy; and (4) others, as well as certain drugs administered by a physician or nonphysician practitioner. RHCs are paid based on an "all-inclusive" cost-based rate per beneficiary visit subject to a per visit upper limit, adjusted annually for inflation. For cost-reporting periods that began on or after October 1, 2014, FQHCs are paid a base payment rate per visit (with a limit, in most cases, of one billable visit per day) under a PPS methodology. Each FQHC's PPS rate is adjusted based on the location where the service is furnished using geographic adjustment factors, which are the geographic practice cost indices (GPCI) used in Medicare's physician fee schedule (MPFS). This rate is increased by 34% for new patients (those not seen in the FQHC organization within the past three years). The 34% increase also applies when a beneficiary receives a comprehensive initial Medicare visit (an initial preventive physician examination or an initial annual wellness visit) or a subsequent annual wellness visit. Effective January 1, 2017, the FQHC PPS base rate is updated annually using an FQHC-specific market basket. Medicare's payment to the FQHC is equal to 80% of the lesser of the adjusted PPS rate or the FQHC's actual charges associated with the visit, and the beneficiary is responsible for a 20% coinsurance. Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered benefits. Under MA, private health plans are paid a per-person amount to provide all Medicare covered benefits (except hospice) to beneficiaries who enroll in their plan. Medicare beneficiaries who are eligible for Part A, enrolled in Part B, and do not have ESRD are eligible to enroll in an MA plan if one is available in their area. Some MA plans may choose their service area (local MA plans), while others agree to serve one or more regions defined by the Secretary (regional MA plans). In 2019, nearly all Medicare beneficiaries have access to an MA plan and approximately a third of beneficiaries are enrolled in one. Private plans may use different techniques to influence the medical care used by enrollees. Some plans, such as health maintenance organizations (HMOs), may require enrollees to receive care from a restricted network of medical providers; enrollees may be required to see a primary care physician who will coordinate their care and refer them to specialists as necessary. Other types of private plans, such as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer restrictions on the providers an enrollee can see and minimal coordination of care. In general, MA plans offer additional benefits or require smaller co-payments or deductibles than original Medicare. Sometimes beneficiaries pay for these additional benefits through a higher monthly premium, but sometimes they are financed through plan savings. The extent of extra benefits and reduced cost sharing varies by plan type and geography. However, MA plans are seen by some beneficiaries as an attractive alternative to more expensive supplemental insurance policies found in the private market. By contract with CMS, a plan agrees to provide all required services covered in return for a capitated monthly payment adjusted for the demographics and health history of their enrollees. The same monthly payment is made regardless of how many or few services a beneficiary actually uses. In general, the plan is at-risk if costs, in the aggregate, exceed program payments; conversely, the plan can retain savings if aggregate costs are less than payments. Payments to MA plans are based on a comparison of each plan's estimated cost of providing Medicare covered services (a bid) relative to the maximum amount the federal government will pay for providing those services in the plan's service area (a benchmark). If a plan's bid is less than the benchmark, its payment equals its bid plus a rebate. The size of the rebate is dependent on plan quality and ranges from 50% to 70% of the difference between the bid and the benchmark. The rebate must be returned to enrollees in the form of additional benefits, reduced cost sharing, reduced Part B or Part D premiums, or some combination of these options. If a plan's bid is equal to or above the benchmark, its payment will be the benchmark amount and each enrollee in that plan will pay an additional premium, equal to the amount by which the bid exceeds the benchmark. The MA benchmarks are determined through statutorily specified formulas that have changed over time. Since BBA 97, formulas have increased the benchmark amounts, in part, to encourage plan participation in all areas of the country. As a result, however, the benchmark amounts (and plan payments) in some areas have been higher than the average cost of original FFS Medicare. The ACA changed the way benchmarks are calculated by tying them closer to (or below) spending in FFS Medicare, and adjusting them based on plan quality. In a recent analysis, MedPAC found that "over the past few years, plan bids and payments have come down in relation to FFS spending while MA enrollment continues to grow. The pressure of lower benchmarks has led to improved efficiencies and more competitive bids that enable MA plans to continue to increase enrollment by offering benefits that beneficiaries find attractive." In 2006, the MA program began to offer MA regional plans. Regional MA plans must agree to serve one or more regions designated by the Secretary. There are 26 MA regions consisting of states or groups of states. Regional plan benchmarks include two components: (1) a statutorily determined amount (comparable to benchmarks described above) and (2) a weighted average of plan bids. Thus, a portion of the benchmark is competitively determined. Similar to local plans, plans with bids below the benchmark are given a rebate, while plans with bids above the benchmark require an additional enrollee premium. In general, MA eligible individuals may enroll in any MA plan that serves their area. However, some MA plans may restrict their enrollment to beneficiaries who meet additional criteria. For example, employer-sponsored MA plans are generally only available to the retirees of the company sponsoring the plan. In addition, Medicare Special Needs Plans (SNPs) are a type of coordinated care MA plan that exclusively enrolls, or enrolls a disproportionate percentage of, special needs individuals. Special needs individuals are any MA eligible individuals who are either institutionalized as defined by the Secretary, eligible for both Medicare and Medicaid, or have a severe or disabling chronic condition and would benefit from enrollment in a specialized MA plan. Medicare Part D provides coverage of outpatient prescription drugs to Medicare beneficiaries who choose to enroll in this optional benefit. (As previously discussed, Part B provides limited coverage of some outpatient prescription drugs.) In 2019, about 47 million (about 77%) of eligible Medicare beneficiaries are estimated to be enrolled in a Part D plan. Prescription drug coverage is provided through private prescription drug plans (PDPs), which offer only prescription drug coverage, or through Medicare Advantage prescription drug plans (MA-PDs), which offer prescription drug coverage that is integrated with the health care coverage they provide to Medicare beneficiaries under Part C. Plans must meet certain minimum requirements; however, there are significant variations among them in benefit design, including differences in premiums, drugs included on plan formularies, and cost sharing for particular drugs. Part D prescription drug plans are required to offer either "standard coverage" or alternative coverage that has actuarially equivalent benefits. In 2019, "standard coverage" has a $415 deductible and a 25% coinsurance for costs between $415 and $3,820. From this point, there is reduced coverage until the beneficiary has out-of-pocket costs of $5,100 (an estimated $8,139.54 in total spending); this coverage gap has been labeled the "doughnut hole." Once the beneficiary reaches the catastrophic limit, the program pays all costs except for the greater of 5% coinsurance or $3.40 for a generic drug and $8.50 for a brand-name drug. As required by the ACA, in 2010, Medicare sent a tax-free, one-time $250 rebate check to each Part D enrollee who reached the doughnut hole. Additionally, starting in 2011, the coverage gap is being gradually reduced each year. Under the ACA, the coverage gap for both brand-name and generic drugs was to be eliminated in 2020, but Congress moved up the date to 2019 for brand-name drugs as part of BBA 18. In 2019, a 70% discount is provided by drug manufacturers and Medicare pays an additional 5% of the cost of brand-name drugs dispensed during the coverage gap. In 2019, Medicare also pays 63% of the cost of generic drugs dispensed during the coverage gap and enrollees pay 37%. (See Figure 2 .) By 2020, through a combination of manufacturer discounts and increased Medicare coverage, Part D enrollees will be responsible for 25% of the costs for brand-name and generic drugs in the coverage gap (the same as during the initial coverage period). Most plans offer actuarially equivalent benefits rather than the standard package, including alternatives such as reducing or eliminating the deductible, or using tiered cost sharing with lower cost sharing for generic drugs. Medicare's payments to plans are determined through a competitive bidding process, and enrollee premiums are tied to plan bids. Plans are paid a risk-adjusted monthly per capita amount based on their bids during a given plan year. Part D plan sponsors determine payments for drugs and are expected to negotiate prices. The federal government is prohibited from interfering in the price negotiations between drug manufacturers, pharmacies, and plans (the so-called "non-interference clause"). Part D also provides enhanced coverage for low-income enrolled individuals, such as persons who previously received drug benefits under Medicaid (known as "dual eligibles"—enrollees in both Medicare and Medicaid). Additionally, certain persons who do not qualify for Medicaid, but whose incomes are below 150% of poverty, may also receive assistance for some portion of their premium and cost-sharing charges. The MMA included significant incentives for employers to continue to offer coverage to their retirees by providing a 28% federal subsidy. In 2019, the maximum potential subsidy per covered retiree is $2,264 for employers or unions offering drug coverage that is at least actuarially equivalent (called "creditable" coverage) to standard coverage. Employers or unions may select an alternative option (instead of taking the subsidy) with respect to Part D, such as electing to pay a portion of the Part D premiums. They may also elect to provide enhanced coverage, though this has some financial consequences for the employer or union. Alternatively, employers or unions may contract with a PDP or MA-PD to offer the coverage or become a Part D plan sponsor themselves for their retirees. A variety of public and private entities are involved in carrying out Medicare administrative and oversight functions. CMS, an agency within HHS, has primary operational responsibilities. Such responsibilities include managing program finances, developing policies and regulations, setting payment rates, and developing the program's information-technology infrastructure. CMS conducts its activities through its headquarters and 10 regional offices. The Social Security Administration, however, enrolls beneficiaries into the program and issues Medicare beneficiary cards. CMS also contracts with various private entities, including private health insurance companies, to help administer the program. For example, Medicare Administrative Contractors (MACs) process and pay Parts A and B reimbursement claims, enroll providers and suppliers, educate providers and suppliers on billing requirements, support appeal processes, and answer provider and supplier inquiries through call centers, as well as other activities. Qualified Independent Contractors (QICs) perform second-level reviews on appeals initially reviewed by MACs. Medicare's quality assurance activities are primarily handled by State Survey Agencies and Quality Improvement Organizations (QIOs), which operate in all states and the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The State Survey Agencies are responsible for inspecting Medicare provider facilities (e.g., nursing homes, home health agencies, and hospitals) to ensure that they are in compliance with federal safety and quality standards referred to as Conditions (or Requirements) of Participation. Alternatively, some types of providers, including hospitals, may receive certification through private accrediting agencies, such as the Joint Commission. QIOs are mostly private, not-for-profit organizations that monitor the quality of care delivered to Medicare beneficiaries and educate providers on the latest quality-improvement techniques. Medicare program integrity activities, such as audits, provider education, medical review, and predictive data analysis, also are carried out by a variety of government and private entities. For example, the Center for Program Integrity within CMS works together with the U.S. Department of Justice (DOJ) and the HHS Office of Inspector General (OIG) to identify and prevent fraud, waste, and abuse in Medicare. CMS also works with private contractors to carry out certain program-integrity functions. Unified Program Integrity Contractors (UPICs) perform integrity-related activities including data analysis to identify potentially fraudulent claims (bills) for Medicare Parts A and B, home health and hospice services, and DME. Similarly, the National Benefit Integrity Medicare Drug Integrity Contractor (MEDIC) is responsible for identifying and investigating fraud, waste, and abuse in Medicare Advantage and Part D. When appropriate, the UPICs and MEDIC work with and refer cases to law enforcement, including OIG and DOJ. In addition, Recovery Audit Contractors (RACs) are responsible for identifying improper Medicare payments, including both underpayments and overpayments, and for recouping any overpayments made to providers. Each year, the Comprehensive Error Rate Testing (CERT) program quantifies a national improper Medicare payment rate by examining a random sample of claims. In turn, the Supplemental Medical Review Contractor targets medical reviews in areas where OIG, RACs, and CERT have identified vulnerabilities and/or questionable billing patterns to identify ways to lower improper payment rates. As required by the ACA, the Center for Medicare and Medicaid Innovation (CMMI) was established in January 2011 to test and evaluate innovative payment and service delivery models to reduce program expenditures under Medicare. Examples of these models include providing payment incentives for groups of doctors, hospitals, and other health care providers (Accountable Care Organizations, or ACOs) to coordinate the services they provide to Medicare beneficiaries; bundling payments for services provided in different settings during a beneficiary's episode of care; and reimbursing health providers based on the quality of care rather than on the volume of services. CMMI also plays an important role in developing and implementing the new physician payment models required by MACRA. Medicare beneficiary education and outreach duties are shared between CMS and the Social Security Administration. Each year, CMS mails out a "Medicare and You" handbook to beneficiaries, which provides information on their benefits for the upcoming year. Additional educational materials and responses to frequently asked questions may be found on the CMS-maintained "Medicare.gov" website, and beneficiaries may call a CMS-operated 1-800 number for assistance with specific questions and help with selecting and enrolling in a Medicare Advantage and/or Part D plan. A Medicare beneficiary ombudsman is also available to provide assistance to Medicare consumers with their complaints, grievances, and requests. The Social Security Administration is responsible for notifying low-income Medicare beneficiaries about programs that may be able to assist them with their medical and prescription drug expenses. The Social Security Administration also provides general Medicare eligibility and enrollment information on its webpage and on Social Security benefit statements. Finally, CMS partners with community-based organizations, such as State Health Insurance Assistance Programs, in every state to provide educational resources and personalized assistance to Medicare beneficiaries. Medicare's financial operations are accounted for through two trust funds maintained by the Department of the Treasury—the Hospital Insurance (HI) trust fund for Part A and the Supplementary Medical Insurance (SMI) trust fund for Parts B and D. For beneficiaries enrolled in Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from the HI and SMI trust funds. HI is primarily funded by payroll taxes, while SMI is primarily funded through general revenue transfers and premiums. (See Figure 3 .) The HI and SMI trust funds are overseen by a Board of Trustees that provides annual reports to Congress. The trust funds are accounting mechanisms. Income to the trust funds is credited to the fund in the form of interest-bearing government securities. Expenditures for services and administrative costs are recorded against the fund. These securities represent obligations that the government has issued to itself. As long as a trust fund has a balance, the Department of the Treasury is authorized to make payments for it from the U.S. Treasury. Medicare expenditures are primarily paid for through mandatory spending—generally Medicare pays for all covered health care services provided to beneficiaries. Aside from certain constraints in HI described below, the program is not subject to spending limits. Additionally, most Medicare expenditures (aside from premiums paid by beneficiaries) are paid for by current workers through income taxes and dedicated Medicare payroll taxes, that is, current income is used to pay current expenditures. Medicare taxes paid by current workers are not set aside to cover their future Medicare expenses. The primary source of funding for Part A is payroll taxes paid by employees and employers. Each pays a tax of 1.45% on the employee's earnings; the self-employed pay 2.9%. Beginning in 2013, some higher-income employees pay higher payroll taxes. Unlike Social Security, there is no upper limit on earnings subject to the tax. Other sources of income include (1) interest on federal securities held by the trust fund, (2) a portion of federal income taxes that individuals pay on their Social Security benefits, and (3) premiums paid by voluntary enrollees who are not automatically entitled to Medicare Part A. Income for Part A is credited to the HI trust fund. Part A expenditures for CY2019 are estimated to reach approximately $330 billion. Revenue to the trust fund is expected to consist of about $285 billion in payroll tax income and another $38 billion in interest and other income. The Medicare Trustees project that in CY2019, the HI trust fund will incur a deficit of approximately $7 billion. As long as the HI trust fund has a balance, the Treasury Department is authorized to make payments for Medicare Part A services. To date, the HI trust fund has never run out of money (i.e., become insolvent), and there are no provisions in the Social Security Act that govern what would happen if that were to occur. Part A expenditures exceeded HI income each year from 2008 through 2015, and the assets credited to the trust fund were drawn down to make up the deficit in those years. Although the HI trust fund accumulated small surpluses in 2016 and 2017, the Medicare Trustees estimate that, beginning in 2018, expenditures will outpace income in all future years, and project that the HI trust fund will become insolvent in 2026 (i.e., the balance of the trust fund will reach $0). At that time there would no longer be sufficient funds to fully cover Part A expenditures. Medicare Part B is financed primarily from federal general revenues and from beneficiary premiums, which are set at 25% of estimated per capita program costs for the aged. (The disabled pay the same premium as the aged.) Income for Part B is credited to the SMI trust fund. Total spending for Part B is estimated to reach about $368 billion in CY2019, with premiums financing about $98 billion of that amount and general revenues financing most of the rest. Most beneficiaries who enroll in Medicare Part B pay a monthly premium. Individuals receiving Social Security benefits have their Part B premium payments automatically deducted from their Social Security benefit checks. Due to a "hold-harmless" provision in the Social Security Act, an individual's Social Security check cannot decrease from one year to the next as a result of the annual Part B premium increase (except in the case of higher-income individuals subject to income-related premiums). The 2019 monthly Part B premium is $135.50. However, about 3.5% of Medicare enrollees are protected by the hold-harmless provision and pay lower premium amounts because the dollar amount of the 2019 cost-of-living increase in their Social Security benefits was not sufficient to cover the full premium increase. Since 2007, higher-income Part B enrollees have paid higher premiums. In 2019, individuals whose modified adjusted gross income (AGI) exceeds $85,000 and each member of a couple filing jointly whose modified AGI exceeds $170,000 are subject to higher premium amounts. These higher-income premiums range from 35% to 85% of the value of Part B and affect about 5% of Medicare enrollees. (See Appendix B for 2019 Part B premiums and high-income thresholds.) Payments for spending under the Medicare Advantage program are made in appropriate portions from the HI and SMI trust funds. There is no separate trust fund for Part C. Medicare Part D is financed through a combination of beneficiary premiums and federal general revenues. In addition, certain transfers are made from the states. These transfers, referred to as "clawback payments," represent a portion of the amounts states could otherwise have been expected to pay for drugs under Medicaid if drug coverage for the dual eligible population had not been transferred to Part D. Part D revenues are credited to a separate Part D account within the SMI trust fund. In CY2019, total spending for Part D is estimated to reach approximately $98 billion, with about $71 billion of that amount paid for by general revenues, $16 billion from beneficiary premiums, and $12 billion from state transfers. In 2019, the base beneficiary premium is $33.19; however, beneficiaries pay different premiums depending on the plan they have selected and whether they are entitled to low-income premium subsidies. Additionally, beginning in 2011, higher income Part D enrollees pay higher premiums. (The income thresholds are the same as for Part B, as described above.) On average, beneficiary premiums are set at 25.5% of expected total Part D costs for basic coverage. The Budget Control Act of 2011 (BCA; P.L. 112-25 ) provided for increases in the debt limit and established procedures designed to reduce the federal budget deficit, including the creation of a Joint Select Committee on Deficit Reduction. The failure of the Joint Committee to propose deficit reduction legislation by its mandated deadline triggered automatic spending reductions ("sequestration" of mandatory spending and reductions in discretionary spending) in fiscal years 2013 through 2021. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ) delayed the automatic reductions by two months, while the Bipartisan Budget Act of 2013 (BBA; P.L. 113-67 ) extended sequestration for mandatory spending for an additional two years—through FY2023. In 2014, the President signed into law an amended version of S. 25 ( P.L. 113-82 ), which included a provision to extend BCA's sequester of mandatory spending through FY2024. BBA 15 extended the sequestration of mandatory spending another year, through FY2025. Most recently, BBA 18 extended the BCA mandatory spending sequester through FY2027. Section 256(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177 ) contains special rules for the Medicare program in the event of a sequestration. Among other things, it specifies that for Medicare, sequestration is to begin the month after the sequestration order has been issued. Therefore, as the sequestration order was issued March 2013, Medicare sequestration began April 1, 2013, and will continue through March 31, 2028. Under sequestration, Medicare's benefit structure generally remains unchanged; however, benefit related payments are subject to 2% reductions. In other words, most Medicare payments to health care providers, as well as to MA and Part D plans, are being reduced by 2%. Certain Medicare payments are exempt from sequestration and therefore not reduced. These exemptions include (1) Part D low-income subsidies, (2) the Part D catastrophic subsidy, and (3) Qualified Individual (QI) premiums. Some non-benefit related Medicare expenses, such as administrative and operational spending, are subject to higher reductions, 6.2% in 2019. While Medicare provides broad protection against the costs of many, primarily acute care, services, the program does not cover all services that may be used by its aged and disabled beneficiaries. In general, Medicare does not cover eyeglasses, hearing aids, dentures, or most long-term care services. Further, unlike most private insurance policies, it does not include an annual "catastrophic" cap on out-of-pocket spending on cost-sharing charges for services covered under Parts A and B (except for persons enrolled in Medicare Advantage plans). Most Medicare beneficiaries have some coverage in addition to Medicare. The following are the main sources of additional coverage for Medicare enrollees: Medicare Advantage. Many MA plans offer services in addition to those covered under original Medicare, reduced cost sharing, or reduced Part B or D premiums. All MA plans have a catastrophic cap. Employer Coverage. Coverage may be provided through a current or former employer. In recent years, a number of employers have cut back on the scope of retiree coverage. Some have dropped such coverage entirely, particularly for future retirees. As noted earlier, the MMA attempted to stem this trend, at least for prescription drug coverage, by offering subsidies to employers who offer drug coverage, at least as good as that available under Part D. Medigap. Individual insurance policies that supplement fee-for-service Medicare are referred to as Medigap policies. Beneficiaries with Medigap insurance typically have coverage for a portion of Medicare's deductibles and coinsurance; they may also have coverage for some items and services not covered by Medicare. Individuals select from a set of standardized plans, though not all plans are offered in all states. Medicaid. Certain low-income Medicare beneficiaries also may be eligible for full or partial benefits under their state's Medicaid program. Individuals eligible for both Medicare and Medicaid are referred to as dual eligibles. The lowest-income dual eligibles qualify for full Medicaid benefits, so that the majority of their health care expenses are paid by either Medicare or Medicaid; Medicare pays first, with Medicaid picking up most of the remaining costs. In addition to full-benefit dual eligibles, state Medicaid programs pay Medicare premiums and some cost sharing for other partial dual eligibles, who have higher income than full-benefit dual eligibles but are still considered to have low income. Other Public Sources. Individuals may have additional coverage through the Department of Veterans Affairs, or TRICARE for military retirees eligible for Medicare (and enrolled in Part B). In 2015, about 87% of Medicare beneficiaries had some form of additional coverage. Some persons may have had more than one type of additional coverage. Appendix A. Abbreviations Appendix B. 2019 Medicare Beneficiary Costs	[ "Medicare is a federal program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under the age of 65. Medicare, which consists of four parts (A-D), covers hospitalizations, physician services, prescription drugs, skilled nursing facility care, home health visits, and hospice care, among other services. Generally, individuals are eligible for Medicare if they or their spouse worked for at least 40 quarters in Medicare-covered employment, are 65 years old, and are a citizen or permanent resident of the United States. Individuals may also qualify for coverage if they are a younger person who cannot work because they have a medical condition that is expected to last at least one year or result in death, or have end-stage renal disease (permanent kidney failure requiring dialysis or transplant). The program is administered by the Centers for Medicare & Medicaid Services (CMS) within the Department of Health and Human Services (HHS) and by private entities that contract with CMS to provide claims processing, auditing, and quality oversight services. In FY2019, the program is expected to cover approximately 61 million persons (52 million aged and 9 million disabled) at a total cost of about $772 billion. Spending under the program (except for a portion of administrative costs) is considered mandatory spending and is not subject to the annual appropriations process. Services provided under Parts A and B (also referred to as \"original\" or \"traditional\" Medicare) are generally paid directly by the government on a \"fee-for-service\" basis, using different prospective payment systems or fee schedules. Under Parts C and D, private insurers are paid a monthly \"capitated\" amount to provide enrollees with required benefits. Medicare is required to pay for all covered services provided to eligible persons, so long as specific criteria are met. Since 1965, the Medicare program has undergone considerable change. For example, during the 111th Congress, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L. 111-152) made numerous changes to the Medicare program that modified provider reimbursements, provided incentives to increase the quality and efficiency of care, and enhanced certain Medicare benefits. In the 114th Congress, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10) changed the method for calculating updates to Medicare payment rates to physicians and altered how physicians and other practitioners will be paid in the future. Projections of future Medicare expenditures and funding indicate that the program will place increasing financial demands on the federal budget and on beneficiaries. For example, the Hospital Insurance (Part A) trust fund is projected to become insolvent in 2026. Additionally, although the Supplementary Medical Insurance (Parts B and D) trust fund is financed in large part through federal general revenues and cannot become insolvent, associated spending growth is expected to put increasing strains on the country's competing spending priorities. As such, Medicare is expected to be a high-priority issue in the current Congress, and Congress may consider a variety of Medicare reform options ranging from further modifications of provider payment mechanisms to redesigning the entire program. This report provides a general overview of the Medicare program including descriptions of the program's history, eligibility criteria, covered services, provider payment systems, and program administration and financing. A list of commonly used acronyms, as well as information on beneficiary cost sharing, may be found in the appendixes." ]	13,111	gov_report	en	null	41203c9bcb9e82d6bfa289c0641ca1ef08073d52ceeec7f5
U.S. foreign aid is the largest component of the international affairs budget, for decades viewed by many as an essential instrument of U.S. foreign policy. Each year, the foreign aid budget is the subject of congressional debate over the size, composition, and purpose of the program. The focus of U.S. foreign aid policy has been transformed since the terrorist attacks of September 11, 2001. Global development, a major objective of foreign aid, has been cited as a third pillar of U.S. national security, along with defense and diplomacy, in the national security strategies of the George W. Bush and Barack Obama Administrations. Although the Trump Administration's National Security Strategy does not explicitly address the status of development vis-à-vis diplomacy and defense, it does note the historic importance of aid in achieving foreign policy goals and supporting U.S. national interests. This report addresses a number of the more frequently asked questions regarding the U.S. foreign aid program; its objectives, costs, and organization; the role of Congress; and how it compares to those of other aid donors. It attempts not only to present a current snapshot of American foreign assistance, but also to illustrate the extent to which this instrument of U.S. foreign policy has evolved over time. Data presented in the report are the most current, consistent, and reliable figures available, generally updated through FY2017. Dollar amounts come from a variety of sources, including the U.S. Agency for International Development (USAID) Foreign Aid Explorer database (Explorer) and annual State, Foreign Operations, and Related Programs (SFOPS) appropriations acts. As new data are obtained or additional issues and questions arise, the report will be revised. Foreign aid abbreviations used in this report are listed in Appendix B . In its broadest sense, U.S. foreign aid is defined under the Foreign Assistance Act of 1961 (FAA), the primary legislative basis of foreign aid programs, as any tangible or intangible item provided by the United States Government [including "by means of gift, loan, sale, credit, or guaranty"] to a foreign country or international organization under this or any other Act, including but not limited to any training, service, or technical advice, any item of real, personal, or mixed property, any agricultural commodity, United States dollars, and any currencies of any foreign country which are owned by the United States Government.... (§634(b)) For many decades, nearly all assistance annually requested by the executive branch and debated and authorized by Congress was ultimately encompassed in the foreign operations appropriations and the international food aid title of the agriculture appropriations. In the U.S. federal budget, these traditional foreign aid accounts have been subsumed under the 150 (international affairs) budget function. By the 1990s, however, it became increasingly apparent that the scope of U.S. foreign aid was not fully accounted for by the total of the foreign operations and international food aid appropriations. Many U.S. departments and agencies had adopted their own assistance programs, funded out of their own budgets and commonly in the form of professional exchanges with counterpart agencies abroad—the Environmental Protection Agency, for example, providing water quality expertise to other governments. These aid efforts, conducted outside the purview of the traditional foreign aid authorizing and appropriations committees, grew more substantial and varied in the mid-1990s. The Department of Defense (DOD) Nunn-Lugar effort provided billions in aid to secure and eliminate nuclear and other weapons, as did Department of Energy activities to control and protect nuclear materials—both aimed largely at the former Soviet Union. Growing participation by DOD in health and humanitarian efforts and expansion of health programs in developing countries by the National Institutes of Health and Centers for Disease Control and Prevention, especially in response to the HIV/AIDS epidemic, followed. During the past 15 years, DOD-funded and implemented aid programs in Iraq and Afghanistan to train and equip foreign forces and win hearts and minds through development efforts were often considerably larger than the traditional military and development assistance programs provided under the foreign operations appropriations. The recent decline in DOD activities in these countries has sharply decreased nontraditional aid funding. In FY2011, nontraditional sources of assistance, at $17.3 billion, represented 35% of total aid obligations. By FY2017, nontraditional aid, at $9.7 billion, represented 19% of total aid, still a significant proportion. While the executive branch has continued to request and Congress to debate most foreign aid within the parameters of the foreign operations legislation, both entities have sought to ascertain a fuller picture of assistance programs through improved data collection and reporting. Significant discrepancies remain between data available for traditional versus nontraditional types of aid and, therefore, the level of analysis applied to each. (See text box , "A Note on Numbers and Sources," below.) Nevertheless, to the extent possible, this report tries to capture the broadest definition of aid throughout. Foreign assistance is predicated on several rationales and supports a great many objectives. The importance and emphasis of various rationales and objectives have changed over time. Throughout the past 70 years, there have been three key rationales for foreign assistance National Security has been the predominant theme of U.S. assistance programs. From rebuilding Europe after World War II under the Marshall Plan (1948-1951) and through the Cold War, U.S. aid programs were viewed by policymakers as a way to prevent the incursion of communist influence and secure U.S. base rights or other support in the anti-Soviet struggle. After the Cold War ended, the focus of foreign aid shifted from global anti-communism to disparate regional issues, such as Middle East peace initiatives, the transition to democracy of eastern Europe and republics of the former Soviet Union, and international illicit drug production and trafficking in the Andes. Without an overarching security rationale, foreign aid budgets decreased in the 1990s. However, since the September 11, 2001, terrorist attacks in the United States, policymakers frequently have cast foreign assistance as a tool in U.S. counterterrorism strategy, increasing aid to partner states in counterterrorism efforts and funding the substantial reconstruction programs in Afghanistan and Iraq. As noted, global development has been featured as a key element in U.S. national security strategy in both Bush and Obama Administration policy statements. Commercial Interests. Foreign assistance has long been defended as a way to either promote U.S. exports by creating new customers for U.S. products or by improving the global economic environment in which U.S. companies compete. Humanitarian Concerns. Humanitarian concerns drive both short-term assistance in response to crisis and disaster as well as long-term development assistance aimed at reducing poverty, hunger, and other forms of human suffering brought on by more systemic problems. Providing assistance for humanitarian reasons has generally been the aid rationale most broadly supported by the American public and policymakers alike. The objectives of aid generally fit within these rationales. Aid objectives include promoting economic growth and reducing poverty, improving governance, addressing population growth, expanding access to basic education and health care, protecting the environment, promoting stability in conflictive regions, protecting human rights, promoting trade, curbing weapons proliferation, strengthening allies, and addressing drug production and trafficking. The expectation has been that, by meeting these and other aid objectives, the United States will achieve its national security goals as well as ensure a positive global economic environment for American products, and demonstrate benevolent and respectable global leadership. Different types of foreign aid typically support different objectives. But there is also considerable overlap among categories of aid. Multilateral aid serves many of the same objectives as bilateral development assistance, although through different channels. Military assistance, economic security aid—including rule of law and police training—and development assistance programs may support the same U.S. political objectives in the Middle East, Afghanistan, and Pakistan. Military assistance and alternative development programs are integrated elements of American counternarcotics efforts in Latin America and elsewhere. Depending on how they are designed, individual assistance projects can also serve multiple purposes. A health project ostensibly directed at alleviating the effects of HIV/AIDS by feeding orphan children may also stimulate grassroots democracy and civil society through support of indigenous NGOs while additionally meeting U.S. humanitarian objectives. Microcredit programs that support small business development may help develop local economies while at the same time enabling client entrepreneurs to provide food and education to their children. Water and sanitation improvements both mitigate health threats and stimulate economic growth by saving time previously devoted to water collection, raising school attendance for girls, and facilitating tourism, among other effects. In 2006, in an effort to rationalize the assistance program more clearly, the State Department developed a framework that organizes U.S. foreign aid around five strategic objectives, each of which includes a number of program elements, also known as sectors. The five objectives are Peace and Security; Investing in People; Governing Justly and Democratically; Economic Growth; and Humanitarian Assistance. Generally, these objectives and their sectors do not correspond to any one particular budget account in appropriations bills. Annually, the Department of State and USAID develop their foreign operations budget request within this framework, allowing for an objective and program-oriented viewpoint for those who seek it. An effort by the State Department to obtain reporting from all departments and agencies of the U.S. government on aid levels categorized by objective and sector is ongoing. USAID's Explorer website (explorer.usaid.gov) currently provides a more complete picture from all parts of the U.S. government (see Table 1 ). The 2006 framework introduced by the Department of State organizes assistance by foreign policy strategic objective and sector. But there are many other ways to categorize foreign aid, one of which is to sort out and classify foreign aid accounts in the U.S. budget according to the types of activities they are expected to support, using broad categories such as military, bilateral development, multilateral development, humanitarian assistance, political/strategic, and nonmilitary security activities (see Figure 1 ). This methodology reflects the organization of aid accounts within the SFOPS appropriations but can easily be applied to the international food aid title of the Agriculture appropriations as well as to the DOD and other government agency assistance programs with funding outside traditional foreign aid budget accounts. In FY2017, these many aid accounts provided $49.9 billion in obligated assistance. For FY2017, U.S. government departments and agencies obligated about $16.2 billion in bilateral development assistance, or 33% of total foreign aid, primarily through the Development Assistance (DA) and Global Health (Global Health-USAID and Global Health-State) accounts and the administrative accounts that allow USAID to operate (Operating Expenses, Capital Investment Fund, and Office of the Inspector General). Other bilateral development assistance accounts support the development efforts of distinct institutions, such as the Peace Corps, Inter-American Foundation (IAF), U.S.-African Development Foundation, Trade and Development Agency, Millennium Challenge Corporation (MCC), and National Endowment for Democracy (NED). Development assistance programs aim to foster sustainable broad-based economic progress and social stability in developing countries. This aid is managed largely by USAID and is used for long-term projects in a wide range of areas. Many programs share the objective in the State Department framework of "promoting economic growth and prosperity." Agriculture programs focus on reducing poverty and hunger, trade-promotion opportunities for farmers, and sound environmental practices for sustainable agriculture. Private sector development programs include support for business associations and microfinance services. Programs for managing natural resources and protecting the global environment focus on conserving biological diversity; improving the management of land, water, and forests; encouraging clean and efficient energy production and use; and reducing the threat of global climate change. Programs supporting the objective of "governing justly and democratically" include support for promoting rule of law and human rights, good governance, political competition, and civil society. Programs with the objective of "investing in people" include support for basic, secondary, and higher education; improving government ability to provide social services; water and sanitation; and health care. By far the largest portion of bilateral development assistance is devoted to global health. These programs include treatment of HIV/AIDS and other infectious diseases, maternal and child health, family planning and reproductive health programs, and strengthening the government health systems that provide care. Most funding for HIV/AIDS, malaria, and tuberculosis is directed through the State Department's Office of the Global AIDS Coordinator to other agencies, including USAID and the Centers for Disease Control and Prevention. The latter agency and the National Institutes for Health also conduct programs funded by Labor-Health and Human Services (HHS) appropriations. In addition to providing emergency food aid in crisis situations, a portion (about 25% in FY2017) of the Food for Peace (FFP) Title II international food aid program (also referred to as P.L. 480, named after the 1954 law that authorized it)—funded under the Agriculture appropriations—provides nonemergency food commodities to private voluntary organizations (PVOs) or multilateral organizations, such as the World Food Program, for development-oriented purposes. FFP funds are also used to support the "farmer-to-farmer" program, which sends hundreds of U.S. volunteers as technical advisors to train farm and food-related groups throughout the world. In addition, the McGovern-Dole International Food for Education and Child Nutrition Program, a program begun in 2002, provides commodities, technical assistance, and financing for school feeding and child nutrition programs. A share of U.S. foreign assistance—4% in FY2017 ($2.1 billion)—is combined with contributions from other donor nations to finance multilateral development projects. Multilateral aid is funded largely through the International Organizations and Programs (IO&P) account and individual accounts for each of the Multilateral Development Banks (MDBs) and global environmental funds. For FY2017, the U.S. government obligated $2.1 billion for development activities managed by international organizations and financial institutions, including contributions to the United Nations Children's Fund (UNICEF); the United Nations Development Program (UNDP); and MDBs, such as the World Bank. The U.S. share of donor contributions to each of the MDB concessional (subsidized) and nonconcessional (market rate) loan windows varies widely. For the largest MDB, the World Bank, the United States has contributed about 20.5% to the nonconcessional lending window (the International Development Associations [IDA]) and about 17.3% to the nonconcessional lending window (the International Bank for Reconstruction and Development [IBRD]). In determining the U.S. share of donor contributions to the various multilateral institutions, the U.S. faces the challenge of finding the right balance between the benefits of burden sharing and the constraints of sharing control when determining multilateral priorities. For FY2017, obligations for humanitarian assistance programs amounted to $8.9 billion, 18% of total assistance. Unlike development assistance programs, which are often viewed as long-term efforts that may have the effect of preventing future crises from emerging, humanitarian assistance programs are devoted largely to the immediate alleviation of human suffering in emergencies, both natural and man-made, as well as problems resulting from conflict associated with failed or failing states. The largest portion of humanitarian assistance is managed through the International Disaster Assistance (IDA) account by USAID, which provides relief and rehabilitation efforts to victims of man-made and natural disasters, such as the economic and social dislocations caused by the 2014/2015 Ebola epidemic, and the ongoing crises in Syria, South Sudan, Yemen, and Venezuela. A portion of IDA is used for food assistance through the Emergency Food Security Program. Additional humanitarian assistance goes to programs administered by the State Department and funded under the Migration and Refugee Assistance (MRA) and the Emergency Refugee and Migration Assistance (ERMA) accounts, aimed at addressing the needs of refugees and internally displaced persons. These accounts support a number of refugee relief organizations, including the U.N. High Commission for Refugees and the International Committee of the Red Cross. The Department of Defense provides disaster relief under the Overseas Humanitarian, Disaster, and Civic Assistance (OHDACA) account of the DOD appropriations. (For further information on humanitarian programs, see CRS In Focus IF10568, Overview of the Global Humanitarian and Displacement Crisis , by Rhoda Margesson.) The bulk of FFP Title II Agriculture appropriations—$1.3 billion in obligations, about 75% of total Food for Peace Act in FY2017—are used by USAID, mostly to purchase U.S. agricultural commodities, for emergency needs, supplementing both refugee and disaster programs. (For more information on food aid programs, see CRS Report R45422, U.S. International Food Assistance: An Overview , by Alyssa R. Casey.) A few accounts promote special U.S. political and strategic interests. Programs funded through the Economic Support Fund (ESF) account generally aim to promote political and economic stability, often through activities indistinguishable from those provided under regular development programs. However, ESF is also used for direct budget support to foreign governments and to support sovereign loan guarantees. For FY2017, USAID and the State Department obligated $4.8 billion, nearly 10% of total assistance, through this account. For many years, following the 1979 Camp David accords, most ESF funds went to support the Middle East Peace Process—in FY1997, for example, 87% of ESF went to Israel, Egypt, the West Bank and Jordan. Those proportions have declined significantly in recent decades. In FY2007, 22% of ESF funding went to these countries and, in FY2017, 25%. Since the September 2001 terrorist attacks, ESF has largely supported countries of importance in the U.S. global counterterrorism strategy. In FY2007, for example, activities is Afghanistan and Pakistan received 17% of ESF funding (25% in FY2017). Over the years, other accounts have been established to meet specific political or security interests and then were dissolved once the need was met. One example is the Assistance to Eastern Europe and Central Asia (AEECA) account, established in FY2009 to combine two aid programs that met particular strategic political interests arising from the demise of the Soviet empire. The SEED (Support for East European Democracy Act of 1989) and the FREEDOM Support Act (Freedom for Russia and Emerging Eurasian Democracies and Open Markets Support Act of 1992) programs were designed to help Central Europe and the newly independent states of the former Soviet Union (FSA) achieve democratic systems and free market economies. With funding decreasing as countries in the region graduated from U.S. assistance, Congress discontinued use of the AEECA account in the FY2013 appropriations. Increasing requests and appropriations for countries in the former Soviet Union threatened by Russia, however, led to its re-emergence in the FY2017 and succeeding SFOPS appropriations. In the recent past, several DOD-funded nontraditional aid programs directed at Afghanistan also supported development efforts. The Afghanistan Infrastructure Fund and the Business Task Force wound down as the U.S. military presence in that country declined; the Commander's Emergency Response Program (CERP) still exists. The latter two programs had earlier iterations as well in Iraq. Several U.S. government agencies support programs to address global concerns that are considered threats to U.S. security and well-being, such as terrorism, illicit narcotics, crime, and weapons proliferation. In the past two decades, policymakers have given greater weight to these programs. In FY2017, they amounted to $2.9 billion, 6% of total assistance Since the mid-1990s, three U.S. agencies—State, DOD, and Energy—have provided funding, technical assistance, and equipment to counter the proliferation of chemical, biological, radiological, and nuclear weapons. Originally aimed at the former Soviet Union under the rubric cooperative threat reduction (CTR), these programs seek to ensure that these weapons are secured and their spread to rogue nations or terrorist groups prevented. In addition to nonproliferation efforts, the Nonproliferation, Anti-Terrorism, Demining and Related Programs (NADR) account, managed by the State Department, encompasses civilian anti-terrorism efforts such as detecting and dismantling terrorist financial networks, establishing watch-list systems at border controls, and building developing country anti-terrorism capacities. NADR also funds humanitarian demining programs. The State Department is the main implementer of counternarcotics programs. The State-managed International Narcotics Control and Law Enforcement (INCLE) account supports counternarcotics activities, most notably in Afghanistan, Pakistan, Peru, and Colombia. It also helps develop the judicial systems—assisting judges, lawyers, and legal institutions—of many developing countries, especially in Afghanistan. DOD and USAID also support counternarcotics activities, the former largely by providing training and equipment, the latter by offering alternative crop and employment programs. The United States provides military assistance to U.S. friends and allies to help them acquire U.S. military equipment and training. At $14.5 billion, military assistance accounted for about 29% of total U.S. foreign aid in FY2017. The Department of State administers three programs, with corresponding appropriations accounts that are then implemented by DOD. Foreign Military Financing (FMF) is a grant program that enables governments to receive equipment and associated training from the U.S. government or to access equipment directly through U.S. commercial channels. Most FMF grants support the security needs of Israel, Egypt, Jordan, Pakistan, and Iraq. The International Military Education and Training program (IMET) offers military training on a grant basis to foreign military officers and personnel. Peacekeeping funds (PKO) are used to support voluntary non-U.N. peacekeeping operations as well as training for an African crisis response force. Since 2002, DOD appropriations have supported FMF-like programs, training and equipping security forces in Afghanistan and Iraq. These programs and the accounts that fund them are called the Afghanistan Security Forces Fund (ASFF) and, through FY2012, the Iraq Security Forces Fund (ISFF). Beginning in FY2015, similar support was provided Iraq under the Iraq Train and Equip Fund. The DOD-funded programs in Afghanistan and Iraq accounted for more than half of total military assistance in FY2017. How and in what form assistance reaches an aid recipient can vary widely, depending on the type of aid program, the objective of the assistance, and the agency responsible for providing the aid. Federal agencies may implement foreign assistance programs using funds appropriated directly to them or funds transferred to them from another agency. For example, significant funding appropriated through State Department and Department of Agriculture accounts is used for programs implemented by USAID (see Figure 2 ). The funding data in this section reflect the agency that implemented the aid, not necessarily the agency to which funds were originally appropriated. For 50 years, USAID has implemented the bulk of the U.S. bilateral economic development and humanitarian assistance. It directly implements the Development Assistance, International Disaster Assistance, and Transition Initiatives accounts, as well as a USAID-designated portion of the Global Health account. Jointly with the State Department, USAID co-manages ESF, AEECA, and Democracy Fund programs, which frequently support development activities as a means of promoting U.S. political and strategic goals. Based on historical averages, according to USAID, the agency implements more than 90% of ESF, 70% of AEECA, 40% of the Democracy Fund, and about 60% of the Global HIV/AIDS funding appropriated to the State Department. USAID also implements all Food for Peace Act Title II food assistance funded through agriculture appropriations. USAID obligated an estimated $20.55 billion to implement foreign assistance programs and activities in FY2017. The agency's staff in 2018 totaled 9,747 , of which about 67% were working overseas, overseeing the implementation of hundreds of projects undertaken by thousands of private sector contractors, consultants, and nongovernmental organizations. DOD implements all SFOPS-funded military assistance programs—FMF, IMET, PKO, and PCCF—in conjunction with the policy guidance of the Department of State. The Defense Security Cooperation Agency is the primary DOD body responsible for these programs. DOD also carries out an array of state-building activities, funded through defense appropriations legislation, which are usually in the context of training exercises and military operations. These sorts of activities, once the exclusive jurisdiction of civilian aid agencies, include development assistance to Iraq and Afghanistan through the Commander's Emergency Response Program (CERP), the Iraq Relief and Reconstruction Fund, and the Afghanistan Infrastructure Fund, and elsewhere through the Defense Health Program, counterdrug activities, and humanitarian and disaster relief. Training and equipping of Iraqi and Afghan police and military, though similar in nature to some traditional security assistance programs, has been funded and implemented primarily through DOD appropriations, though implementing the Iraq police training program was a State Department responsibility from 2012 until it was phased out in 2013. In FY2017, the Department of Defense implemented an estimated $14.50 billion in foreign assistance programs. The Department of State manages and co-manages a wide range of assistance programs. It is the lead U.S. civilian agency on security and refugee related assistance, and has sole responsibility for implementing the International Narcotics and Law Enforcement (INCLE) and Nonproliferation, Antiterror, and Demining (NADR) accounts, the two Migration and Refugee accounts (MRA and ERMA), and the International Organizations and Programs (IO&P) account. State is also home to the Office of the Global AIDS Coordinator (OGAC), which manages the State Department's portion of Global Health funding in support of HIV/AIDS programs, though many of these funds are transferred to and implemented by USAID, the National Institutes of Health, and the Centers for Disease Control and Prevention. In conjunction with USAID, the State Department manages the Economic Support Fund, AEECA assistance to the former communist states, and Democracy Fund accounts. For these accounts, the State Department largely sets the overall policy and direction of funds, while USAID implements the preponderance of programs. In addition, the State Department, through its Bureau of Political-Military Affairs, has policy authority over the Foreign Military Financing (FMF), International Military Education and Training (IMET), and Peacekeeping Operations (PKO) accounts, and, while it was active, the Pakistan Counterinsurgency Capability Fund (PCCF). These programs are implemented by the Department of Defense. Police training programs have traditionally been the responsibility of the International Narcotics and Law Enforcement (INL) Office in the State Department, though programs in Iraq and Afghanistan were implemented and paid for by the Department of Defense for several years. State is also the organizational home to the Office of U.S. Foreign Assistance Resources (formerly the Office of the Director of Foreign Assistance), known as "F," which was created in 2006 to coordinate U.S. foreign assistance programs. The office establishes standard program structures and definitions, as well as performance indicators, and collects and reports data on State Department and USAID aid programs. The State Department implemented about $7.66 billion in foreign assistance funding in FY2017, though it has policy authority over a much broader range of assistance funds. The U.S. Department of Health and Human Services implements a range of global health programs through its various component institutions. As an implementing partner in the President's Emergency Plan for Aids Relief (PEPFAR), a large portion of HHS foreign assistance activity is related to HIV prevention and treatment, including technical support and preventing mother to child transmission of HIV/AIDS. The Centers for Disease Control and Prevention participates in a broad range of global disease control activity, including rapid outbreak response, global research and surveillance, information technology assistance, and field epidemiology and laboratory training. The National Institutes of Health (NIH) also conduct international health research that is reported as assistance. In FY2017, HHS institutions implemented $2.66 billion in foreign assistance activities. The Department of the Treasury's Under Secretary for International Affairs administers U.S. contributions to and participation in the World Bank and other multilateral development institutions. In this case, the agency manages the distribution of funds to the institutions, but does not implement programs. Presidentially appointed U.S. executive directors at each of the banks represent the United States' point of view. Treasury also deals with foreign debt reduction issues and programs, including U.S. participation in the Highly Indebted Poor Countries (HIPC) initiative, and manages a technical assistance program offering temporary financial advisors to countries implementing major economic reforms and combating terrorist finance activity. For FY2017, the Department of the Treasury managed foreign assistance valued at about $1.85 billion. Created in February 2004, the Millennium Challenge Corporation (MCC) seeks to concentrate significantly higher amounts of U.S. resources in a few low- and lower-middle-income countries that have demonstrated a strong commitment to political, economic, and social reforms relative to other developing countries. A significant feature of the MCC effort is that recipient countries formulate, propose, and implement mutually agreed multi-year U.S.-funded project plans known as compacts. Compacts in the 27 recipient countries selected to date have emphasized construction of infrastructure. The MCC is a U.S. government corporation, headed by a chief executive officer who reports to a board of directors chaired by the Secretary of State. The Corporation maintains a relatively small staff of about 300. The MCC obligated about $1.01 billion in FY2017. A number of other government agencies play a role in implementing foreign aid programs. The Peace Corps, an autonomous agency with FY2017 obligations of $445 million, supports about 7,300 volunteers in 65 countries. Peace Corps volunteers work in a wide range of educational, health, and community development projects. The Trade and Development Agency (TDA), which obligated $58 million in FY2017, finances trade missions and feasibility studies for private sector projects likely to generate U.S. exports. The Overseas Private Investment Corporation (OPIC) provides political risk insurance to U.S. companies investing in developing countries and finances projects through loans and guarantees. Its insurance activities have been self-sustaining, but credit reform rules require a relatively small appropriation to back up U.S. guarantees and for administrative expenses. The Better Utilization of Investments Leading to Development Act of 2018 (BUILD Act), signed into law in October 2018 ( P.L. 115-254 ), authorized consolidation of OPIC and USAID's Development Credit Authority into a new U.S. International Development Finance Corporation (IDFC), which is expected to become operational in fall 2019. For FY2017, as for most prior years, OPIC receipts exceeded appropriations, resulting in a net gain to the Treasury. The Inter-American Foundation and the African Development Foundation, obligating $25.8 million and $20.2 million, respectively, in FY2017, finance small-scale enterprise and grassroots self-help activities aimed at assisting poor people. Most U.S. assistance is now provided as a grant (gift) rather than a loan, so as not to increase the heavy debt burden carried by many developing countries. However, the forms a grant may take are diverse. The most common type of U.S. development aid is project-based assistance (77% in FY2017), in which aid is channeled through an implementing partner to complete a project. Aid is also provided in the form of core contribution to international organizations such as the United Nations, technical assistance, and direct budget support (cash transfer) to governments. A portion of aid money is also spent on administrative costs ( Figure 3 ). Within these categories, aid may take many forms, as described below. Although it is the exception rather than the rule, some countries receive aid in the form of a cash grant to the government. Dollars provided in this way support a government's balance-of-payments situation, enabling it to purchase more U.S. goods, service its debt, or devote more domestic revenues to developmental or other purposes. Cash transfers have been made as a reward to countries that have supported the United States' counterterrorism operations (Turkey and Jordan in FY2004), to provide political and strategic support (both Egypt and Israel annually for decades after the 1979 Camp David Peace Accord), and in exchange for undertaking difficult political and economic reforms. Assistance may be provided in the form of food commodities, weapons systems, or equipment such as generators or computers. Food aid may be provided directly to meet humanitarian needs or to encourage attendance at a maternal/child health care program. Weapons supplied under the military assistance program may include training in their use. Equipment and commodities provided under development assistance are usually integrated with other forms of aid to meet objectives in a particular social or economic sector. For instance, textbooks have been provided in both Afghanistan and Iraq as part of a broader effort to reform the educational sector and train teachers. Computers may be offered in conjunction with training and expertise to fledgling microcredit institutions. Since PEPFAR was first authorized in 2004, antiretroviral drugs (ARVs) provided to individuals living with HIV/AIDS have been a significant component of commodity-based assistance. Although once a significant portion of U.S. assistance programs, construction of economic infrastructure—roads, irrigation systems, electric power facilities, etc.—was rarely provided after the 1970s. Because of the substantial expense of these projects, they were to be found only in large assistance programs, such as that for Egypt in the 1980s and 1990s, where the United States constructed major urban water and sanitation systems. The aid programs in Iraq and Afghanistan supported the building of schools, health clinics, roads, power plants, and irrigation systems. In Iraq alone, more than $10 billion went to economic infrastructure. Economic infrastructure is now also supported by U.S. assistance in a wider range of developing countries through the Millennium Challenge Corporation. In this case, recipient countries design their own assistance programs, most of which, to date, include an infrastructure component. Transfer of knowledge and skills is a significant part of most assistance programs. The International Military Education and Training Program (IMET) provides training to officers of the military forces of allied and friendly nations. Tens of thousands of citizens of aid recipient countries receive short-term technical training or longer-term degree training annually under USAID programs. More than one-quarter of Peace Corps volunteers are English, math, and science teachers. Other aid programs provide law enforcement personnel with anti-narcotics or anti-terrorism training. Many assistance programs provide expert advice to government and private sector organizations. The Department of the Treasury, USAID, and U.S.-funded multilateral banks all place specialists in host government ministries to make recommendations on policy reforms in a wide variety of sectors. USAID has often placed experts in private sector business and civic organizations to help strengthen them in their formative years or while indigenous staff are being trained. While most of these experts are U.S. nationals, in Russia, USAID funded the development of locally staffed political and economic think tanks to offer policy options to that government. USAID, the Inter-American Foundation, and the African Development Foundation often provide aid in the form of small grants directly to local organizations to foster economic and social development and to encourage civic engagement in their communities. Grants are sometimes provided to microcredit organizations, such village-level women's savings groups, which in turn provide loans to microentrepreneurs. Small grants may also address specific community needs. Recent IAF grants, for example, have supported organizations that help resettle Salvadoran migrants deported from the United States and youth programs in Central America aimed at gang prevention. Under the Foreign Assistance Act of 1961, the President may determine the terms and conditions under which most forms of assistance are provided. In general, the financial condition of a country—its ability to meet repayment obligations—has been an important criterion of the decision to provide a loan or grant. Some programs, such as humanitarian and disaster relief programs, were designed from the beginning to be entirely grant activities. During the past two decades, nearly all foreign aid—military as well as economic—has been provided in grant form. While loans represented 32% of total military and economic assistance between 1962 and 1988, this figure declined substantially beginning in the mid-1980s, until by FY2001, loans represented less than 1% of total aid appropriations. The de-emphasis on loan programs came largely in response to the debt problems of developing countries. Both Congress and the executive branch have generally supported the view that foreign aid should not add to the already existing debt burden carried by these countries. In the FY2019 budget request, the Trump Administration encouraged the use of loans over grants when providing military assistance (Foreign Military Financing), but Congress did not include language in support of that proposal in the enacted FY2019 appropriation ( P.L. 116-6 ). Although a small proportion of total current aid, there are significant USAID-managed programs that guarantee loans, meaning the U.S. government agrees to pay a portion of the amount owed in the case of a default on a loan. A Development Credit Authority (DCA) loan guarantee, in which risk is shared with a private sector bank, can be used to increase access to finance in support of any development sector. The DCA is to be transferred from USAID in 2019 to the new IDFC, established by the BUILD Act of 2018 ( P.L. 115-254 ), to enhance U.S. development finance capacity. Under the Israeli Loan Guarantee Program, the United States has guaranteed repayment of loans made by commercial sources to support the costs of immigrants settling in Israel from other countries and may issue guarantees to support economic recovery. USAID has also provided loan guarantees in recent years to improve the terms or amounts of financing from international capital markets for Ukraine and Jordan. In these cases, assistance funds representing a fraction of the guarantee amount are provided to cover possible default. Between 1946 and 2016, the United States loaned $112.7 billion in foreign economic and military aid to foreign governments, and while most foreign aid is now provided through grants, $9.18 billion in loans to foreign governments remained outstanding at the end of FY2016. For nearly three decades, Section 620q of the Foreign Assistance Act (the Brooke amendment) has prohibited new assistance to the government of any country that falls more than one year past due in servicing its debt obligations to the United States, though the President may waive application of this prohibition if he determines it is in the national interest. The United States has also forgiven debts owed by foreign governments and encouraged, with mixed success, other foreign aid donors and international financial institutions to do likewise. In some cases, the decision to forgive foreign aid debts has been based largely on economic grounds as another means to support development efforts by heavily indebted, but reform-minded, countries. The United States has been one of the strongest supporters of the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). These initiatives, which began in the late 1990s, include participation of the World Bank, the International Monetary Fund, and other international financial institutions in a comprehensive debt workout framework for the world's poorest and most debt-strapped nations. The largest and most hotly debated debt forgiveness actions have been implemented for much broader foreign policy reasons with a more strategic purpose. Poland, during its transition from a communist system and centrally planned economy (1990—$2.46 billion); Egypt, for making peace with Israel and helping maintain the Arab coalition during the Persian Gulf War (1990—$7 billion); and Jordan, after signing a peace accord with Israel (1994—$700 million), are examples. Similarly, the United States forgave about $4.1 billion in outstanding Saddam Hussein-era Iraqi debt in November 2004 and helped negotiate an 80% reduction in Iraq's debt to creditor nations later that month. Most development and humanitarian assistance activities are not directly implemented by U.S. government personnel but by private sector entities, such as individual personal service contractors, consulting firms, universities, private voluntary organizations (PVOs), or public international organizations (PIOs). Generally speaking, U.S. government foreign service and civil servants determine the direction and priorities of the aid program, allocate funds while keeping within legislative requirements, ensure that appropriate projects are in place to meet aid objectives, select implementers, and monitor the implementation of those projects for effectiveness and financial accountability. Both USAID and the State Department have promoted the use of public-private partnerships, in which private entities such as corporations and foundations are contributing partners, not paid implementers, in situations where business interests and development objectives coincide. In FY2017, the United States provided some form of bilateral foreign assistance to more than 150 countries. Aid is concentrated heavily in certain countries, reflecting the priorities and interests of United States foreign policy at the time. Table 2 identifies the top 15 recipients of U.S. foreign assistance for FY1997, FY2007 and FY2017. As shown in the table above, there are both similarities and sharp differences among country aid recipients for the three periods. The most consistent thread connecting the top aid recipients over the past two decades has been continuing U.S. strategic interests in the Middle East, with large programs maintained for Israel and Egypt and, for Iraq, following the 2003 invasion. Two key countries in the U.S. counterterrorism strategy, Afghanistan and Pakistan, made their first appearances on the list in FY2002 and continued to be among the top recipients in FY2017. In FY1997, one sub-Saharan African country appeared among leading aid recipients; in FY2017, 7 of the 15 are sub-Saharan African. Many are focus countries under the PEPFAR initiative to address the HIV/AIDS epidemic; South Sudan receives support as a newly independent country with multiple humanitarian and development needs. In FY1997, three countries from Eastern Europe and the former Soviet Union made the list, as many from the region had for much of the 1990s, representing the effort to transform the former communist nations to democratic societies and market-oriented economies. None of those countries appear in the FY2017 list. In FY1997, four Latin American countries make the list; no countries from the region appear in FY2017. On a regional basis, the Middle East/North Africa (MENA) region has received the largest share of U.S. foreign assistance for many decades. Although economic aid to the region's top two recipients, Israel and Egypt, began to decline in the late 1990s, the dominant share of bilateral U.S. assistance consumed by the MENA region was maintained in FY2005 by the war in Iraq. Despite the continued importance of the region, its share slipped substantially by FY2017 as the effort to train and equip Iraqi forces diminished. Since September 11, 2001, South and Central Asia has emerged as a significant target of U.S. assistance, rising from a roughly 3% share 20 years ago to 16% in FY2007 and 15% in FY2017, largely because of aid to Afghanistan and Pakistan. Similarly, the share represented by African nations has increased from 10% and 19%, respectively, in FY1997 and FY2007, to 25% in FY2017, largely due to the HIV/AIDS initiative that funnels resources mostly to African countries and to a range of other efforts to address the region's development challenges. Meanwhile, the share of aid to Europe/Eurasia, which greatly surpassed that of Africa in FY1997, has declined significantly in the past decade, to about 4% in FY2017, with the graduation of many East European aid recipients and the termination of programs in Russia. The Ukraine was responsible for about one third of aid to that region in FY2017. East Asia/Pacific has remained at a low level during the past two decades, while Latin America's share has risen and fallen based on U.S. interest in Colombia and a few Central American countries as aid has shifted to regions of more pressing strategic interest (see Figure 4 ). There are several methods commonly used for measuring the amount of federal spending on foreign assistance. Amounts can be expressed in terms of budget authority (funds appropriated by Congress), obligations (amounts contractually committed), outlays or disbursements (money actually spent). Assistance levels are also sometimes measured as a percentage of the total federal budget, as a percentage of total discretionary budget authority (excluding mandatory and entitlement programs), or as a percentage of the gross domestic product (GDP) (for an indication of the national wealth allocated to foreign aid). By nearly all of these measures, foreign aid resources fell gradually on average over several decades since the historical high levels of the late 1940s and early 1950s ( Appendix A ). This downward trend was sporadically interrupted, largely due to major foreign policy initiatives such as the Alliance for Progress for Latin America beginning in 1961, the infusion of funds to implement the Camp David Middle East Peace Accords in 1979, and an increase in military assistance to Egypt, Turkey, Greece and others in the mid-1980s. The lowest point in U.S. foreign aid spending since World War II came in 1997, when foreign assistance obligations fell to just above $20 billion (in 2017 dollar terms). ( Figure 5 ) While foreign aid consistently represented just over 1% of U.S. annual gross domestic product in the decade following World War II, it fell gradually to between 0.2% and 0.4% for most years in the past three decades. Foreign assistance spending has comprised, on average, around 3% of discretionary budget authority and just over 1% of total budget authority each year since 1977, though the percentages have sometimes varied considerably from year to year. Foreign aid dropped from 5% of discretionary budget authority in 1979 to 2.4% in 2001, before rising sharply in conjunction with U.S. activities in Afghanistan and Iraq starting in 2003. As a portion of total budget authority, foreign assistance reached 2.5% in 1979, but has hovered below 1.5% since 1987. In 2017, foreign assistance was estimated to account for 4.1% of discretionary budget authority and 1.2% of total budget authority ( Figure 6 ; Appendix A ). As previously discussed, since the September 11, 2001, terrorist attacks, foreign aid funding has been closely tied to U.S. counterterrorism strategy, particularly in Iraq, Afghanistan, and Pakistan. Bush and Obama Administration global health initiatives, the creation of the Millennium Challenge Corporation, and growth in counter-narcotics activities have driven funding increases as well. The Budget Control Act of 2011, and the drawdown of U.S. military forces in Iraq, and to some degree Afghanistan, led to a notable dip in aid obligations in FY2013, but aid levels have risen again with efforts to address the crisis in Syria, counter-ISIL activities, and humanitarian aid. The use of the Overseas Contingency Operations (OCO, discussed below) designation has enabled this growth despite the BCA limitations. Figure 7 shows how trends in foreign aid funding in recent decades can be attributed to specific foreign policy events and presidential initiatives. The Obama Administration's FY2012 international affairs budget proposed that the overseas contingency operations (OCO) designation, which had been applied since 2009 to war-related Defense appropriations, including to DOD assistance programs such as ISFF, ASFF and CERP, be extended to include "extraordinary, but temporary, costs of the Department of State and USAID in the front line states of Iraq, Afghanistan and Pakistan." Congress not only adopted the OCO designation in the FY2012 SFOPS appropriations legislation, but expanded it to include funding for additional accounts and countries. In every fiscal year since, a portion of certain foreign assistance accounts—primarily ESF, FMF, IDA, MRA and INCLE—has been appropriated with the OCO designation. The OCO designation is significant because the Budget Control Act of 2011 (BCA), which set annual caps on discretionary funding from FY2013 through FY2021, specified that funds designated as OCO do not count toward the discretionary spending limits established by the act. OCO designation makes it possible to prevent war-related funding from crowding out core international affairs activities within the budget allocation. The OCO approach is reminiscent of the use of supplemental international affairs appropriations for the first decade after the September 11, 2001, terrorist attacks. Congress appropriated significant emergency supplemental funds for foreign operations and Defense assistance programs every year from FY2002 through FY2010 for activities in Iraq, Afghanistan, and elsewhere, which were not counted toward subcommittee budget allocations. Since the OCO designation was first applied to foreign operations in FY2012, supplemental appropriations for foreign aid have declined significantly. In the FY2019 and FY2020 budget requests, the Trump Administration did not request OCO funding within the international affairs budget, but did request OCO funding for the Department of Defense, including for DOD aid accounts. Congress used the OCO designation for both DOD and State/USAID accounts in the FY2019 appropriation, P.L. 116-6 , but a smaller portion of aid was designated as OCO compared to FY2018. It remains to be seen whether this is the beginning of a downward trend in OCO use for foreign aid. Congress historically sought to enhance the domestic benefits of foreign aid by requiring that most U.S. foreign aid be used to procure U.S. goods and services. The conditioning of aid on the procurement of goods and services from the donor-country is sometimes called "tied aid," and while quite common for much of the history of modern foreign assistance, has become increasingly disfavored in the international community. Studies have shown that tying aid increases the costs of goods and services by 15%-30% on average, and up to 40% for food aid, reducing the overall effectiveness of aid flows. The United States joined other donor nations in committing to reduce tied aid in the Paris Declaration on Aid Effectiveness in March 2005, and the portion of tied aid from all donors fell from 70% of total bilateral development assistance in 1985 to an average of 12% in 2016. However, an estimated 32% of U.S. bilateral development assistance was tied in 2016, the highest percentage among major donors, perhaps reflecting the perception of policymakers that maintaining public and political support for foreign aid programs requires ensuring direct economic benefit to the United States. About 67% of U.S. foreign assistance funds in FY2017 were obligated to U.S.-based entities. A considerable amount of U.S. foreign assistance funds remain in the United States, through domestic procurement or the use of U.S. implementers, but the portion differs by program and is hard to identify with any accuracy. For some types of aid, the legislative requirements or program design make it relatively easy to determine how much aid is spent on U.S. goods or services, while for others, this is more difficult to determine. USAID. Most USAID funding (Development Assistance, Global Health, Economic Support Fund) is implemented through contracts, grants, and cooperative agreements with implementing partners. While many implementing partner organizations are based in the United States and employ U.S. citizens, there is little information available about what portion of the funds used for program implementation are used for goods and services provided by American firms. Procurement reform efforts initiated by USAID in 2010 have aimed to increase procurement and implementation by host country entities as a means to enhance country ownership, build local capacity, and improve sustainability of aid programs. Food assistance commodities, until recently, were purchased wholly in the United States, and generally required by law to be shipped by U.S. carriers, suggesting that the vast majority of food aid expenditures are made in the United States. Starting in FY2009, a small portion of food assistance was authorized to be purchased locally and regionally to meet urgent food needs more quickly. Successive Administrations and several Members of Congress have proposed greater flexibility in the food aid program, potentially increasing aid efficiency but reducing the portion of funds flowing to U.S. farmers and shippers. To date, these proposals have been largely unsuccessful. Foreign Military Financing , with the exception of certain assistance allocated to Israel, is used exclusively to procure U.S. military equipment and training. Millennium Challenge Corporation. The MCC bases its procurement regulations on those established by the World Bank, which calls for an open and competitive process, with no preference given to donor country suppliers. Between FY2011 and FY2017, the MCC awarded roughly 15% of the value of compact contracts to U.S. firms. Multilateral development aid. Multilateral aid funds are mixed with funds from other nations and the bulk of the program is financed with borrowed funds rather than direct government contributions. Information on the U.S. share of procurement financed by MDBs is unavailable. In addition to the direct benefits derived from aid dollars used for American goods and services, many argue that the foreign aid program brings significant indirect financial benefits to the United States. For example, analysts maintain that provision of military equipment through the military assistance program and food commodities through the Food for Peace program helps to develop future, strictly commercial, markets for those products. More broadly, as countries develop economically, they are in a position to purchase more goods from abroad and the United States benefits as a trade partner. Since an increasing majority of global consumers are outside of the United States, some business leaders assert that establishing strong economic and trade ties in the developing world, using foreign assistance as a tool, is key to U.S. economic and job growth. Since World War II, with the exception of several years between 1989 and 2001, during which Japan ranked first among aid donors, the United States has led the developed countries in net disbursements of economic aid, or "Official Development Assistance (ODA)" as defined by the Organization for Economic Cooperation and Development's (OECD) Development Assistance Committee (DAC). In 2017, the most recent year for which data are available, the United States disbursed $34.12 billion in ODA, or about 24% of the $144.71 billion in total net ODA disbursements by DAC donors that year. Germany ranked second at $24.16 billion, the United Kingdom followed at $18.59 billion, Japan ranked fourth at $11.85 billion, and France rounded out the top donors with $11.03 billion in 2017 (see Figure 8 ). While the top five donors have not varied for more than a decade, there have been shifts lower down the ranking. For example, Turkey has become a much more prominent ODA donor in recent years (ranked 6 th in 2017, with $9.08 billion in ODA, compared to 21 st in 2006), reflecting large amounts of humanitarian aid to assist Syrian refugees. Even as it leads in dollar amounts of aid flows to developing countries, the United States often ranks low when aid is calculated as a percentage of gross national income (GNI). This calculation is often cited in the context of international donor forums, as a level of 0.7% GNI was established as a target for donors in the 2000 U.N. Millennium Development Goals. In 2017, the United States ranked at the bottom among major donors at 0.18% of GNI, slightly lower than Portugal and Spain (0.18% and 0.19%, respectively). The United Arab Emirates, which has significantly increased its reported ODA in recent years, ranked first among top donors at 1.03% of GNI, followed by Sweden at 1.02% and Luxembourg at 1.00%. There has also been an increase in ODA from non-DAC countries. Between 2000 and 2014, China spent $81.1 billion in ODA, more than tripling its ODA commitments during this period. While reported Chinese ODA is still relatively small compared to that of major donor countries, policymakers are paying increasing attention to growing Chinese investments in developing countries that do not meet the ODA definition. China has touted its "Belt and Road" initiative as an effort to boost development and connectivity across as many as 125 countries to create "strategic propellers" for its own development. However, China has provided little official aggregate information on the initiative, including on the number of projects, countries involved, the terms of financing, and metrics for success. Numerous congressional authorizing committees and appropriations subcommittees maintain responsibility for U.S. foreign assistance. Several committees have responsibility for authorizing legislation establishing programs and policy and for conducting oversight of foreign aid programs. In the Senate, the Committee on Foreign Relations, and in the House, the Committee on Foreign Affairs, have primary jurisdiction over bilateral development assistance, political/strategic and other economic security assistance, military assistance, and international organizations. Food aid, primarily the responsibility of the Agriculture Committees in both bodies, is periodically shared with the Foreign Affairs Committee in the House. U.S. contributions to multilateral development banks are within the jurisdiction of the Senate Foreign Relations Committee and the House Financial Services Committee. The large nontraditional aid programs funded by DOD, such as Nunn-Lugar Cooperative Threat Reduction programs and the military aid programs in Afghanistan and Iraq, come under the jurisdiction of the Armed Services Committees. Some global health assistance, such as research and other activities done by the Centers for Disease Control and Prevention, may fall under the jurisdiction of the House Energy and Commerce and Senate HELP committees. Traditionally, most foreign aid appropriations fall under the jurisdiction of the SFOPS Subcommittees, with food assistance appropriated by the Agriculture Subcommittees. As noted earlier, however, certain military, global health, and other activities that have been reported as foreign aid have been appropriated through other subcommittees in recent years, including the Defense and the Labor, Health and Human Services, Education and Related Agencies subcommittees. (For current information on SFOPS Appropriations legislation, see CRS Report R45168, Department of State, Foreign Operations and Related Programs: FY2019 Budget and Appropriations , by Susan B. Epstein, Marian L. Lawson, and Cory R. Gill.) The most significant permanent foreign aid authorization laws are the Foreign Assistance Act of 1961, covering most bilateral economic and security assistance programs (P.L. 87-195; 22 U.S.C. 2151); the Arms Export Control Act (1976), authorizing military sales and financing (P.L. 90-629; 22 U.S.C. 2751); the Agricultural Trade Development and Assistance Act of 1954 (P.L. 480), covering food aid (P.L. 83-480; 7 U.S.C. 1691); and the Bretton Woods Agreement Act (1945), authorizing U.S. participation in multilateral development banks (P.L. 79-171; 22 U.S.C. 286). In the past, Congress usually scheduled debates every two years on omnibus foreign aid legislation that amended these permanent authorization measures. Congress has not enacted into law a comprehensive foreign assistance authorization measure since 1985, although foreign aid authorizing bills have passed the House or Senate, or both, on numerous occasions. Foreign aid bills have frequently stalled at some point in the debate because of controversial issues, a tight legislative calendar, or executive-legislative foreign policy disputes. In contrast, DOD assistance is authorized in annual National Defense Authorization legislation. In lieu of approving a broad State Department/USAID authorization bill, Congress has on occasion authorized major foreign assistance initiatives for specific regions, countries, or aid sectors in stand-alone legislation or within an appropriation bill. Among these are the SEED Act of 1989 ( P.L. 101-179 ; 22 U.S.C. 5401); the FREEDOM Support Act of 1992 ( P.L. 102-511 ; 22 U.S.C. 5801); the United States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 ( P.L. 108-25 ; 22 U.S.C. 7601); the Tom Lantos and Henry J. Hyde United States Global Leadership Against HIV/AIDS, Tuberculosis, and Malaria Reauthorization Act of 2008 ( P.L. 110-293 ); the Millennium Challenge Act of 2003 (Division D, Title VI of P.L. 108-199 ); the Enhanced Partnership With Pakistan Act of 2009 ( P.L. 111-73 ; 22 U.S.C. 8401); the Global Food Security Act of 2016 ( P.L. 114-195 ; 22 U.S.C. 9306), and the BUILD Act ( P.L. 115-254 ). In the absence of regular enactment of foreign aid authorization bills, appropriation measures considered annually within the SFOPS spending bill have assumed greater significance for Congress in influencing U.S. foreign aid policy. Not only do appropriations bills set spending levels each year for nearly every foreign assistance account, SFOPS appropriations also incorporate new policy initiatives that would otherwise be debated and enacted as part of authorizing legislation. Appendix A. Data Table Appendix B. Common Foreign Assistance Abbreviations	[ "Foreign assistance is the largest component of the international affairs budget and is viewed by many as an essential instrument of U.S. foreign policy. On the basis of national security, commercial, and humanitarian rationales, U.S. assistance flows through many federal agencies and supports myriad objectives. These include promoting economic growth, reducing poverty, improving governance, expanding access to health care and education, promoting stability in conflict regions, countering terrorism, promoting human rights, strengthening allies, and curbing illicit drug production and trafficking. Since the terrorist attacks of September 11, 2001, foreign aid has increasingly been associated with national security policy. At the same time, many Americans and some Members of Congress view foreign aid as an expense that the United States cannot afford given current budget deficits. In FY2017, U.S. foreign assistance, defined broadly, totaled an estimated $49.87 billion, or 1.2% of total federal budget authority. About 44% of this assistance was for bilateral economic development programs, including political/strategic economic assistance; 35% for military aid and nonmilitary security assistance; 18% for humanitarian activities; and 4% to support the work of multilateral institutions. Assistance can take the form of cash transfers, equipment and commodities, infrastructure, or technical assistance, and, in recent decades, is provided almost exclusively on a grant rather than loan basis. Most U.S. aid is implemented by nongovernmental organizations rather than foreign governments. The United States is the largest foreign aid donor in the world, accounting for about 24% of total official development assistance from major donor governments in 2017 (the latest year for which these data are available). Key foreign assistance trends in the past decade include growth in development aid, particularly global health programs; increased security assistance directed toward U.S. allies in the anti-terrorism effort; and high levels of humanitarian assistance to address a range of crises. Adjusted for inflation, annual foreign assistance funding over the past decade was the highest it has been since the Marshall Plan in the years immediately following World War II. In FY2017, Afghanistan, Iraq, Israel, Jordan, and Egypt received the largest amounts of U.S. aid, reflecting long-standing aid commitments to Israel and Egypt, the strategic significance of Afghanistan and Iraq, and the strategic and humanitarian importance of Jordan as the crisis in neighboring Syria continues. The Near East region received 27% of aid allocated by country or region in FY2017, followed by Africa, at 25%, and South and Central Asia, at 15%. This was a significant shift from a decade prior, when Africa received 19% of aid and the Near East 34%, reflecting significant increases in HIV/AIDS-related programs concentrated in Africa between FY2007 and FY2017 and the drawdown of U.S. military forces in Iraq and Afghanistan. Military assistance to Iraq began to decline starting in FY2011, but growing concern about the Islamic State in Iraq and Syria (ISIS) has reversed this trend. This report provides an overview of the U.S. foreign assistance program by answering frequently asked questions on the subject. It is intended to provide a broad view of foreign assistance over time, and will be updated periodically. For more current information on foreign aid funding levels, see CRS Report R45168, Department of State, Foreign Operations and Related Programs: FY2019 Budget and Appropriations, by Susan B. Epstein, Marian L. Lawson, and Cory R. Gill." ]	9,677	gov_report	en	null	499063cd2175dac8478f1c5c767a53c7dfc5fc13747b4be5
Since its founding in 2006, the National Popular Vote (NPV) initiative has promoted an agreement among the states, an interstate compact that would effectively establish direct popular election of the President and Vice President without a constitutional amendment, while retaining the structure of the electoral college system. The United States is unique among "presidential" republics by providing an indirect election to choose its chief executive. The President and Vice President of the United States are selected not by registered voters, but by the electoral college, electors appointed in the states "in such Manner as the Legislature thereof may direct.... " Alexander Hamilton, who was "present at the creation" of the Constitution in 1787, commented favorably on the electoral college system in The Federalist : The mode of appointment of the Chief Magistrate of the United States is almost the only part of the system, of any consequence, which has escaped without severe censure, or which has received the slightest mark of approbation from its opponents.... I venture somewhat further, and hesitate not to affirm that if the manner of it be not perfect, it is at least excellent. It unites in an eminent degree all the advantages the union of which was to be wished for. Notwithstanding Hamilton's endorsement, the first proposal to change the electoral college system by constitutional amendment was introduced as early as 1800, and since that time more than 700 proposals to reform or eliminate the college have been introduced in Congress. Reform advocates have long focused on the fact that it does not provide for direct democratic election, that less-populous states are afforded an arithmetical advantage due to the assignment of two electors to each state, regardless of population, and that the winner-take-all system makes it possible for candidates to win an electoral college majority and the presidency, while gaining fewer votes than their principal opponents in the popular election. Between 1949 and 1979, Congress considered amendments to reform the electoral college, or replace it with direct popular election, in committee and on the floor of both chambers. Proposed amendments must, however, meet the requirements of the Constitution's Article V, which calls for two-thirds approval by both houses of Congress, and ratification by three-fourths of the states; to date, no electoral college reform proposal has met these requirements. Proponents of the National Popular Vote initiative contend that their plan will achieve direct popular election while circumventing the requirements of Article V, and will guarantee that the popular vote winners will always be elected President and Vice President. The fundamentals of the electoral college system were established by Article II, Section 1 of the U.S. Constitution, and subsequently revised by the Twelfth Amendment. The Constitution's minimal provisions have been complemented over the past two centuries by a range of federal and state laws, political party procedures, and enduring political traditions, leading to the system as it exists today. The salient features of the contemporary system are detailed below. The electors are collectively known as the electoral college; although this phrase does not appear in the Constitution, it gained currency in the early days of the republic, and was recognized in federal law in 1845. The electoral college has no continuing existence; its sole purpose is to elect the President and Vice President. Each state is allocated a number of electors equal to the combined total of its U.S. Senate and House of Representatives delegations. The District of Columbia is also allocated three electors. At present, the total is 538, reflecting the combined size of the Senate (100 Members), the House (435 Members), and the District of Columbia electors. Any person may serve as an elector, except Senators and Representatives, or any other person holding an office of "trust or profit" under the United States. Article II, Section 1 of the Constitution empowers the states to "appoint [electors], in such Manner as the Legislature thereof may direct.... " This grant of authority provides the constitutional basis claimed for the NPV initiative. In practice, all states currently provide for popular election of their electoral college delegations. Candidates for the office of elector are nominated by political parties and other groups on the presidential ballot in each state. In most cases, the candidates for the office of elector are nominated by the state party committee or the party's statewide convention. The winning presidential nominees must gain a national majority of 270 or more electoral votes, out of the 538 total, in order to be elected. If no ticket of candidates attains a majority, then the House of Representatives elects the President, and the Senate the Vice President, in a procedure known as contingent election. Candidates for the office of elector are selected by their respective political parties. They are expected to vote for the presidential and vice presidential candidates to whom they are pledged. Some states seek to require them to so vote by law or other means, but most constitutional scholars hold that the electors remain free agents under the Constitution, and that they may vote for any person they choose. On rare occasions, an elector will vote for a different candidate, or abstain from casting a vote for any candidate; he or she is known as a "faithless elector." The goal of presidential campaigns under the existing system is to win by carrying states that collectively cast a majority of electoral votes. Political parties and presidential campaigns tend to focus on states that are closely contested (widely referred to as "battleground" states), or that have large delegations of electoral votes, or both. Winning a majority of the more populous and/or battleground states is considered crucial to obtaining the necessary electoral vote majority. In 48 states and the District of Columbia, the presidential/vice presidential ticket winning the most popular votes (a plurality or more) in that state is awarded all its electoral votes. That is to say, the winning party's entire ticket of electors is elected. This is referred to as the "winner-take-all" or "general ticket" system. Presidential Election Day is set by law for Tuesday after the first Monday in November every fourth year succeeding the election of President and Vice President. On Presidential Election Day, voters cast one vote for the candidates they support. They are, however, actually voting for the state political party "ticket" of electors supporting those presidential and vice presidential candidates. Presidential electors assemble on the first Monday after the second Wednesday in December following the general election. They meet in their respective states, not collectively, and cast separate votes by ballot for the President and Vice President. After the electors vote, the results are sent by the states to Congress and various other federal authorities. On January 6 of the year following a presidential election, Congress meets in a joint session to count the electoral votes and make a formal declaration of which candidates have been elected President and Vice President. A range of factors contributed to the emergence of the National Popular Vote initiative in the first decade of the 21 st century. A major source was frustration by reform advocates after three decades of failed attempts to secure congressional approval for a direct popular election amendment. A more immediate spur was the contentious and disputed presidential election of 2000, which is regarded as having been a major factor contributing to the development of the NPV proposal. One of the factors cited for the emergence of the NPV initiative has been the exacting requirements set by the Constitution for amendments, in this case, a direct popular election constitutional amendment. As noted previously, approval by two-thirds of Members present and voting is required in both houses when Congress proposes an amendment, followed by ratification by three-fourths of the states, 38 at present, usually within a seven-year period specified by Congress. Between 1948 and 1979, Congress debated electoral college reform at length; throughout this time, hundreds of reform proposals were introduced in both chambers. They generally centered on one of two courses: "end it" by eliminating the entire electoral college system and establishing direct popular election, or "mend it" by reforming its more controversial provisions. Between 1948 and 1979, proposed amendments were the subject of hearings in the Senate and House Judiciary Committees on 17 different occasions, while electoral college reform was debated in the Senate on five occasions and twice in the House during this period. Proposals were approved by the necessary two-thirds majority twice in the Senate and once in the House, but never in the same Congress. Following the 1979 defeat of a direct popular election amendment on the Senate floor, and the retirement or defeat of prominent congressional advocates, the question of electoral college reform largely disappeared from public attention and Congress's legislative agenda. Although Senators and Representatives continued to introduce reform proposals, few received action beyond routine committee referral, and in time, the number of measures introduced dropped to zero. Even after the presidential elections of 2000 and 2016, in which the winner of the electoral vote won fewer popular votes than his opponent (a so-called "misfire") , there was little evidence that Congress was prepared to consider an electoral college reform amendment. Proposals to replace the electoral college system with direct popular election continued to be introduced, but in dwindling numbers as the years passed. No proposal for direct popular election was introduced in the 113 th Congress. By comparison, 41 direct popular election or electoral college reform amendments were proposed in the 95 th Congress (1977-1978). Following the 2016 election, however, four constitutional amendments introduced late in the 114 th Congress proposed eliminating the electoral college and replacing it with direct election. To date in the 116 th Congress, three amendments to establish direct popular election by constitutional amendment have been introduced, but no action beyond committee referral has been taken on them. Until recently, survey research findings showed public support for presidential election reform through direct popular election by sizable margins. As early as 1967, the Gallup Poll reported that 58% of respondents supported direct election, compared with 22% who favored retaining the electoral college. More recently, Gallup's 2013 survey recorded that 63% of respondents favored an amendment providing for direct election, while 29% favored retention of the electoral college. Following the 2016 election, however, overall support for direct election was measured at 49% in favor to 47% opposed. It is arguable that the change in public attitudes was influenced by the 2016 election results, in which the Republican nominees won the election with a majority of electoral votes, but fewer popular votes than their Democratic opponents. For instance, Gallup reported a shift to greater support for the electoral college system by respondents who identified themselves as "Republican" or "Lean Republican." Conversely, already high levels of support for direct popular election among respondents who identified themselves as "Democratic" or "Lean Democratic" rose still further in the post-2016 election Gallup Poll. To date, CRS has identified one survey that was specifically designed to measure public commitment to the NPV initiative. A March 27, 2019, Politico/Morning Consult poll posed relevant questions on the presidential election process and the NPV compact. The first question, which presented a general outline of the existing electoral college system and the generic alternative of direct popular election, reported that respondents preferred direct election by 50% to 34% for retaining the electoral college, and 16% reporting "Don't know/No opinion." The next question explained the proposed NPV compact and asked respondents' preference for NPV or the electoral college method. Although the level of support for NPV was lower than that measured for generic direct popular election, a plurality of respondents to this question favored the "National Popular Vote Interstate Compact" by a plurality of 43% in favor, to 33% opposed and 23% who reported "Don't know/No opinion." The disputed presidential election of 2000 was arguably a catalyst for new thinking on electoral college reform . Following a closely contested campaign, Republican candidates George W. Bush and Richard Cheney were elected over Democratic nominees Al Gore Jr. and Joseph Lieberman following a bitter dispute over election results in Florida tha t was ultimately decided by the Supreme Court . The high court's decision left Bush and Cheney with a narrow plurality in Florida of 537 popular votes and a similarly narrow electoral college majority of 30 states with 271 electoral votes, while their Democratic opponents took 20 states and the District of Columbia with 266 electoral votes (one District of Columbia elector cast a blank ballot in protest against the outcome) . It was the first election since 1888 in which the candidates elected uncontestably won fewer popular votes than their principal opponents : the Gore / Lieberman Democratic ticket gained 50,992,335 popular votes to 50,455,156 for Bush / Cheney. The se election results generated considerable discontent with the system. Some critics argued for a constitutional amendment, but the 107 th Congress faced a heavy legislative workload throughout this period, which initially included enactment of President George W. Bush's legislative program and was later expanded to urgent responses to the terrorist attacks of September 1 1, 2001 . Rather than focus on the lengthy process associated with consideration of a constitutional amendment, Congress focused on legislati ve remedies. The Help America Vote Act of 2002, passed in response to the numerous irregularities in voting systems and procedures revealed by the 2000 election, mandated election administration reforms and v oting system technology enhancements (funded in part by federal grants to the states) intended to ensure accurate and timely voting and vote tabulation in future elections. In 2016, the presidential election was again won by nominees who gained a majority of electoral votes but fewer popular votes than their major party opponents. Although proposals to amend the Constitution to provide direct popular election were introduced in response to this occurrence late in the 114 th Congress , and again in the 115 th Congress, the 2016 results did not result in the degree of c ontroversy a nd activism that followed the electoral college "misfire " of 2000. T he following factor may have contributed to this situation : i n 2000, a shift in Florida's electoral votes from Bush/Cheney to Gore/Lieberman would have changed the election result; by comparison, in 2016, a shift in the state with the closest vote margin, Michigan , would not have altered the election. While the 2000 election's "misfire" did not result in consideration of a constitutional amendment, it did prompt considerable study and investigation into new approaches to electoral reform among scholars of the presidential election process and political activists. Law professors Robert W. Bennett of Northwestern University, Vikram Amar of the University of California-Davis, and Akhil Amar of Yale University School of Law are generally credited as the intellectual godparents of the concept that ultimately evolved into the National Popular Vote Interstate Compact, which relies on the Constitution's broad grant of power to each state to "appoint, in such Manner as the Legislature thereof may direct [emphasis added], a Number of Electors, equal to the whole Number of Senators and Representatives to which the State may be entitled in the Congress." Project FairVote, an issue advocacy group self-described as a nonprofit, nonpartisan "501(c)(4)" organization, appears to have been an incubator of the NPV concept. FairVote has supported NPV for "over a decade," and was an early supporter of National Popular Vote Inc., the plan's official advocacy group; moreover, longtime FairVote board members Robert Richie and the late Representative John B. Anderson were early supporters of the National Popular Vote initiative and contributors to its manifesto, Every Vote Equal . As noted previously, the NPV initiative was the ultimate result of the various studies and proposals offered following the presidential election of 2000. The NPV initiative seeks to establish direct popular election of the President and Vice President through an interstate compact, rather than by constitutional amendment. Ideally, under the compact's provisions, legislatures of the 50 states and the District of Columbia would pass legislation binding the signatories to appoint presidential electors committed to the presidential/vice presidential ticket that gained the most votes nationwide . If all 50 states and the District of Columbia were compact members, this would deliver a unanimous electoral college decision for the candidates winning a plurality of the popular vote. Specifically, the plan calls for an agreement among the states, an interstate compact effected through state legislation, in which the legislature in each of the participating states agrees to appoint electors pledged to the candidates who won the nationwide popular vote . State election authorities would count and certify the popular vote in each state, which would be aggregated and certified as the "nationwide popular vote." The participating state legislatures would then choose the slate of electors pledged to the "nationwide popular vote winner," notwithstanding the results within their particular state s . To ensure success, the initiative would come into effect only if states whose total electoral votes equal or exceed the constitutional majority of 270 were to approve the plan. If the nationwide popular vote were effectively tied, the states would be released from their commitment under the compact, and could choose electors who represented the presidential ticket that gained the most votes in each particular state. One novel NPV provision would enable the presidential candidate who won the national popular vote to fill any vacancies in the electoral college with electors of his or her own choice. States would retain the right to withdraw from the compact, but if a state chose to withdraw within six months of the end of a presidential term, the withdrawal would not be effective until after the succeeding President and Vice President had been elected. The NPV advocacy effort is managed by National Popular Vote Inc., a "501(c)(4)" nonprofit corporation established in California in 2006 by Barry Fadem, an attorney specializing in initiative and referendum law, and John R. Koza, Ph.D., an automated systems scientist and entrepreneur. As a 501(c)(4) entity, it is permitted to engage in political activity in furtherance of its goal, without forfeiting its tax-exempt status, so long as this is not its primary activity. NPV states on its website that its "specific purpose is to study, analyze and educate the public regarding its proposal to implement a nationwide popular election of the President of the United States." Dr. Koza serves as chairman of NPV Inc., and Mr. Fadem serves as president. NPV's advisory board includes former Senators and Representatives of both major political parties. In 2006, National Popular Vote Inc. published a detailed handbook, Every Vote Equal: A State-Based Plan for Electing the President by National Popular Vote . This publication, in its fourth edition at the time of this writing, provides a detailed account of various issues related to the NPV initiative, including the electoral college, earlier reform efforts, interstate compacts, the text of the proposed compact, a strategy for advancing the initiative, and a 340-page section addressing "myths about the National Popular Vote Compact." National Popular Vote Inc. maintains an office in Mountain View, CA. Supporters in various state legislatures began to introduce measures to adopt the interstate compact shortly after NPV's inaugural press conference on February 23, 2006. The NPV Compact has been introduced at various sessions in the legislatures of all 50 states and the Council of the District of Columbia, which performs the functions of a state legislature in the nation's capital, and has received some form of active consideration in 38 states and the D.C. Council. Among other activities, NPV maintains a regular communications program of email newsletters announcing activities and soliciting readers to petition governors and state legislators to support the compact. At the time of this writing, NPV claims that 3,112 state legislators have either sponsored or cast a recorded vote in their respective legislatures for the compact. NPV also claims endorsements from legislators and endorsements by the New York Times , Los Angeles Times , Chicago Sun-Times , Minneapolis Star Tribune , Boston Globe , Miami Herald , and other newspapers. NPV also advocates use of the citizen initiative process where available to enact state adherence to the compact; it asserts that when Article II, Section 1, clause 2 grants authority to the states to appoint "in such Manner as the Legislature thereof may direct," the authority extends to the states' entire lawmaking process, which in some states includes the proposal and passage of legislation and constitutional amendments through citizen initiative. The citizen initiative approach to the interstate compact, however, has yet to be used at the time of this writing. At the time of this writing, in May 2019, the following 14 states and the District of Columbia have adopted the National Popular Vote Compact. Collectively, they are assigned a total of 189 electoral votes. The National Popular Vote Interstate Compact has been introduced since its inception in all 50 states and the District of Columbia. States that have adopted NPV at the time of this writing are listed in chronological order, by year of adoption, as follows: Hawaii (4 electoral votes), 2008; Illinois (20 electoral votes), 2008; Maryland (10 electoral votes), 2008; New Jersey (14 electoral votes), 2008; Washington (12 electoral votes), 2009; Massachusetts (11 electoral votes), 2010; District of Columbia (3 electoral votes), 2010; Vermont (3 electoral votes), 2011; California (55 electoral votes), 2011; Rhode Island (4 electoral votes), 2013; New York (29 electoral votes), 2014; Connecticut (7 electoral votes), 2018; Colorado (9 electoral votes), 2019; Delaware (3 electoral votes), 2019; and New Mexico (5 electoral votes), 2019. After initial momentum in 2008, when four states joined the compact in one year, NPV made slower progress toward its goal of approval by states accounting for 270 electoral votes. Highlights were California's approval in 2011, which added 55 electoral votes to the tally, and New York's accession to the compact in 2014. Beginning with Connecticut's approval in 2018, followed in 2019 by Colorado, Delaware, and New Mexico, 24 additional electoral votes were added to the NVP count, bringing the total to 189, 70% of the 270 votes needed for NPV to go into effect. By early May 2019, legislation to join the NPV had been introduced in the current session of at least one chamber of the legislature in 14 states that controlled a combined total of 150 electoral votes. As of April 17, the compact had been approved in Nevada by the Assembly (lower chamber of the legislature) and in Oregon by the Senate. Accession by these two states would raise the NPV member total to 202 electoral votes. Conversely, proposals to rescind approval of the NPV Interstate Compact have been introduced in the legislatures of Connecticut, Hawaii, Maryland, Massachusetts, New Jersey, and Washington, to date; none has been approved. Some observers note that, despite NPV's assertion of bipartisan support, all the jurisdictions that have joined the compact to date could be identified as "leaning" Democratic or "solid" Democratic in their support of the Democratic Party, as classified by a recent Gallup survey. For instance, 11 of the 14, including California, Delaware, the District of Columbia, Hawaii, Illinois, Maryland, Massachusetts, New Jersey, New Mexico, Rhode Island, and Vermont, were found by Gallup to be among the "most solidly Democratic states in 2017." Alluding to this fact, one commentator observed that [a]ll the states to have joined so far are very blue. Until some purple states and red states sign on, the compact has little in the way of territory to conquer.... The seven states where President Obama won [in 2012] by the widest margins, along with D.C., have joined. So have three others—New Jersey, Illinois and Washington—where Obama won by at least 15 percentage points. But none below that threshold have done so. The 2016 presidential election results in Colorado, Connecticut, Delaware, and New Mexico, the most recent adherents to the NPV compact, arguably confirm this observation—the Democratic candidates won the popular vote in all four states, by margins of between 4.9% in Colorado to 13.7% in Connecticut. On the other hand, several states where the NPV remained under active consideration in 2019—Arizona, Florida, Georgia, Idaho, Indiana, Kansas, North Carolina, Ohio, and South Carolina—were carried by the Republican presidential ticket in 2016. As the NPV campaign developed momentum in the states, particularly between 2008 and 2011, defenders of the existing arrangements and the electoral college announced measures to promote retention of the electoral college system. In October 2011, the Heritage Foundation, a conservative public policy institute, released a report opposing the NPV compact. That same month, Roll Call reported that the State Government Leadership Foundation, a project of the Republican State Leadership Committee, would begin a campaign to defend the electoral college and counter recent NPV gains. Further activity, however, does not appear to have been undertaken by these groups by the time of this writing. Arguments in support of and opposed to the National Popular Vote proposal resemble those advanced in favor of and against direct popular election of the President. The central issue turns on the question of the asserted simplicity and democratic attractiveness of the direct election idea as compared to a more complex array of factors cited by supporters of the electoral college system. Proponents of the NPV initiative arguably share the philosophical criticism voiced by proponents of direct popular election, who maintain that the electoral college system is intrinsically undemocratic—it provides for "indirect" election of the President and Vice President. This, they assert, is an 18 th century anachronism, dating from a time when communications were poor, the literacy rate was much lower, and the nation had yet to develop the durable, sophisticated, and inclusive democratic political system it now enjoys. They maintain that only direct popular election of the President and Vice President is consistent with modern democratic values and practice. Beyond this fundamental challenge, critics cite what they identify as a wide range of technical failings of the electoral college arrangement. Perhaps the most prominent of these is that the electoral college system can result in the election of a President and Vice President who have won the electoral vote, but gained fewer popular votes than their major opponent. This condition results at least in part from the nearly universal reliance on the "winner-take-all" or general ticket system of awarding electoral votes in the states, which is also criticized by NPV advocates. Under the general ticket system, the candidates winning the most popular votes in a state (a plurality is sufficient) are awarded all that state's electors and electoral votes; under these circumstances, a presidential ticket can gain all of a state's electoral votes on even a slim margin of popular votes. Presidents were elected in 1876, 1888, 2000, and 2016 who received fewer popular votes than their major party opponents, while the runner-up in both popular and electoral votes was elected by the House of Representatives when four candidates split the vote in the presidential election of 1824. NPV supporters advocate the compact on the grounds of fairness and respect for the voters' choice. At the core of their arguments, they assert that the process would be simple, national, and democratic; the NPV interstate compact would provide de facto for a single, democratic choice, allowing all the nation's voters to choose the President and Vice President directly, with no intermediaries. The "people's choice," they assert, would win in every election, and every vote would carry the same weight in the election, no matter where in the nation it was cast. No state would be advantaged, nor would any be disadvantaged. According to NPV, the central argument in favor is that the compact "would guarantee the Presidency to the candidate who receives the most popular votes [or at least a plurality] in all 50 states (and the District of Columbia)." According to NPV, there would never again be a presidential election "misfire" or another "wrong winner." Other elements of the electoral college system criticized by NPV advocates (and other electoral college reformers) would arguably disappear or be rendered irrelevant. These include the faithless elector phenomenon, the general ticket system's asserted "disfranchisement" of voters who backed the losing candidates, and various asserted "voting power" advantages attributed to large (populous) states, small states, states with large populations of noncitizens, states with low rates of voter participation, and populous states with concentrations of minority-group voters. In addition, the NPV compact would almost certainly eliminate the need for contingent election of the President and Vice President under the Twelfth Amendment. NPV advocates also assert the compact would provide a practical benefit to states that tend to be noncompetitive in presidential elections and which therefore receive fewer campaign visits by major party candidates. With "every vote equal," NPV maintains that presidential and vice presidential nominees and their organizations would need to spread their presence and resources more evenly as they campaigned for every vote nationwide, rather than concentrate on winning key "battleground" states. They assert that, under the present system candidates have no reason to poll, visit, organize, campaign, or worry about the concerns of voters of states that they cannot possibly win or lose. This means that voters in two thirds of the states are effectively disenfranchised in presidential elections because candidates concentrate their attention on a small handful of "battleground" states. In 2004, candidates concentrated over two-thirds of their money and campaign visits in just five states; over 80% in nine states, and over 99% of their money in just 16 states. For instance, NPV notes that California voters seldom see the presidential or vice presidential nominees or benefit from campaign spending because the Golden State, having voted Democratic since 1988, is considered to be reliably "blue," and Democratic Party candidates are said to take its 55 electoral votes for granted. They also note that Republican candidates make few California appearances, but, NPV asserts, for the opposite reason: why spend time and resources in support of an apparently hopeless cause? Similar arguments made by NPV on the Republican side apply to Texas, a state that has voted for Republican presidential nominees since 1980. In 2016 for instance, NPV claims that no Democratic nominee participated in a general election campaign event in California or Texas, while a Republican nominee appeared in only one campaign event in each of those states. By comparison, according to their calculations, the hotly contested battleground states of Florida, North Carolina, and Pennsylvania received, respectively, 71, 55, and 54 candidate appearances. According to NPV's analysis of campaign appearances, the 2016 major party candidates for President and Vice President appeared at a total of 375 campaign events during the general election campaign, but they visited only 12 states; by NPV's calculation, 38 states and the District of Columbia were bypassed during the campaign. NPV advocates also maintain that the concentration of campaign resources, advertising, and candidate appearances in battleground states depresses turnout in "flyover" states, where candidates make few campaign appearances. The U.S. Elections Project report, America Goes to the Polls, 2016 , appears to offer statistics consistent with this assertion, finding that the participation rate of the population eligible to vote in 14 battleground states was 65% in the 2016 presidential election, as opposed to comparable nationwide turnout of 60%. It also reports findings similar to those advanced by NPV: 95% of campaign visits during the 2016 campaign were made in battleground states, as was 99% of "ad spending." The NPV manifesto also cites a Brookings Institution study of the 2004 presidential election in support of its argument, stating, "Because the electoral college has effectively narrowed elections like the last one to a quadrennial contest for the votes of a relatively small number of states, people elsewhere are likely to feel that their votes don't matter." It should be noted, however, that a range of other political, social, cultural, and economic factors may also contribute to the disparity in turnout between battleground and non-battleground states. NPV further suggests that the disparity in participation may ultimately damage the ability to govern on the state and local levels and could have a negative impact on the legitimacy of public institutions: Diminished voter turnout in presidential races in non-battleground states weakens down-ballot candidates, thereby making the state even less competitive in the future. Governance—not just electioneering—is affected by the winner-take-all rule. National Popular Vote opponents oppose the compact on various grounds. Some argue that it is unconstitutional or "anticonstitutional," that is, contrary to the Founders' intentions and the spirit of the nation's fundamental charter. It is also asserted that NPV would solve few of the electoral college system's alleged problem issues and would create some of its own. Finally, some observers note that the NPV compact is an interstate compact as defined in Article I, Section 10, clause 3 of the Constitution, and as such would be subject to congressional approval. This issue is examined in greater detail in a separate section of this report. On the most fundamental philosophical basis, opponents might argue that the NPV compact violates one of the basic principles of majoritarian democracy: it does not require that candidates win a majority of the popular vote in order to gain the presidency. Rather, it would anoint as winner the ticket that gains more popular votes than any other. A majoritarian democracy, it may be argued, should require a majority in order to elect; it may be further noted that the existing system, by comparison, requires a majority in the electoral college. As one commentary noted only the strictest of majoritarians desire a purely majoritarian presidential election system, and those individuals should be deeply troubled by the prospect of plurality presidencies, which the NPVC [sic] expressly countenances. Indeed, the NPVC promises to create more difficulties and "misfires" in its own way than the Electoral College system its proponents so earnestly seek to replace. Further, opponents might ask how the NPV compact would function in the event of a multicandidate election, a phenomenon that recurs from time to time in U.S. presidential elections. One commentator posited the following problematic scenario under such circumstances: Under the compact, one can easily imagine a multi-candidate race in which a candidate would win, say, a thirty-four percent plurality of the popular vote nationwide while losing in every state and D.C. If all of the states and D.C. were signatories to the compact, all the electoral votes in such a hypothetical race would be awarded contrary to the will of voters choosing electors (still not voting directly for President under this plan). Would the United States accept a President who wasn't the choice of sixty-six percent of those voting, nor even the choice of a single state? The existing electoral college system, NPV skeptics might also assert, is a fundamental element in the federal constitutional arrangements established by the Constitution. Fearing "the tyranny of the majority," the Founders established a system of government that provides checks and balances designed to restrain the majority and secure minority rights. These principles are also embedded in the structure of federal elections: the Senate, the House of Representatives, and the presidency were deliberately provided with different terms of office and different electorates, and the states were given an important role in the federal election process. In particular, through the electoral college the United States elects its national Presidents and Vice Presidents in a state-based federal election. Successful nominees are compelled under this system to present a broad political vision that commands nation-spanning "concurrent majorities" and appeals to the great variety of Americans. As in the case of the Senate, less populous states are accorded a small numerical advantage by assignment of two at-large electors reflecting the Constitution's equal apportionment of Senators to each state regardless of its population. The NPV initiative, they could claim, would discard the Founders' intentions in favor of what they consider to be a flawed "majoritarian" presidency that would ill-serve a continent-spanning and profoundly diverse republic. Another criticism centers on the use of the NPV compact to effect a fundamental change in the presidential election process and a de facto amendment to the Constitution, but without following the procedures set out in Article V. Critics may note that NPV's founders admit their plan is an "end run" around the Constitution. Proponents might counter with the argument that Article V presents too high a hurdle for what they consider a necessary reform of the system. Opponents, however, could respond that the Founders intended the various supermajority requirements in Congress and the states to ensure that successful constitutional amendments enjoy broad national support. The bare majority of electoral votes required to implement NPV, they might note, meets none of these supermajority requirements. As one study critical of the NPV initiative concluded, because the use of an interstate compact "does not conform to the constitutional means of changing the original decisions of the Framers, NPV could not [therefore] be a legitimate innovation." A final argument on this line might be that one "end run" around the amendment process might lead to others, setting a dangerous precedent for similar efforts in the future. Opponents might note that the NPV would eliminate the electoral college system's multiplier effect generated by the winner-take-all or general ticket system used in 48 states and the District of Columbia, which tends to magnify the winning ticket's margin of victory, and is said to confer greater legitimacy to the victors. For instance, in 2016, Republican nominee Donald Trump's clear electoral vote majority of 304 votes (56.5% of the total), compared with Democratic nominee Hillary Clinton's 227 (42.2% of the total) could be said to reinforce and confirm his victory, notwithstanding Clinton's plurality of the popular vote (48.2%), compared with Trump's 46.1%. From a practical standpoint, NPV opponents might argue that the NPV would actually lead to an increase in contested election results and legal challenges in the states, as the political parties maneuver to claim every possible vote. They assert that the existing tabulation of popular votes within each state reduces contested results and recounts. Under NPV, the incentive to gain every vote would arguably lead to far broader disputes and widespread recounts at every level of election administration. As a Heritage Foundation study concluded Under the NPV … any suspicions necessitating a recount in even a single district would be an incentive for a national recount.... The prospect of a candidate challenging "every precinct, in every county, in every state of the Union" should be abhorrent to anyone who witnessed the drama, cost, delay, and undue litigation sparked by the Florida recount of 2000. Opponents might also assert that the increased incidence of recounts would be further complicated by wide-ranging disparities in state procedures, potentially leading to prolonged periods of uncertainty following close presidential elections. Critics may also note that the NPV plan contains no "statute of limitations," unlike proposed constitutional amendments, for which Congress typically sets a seven-year ratification period. Where, critics may ask, is a similar time limit that would "sunset" the NPV compact, after which it would expire or return to "square one"? According to its website, NPV was launched on February 23, 2006; if it were a constitutional amendment proposed by Congress, it would have expired on February 23, 2013, since by the end of the customary seven-year deadline it was "ratified" by only eight states and the District of Columbia. By what reasoning, they might ask, should the NPV be exempt from the standards of timeliness and contemporaneity Congress customarily sets for constitutional amendments? Opponents might reject claims that, under NPV, campaign spending and candidate appearances would be spread and scheduled more widely, beyond the current concentration of time and resources in battleground states. They might argue that spreading campaign resources and candidate events in non-battleground states is a questionable argument to justify a fundamental change in the presidential election process. Campaign appearances and spending, they could assert, should not be considered to be a local economic stimulus package, nor are the amounts in question sufficient to make much of a difference in the economic condition of most states. As one critical analysis notes, "... the nation does not hold presidential elections to foster local economic development." Moreover, they might continue, it is equally dubious to assert that nominees will slight the concerns of citizens of the non-battleground states from which they draw their greatest support, or that concentrated campaigning in the battleground states somehow "disenfranchises" voters in others. In the modern era, a small percentage of voters actually attends an in-person presidential or vice presidential candidate appearance. Television (especially broadcast and cable TV news networks), social media, the internet, and newspapers—not the traditional rallies, torchlight parades, and handbills—dominate presidential election campaigns in the 21 st century. In addition to policy issues discussed previously, some observers have also raised questions related to the NPV initiative based on the fact that it is an interstate compact as defined in the Constitution. Others have questioned whether NPV might conflict with some provisions of the Voting Rights Act. The NPV initiative has been described by its supporters variously as a bill, a state-level statute, and an interstate compact. The latter reference necessitates an analysis of whether the initiative complies with the Compact Clause of the Constitution. An interstate compact—under the broadest understanding—is a contract between two or more consenting states. The Supreme Court has further suggested that an interstate compact often requires reciprocal commitments between the governments of two or more states, such that one state's commitment is conditioned on the action of another state and no state can unilaterally repeal its commitment. The use of interstate compacts predates the Constitution, as the Articles of Confederation contained a similar Compact Clause that provided a qualified prohibition on states entering into any agreements between them without the consent of Congress. The chaos resulting from the disunity created by the Articles of Confederation prompted the Framers of the Constitution generally to "impose more uniformity" among the states, resulting in a Constitution that wholly prohibits states from entering into any treaties, alliances, and federations. Nonetheless, the Constitution maintained the Articles of Confederation's qualified prohibition on interstate compacts and agreements, allowing states to enter into an interstate compact so long as the participating states seek the consent of Congress. Specifically, the Compact Clause provides that "No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State.... " While the historical rationale for Article I's qualified prohibition on interstate compacts is unclear, the Compact Clause generally reflects the view of the Framers that states should be able to work cooperatively together, as well as the concern that unchecked interstate alliances might threaten the harmony of the Union or the authority vested by the Constitution in the federal government. As the Supreme Court noted in Cuyler v. Adams , "By vesting in Congress the power to grant or withhold consent, or to condition consent on the states' compliance with specified conditions, the Framers sought to ensure that Congress would maintain ultimate supervisory power over cooperative state action that might otherwise interfere with the full and free exercise of federal authority." The Compact Clause places no limits on what might be done through an interstate compact other than the requirement of congressional consent. In the early years of government under the Constitution, compacts were used almost exclusively to settle boundary disputes. Beginning with the establishment of the Port of New York Authority in 1921, however, compacts began to be used to address more complex, regional issues requiring intergovernmental cooperation. Some compacts are merely advisory in form, but others may be regulatory, with significant powers granted to multistate commissions. More recently, compacts have addressed such wide-ranging concerns as mental health treatment, law enforcement and crime control, education, driver licensing and enforcement, environmental conservation, energy, nuclear waste control, facilities operations, transportation, economic development, insurance regulation, placement of children and juveniles, disaster assistance, and pollution control. Approximately 200 interstate compacts are in effect today. Accordingly, the central legal issue with respect to the Compact Clause is whether a given interstate compact requires the consent of Congress. While a "literal" reading of the Compact Clause "would require the States to obtain congressional approval before entering into any agreement among themselves, irrespective of form, subject, duration, or interest to the United States [emphasis added]," the Supreme Court has repeatedly rejected such a reading. In 1893, in Virginia v. Tenness e e , Justice Stephen Field, writing for the Court, contended that a broad reading of the Compact Clause would "embrace all forms of stipulation, written or verbal, and relating to all kinds of subjects[,]" requiring congressional consent to agreements "which the United States can have no possible objection or have any interest in interfering with," as well as those that "may tend to increase ... the political influence of the contracting states, so as to encroach upon or impair the supremacy of the United States.... " Surmising that the Compact Clause could not have been intended to have such a broad reach, Justice Field concluded that the Clause prohibits states from entering into compacts without congressional consent only when the underlying compact is "directed to the formation of any combination tending to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States." The Supreme Court has subsequently reaffirmed Justice Field's "functional view of the Compact Clause," and, accordingly, generally where an agreement does not fall within the scope of the Compact Clause as envisioned by the Court in Virginia v. Tennessee , the agreement "will not be invalidated for lack of congressional consent." Whether the NPV initiative requires congressional consent under the Compact Clause first requires a determination as to whether NPV even constitutes an interstate compact. At times, its supporters have resisted framing the initiative as an interstate compact, arguably out of concern for running afoul of the Compact Clause's provisions. For example, Professor Akhil Amar has argued that because the initiative does not create a "new interstate governmental apparatus," the NPV should not be considered an interstate compact, as NPV compact signatory states are merely exercising power collectively that each state could exercise on its own. It is unclear, however, whether the creation of a new interstate governmental entity formed out of an agreement between two or more states is necessary, as opposed to sufficient, in order to deem an agreement as being an interstate compact subject to the Compact Clause. While the Supreme Court, in Northeast Bancorp , suggested that a "joint organization or body" formed out of an interstate agreement is a "classic indic[ium] of a compact," the Court has never adopted a definition of an interstate compact that solely rests on the existence of an interstate governmental body. Instead, the Court appears to have adopted a broader definition of what an interstate compact can entail. For example, in Virginia v. Tennessee , the Court noted that the words "compacts" and "agreements" are synonymous and "cover all stipulations affecting the conduct or claims of the parties." In other words, when two or more states enter into a stipulated agreement whereby one state agrees to perform an act in consideration for a reciprocal act by the other state(s), that agreement can be considered an interstate compact. This broad definition of a compact appears to encompass the NPV compact, as the initiative requires signatory states to agree mutually to appoint their electors to the winner of the national popular vote. Moreover, NPV binds each assenting state, as no member state can withdraw from it within six months or less of the end of a President's term. Because NPV prohibits states from freely "modify[ing] or repeal[ing] [the agreement] unilaterally" and requires "reciprocation" of mutual obligations, it appears that the initiative can be described as an interstate compact. Assuming the NPV initiative is an interstate compact, the question remains whether it is one that implicates the Compact Clause. The answer to that question primarily depends on whether NPV is "directed to the formation of any combination tending to the increase of political power in the States, which may encroach upon or interfere with the just supremacy of the United States ." In other words, the "test" for whether a particular interstate compact requires congressional consent is centrally concerned with vertical balances of power between the federal government and the states; namely, "whether the Compact enhances state power quoad the National Government." While the NPV arguably increases the political power of the states that have consented to it by ensuring that those states' desired outcome for the presidential election—the awarding of the majority of electoral votes to the presidential candidate supported by the majority of the voting populace—it is unclear how that increase in political power would be at the expense of the power of the federal government. After all, the Constitution provides the federal government with no role in determining the members of the electoral college. One scholar has suggested that the NPV initiative would lead to a vertical alteration of power by eliminating the possibility that the House of Representatives would resolve a presidential election in the absence of an electoral majority for a single candidate because it is premised on a majority of electoral votes going to a single candidate. The House of Representatives, however, has decided only two presidential elections in American history, and whether such an arguably hypothetical and de minimis diminishment of federal power through the NPV would be sufficient to require congressional consent under the Compact Clause is simply unresolved by the relevant case law. While the Supreme Court's case law interpreting the Compact Clause is centrally concerned with vertical federalism concerns (i.e., the balance of power between the state and federal governments), the Court has recognized a potential secondary rationale suggested for the Compact Clause: to preserve the horizontal balance of powers among the various states. And horizontal federalism concerns could very well be implicated by the Compact Clause, as the provision appears to have been included in the Constitution out of concern both for the supremacy of the federal government and unity among the various states. Whether the NPV compact threatens the powers of nonconsenting states has been the subject of much debate among academics. Those in support of the initiative have contended that the nonconsenting states do not lose any power as a result of the NPV. According to this line of argumentation, even under the NPV, all states would retain their right to select the electors of their choosing, as nonmember state electors would still be counted in the electoral vote. Others, however, have pointed to the underlying premise of the NPV—to enhance the political power of more populous states in presidential elections—as evidence that the initiative diminishes the power of nonconsenting states. In other words, while non-compacting states would still retain the power to appoint electors, the influence that comes with that power would arguably be diminished because a state's role in the national election would be defined by its percentage of the popular vote and not by its percentage of electors, warranting congressional interest in approving a compact that effectuated such a change in national elections. Ultimately, however, whether the NPV actually threatens the power of nonconsenting states is a debate that remains active within academia but would likely be the source of considerable litigation if the initiative ever became effective. If congressional consent is needed for the NPV, that consent can take various forms. Usually congressional consent to an interstate compact takes the form of a joint resolution or act of Congress specifying its approval of the text of the compact and adding any conditions or provisions it deems necessary, often embodying the compact document. As with most congressional actions, consent to an interstate compact must occur with the approval of both houses and must be signed by the President before it becomes law. Rarely has the President vetoed or threatened to veto consent legislation by Congress. While congressional consent to an interstate compact is most often explicit, consent by Congress may also be implied by subsequent acts of Congress as "[a]n inference clear and satisfactory that Congress ... intended to consent" to a compact may be sufficient. Congress may also delegate its power to approve a compact to a federal official so long as an "intelligible principle" against which approval can be measured is apparent. Ultimately, if congressional consent is truly needed for NPV to be effective, the initiative might have difficulty ever being enacted because the approval of both houses of Congress and the President would likely necessitate additional hurdles beyond the already challenging task of amassing support at the state level for the NPV. Beyond the legal issues raised with respect to the Compact Clause, the NPV initiative also potentially raises other broader constitutional concerns, including whether the states can functionally obviate the role of the electoral college through the NPV. Article II of the Constitution establishes that the election of the President should occur indirectly through the election by the electoral college. The choice of an indirect election for the President was a deliberate one by the Framers of the Constitution, because, while noting the importance that the "sense of the people" should influence the choice for President, they found it "equally desirable" for the "immediate election" of the President to be made by a body representative of distinct state interests and removed from the threat of unchecked majoritarianism. The result was that the Constitution established a presidential election process that was "manifestly nonmajoritarian," with the electoral college, a body established to represent the distinct views of each state, as the centerpiece of the election process. The central constitutional issue presented by the NPV, therefore, is whether the states, through an interstate compact, can functionally transform the presidential election system enshrined in the Constitution into a more majoritarian process. Supporters of the NPV argue that the Constitution provides the legal means for states to transform the presidential election system into one where the President is elected based solely on the result of the national popular vote. Specifically, clause 2 of Article II, Section 1 of the Constitution provides the states with the power to "appoint, in such Manner as the Legislature thereof may direct," the electors who represent the state in the electoral college. Facially, the Constitution's primary limitation on the power of a state to select its electors is the final number of electors awarded to each state. While perhaps an argument can be made that the structure, logic, and history of the Constitution place limits on the manner or method in which a state chooses its electors, the text of the Constitution simply does not impose any such limits. Supreme Court case law also supports reading Article II of the Constitution to broadly provide states with wide discretion as to the manner in which its electors are selected. Specifically, in 1892 in McPherson v. Blacker, a unanimous Supreme Court upheld a Michigan law providing for the election by individual congressional district of presidential electors against a challenge that the law violated Article II of the Constitution. In so holding, the Court placed great emphasis on a number of state laws that existed shortly after the ratification that provided a variety of "modes of choosing the electors," including selection by the legislature itself, by a "vote of the people for a general ticket," "by vote of the people in districts," or by some permutation of those methods. Viewing this evidence together with the text of Article II and the historical evidence from the Constitutional Convention led the Court to broadly conclude state legislatures have "conceded plenary power ... in the matter of the appointment of electors," allowing the Michigan law to stand. Applying McPherson to the case of the NPV, the argument can and has been made that if the states have plenary power with respect to the manner of how electors are appointed, the power necessarily allows states to select electors in line with the results of the national popular vote. More recently, supporters of the NPV have relied on the Supreme Court's 2015 ruling in Arizona Legislature v. Arizona Independent Redistricting Commission (AIRC) —which held that the State of Arizona had wide discretion under the Elections Clause of the Constitution to select the method by which the state provided for redistricting —to argue that the states retain broad discretion in selecting electors under Article II, which uses similar language to the provision interpreted in AIRC. Others have argued that the structure of the Constitution and historical evidence suggest that the states do not have such vast discretion in appointing electors as to functionally transform the election for President into a national popular referendum. As noted elsewhere in this report, the electoral college was created by the Framers to ensure that states with the least population retained power in the selection of the President, providing a check against domination by the most populous states. The electoral college, being a product of the choices of individual state legislatures, was envisioned by the Framers as a body that would represent the specific interests of a given state, as opposed to the undifferentiated nation at large. Accordingly, it may be argued that allowing the most populous states to collude to ensure that the national popular vote, as opposed to the wishes of an individual state, dictates the results of a state's slate of electors, could arguably be irreconcilable with the Framers' intentions with respect to the electoral college. As such, for those who find the NPV compact constitutionally suspect under Article II, McPherson 's broad pronouncements about the nature of a state's power to appoint electors should be viewed in the context of that particular case, where the state of Michigan was attempting to appoint its electors based on the votes of an individual district in the state, as opposed to the state as a whole. In contrast to the law at issue in McPherson , with NPV, there appears to be no evidence contemporaneous with the ratification of the Constitution of a state selecting its electors in accordance with the results of the national popular vote. Unlike the State of Michigan in McPherson , an NPV state's electors might not be a product of the views of the state at the time of the election, but instead would reflect national popular sentiment about who should be the President. Moreover, the Supreme Court, in interpreting arguably analogous language from Article I of the Constitution allowing states to regulate the manner of the selection of the Members of the House of Representatives and Senate, concluded that the states cannot exercise their delegated authority in a way that would "effect a fundamental change in the constitutional structure." The question that remains is whether the Court in a future case challenging the NPV compact would interpret the states' authority under Article II to appoint electors to be broad enough to allow the President to be selected as a result of the national popular vote, a question that, given the lack of any precise precedent respecting the constitutionality of the NPV compact under Article II, will likely remain unresolved until such time. Other critics claim the NPV compact might violate Sections 2 and 5 of the Voting Rights Act (VRA). Writing in Columbia Law Review , David Gringer invokes the voting power theory. He argues that the plan conflicts with Section 2 of the VRA because moving from "a state-based [vote] to a national popular vote dilutes the voting strength of a given state's minority population by reducing its ability [voting power] to influence the outcome of presidential elections." Gringer also asserts that the NPV compact may violate Section 5 of the act. In 2013, however, the U.S. Supreme Court invalidated Section 4(b) of the VRA, which contained a formula prescribing which states and jurisdictions with a history of discrimination were required to obtain prior approval or "preclearance" under Section 5 before changing any voting standard, practice, or procedure. Although the Court invalidated only the coverage formula in Section 4, by extension, Section 5 has been rendered currently inoperable. Prior to the Supreme Court ruling, Gringer argued that the NPV compact would qualify as a covered practice under Section 5, and that the legislatures of all the "covered" states would have been required to obtain preclearance before implementing the compact. Responding to this point, National Popular Vote Inc. noted the following: The National Popular Vote bill manifestly would make every person's vote for President equal throughout the United States in an election to fill a single office (the Presidency). It is entirely consistent with the goal of the Voting Rights Act. There have been court cases under the Voting Rights Act concerning contemplated changes in voting methods for various representative legislative bodies.... However, these cases do not bear on elections to fill a single office (i.e., the Presidency). In 2012, the Justice Department's Civil Rights Division specifically declined to challenge California's accession to the NPV compact on VRA grounds. The states' authority to appoint electors by any method their legislatures choose is not absolute. Federal court decisions have struck down state laws concerning appointment of electors that were found to be in violation of the Fourteenth Amendment's guarantee of equal protection: Although Clause 2 (of Article II, Section 1 of the Constitution) seemingly vests complete discretion in the states, certain older cases had recognized a federal interest in protecting the integrity of the process. Thus, the Court upheld the power of Congress to protect the right of all citizens who are entitled to vote to lend aid and support in any legal manner to the election of any legally qualified person as a presidential elector.... [I]n Oregon v. Mitchell (42 U.S. 112 (1970)), the Court upheld the power of Congress to reduce the voting age in presidential elections and to set a thirty-day durational residency period as a qualification for voting in presidential elections. Although the Justices were divided on the reasons, the rationale emerging from this case, considered with Williams v. Rhodes , (393 U.S. 20 1968)) is that the Fourteenth Amendment limits state discretion in prescribing the manner of selecting electors and that Congress in enforcing the Fourteenth Amendment may override state practices that violate that Amendment and may substitute standards of its own. Critics of the electoral college system have sought direct election of the President and Vice President without success for more than two centuries. The NPV initiative represents a novel effort to achieve this goal by use of an interstate compact that would circumvent the stringent requirements necessary for the proposal and ratification of constitutional amendments. Since its inception in 2006, NPV has achieved a degree of success: 14 states and the District of Columbia, controlling a total of 189 electoral votes, have joined the compact since 2008. Progress has arguably been sporadic, however, notwithstanding active campaigning by National Popular Vote Inc. Over the course of more than a decade, NPV has heretofore failed to develop a sustained momentum toward its stated goal of states controlling 270 electoral votes. The action of three states in joining NPV to date in 2019 marks the most activity in a single year since 2008; it remains to be seen whether this trend will continue. To date, certain Democratic-leaning states have joined the compact. The arguable lack of support in Republican-controlled state legislatures raises questions about further accessions to the compact in the immediate future, particularly given the fact that the GOP controlled both legislative chambers in 30 states following the 2018 elections. To date, while the NPV initiative has generated interest among supporters of direct popular election of the President, it does not appear to have gained widespread awareness among the public at large. The findings of the March 27, 2019, Politico/Morning Consult survey cited earlier in this report arguably suggest that greater public knowledge of NPV might spur popular support for the compact. This might then contribute to further momentum if additional states were to join, particularly populous ones like Florida (29 electoral votes), Georgia (16 electoral votes), and Ohio (18 electoral votes) where the compact was under active consideration in 2019. Under these circumstances, proponents might be energized and encouraged by a sense of progress for the initiative. At the same time, NPV opponents could be expected to coalesce around the issues identified earlier in this report, and renew and increase their efforts in defense of the electoral college system. The activities of both might ultimately bring the NPV initiative to the more immediate attention of Congress.	[ "The National Popular Vote (NPV) initiative proposes an agreement among the states, an interstate compact that would effectively achieve direct popular election of the President and Vice President without a constitutional amendment. It relies on the Constitution's grant of authority to the states in Article II, Section 1 to appoint presidential electors \"in such Manner as the Legislature thereof may direct.... \" Any state that joins the NPV compact pledges that if the compact comes into effect, its legislature will award all the state's electoral votes to the presidential ticket that wins the most popular votes nationwide, regardless of who wins in that particular state. The compact would, however, come into effect only if its success has been assured; that is, only if states controlling a majority of electoral votes (270 or more) join the compact. By early May 2019, 14 states and the District of Columbia had joined the compact. After early momentum—eight states and the District of Columbia joined the NPV Compact between 2007 and 2011—the pace of state accessions slowed through 2018. Since then, four additional states joined, bringing the total number of electoral votes controlled by NPV member states to 189. During the same period, legislation to join the compact had been introduced during the current session in at least one chamber of the legislature in 14 additional states that control an additional 150 electors. The NPV initiative emerged following the presidential election of 2000, in which one ticket gained an electoral vote majority, winning the presidency, but received fewer popular votes than its opponents. NPV grew out of subsequent discussions among scholars and activists about how to avoid similar outcomes in the future and to achieve direct popular election. Proponents of NPV assert that it would guarantee the presidential candidates who win the most popular votes nationwide will always win the presidency; that it would end the inequities of the general ticket/winner-take-all system of awarding electoral votes; and that candidates would extend their focus beyond winning the \"battleground states,\" campaigning more widely and devoting greater attention to issues of concern to other parts of the country. They further assert that NPV would accomplish this while avoiding the exacting standards set for the proposal and ratification of constitutional amendments. Opponents argue that NPV would undermine the authority of states under the Constitution and the Founders' intention that presidential elections should be both national and federal contests; that it is an admitted \"end run\" around the Constitution that would circumvent the amendment process; and that it might actually lead to more disputed presidential elections characterized by politically contentious state recounts. The NPV has also been debated on legal grounds. Some observers maintain that it must be approved by Congress, because it is an interstate compact that would affect key provisions of constitutional presidential election procedures. NPV Inc., the organization managing the initiative's advocacy campaign, responds that congressional approval is not necessary because NPV concerns the appointment of electors, a subject that falls within state constitutional authority, and that the Supreme Court has previously rejected arguments that similar compacts would impair the rights of nonmember states. Other critics claim that NPV might violate the Voting Rights Act by diluting minority voter influence and avoiding the recently invalidated preclearance requirement for election procedure changes in covered jurisdictions. In response, NPV Inc. has asserted that the compact is \"entirely consistent with the goal of the Voting Rights Act.\" This report monitors the NPV's progress in the states and will identify and analyze further developments as warranted." ]	10,755	gov_report	en	null	b685812d90230eb593103d16207df42759bc6e12af94148f
According to the President’s budget, the federal government plans to invest more than $96 billion for IT in fiscal year 2018—the largest amount ever budgeted. Despite such large IT expenditures, we have previously reported that investments in federal IT too often result in failed projects that incur cost overruns and schedule slippages, while contributing little to the desired mission-related outcomes. For example: The tri-agency National Polar-orbiting Operational Environmental Satellite System was disbanded in February 2010 by the White House’s Office of Science and Technology Policy after the program spent 16 years and almost $5 billion. The Department of Homeland Security’s (DHS) Secure Border Initiative Network program was ended in January 2011, after the department obligated more than $1 billion for the program. The Department of Veterans Affairs’ Financial and Logistics Integrated Technology Enterprise program was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011. The Department of Defense’s Expeditionary Combat Support System was canceled in December 2012 after spending more than a billion dollars and failing to deploy within 5 years of initially obligating funds. The United States Coast Guard (Coast Guard) decided to terminate its Integrated Health Information System project in 2015. As reported by the agency in August 2017, the Coast Guard spent approximately $60 million over 7 years on this project, which resulted in no equipment or software that could be used for future efforts. Our past work has found that these and other failed IT projects often suffered from a lack of disciplined and effective management, such as project planning, requirements definition, and program oversight and governance. In many instances, agencies had not consistently applied best practices that are critical to successfully acquiring IT. Such projects have also failed due to a lack of oversight and governance. Executive-level governance and oversight across the government has often been ineffective, specifically from CIOs. For example, we have reported that some CIOs’ roles were limited because they did not have the authority to review and approve the entire agency IT portfolio. In addition to failures when acquiring IT, security deficiencies can threaten systems once they become operational. As we previously reported, in order to counter security threats, 23 civilian Chief Financial Officers Act agencies spent a combined total of approximately $4 billion on IT security-related activities in fiscal year 2016. Even so, our cybersecurity work at federal agencies continues to highlight information security deficiencies. The following examples describe the types of risks we have found at federal agencies. In November 2017, we reported that the Department of Education’s Office of Federal Student Aid did not consistently analyze privacy risks for its electronic information systems, and policies and procedures for protecting information systems were not always up to date. In August 2017, we reported that, since the 2015 data breaches, the Office of Personnel Management (OPM) had taken actions to prevent, mitigate, and respond to data breaches involving sensitive personal and background investigation information. However, we noted that the agency had not fully implemented recommendations made to OPM by DHS’s United States Computer Emergency Readiness Team to help the agency improve its overall security posture and improve its ability to protect its systems and information from security breaches. In July 2017, we reported that IT security at the Internal Revenue Service had weaknesses that limited its effectiveness in protecting the confidentiality, integrity, and availability of financial and sensitive taxpayer data. An underlying reason for these weaknesses was that the Internal Revenue Service had not effectively implemented elements of its information security program. In May 2016, we reported that the National Aeronautics and Space Administration, the Nuclear Regulatory Commission, OPM, and the Department of Veteran Affairs did not always control access to selected high-impact systems, patch known software vulnerabilities, and plan for contingencies. An underlying reason for these weaknesses was that the agencies had not fully implemented key elements of their information security programs. In August 2016, we reported that the IT security of the Food and Drug Administration had significant weaknesses that jeopardized the confidentiality, integrity, and availability of its information systems and industry and public health data. Congress and the President have enacted various key pieces of reform legislation to address IT management issues. These include the federal IT acquisition reform legislation commonly referred to as the Federal Information Technology Acquisition Reform Act (FITARA). This legislation was intended to improve covered agencies’ acquisitions of IT and enable Congress to monitor agencies’ progress and hold them accountable for reducing duplication and achieving cost savings. The law includes specific requirements related to seven areas: Agency CIO authority enhancements. CIOs at covered agencies have the authority to, among other things, (1) approve the IT budget requests of their respective agencies and (2) review and approve IT contracts. Federal data center consolidation initiative (FDCCI). Agencies covered by FITARA are required, among other things, to provide a strategy for consolidating and optimizing their data centers and issue quarterly updates on the progress made. Enhanced transparency and improved risk management. The Office of Management and Budget (OMB) and covered agencies are to make detailed information on federal IT investments publicly available, and agency CIOs are to categorize their investments by level of risk. Portfolio review. Covered agencies are to annually review IT investment portfolios in order to, among other things, increase efficiency and effectiveness and identify potential waste and duplication. Expansion of training and use of IT acquisition cadres. Covered agencies are to update their acquisition human capital plans to support timely and effective IT acquisitions. In doing so, the law calls for agencies to consider, among other things, establishing IT acquisition cadres (i.e., multi-functional groups of professionals to acquire and manage complex programs), or developing agreements with other agencies that have such cadres. Government-wide software purchasing program. The General Services Administration is to develop a strategic sourcing initiative to enhance government-wide acquisition and management of software. In doing so, the law requires that, to the maximum extent practicable, the General Services Administration should allow for the purchase of a software license agreement that is available for use by all executive branch agencies as a single user. Maximizing the benefit of the Federal Strategic Sourcing Initiative. Federal agencies are required to compare their purchases of services and supplies to what is offered under the Federal Strategic Sourcing Initiative. In June 2015, OMB released guidance describing how agencies are to implement FITARA. This guidance is intended to, among other things: assist agencies in aligning their IT resources with statutory establish government-wide IT management controls to meet the law’s requirements, while providing agencies with flexibility to adapt to unique agency processes and requirements; strengthen the relationship between agency CIOs and bureau CIOs; strengthen CIO accountability for IT costs, schedules, performance, and security. The guidance identifies a number of actions that agencies are to take to establish a basic set of roles and responsibilities (referred to as the common baseline) for CIOs and other senior agency officials; and thus, to implement the authorities described in the law. For example, agencies are to conduct a self-assessment and submit a plan describing the changes they intend to make to ensure that common baseline responsibilities are implemented. In addition, in August 2016, OMB released guidance intended to, among other things, define a framework for achieving the data center consolidation and optimization requirements of FITARA. The guidance directs agencies to develop a data center consolidation and optimization strategic plan that defines the agency’s data center strategy for fiscal years 2016, 2017, and 2018. This strategy is to include, among other things, a statement from the agency CIO indicating whether the agency has complied with all data center reporting requirements in FITARA. Further, the guidance indicates that OMB is to maintain a public dashboard to display consolidation-related costs savings and optimization performance information for the agencies. Congress has recognized the importance of agencies’ continued implementation of FITARA provisions, and has taken legislative action to extend selected provisions beyond their original dates of expiration. Specifically, Congress and the President enacted laws to: remove the expiration date for enhanced transparency and improved risk management provisions, which were set to expire in 2019; remove the expiration date for portfolio review, which was set to expire in 2019; and extend the expiration date for FDCCI from 2018 to 2020. In addition, Congress and the President enacted a law to authorize the availability of funding mechanisms to help further agencies’ efforts to modernize IT. The law, known as the Modernizing Government Technology (MGT) Act, authorizes agencies to establish working capital funds for use in transitioning from legacy IT systems, as well as for addressing evolving threats to information security. The law also creates the Technology Modernization Fund, within the Department of the Treasury, from which agencies can “borrow” money to retire and replace legacy systems, as well as acquire or develop systems. Further, in February 2018, OMB issued guidance for agencies to implement the MGT Act. The guidance was intended to provide agencies additional information regarding the Technology Modernization Fund, and the administration and funding of the related IT working capital funds. Specifically, the guidance allowed agencies to begin submitting initial project proposals for modernization on February 27, 2018. In addition, in accordance with the MGT Act, the guidance provides details regarding a Technology Modernization Board, which is to consist of (1) the Federal CIO; (2) a senior official from the General Services Administration; (3) a member of DHS’s National Protection and Program Directorate; and (4) four federal employees with technical expertise in IT development, financial management, cybersecurity and privacy, and acquisition, appointed by the Director of OMB. Congress and the President enacted the Federal Information Security Modernization Act of 2014 (FISMA) to improve federal cybersecurity and clarify government-wide responsibilities. The act addresses the increasing sophistication of cybersecurity attacks, promotes the use of automated security tools with the ability to continuously monitor and diagnose the security posture of federal agencies, and provides for improved oversight of federal agencies’ information security programs. Specifically, the act clarifies and assigns additional responsibilities to entities such as OMB, DHS, and the federal agencies. Table 1 describes a selection of OMB, DHS, and agency responsibilities. Beyond the implementation of FITARA, FISMA, and related actions, the current administration has also initiated other efforts intended to improve federal IT. Specifically, in March 2017, the administration established the Office of American Innovation, which has a mission to, among other things, make recommendations to the President on policies and plans aimed at improving federal government operations and services. In doing so, the office is to consult with both OMB and the Office of Science and Technology Policy on policies and plans intended to improve government operations and services, improve the quality of life for Americans, and spur job creation. In May 2017, the Administration also established the American Technology Council, which has a goal of helping to transform and modernize federal agency IT and how the federal government uses and delivers digital services. The President is the chairman of this council, and the Federal CIO and the United States Digital Service Administrator are among the members. In addition, on May 11, 2017, the President signed Executive Order 13800, Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. This executive order outlined actions to enhance cybersecurity across federal agencies and critical infrastructure to improve the nation’s cyber posture and capabilities against cyber security threats. Among other things, the order tasked the Director of the American Technology Council to coordinate a report to the President from the Secretary of DHS, the Director of OMB, and the Administrator of the General Services Administration, in consultation with the Secretary of Commerce, regarding the modernization of federal IT. As a result, the Report to the President on Federal IT Modernization was issued on December 13, 2017, and outlined the current and envisioned state of federal IT. The report focused on modernization efforts to improve the security posture of federal IT and recognized that agencies have attempted to modernize systems but have been stymied by a variety of factors, including resource prioritization, ability to procure services quickly, and technical issues. The report provided multiple recommendations intended to address these issues through the modernization and consolidation of networks and the use of shared services to enable future network architectures. Further, in March 2018, the Administration issued the President’s Management Agenda, which lays out a long-term vision for modernizing the federal government. The agenda identifies three related drivers of transformation—IT modernization; data, accountability, and transparency; and the workforce of the future—that are intended to push change across the federal government. The Administration also established 14 related Cross-Agency Priority goals, many of which have elements that involve IT. In particular, the Cross-Agency Priority goal on IT modernization states that modern IT must function as the backbone of how government serves the public in the digital age and provides three priorities that are to guide the Administration’s efforts to modernize federal IT: (1) enhancing mission effectiveness by improving the quality and efficiency of critical services, including the increased utilization of cloud-based solutions; (2) reducing cybersecurity risks to the federal mission by leveraging current commercial capabilities and implementing cutting edge cybersecurity capabilities; and (3) building a modern IT workforce by recruiting, reskilling, and retaining professionals able to help drive modernization with up-to-date technology. Most recently, on May 15, 2018, the President signed Executive Order 13833, Enhancing the Effectiveness of Agency Chief Information Officers. Among other things, this executive order is intended to better position agencies to modernize their IT systems, execute IT programs more efficiently, and reduce cybersecurity risks. The order pertains to 22 of the 24 Chief Financial Officer Act agencies: the Department of Defense and the Nuclear Regulatory Commission are exempt. For the covered agencies, the executive order strengthens the role of agency CIOs by, among other things, requiring to report directly to their agency head; to serve as their agency head’s primary IT strategic advisor; and to have a significant role in all management, governance, and oversight processes related to IT. In addition, one of the cybersecurity requirements directs agencies to ensure that the CIO works closely with an integrated team of senior executives, including those with expertise in IT, security, and privacy, to implement appropriate risk management measures. In the February 2017 update to our high-risk series, we reported that agencies still needed to complete significant work related to the management of IT acquisitions and operations We stressed that OMB and federal agencies should continue to expeditiously implement FITARA and OMB’s related guidance, which include enhancing CIO authority, consolidating data centers, and acquiring and managing software licenses. Our update to this high-risk area also stressed that OMB and agencies needed to continue to implement our prior recommendations in order to improve their ability to effectively and efficiently invest in IT. Specifically, from fiscal years 2010 through 2015, we made 803 recommendations to OMB and federal agencies to address shortcomings in IT acquisitions and operations. In addition, in fiscal year 2016, we made 202 new recommendations, thus, further reinforcing the need for OMB and agencies to address the shortcomings in IT acquisitions and operations. As stated in the update, OMB and agencies should demonstrate government-wide progress in the management of IT investments by, among other things, implementing at least 80 percent of our recommendations related to managing IT acquisitions and operations within 4 years. As of May 2018, OMB and agencies had fully implemented 489 (or about 61 percent) of the 803 recommendations. Figure 1 summarizes the progress that OMB and agencies have made in addressing our recommendations as compared to the 80 percent target. Overall, federal agencies would be better positioned to realize billions in cost savings and additional management improvements if they address these recommendations, including those aimed at implementing CIO responsibilities, review of IT acquisitions; improving data center consolidation; and managing software licenses. In all, the various laws, such as FITARA, and related guidance assign 35 IT management responsibilities to CIOs in six key areas. These areas are: leadership and accountability, budgeting, information security, investment management, workforce, and strategic planning. In a draft report on CIO responsibilities that we have provided to the agencies for comment and plan to issue in June 2018, our preliminary results suggest that none of the 24 agencies we reviewed had policies that fully addressed the role of their CIO, as called for by federal laws and guidance. In this regard, a majority of the agencies fully or substantially addressed the role of their CIOs for the area of leadership and accountability. In addition, a majority of the agencies substantially or partially addressed the role of their CIOs for two areas: information security and IT budgeting. However, most agencies partially or minimally addressed the role of their CIOs for two areas: investment management and strategic planning. These preliminary results are shown in figure 2. Despite these shortfalls, most agency officials stated that their CIOs are implementing the responsibilities even if the agencies do not have policies requiring implementation. Nevertheless, the CIOs of the 24 selected agencies acknowledged in responses to a survey that we administered for our draft report that they were not always very effective in implementing the six IT management areas. Specifically, our preliminary results show that at least 10 of the CIOs indicated that they were less than very effective for each of the six areas of responsibility. We believe that until agencies fully address the role of CIOs in their policies, agencies will be limited in addressing longstanding IT management challenges. Figure 3 depicts that extent to which the CIOs reported their effectiveness in implementing the six areas of responsibility. Beyond the actions of the agencies, however, our preliminary results indicate that shortcomings in agencies’ policies also are partially attributable to two weaknesses in OMB’s FITARA implementation guidance. First, the guidance does not comprehensively address all CIO responsibilities, such as those related to assessing the extent to which personnel meet IT management knowledge and skill requirements, and ensuring that personnel are held accountable for complying with the information security program. Correspondingly, the majority of the agencies’ policies did not fully address nearly all of the responsibilities that were not included in OMB’s guidance. Second, OMB’s guidance does not ensure that CIOs have a significant role in (1) IT planning, programming, and budgeting decisions and (2) execution decisions and the management, governance, and oversight processes related to IT, as required by federal law and guidance. In the absence of comprehensive guidance, CIOs will not be positioned to effectively acquire, maintain, and secure their IT systems. Based on our preliminary results, 24 agency CIOs also identified a number of factors that enabled and challenged their ability to effectively manage IT. As shown in figure 4, five factors were identified by at least half of the 24 CIOs as major enablers and three factors were identified by at least half of the CIOs as major challenges. Specifically, most agency CIOs cited five factors as being enablers to effectively carry out their responsibilities: (1) NIST guidance, (2) the CIO’s position in the agency hierarchy, (3) OMB guidance, (4) coordination with the Chief Acquisition Officer (CAO), and (5) legal authority. Further, three factors were cited by CIOs as major factors that have challenged their ability to effectively carry out responsibilities: (1) processes for hiring, recruiting, and retaining IT personnel; (2) financial resources; and (3) the availability of personnel/staff resources. As our draft report states, although OMB has issued guidance aimed at addressing the three factors that were identified by at least half of the CIOs as major challenges, the guidance does not fully address those challenges. Further, regarding the financial resources challenge, OMB recently required agencies to provide data on CIO authority over IT spending; however, its guidance does not provide a complete definition of the authority. We believe that in the absence of such guidance, agencies have created varying definitions of CIO authority. Further, until OMB updates its guidance to include a complete definition of the authority that CIOs are to have over IT spending, it will be difficult for OMB to identify any deficiencies in this area and to help agencies make any needed improvements. In order to address challenges in implementing CIO responsibilities, we intend to include in our draft report recommendations to OMB and each of the selected 24 federal agencies to improve the effectiveness of CIOs’ implementation of their responsibilities for each of the six IT management areas. FITARA includes a provision to enhance covered agency CIOs’ authority through, among other things, requiring agency heads to ensure that CIOs review and approve IT contracts. OMB’s FITARA implementation guidance expanded upon this aspect of the legislation in a number of ways. Specifically, according to the guidance: CIOs may review and approve IT acquisition strategies and plans, rather than individual IT contracts; CIOs can designate other agency officials to act as their representatives, but the CIOs must retain accountability; CAOs are responsible for ensuring that all IT contract actions are consistent with CIO-approved acquisition strategies and plans; and CAOs are to indicate to the CIOs when planned acquisition strategies and acquisition plans include IT. In January 2018, we reported that most of the CIOs at 22 selected agencies were not adequately involved in reviewing billions of dollars of IT acquisitions. For instance, most of the 22 agencies did not identify all of their IT contracts. In this regard, the agencies identified 78,249 IT- related contracts, to which they obligated $14.7 billion in fiscal year 2016. However, we identified 31,493 additional contracts with $4.5 billion obligated, raising the total amount obligated by these agencies to IT contracts in fiscal year 2016 to at least $19.2 billion. Figure 5 reflects the obligations that the 22 selected agencies reported to us relative to the obligations we identified. The percentage of additional IT contract obligations we identified varied among the selected agencies. For example, the Department of State did not identify 1 percent of its IT contract obligations. Conversely, 8 agencies did not identify over 40 percent of their IT contract obligations. Many of the selected agencies that did not identify these IT contract obligations did not follow OMB guidance. Specifically, 14 of the 22 agencies did not involve the acquisition office in their process to identify IT acquisitions for CIO review, as required by OMB. In addition, 7 agencies did not establish guidance to aid officials in recognizing IT. We concluded that until these agencies involve the acquisitions office in their IT acquisition identification processes and establish supporting guidance, they cannot ensure that they will identify all IT acquisitions. Without proper identification of IT acquisitions, these agencies and CIOs cannot effectively provide oversight of these acquisitions. In addition to not identifying all IT contracts, 14 of the 22 selected agencies did not fully satisfy OMB’s requirement that the CIO review and approve IT acquisition plans or strategies. Further, only 11 of 96 randomly selected IT contracts at 10 agencies that we evaluated were CIO-reviewed and approved as required by OMB’s guidance. The 85 IT contracts not reviewed had a total possible value of approximately $23.8 billion. We believe that until agencies ensure that CIOs are able to review and approve all IT acquisitions, CIOs will continue to have limited visibility and input into their agencies’ planned IT expenditures and will not be able to use the increased authority that FITARA’s contract approval provision is intended to provide. Further, agencies will likely miss an opportunity to strengthen CIOs’ authority and the oversight of IT acquisitions. As a result, agencies may award IT contracts that are duplicative, wasteful, or poorly conceived. As a result of these findings, we made 39 recommendations in our January 2018 report. The recommendations included that agencies ensure that their acquisition offices are involved in identifying IT acquisitions and issuing related guidance, and that IT acquisitions are reviewed in accordance with OMB guidance. OMB and the majority of the agencies generally agreed with or did not comment on the recommendations. In our February 2017 high-risk update, we stated that OMB and agencies needed to demonstrate additional progress on achieving data center consolidation savings in order to improve the management of IT acquisitions and operations. Further, data center consolidation efforts are key to implementing FITARA. Specifically, OMB established the FDCCI in February 2010 to improve the efficiency, performance, and environmental footprint of federal data center activities. The enactment of FITARA in 2014 codified and expanded the initiative. In a series of reports that we issued from July 2011 through August 2017, we noted that, while data center consolidation could potentially save the federal government billions of dollars, weaknesses existed in several areas, including agencies’ data center consolidation plans, data center optimization, and OMB’s tracking and reporting on related cost savings. In these reports, we made a total of 160 recommendations to OMB and 24 agencies to improve the execution and oversight of the initiative. Most agencies and OMB agreed with our recommendations or had no comments. As of May 2018, 80 of these 160 recommendations remained unimplemented. Further, we recently reported in May 2018 that the 24 agencies participating in OMB’s Data Center Optimization Initiative (DCOI) had communicated mixed progress toward achieving OMB’s goals for closing data centers by September 2018. Over half of the agencies reported that they had either already met, or planned to meet, all of their OMB- assigned goals by the deadline. This would result in the closure of 7,221 of the 12,062 centers that agencies reported in August 2017. However, 4 agencies reported that they do not have plans to meet all of their assigned goals and 2 agencies are working with OMB to establish revised targets. With regard to agencies’ progress in achieving cost savings, 24 agencies reported $3.9 billion in cost savings through 2018. The 24 agencies also reported limited progress against OMB’s five data center optimization targets for server utilization and automated monitoring, energy metering, power usage effectiveness, facility utilization, and virtualization. As of August 2017, 1 agency reported that it had met four targets, 1 agency reported that it had met three targets, 6 agencies reported having met either one or two targets, and 14 agencies reported meeting none of the targets. Further, as of August 2017, most agencies were not planning to meet OMB’s fiscal year 2018 optimization targets. Specifically, 4 agencies reported plans to meet all of their applicable targets by the end of fiscal year 2018; 14 agencies reported plans to meet some of the targets; and 4 reported that they did not plan to meet any targets. Figure 6 summarizes agency-reported plans to meet or exceed the OMB’s data center optimization targets, as of August 2017. In 2016 and 2017, we made 81 recommendations to OMB and the 24 DCOI agencies to help improve the reporting of data center-related cost savings and to achieve optimization targets. As of May 2018, 71 of these 81 recommendations have not been fully addressed. In our 2015 high-risk report’s discussion of IT acquisitions and operations, we identified the management of software licenses as an area of concern, in part because of the potential for cost savings. Federal agencies engage in thousands of software licensing agreements annually. The objective of software license management is to manage, control, and protect an organization’s software assets. Effective management of these licenses can help avoid purchasing too many licenses, which can result in unused software, as well as too few licenses, which can result in noncompliance with license terms and cause the imposition of additional fees. As part of its PortfolioStat initiative, OMB has developed policy that addresses software licenses. This policy requires agencies to conduct an annual, agency-wide IT portfolio review to, among other things, reduce commodity IT spending. Such areas of spending could include software licenses. In May 2014, we reported on federal agencies’ management of software licenses and determined that better management was needed to achieve significant savings government-wide. Of the 24 selected agencies we reviewed, only 2 had comprehensive policies that included the establishment of clear roles and central oversight authority for managing enterprise software license agreements, among other things. Of the remaining 22 agencies, 18 had policies that were not comprehensive, and 4 had not developed any policies. Further, we found that only 2 of the 24 selected agencies had established comprehensive software license inventories, a leading practice that would help them to adequately manage their software licenses. The inadequate implementation of this and other leading practices in software license management was partially due to weaknesses in agencies’ policies. As a result, we concluded that agencies’ oversight of software license spending was limited or lacking, thus potentially leading to missed savings. However, the potential savings could be significant considering that, in fiscal year 2012, 1 major federal agency reported saving approximately $181 million by consolidating its enterprise license agreements, even when its oversight process was ad hoc. Accordingly, we recommended that OMB issue a directive to help guide agencies in managing software licenses. We also made 135 recommendations to the 24 agencies to improve their policies and practices for managing licenses. Among other things, we recommended that the agencies regularly track and maintain a comprehensive inventory of software licenses and analyze the inventory to identify opportunities to reduce costs and better inform investment decision making. Most agencies generally agreed with the recommendations or had no comments. As of May 2018, 78 of the 135 recommendations had not been implemented. Table 2 reflects the extent to which the 24 agencies implemented the recommendations in these two areas. Since information security was added to the high-risk list in 1997, we have consistently identified shortcomings in the federal government’s approach to cybersecurity. We have previously testified that, even though agencies have acted to improve the protections over federal and critical infrastructure information and information systems, the federal government needs to take the following actions to strengthen U.S. cybersecurity: Effectively implement risk-based entity-wide information security programs consistently over time. Among other things, agencies need to (1) implement sustainable processes for securely configuring operating systems, applications, workstations, servers, and network devices; (2) patch vulnerable systems and replace unsupported software; (3) develop comprehensive security test and evaluation procedures and conduct examinations on a regular and recurring basis; and (4) strengthen oversight of contractors providing IT services. Improve its cyber incident detection, response, and mitigation capabilities. DHS needs to expand the capabilities and support wider adoption of its government-wide intrusion detection and prevention system. In addition, the federal government needs to improve cyber incident response practices, update guidance on reporting data breaches, and develop consistent responses to breaches of personally identifiable information. Expand its cyber workforce planning and training efforts. The federal government needs to (1) enhance efforts for recruiting and retaining a qualified cybersecurity workforce and (2) improve cybersecurity workforce planning activities. Expand efforts to strengthen cybersecurity of the nation’s critical infrastructures. The federal government needs to develop metrics to (1) assess the effectiveness of efforts promoting the National Institute of Standards and Technology’s (NIST) Framework for Improving Critical Infrastructure Cybersecurity and (2) measure and report on the effectiveness of cyber risk mitigation activities and the cybersecurity posture of critical infrastructure sectors. Better oversee protection of personally identifiable information. The federal government needs to (1) protect the security and privacy of electronic health information, (2) ensure privacy when face recognition systems are used, and (3) protect the privacy of users’ data on state-based health insurance marketplaces. As we have previously noted, in order to take the preceding actions and strengthen the federal government’s cybersecurity posture, agencies should implement the information security programs required by FISMA. In this regard, FISMA provides a framework for ensuring the effectiveness of information security controls for federal information resources. The law requires each agency to develop, document, and implement an agency- wide information security program. Such a program includes risk assessments; the development and implementation of policies and procedures to cost-effectively reduce risks; plans for providing adequate information security for networks, facilities, and systems; security awareness and specialized training; the testing and evaluation of the effectiveness of controls; the planning, implementation, evaluation, and documentation of remedial actions to address information security deficiencies; procedures for detecting, reporting, and responding to security incidents; and plans and procedures to ensure continuity of operations. Since 2010, we have made 2,733 recommendations to agencies aimed at improving the security of federal systems and information. These recommendations have identified actions for agencies to take to strengthen technical security controls over their computer networks and systems. They also have included recommendations for agencies to fully implement aspects of their information security programs, as mandated by FISMA. Nevertheless, many agencies continue to be challenged in safeguarding their information systems and information, in part because many of these recommendations have not been implemented. As of May 2018, 793 of information security-related recommendations we have made have not been implemented. In order to determine the effectiveness of the agencies’ information security programs and practices, FISMA requires that federal agencies’ inspectors general conduct annual independent evaluations. The agencies are to report the results of these evaluations to OMB, and OMB is to summarize the results in annual reports to Congress. In these evaluations, the inspectors general frame the scope of their analysis, identify key findings, and detail recommendations to address the findings. The evaluations also are to capture maturity model ratings for their respective agencies. Toward this end, in fiscal year 2017, the inspector general community, in partnership with OMB and DHS, finalized a 3-year effort to create a maturity model for FISMA metrics that align to the five function areas in the NIST Framework for Improving Critical Infrastructure Cybersecurity (Cybersecurity Framework): identify, protect, detect, respond, and recover. This alignment is intended to help promote consistent and comparable metrics and criteria and provides agencies with a meaningful independent assessment of their information security programs. This maturity model is designed to summarize the status of agencies’ information security programs on a five-level capability maturity scale. The five maturity levels are defined as follows: Level 1 Ad-hoc: Policies, procedures, and strategy are not formalized; activities are performed in an ad-hoc, reactive manner. Level 2 Defined: Policies, procedures, and strategy are formalized and documented but not consistently implemented. Level 3 Consistently Implemented: Policies, procedures, and strategy are consistently implemented, but quantitative and qualitative effectiveness measures are lacking. Level 4 Managed and Measurable: Quantitative and qualitative measures on the effectiveness of policies, procedures, and strategy are collected across the organizations and used to assess them and make necessary changes. Level 5 Optimized: Policies, procedures, and strategy are fully institutionalized, repeatable, self-generating, consistently implemented and regularly updated based on a changing threat and technology landscape and business/mission needs. In March 2018, OMB issued its annual FISMA report to Congress, which showed the combined results of the inspectors general’s fiscal year 2017 evaluations. Based on data from 76 agency inspector general and independent auditor assessments, OMB determined that the government-wide median maturity model ratings across the five NIST Cybersecurity Framework areas did not exceed a level 3 (consistently implemented). Table 3 shows the inspectors general’s median ratings for each of the NIST Cybersecurity Framework areas. In its efforts toward strengthening the federal government’s cybersecurity, OMB also requires agencies to submit related cybersecurity metrics as part of its Cross-Agency Priority goals. In particular, OMB developed the IT modernization goal so that federal agencies will be able to build and maintain more modern, secure, and resilient IT. A key part of this goal is to reduce cybersecurity risks to the federal mission through three strategies: manage asset security, protect networks and data, and limit personnel access. The key targets supporting each of these strategies correspond to areas within the FISMA metrics. Table 4 outlines the strategies and their associated targets. In conclusion, FITARA and FISMA present opportunities for the federal government to address the high-risk areas on improving the management of IT acquisitions and operations, and ensuring the security of federal IT, thereby saving billions of dollars. Most agencies have taken steps to execute key IT management and cybersecurity initiatives, including implementing CIO responsibilities, requiring CIO review of IT acquisitions, realizing data center consolidation cost savings, managing software assets, and complying with FISMA requirements. The agencies have also continued to address the recommendations that we have made over the past several years. However, further efforts by OMB and federal agencies to implement our previous recommendations would better position them to improve the management and security of federal IT. To help ensure that these efforts succeed, we will continue to monitor agencies’ efforts toward implementing these recommendations. Chairmen Meadows and Hurd, Ranking Members Connolly and Kelly, and Members of the Subcommittees, this completes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff have any questions about this testimony, please contact David A. Powner, Director, Information Technology, at (202) 512- 9286 or pownerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Kevin Walsh (Assistant Director), Chris Businsky, Rebecca Eyler, Meredith Raymond, and Jessica Waselkow (Analyst in Charge). This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "The federal government plans to invest almost $96 billion in IT in fiscal year 2018. Historically, IT investments have too often failed or contributed little to mission-related outcomes. Further, increasingly sophisticated threats and frequent cyber incidents underscore the need for effective information security. As a result, GAO added two areas to its high-risk list: IT security in 1997 and the management of IT acquisitions and operations in 2015. This statement summarizes agencies' progress in improving IT management and ensuring the security of federal IT. It is primarily based on GAO's prior reports issued between February 1997 and May 2018 (and an ongoing review) on (1) CIO responsibilities, (2) agency CIOs' involvement in approving IT contracts, (3) data center consolidation efforts, (4) the management of software licenses, and (5) compliance with cybersecurity requirements. The Office of Management and Budget (OMB) and federal agencies have taken steps to improve the management of information technology (IT) acquisitions and operations and ensure the security of federal IT through a series of initiatives. As of May 2018, agencies had fully implemented about 61 percent of the approximately 800 IT management-related recommendations that GAO made from fiscal years 2010 through 2015. Likewise, since 2010, agencies had implemented about 66 percent of the approximately 2,700 security-related recommendations as of May 2018. Even with this progress, significant actions remain to be completed. Chief Information Officer (CIO) responsibilities . Laws such as the Federal Information Technology Acquisition Reform Act (FITARA) and related guidance assigned 35 key IT management responsibilities to CIOs to help address longstanding challenges. However, in a draft report on CIO responsibilities, GAO's preliminary results suggest that none of the 24 selected agencies have policies that fully address the role of their CIO, as called for by federal laws and guidance. GAO intends to recommend that OMB and each of the selected 24 agencies take actions to improve the effectiveness of CIO's implementation of their responsibilities. IT contract approval . According to FITARA, covered agencies' CIOs are required to review and approve IT contracts. Nevertheless, in January 2018, GAO reported that most of the CIOs at 22 selected agencies were not adequately involved in reviewing billions of dollars of IT acquisitions. Consequently, GAO made 39 recommendations to improve CIO oversight over IT acquisitions. Consolidating data centers . OMB launched an initiative in 2010 to reduce data centers, which was codified and expanded in FITARA. According to agencies, data center consolidation and optimization efforts have resulted in approximately $3.9 billion of cost savings through 2018. Even so, additional work remains. GAO has made 160 recommendations to OMB and agencies to improve the reporting of related cost savings and to achieve optimization targets; however, as of May 2018, 80 of the recommendations have not been fully addressed. Managing software licenses . Effective management of software licenses can help avoid purchasing too many licenses that result in unused software. In May 2014, GAO reported that better management of licenses was needed to achieve savings, and made 135 recommendations to improve such management. Four years later, 78 of the recommendations remained open. Improving the security of federal IT systems . While the government has acted to protect federal information systems, agencies need to improve security programs, cyber capabilities, and the protection of personally identifiable information. Over the last several years, GAO has made about 2,700 recommendations to agencies aimed at improving the security of federal systems and information. These recommendations identified actions for agencies to take to strengthen their information security programs and technical controls over their computer networks and systems. As of May 2018, about 800 of the information security-related recommendations had not been implemented. From fiscal years 2010 through 2015, GAO made about 800 recommendations to OMB and federal agencies to address shortcomings in IT acquisitions and operations. Since 2010, GAO also made about 2,700 recommendations to federal agencies to improve the security of federal systems. These recommendations include those to improve the implementation of CIO responsibilities, the oversight of the data center consolidation initiative, software license management efforts, and the strength of security programs and technical controls. Most agencies agreed with these recommendations, and GAO will continue to monitor their implementation." ]	6,259	gov_report	en	null	490f14d293ac1c261a07bd50aeac2e86a9e76c726d7883a2
Many Members of Congress became actively engaged in foreign policy debates over U.S. intervention in the 1992-1995 war in Bosnia and Herzegovina (hereafter, "Bosnia"). Congress monitored and at times challenged the Bush and Clinton Administrations' response to the conflict through numerous hearings, resolutions, and legislative initiatives. Many observers contend that the United States is a stakeholder in Bosnia's future because of the strong impact of U.S. intervention on the postwar Bosnian state. Nearly 25 years after warring parties in Bosnia reached the Dayton Agreement (see below), Bosnia faces numerous internal and external challenges, and the country retains geopolitical importance to U.S. interests in the Western Balkans. As Congress assesses ongoing and emerging security issues in the region, including resilience against malign external influence, renewed conflict, and radicalization, Bosnia's internal politics and its role in Balkan stability may merit further examination. Bosnia has existed in various forms throughout its history: a medieval kingdom, territory held by two major empires, a federal unit, and, since 1992, an independent state. Bosnia's present international borders are largely consistent with its administrative boundaries under later periods of Ottoman Turkish rule. After World War I, Bosnia became part of the newly created Kingdom of Serbs, Croats, and Slovenes. It was one of the six constituent republics of the Socialist Federal Republic of Yugoslavia from 1945 until 1992. Bosnia's constitution stems from the U.S.-brokered Dayton Peace Agreement that ended the country's 1992-1995 war. It recognizes three "constituent peoples": Bosniaks, Croats, and Serbs. All three groups are Slavic. Religious tradition is considered a marker of difference among the three ethnic identities: Bosniaks are predominantly Muslim, Serbs are largely Orthodox Christian, and Croats are mostly Catholic. Although Bosnian, Croatian, and Serbian are recognized in Bosnia as distinct official languages, they are mutually intelligible. Bosniaks comprise approximately 50.1% of the population, Bosnian Serbs 30.8%, and Bosnian Croats 15.4%. In this report, Bosnian is used as a non-ethnic term for a person or institution from Bosnia. A Bosnian Serb is an ethnic Serb from Bosnia and a Bosnian Croat is an ethnic Croat from Bosnia. Bosniak refers to Slavic Muslims. Bosnia's religious and cultural diversity is one of its distinctive characteristics. Islam was introduced to part of Bosnia's population during the Ottoman period, although there were also large Catholic, Orthodox Christian, and Jewish communities. Bosnia was the most heterogeneous Yugoslav republic and the only one where no ethnic group formed an absolute majority. During the 1990s, some popular accounts of Bosnia (and the former Yugoslavia) depicted its ethnic relations as "ancient hatreds," implying that the country's ethnic groups cannot peacefully coexist and that the 1992-1995 war was unavoidable. However, many experts on the region reject this thesis. Although Bosnia has experienced episodes of communal violence and bloodshed, most recently during World War II and the 1992-1995 war, its heterogeneous population also has lived in mixed communities for periods of peace. Many experts contend that ethnic conflict often was stoked by domestic leaders who manipulated historical memory and grievances to further their own agendas, or by external powers seeking to rule Bosnia or annex its territory. In the 1980s, Yugoslavia's escalating political and economic crises fueled nationalist movements. Nationalist leaders in Serbia and Croatia appealed to Bosnian Serbs and Croats as ethnic "kin." The party that ruled Croatia for most of the 1990s, the Croatian Democratic Union (HDZ), established a sister party with the same name to mobilize Bosnian Croats and compete in Bosnia's elections. This gave Croatia an avenue of influence in Bosnian politics. Serbia, led by strongman Slobodan Milošević, likewise had influence over Bosnian Serb leaders. In Bosnia's November 1990 elections—the first competitive elections in decades—voters cast aside the ruling League of Communists party and elected ethnic parties that largely continue to dominate today. Bosnian voters backed independence in a 1992 referendum, following in the footsteps of Slovenia, Croatia, and Macedonia. Bosnian Serbs, who did not want to separate from Yugoslavia, boycotted the referendum. Bosnian Serb forces seized more than two-thirds of Bosnia's territory, and a three-year conflict followed that pitted Serb, Croat, and Bosniak forces against one another. Bosnian Serb leaders declared a "Serb Republic" ( Republika Srpska) in March 1992, while Bosnian Croat leaders proclaimed the Croat Community of Herceg-Bosnia in July. Some Bosnian Croat and Bosnian Serb leaders advocated unification with Croatia and Serbia, respectively, where government factions—including their strongman leaders—likewise wanted to carve a Greater Croatia and Greater Serbia out of Bosnia's territory. Bosniak leaders opposed dismemberment of the state. Bosnia's war was one of the most lethal conflicts in Europe since World War II. Bosnian Serb forces besieged Sarajevo for 44 months. More than 10,000 people, mostly civilians, died due to shelling, sniping, and blockade-related deprivation. Paramilitary factions from neighboring Croatia and Serbia—some of which reportedly had ties to the Croatian and Serbian government—fought alongside Bosnian Croats and Serbs. The Serb-dominated Yugoslav National Army also aided Bosnian Serb forces, giving them a military advantage. In many areas, combatants from the three groups killed or expelled members of other ethnic groups to "purify" territory that they wanted to claim as their own. This "ethnic cleansing" changed Bosnia's demographic landscape. An estimated 100,000 or more Bosnians were killed in the conflict, and roughly half of its population displaced. In addition, an estimated 20,000 or more women and girls were victims of sexual violence. Hundreds of Bosnians have been prosecuted for war crimes at the International Criminal Tribunal for the former Yugoslavia (ICTY) and in Bosnian courts. In 2016, the ICTY convicted wartime Bosnian Serb leader Radovan Karadžić of genocide and war crimes. In 2019, the tribunal rejected his appeal and increased his sentence from 40 years to life. Citizens of Croatia and Serbia have also been indicted for crimes committed in the Bosnian war. Highly publicized incidents in 1994 and 1995 underscored the war's human toll. Bosnian Serb forces bombarded a Sarajevo market in 1994 and 1995, resulting in over 100 civilian deaths. In July 1995, Serb forces commanded by Ratko Mladić seized and executed more than 8,000 Bosniak men and boys in a U.N.-designated safe area around the city of Srebrenica, an incident subsequently seen by some as a consequence of the international community's muddled, ineffectual response to the conflict. The International Court of Justice and ICTY subsequently ruled that the Srebrenica massacres constituted an act of genocide. Mladić was convicted of genocide and other crimes in 2017. These incidents increased pressure on U.S. policymakers to take a stronger role in resolving a conflict that had largely been left to the EU and the United Nations. Under U.S. command, NATO intervened in August and September 1995 with air strikes against Bosnian Serb targets, while allied Bosniak and Croat forces launched a simultaneous offensive in western Bosnia. The United States played a key role in brokering several agreements. The 1994 Washington Agreement ended the "war within a war" between Bosniaks and Croats. In November 1995, leaders from Croatia, Bosnia, and Serbia met at the Wright-Patterson Air Force base in Dayton, OH, to negotiate a peace agreement. U.S. diplomat Richard Holbrooke played a crucial role in brokering the General Framework Agreement for Peace in Bosnia and Herzegovina, more commonly known as the Dayton Peace Agreement. Bosnia's complex political system is a product of the Dayton Agreement; one of its annexes serves as Bosnia's constitution (Annex 4). Its provisions partly reflect the situation on the ground in 1995, including the subdivision of Bosnia into two ethnoterritorial entities ( Figure 1 ): Republika Srpska ("RS"), which Bosnian Serb leaders had proclaimed in 1992, and the Federation of Bosnia and Herzegovina ("FBiH," predominantly populated by Bosniaks and Croats), which was created by the 1994 Washington Agreement. Entity borders were largely drawn to form ethnic majorities, even though they also reflected territorial seizure and ethnic cleansing. Many Bosniaks view the division of Bosnia into these roughly equal entities as awarding the spoils of war to Bosnian Serbs, whom they regard as the aggressors. Many Bosnian Serbs, however, view the Serb-majority entity as a protection against marginalization. The designation of Bosniaks, Croats, and Serbs as Bosnia's three "constituent peoples" is a cornerstone of the Dayton system. Numerous government bodies have ethnic quotas requiring equal representation of the three groups. In these power-sharing institutions, delegates from each constituent group may veto measures that go against vital ethnic interests. While these arrangements make Bosnia's political system prone to gridlock, Dayton's negotiators viewed them as necessary to prevent any group from feeling marginalized in a context of low trust. Bosnia is a parliamentary republic with a high degree of decentralization. Its complex, tiered structure includes a central ("state-level") government, the two entities, the autonomous Brčko district, and cantonal and municipal governments. The central ("state-level") government covers the entirety of Bosnia. A three-member presidency is the head of state, and includes one Serb member who is elected by RS voters, and one Bosniak and one Croat member elected by FBiH voters. The Council of Ministers, led by a Chairperson, is roughly equivalent to a cabinet government and prime minister in other parliamentary systems. The Parliamentary Assembly is a state-level legislature with two chambers: a directly elected House of Representatives (42 members) and an indirectly elected House of Peoples (5 Serbs, 5 Croats, and 5 Bosniaks). The state-level government is considered to be weak, despite some expansion of its functions in the 2000s. Its major responsibilities include foreign relations; trade, customs, and monetary policy; migration and asylum policy; defense; and intelligence. Bosnia is further subdivided into two ethnoterritorial entities: Republika Srpska (RS), where Serbs are the largest ethnic group (82%), and the Federation entity (FBiH), where Bosniaks (70%) and Croats (22%) are the largest groups. The two entities have broader policy jurisdiction than the state-level government. Governing functions that are not assigned to the state-level government fall to the entities. These include civilian policing, economic policy, fiscal policy, energy policy, and health and social policy, as well as other issues. Each entity has its own constitution, as well as a president, vice presidents, legislature, and cabinet government with a prime minister. Each entity may establish "special parallel relationships" with neighboring states (i.e., Croatia and Serbia). Numerous entity bodies also incorporate ethnic quotas. Brčko district, a border region in northeastern Bosnia, was initially administered by the international community to allay concerns about RS secession. Brčko's location interrupts RS's contiguity, and both entities initially claimed it. Brčko was later awarded to both entities, but remains a self-governing district whose population is a mix of all three constituent peoples. Some analysts believe it has been relatively more successful than the entities in passing reforms and reintegrating its divided population (e.g., ethnically mixed schools with a common curriculum). FBiH entity is further divided into ten cantons, many of which were drawn to form ethnic Bosniak or Croat majorities. The cantons have jurisdiction in many policy areas, including policing, housing, culture, and education. They also have their own constitutions—based on the FBiH constitution—as well as legislatures and cabinet-style governments. FBiH and RS are further divided into 79 and 64 municipalities, respectively. The Dayton Agreement established a strong oversight role for the international community. The Office of the High Representative (OHR) was created to monitor the implementation of civilian aspects of Dayton. The High Representative is supported by the Peace Implementation Council (PIC), a group of 55 countries and agencies. A 1997 PIC conference empowered the High Representative to impose binding decisions and sanction politicians who obstruct Dayton. Until the mid-2000s, the High Representative used these powers to remove officials deemed to be obstructive to peace and to promote what are considered among the most constructive reforms since Dayton, including merging the entities' armed forces and intelligence services and putting them under new state-level ministries. However, the High Representative's proactive role has since decreased. This is partly due to criticism that the OHR lacks democratic legitimacy and accountability. Bosnian Serb politicians have claimed that the OHR's interventions support Bosniak leaders' preference for a more centralized state. At the same time, some U.S. and EU policymakers believed that the attraction of EU membership could incentivize reforms in place of the OHR's more top-down approach. The international community also plays an ongoing security role. NATO led the Implementation Force (IFOR) and the smaller Stabilization Force (SFOR) that monitored security aspects of the Dayton Peace Agreement. The initial deployment of NATO ground forces to Bosnia numbered nearly 60,000, of which the largest share (approximately one-third) was from the United States. The number of troops subsequently decreased. In 2004, NATO's peacekeeping role was transferred to the EU with the understanding that NATO would assist if necessary. The size of the EU operation (EUFOR Althea) decreased from 7,000 troops in 2004 to roughly 600 troops today. Many analysts contend that the Dayton Agreement helped hold Bosnia together after the war; they point to the absence of widespread violence since 1995 as an indicator of its success. However, observers also question whether Bosnia can function much longer under the Dayton system. They identify several key challenges: Critics claim that Bosnia's political system reinforces the country's ethnic divisions and makes ethnicity a core basis of political identity. The ethnic parties that have dominated politics since the war generally appeal to voters from their respective ethnic communities rather than all Bosnians. Critics accuse ethnic party leaders of inflaming nationalist tensions and manipulating historical memory to distract from corruption and win elections, thus aggravating rather than bridging the deep wounds that remain from the war. In some parts of Bosnia, divisions are further reproduced at the societal level through institutions like segregated schools, which separate schoolchildren from different ethnic groups and teach them different curriculum. Some analysts also contend that the system is too gridlock-prone to pass major political and economic reforms to be passed, even with the incentive of potential EU membership. Bosnia's fractured, overlapping institutions sometimes muddle policymaking jurisdiction and impede coordinated response. Furthermore, power-sharing arrangements create numerous veto points in the legislative process. Government coalitions are typically ideologically broad and unwieldy, creating a further source of potential dysfunction. One of the consequences of these barriers is that it is difficult to pass legislation. The previous state-level Parliament, for example, adopted twelve new laws over the course of its 2014-2018 term. Corruption in Bosnia has roots in the country's wartime economy. A 2000 Government Accountability Office (GAO) report stated that "organized crime and corruption pervade Bosnia's national political parties, civil service, law enforcement and judicial systems. [Ethnic] parties control all aspects of the government, the judiciary, and the economy, and in so doing maintain the personal and financial power of their members." Many observers claim that the situation has improved little since then. In 2018, the High Representative warned that the rule of law has deteriorated, while the U.S. State Department describes the rule of law as "an existential issue." Bosnia's major parties allegedly siphon from the state apparatus and public enterprises in their strongholds to amass wealth and power. Furthermore, parties in power reportedly politicize hiring in Bosnia's public sector, which employs an estimated third or more of the working population. For many Bosnians, satisfactory employment depends on having the right political connections, which creates a dependence that reportedly is exploited during elections. In 2018, the outgoing U.S. ambassador to Bosnia decried the "[Bosnian] politicians who seek to destabilize the country in order to remain in power at all costs for personal profit and protection." Many analysts believe that Bosnia's entrenched ethnic parties benefit tremendously from the status quo and have little incentive to reform the system. Bosnia's MPs are among the best-paid in Europe relative to local incomes, commanding six to eight times the average Bosnian salary. Parties and politicians who gain office in the government or administration often find "a remarkably efficient path to personal enrichment." Politicians are skilled at using veto points to block legislation that threatens their position in Bosnia's patronage system. According to one analyst, Bosnia's patronage system is "the raison d'etre of the political elites and is the main cause of the state's dysfunctionality and resistance to reform." Bosnia's entrenched political class may also fear penalty if serious reforms are enacted and shine the spotlight on malfeasance. Criminal indictments against leaders in neighborhood countries like Romania, Croatia, and North Macedonia highlight this risk. Analysts believe these disincentives make entrenched politicians resistant to external pressure for reform. Several major rounds of U.S.- and EU-brokered constitutional reform efforts, including in 2006, 2008, and 2009, ultimately failed. Germany and the United Kingdom launched a major initiative in 2014 to shift the focus from difficult constitutional reforms to seemingly more feasible socioeconomic reforms that they hoped would improve Bosnia's economy and dismantle patronage networks. The 2015 "Reform Agenda" identified economic, administrative, and legal measures to be adopted by entity- and state-level governments. The process, which required the major parties to commit in writing to the reform framework, was supported by the EU, the International Monetary Fund, the World Bank Group, and the United States. As an incentive for politicians to agree to the Agenda, the EU offered the entry into force of Bosnia's long-stalled Stabilization and Association Agreement, which marked the first step toward EU membership. However, most observers view the Reform Agenda as largely unsuccessful; many of its provisions failed when entrenched parties objected to measures that would undercut their dominance. While many officials recognize that Bosnia's political system needs reform, there is little consensus on how to change it or to generate the political will to find common ground so long as the dominant parties remain entrenched. Bosnian Serb leaders have expressed a desire to return to the "original" Dayton system, when the entities had greater competencies in security and justice. Milorad Dodik, who has dominated politics in Republika Srpska since the 2000s, has gone further by repeatedly threatening RS secession. Bosnian Croat leaders from the largest Croat party, the Croatian Democratic Union of Bosnia (HDZ-BiH), call for more autonomy for Croats, and have raised the prospect of splitting FBiH to create a third Croat-majority entity. By contrast, Bosniak leaders generally prefer more centralization and the removal of some of the institutional arrangements that they believe contribute to dysfunction and gridlock. Some Bosniak officials also have proposed dismantling the entities or eliminating FBiH's cantons. Survey research documents Bosnian citizens' anger toward the political class and their distrust of political institutions. In a 2018 International Republican Institute survey, 86% of respondents expressed belief that Bosnia is heading in the wrong direction. An estimated 170,000 individuals—disproportionately young and skilled—have emigrated since 2013. Dissatisfaction with education and healthcare, insecurity, and nepotism are cited as key motives to emigrate. Nevertheless, some analysts believe that periods of social discontent in 2014 and 2018, which challenged the system but appeared to transcend ethnic divides, suggest that strengthening Bosnian civil society could increase pressure for reform, and perhaps cultivate a new generation of party leaders. Other observers have put their hopes for reform in Bosnia's so-called "civic parties," which do not have nationalist platforms and typically mobilize voters on the basis of socioeconomic interests rather than ethnicity. While these parties have not matched the results of the ethnic parties, their electoral performance has improved in recent years. Bosnia's challenges came to the forefront during its most recent general election on October 7, 2018 (see Table 1 ). The Central Election Commission (CEC) registered 60 parties and over 3,500 candidates for state-level, entity, and cantonal offices. Observers noted that the campaign climate was more divisive and nationalist in tone than usual. Despite broad voter dissatisfaction, entrenched ethnic parties won the largest vote shares. Almost six months after the election, the parties are still negotiating over government formation at the state level and in FBiH; however, it appears that entrenched ethnic parties will continue to dominate. In March 2019, the leaders of the largest Bosniak, Croat, and Serb parties stated that they had agreed to a set of principles to guide forming the state-level government (the Council of Ministers). Some observers viewed the improved result of civic parties (one-third of the vote in FBiH) as a positive development. Some of the most controversial outcomes concern the elections to the state-level presidency, composed of three members (one Bosniak, one Croat, and one Serb). In a closely fought race, Šefik Džaferović, candidate of the ethnic Bosniak SDA party, narrowly defeated the candidate of the civic SDP party (36.6% and 33.5%, respectively), retaining the lock that the SDA has had on the Bosniak seat in most elections since 1996, but perhaps auguring a future victory by a civic party candidate. Prior to the election, some analysts expressed concern at the prospect of two of the three seats on the presidency being held by the nationalist Bosnian Serb leader Milorad Dodik and his ally, the nationalist Bosnian Croat politician Dragan Čović. Both politicians have explicitly or implicitly challenged the legitimacy of Bosnian statehood and called for greater ethnoterritorial autonomy. However, to the surprise of some observers, Željko Komšić of the civic Democratic Front defeated incumbent Čović for the Croat seat with 53% of the vote. Komšić was previously elected as the Croat member of the presidency in 2006 and 2010, and is considered to be a moderate political figure who generally supports centralizing reforms. In contrast to HDZ-BiH leader Čović, he does not have strong ties to the Croatian government. Komšić's election as the Croat member of the presidency in 2006 and 2010 was mired in controversy amid complaints that he only won with the support of Bosniaks who voted in the election for the Croat member on the presidency rather than the Bosniak member. Komšić identifies as Croat but has been leader of several civic parties. He comes from central Bosnia, and not from the Croat-majority western regions that are the stronghold of the HDZ. Although it is not illegal for Bosniaks to vote for the Croat seat on the presidency rather than the Bosniak seat, some Croat leaders (especially HDZ-BiH and HDZ-1990) claim that it violates the spirit of Dayton and results in illegitimate representation of Croats. Similar accusations of ethnic cross-voting surfaced after Komšić's victory in 2018. Some analysts expect Komšić's victory to harden the HDZ-BiH position on electoral reform (see "Legal Challenges," above) and possibly embolden politicians who seek a separate entity. As most pre-election polls anticipated, RS strongman Milorad Dodik defeated the more moderate incumbent Serb member of the presidency with 54% of the vote. Dodik has dominated entity politics in RS since the mid-2000s as entity prime minister and president. Analysts note that RS's political environment grew more closed as Dodik consolidated power. Dodik has run afoul of the United States and the EU by frequently threatening to hold a referendum on RS secession, questioning the legitimacy of Bosnian statehood, and cultivating close ties to Russia (see below). The U.S. Treasury Department sanctioned him in 2017 for actively obstructing Dayton. Many analysts have expressed concern that Dodik will use his new position to obstruct the workings of the central government while continuing to dictate politics in RS through loyal allies. Shortly after the election he vowed to "work above all and only for the interests of Serbs." One of his first acts as head of state was to call for Bosnia to recognize Ukraine's Crimea region as Russian territory. In December 2018, the National Assembly of RS approved the creation of several new ministries, an act that some view as an attempt to wrest competencies from the state-level government. In early 2019, the RS parliament courted controversy when it passed legislation to create a new commission to reinvestigate the events of Srebrenica, which many view as an attempt to deny or downplay the massacres. Since the election, the formation of governments has proceeded piecemeal, and legal challenges to election law in FBiH (see above, "Legal Challenges") initially cast doubt over the formation of that entity's government. The RS National Assembly approved the new entity government in December 2018. Party leaders continue to negotiate over forming governments in FBiH and the state-level Council of Ministers. Because the FBiH government did not fix electoral legislation before the election, the Electoral Commission adopted a decision to assign delegates to the House of Peoples based on the 2013 census. (The Electoral Commission's actions reportedly came amid strong pressure from U.S. and EU officials). Several Bosniak parties challenged the decision before the Constitutional Court; however, the Court declined to take on the case. Bosnia is one of Europe's poorest countries. The 1992-1995 war caused an estimated $110 billion in damage, and Bosnia's economy contracted to one-eighth of its prewar level. Despite significant reconstruction and recovery since 1995, GDP per capita was $5,148 in 2017, well below the EU average ($33,715) and that of Bulgaria ($8,031), its lowest-ranking member. Nearly one in five Bosnians lives below the poverty level. Bosnia's unemployment rate was 18% in 2018, down from 28% in 2015. Youth unemployment also declined in recent years from 60% to 46%. Nevertheless, these rates are still high by European standards. Since 2015, annual GDP growth has averaged around 3%, but it is largely driven by consumption (much of which in turn is fueled by migrant remittances). The IMF has urged Bosnia to privatize or restructure the nearly 550 state-owned enterprises that comprise roughly 20% of its economy; many of them are unprofitable but allegedly are used by politicians as "cash cows and workplaces for loyal cadres." Bosnia participates in several free trade schemes. In 2006, it joined the Central European Free Trade Agreement (CEFTA) alongside other non-EU countries in the region, including other ex-Yugoslav neighbors. Bosnia's Stabilization and Association Agreement (SAA) with the European Union, which entered into force in 2015, provides for almost fully free trade. A free trade agreement with the European Free Trade Association (EFTA) also entered into force in 2015. The EU is Bosnia's primary trade partner. Germany, Italy, Croatia, Slovenia, and Austria are Bosnia's key EU export markets, accounting for more than half of its exports in 2017. Serbia, another CEFTA signatory, is also an important export market. Bosnia's major exports include vehicle seats, raw materials, leather products, textiles, energy, and wood products. The EU is also Bosnia's primary source of foreign direct investment (FDI). In 2016, 63% of Bosnia's FDI came from EU countries, with Austria, Croatia, and Slovenia the top sources. Serbia is also a significant source of FDI (16.3%). However, Bosnia's fragmented legal and administrative structure create a challenging investment climate. Many relevant laws differ between the two entities. Corruption, entrenched economic interests, and political instability also deter investment. As a result, FDI amounts to just 2% of Bosnia's GDP, well below the Western Balkan average of 5%. Bosnia was the region's lowest-rated country in the World Bank's 2019 Ease of Doing Business Index. U.S. and EU policymakers view the NATO and EU accession processes as a positive force for democratization and reform in the Western Balkans, including Bosnia. According to analysts, this assessment informed the United States' partial retreat from the region in the 2000s and 2010s. EU membership is one of the few policy issues for which there is relatively broad consensus among Bosnia's politicians and population. The EU's "fundamentals first" approach to enlargement in the Western Balkans frontloads the accession process with meeting the core requirements of having a democratic political system and functioning market economy; in Bosnia, the EU is currently focused on issues relating to the rule of law, public administration reform, and economic development. In 2016, Bosnia submitted its application to join the EU. Its current status is potential candidate , which entitles it to receive financial assistance from the EU's Instrument for Pre-Accession Assistance II (IPA II). Between 2014 and 2020, Bosnia is expected to receive €552 million in IPA II allocations, making the EU Bosnia's largest source of foreign assistance. Many EU member states provide additional aid to Bosnia through domestic foreign assistance programs. Bosnia's EU membership prospects are uncertain. In a 2018 progress report, the European Commission (the EU's executive) flagged Bosnia's slow implementation of reforms, including the 2015 Reform Agenda (a flagship EU initiative in Bosnia) and numerous domestic and international court rulings (see "Legal Challenges," above). Some analysts question whether Bosnia, under its current political system, would be capable of meeting the membership requirement of harmonizing domestic legislation with the many thousands of provisions in the acquis communautaire, the cumulative body of EU legislation, case law, and regulations. In comparison to EU membership, Bosnian leaders are more divided over the issue of joining NATO. These divisions largely fall along Bosnian Serb and Bosnian Croat/Bosniak lines. Bosnian Serb opposition is rooted in resentment over NATO's role in the Bosnian war, and may also reflect a desire to remain in lockstep with neighboring Serbia, which also does not seek NATO membership. Bosnia joined NATO's Partnership for Peace in 2006 and secured an Individual Partnership Action Plan in 2008. In 2010, NATO indicated that it would launch a Membership Action Plan (MAP)—a program to help aspiring members meet membership requirements—once Bosnia meets several conditions, the most challenging of which is the reregistration of permanent defense installations from entity to state-level government. RS officials have resisted ceding control over defense installations on entity territory. Although Bosnia does not yet meet these requirements, in December 2018 NATO foreign ministers invited Bosnia to activate its MAP by submitting its first Annual National Program. Some analysts interpreted this invitation as a gesture to generate reform momentum in Bosnia's fragile post-election period. The Bosniak and Croat members of the presidency responded positively, but Bosnian Serb leaders (and most Bosnian Serbs) do not want Bosnia to join NATO. In October 2017, the RS National Assembly passed a resolution supporting military neutrality. RS President Željka Cvijanović reiterated this stance after NATO's invitation, and Dodik—now a member of the state-level presidency—also has vowed to pursue military neutrality. Bosnia's relations with Croatia and Serbia are seen as an important component of regional stability. However, bilateral relations have often been fraught as a legacy of the Bosnian war, as well as sensitivities over Croatia and Serbia's relations with Bosnian Croats and Serbs. While democratic gains in Croatia and Serbia after 2000 contributed to improved relations with Bosnia, they remain reluctant to examine or acknowledge their role in the Bosnian war. At times, Bosnian leaders have objected to what they describe as Croatian and Serbian meddling in Bosnia's affairs. Ex-Bosnian Croat member of the presidency Dragan Čović and current Bosnian Serb member of the presidency Milorad Dodik draw support from leaders in Croatia and Serbia and reportedly hold Croatian and Serbian citizenship, respectively, alongside their Bosnian citizenship. The Croatian government financially and politically backed Čović in Bosnia's 2018 elections, and Croatian politicians have raised the issue of Bosnian Croats' constitutional challenges (see above, "Legal Challenges") in forums like the European Parliament, NATO, and the United Nations. These moves prompted three former High Representatives to Bosnia to issue a joint letter expressing alarm over Croatia's "meddling" in Bosnia's internal affairs. The Croatian government also challenged the legitimacy of Željko Komšić as the Croat member of the Bosnian presidency (see above, "2018 General Election"). Some parties in Croatia hold Croatian election campaign events on Bosnian territory to mobilize Bosnian Croat voters with dual citizenship to vote in Croatia's elections. The Serbian government likewise supports Dodik, who is a frequent visitor to Belgrade. Some Serbian politicians have made statements supporting convicted Bosnian Serb war criminals, inflaming an issue that remains highly sensitive in Bosnia. Bosnia and Serbia have an unresolved demarcation dispute over approximately 40 square kilometers of border area, including a railway segment and hydroelectric power stations. Bosnia has dual citizenship treaties with Croatia and Serbia, resulting in hundreds of thousands of Bosnian Croats and Bosnian Serbs acquiring dual citizenship. This has raised jurisdictional issues in cases in which indicted war criminals hold dual citizenship. Despite occasional tensions in their relations, Croatia and Serbia are important economic partners for Bosnia. Both countries are among Bosnia's top export markets and top sources of FDI. As part of its enlargement strategy in the Western Balkans, the EU has embraced a connectivity agenda to improve regional transportation, energy, and infrastructural linkages, reserving up to €1 billion in grants for projects for the period 2015-2020. Officials believe that improved connectivity could benefit bilateral relations and contribute to regional stability. Given its strategic location and relatively small, weak states, the Balkan region has long drawn in more powerful states. Many analysts maintain that as the United States and the European Union have both scaled back their presence in the Balkans to address other issues since the late 2000s, Russia, Turkey, and China partly filled the vacuum. U.S. and EU officials have expressed concern over Russian influence in the Western Balkans, particularly after Russia occupied Ukraine's Crimea region in 2014. Many analysts maintain that Russia does not have a grand strategy in the Western Balkans, but rather aims to prevent Euro-Atlantic integration and shore up its claims to great power status by asserting itself in the EU's "inner courtyard." Analysts have identified several Russian tools in the region, including playing a "spoiler" role, projecting soft power, and leveraging energy dominance. Observers contend that Russia plays a "spoiler" role in Bosnia by exacerbating ethnic divisions, backing illiberal or anti-Western political factions, and helping to militarize RS. They claim that these actions help sustain the dysfunction and gridlock that undermine Bosnia's Euro-Atlantic reform efforts. Russia has supported Bosnian Serb and Bosnian Croat nationalist leaders Milorad Dodik and Dragan Čović. Dodik's meeting with Russian President Vladimir Putin just before Bosnia's October 7, 2018 general election was one of nearly ten meetings between the two over the past three years, signaling high-level Russian support. Many experts assert that Russia has been a key ally to Dodik in resisting Western pressure to cooperate on reforms. Moscow has also supported divisive RS policies. When Dodik violated a Bosnian Constitutional Court ruling in 2016 by holding a referendum to establish a controversial "Statehood Day," Russia stood apart from the High Representative and Western diplomats by supporting the initiative. More recently, Russia stated its support for RS's controversial Srebrenica commission (see above). Analysts have also expressed concern at Russia's apparent support for Čović, who has advocated greater autonomy for Croats and the creation of a third Croat entity. Some analysts have expressed concern at Russia's role in RS's security sector. Russian forces have trained RS police special forces on counterterrorism and intelligence. Some observers believe that these exercises contribute to militarization in RS, potentially pushing the police force beyond its civilian law enforcement mandate. Analysts caution that militarization could increase the scale of violence in any confrontation between RS and the Bosnian government. Some Bosnian Serb ultranationalist and veterans groups have fought alongside pro-Russia combatants in Ukraine, and analysts believe they could be mobilized to support RS leaders as well. Russian soft power draws upon religious and cultural kinship with Bosnian Serbs, as well as Russia's history of support during the wars of Yugoslav disintegration. Kremlin-linked media, like Sputnik and RT , amplify existing anti-Western narratives and positively shape public opinion toward Russia. Some local media further propagate Sputnik and RT articles. A 2018 National Democratic Institute media study found that RS media stories about Russia were overwhelmingly positive, while the tone of most stories about the United States and NATO was negative. Pro-Russian media glorifies the Russian military, highlights cultural and religious links between Serbs and Russians, and documents high-level meetings between RS and Russian officials. Economic relations between Russia and RS have deepened in recent years. Russia is the largest source of FDI in RS, and it is largely concentrated in the energy sector. In 2007, Russian state-owned oil company Zarubezhneft bought RS's Bosanski Brod oil refinery, motor oil processing facilities in nearby Modrica, and retailer Banjaluka Petrol. Some analysts believe that these assets—which were purchased without an open tender—give Zarubezhneft influence in RS. In addition to being an important employer, Zarubezhneft is RS's biggest taxpayer; its value-added tax and excise duty contributions reportedly account for 25% of RS budget revenue. Bosnia depends upon Russian natural gas imports via Ukraine. Energy policy is vested in the entities, and Russian natural gas provider Gazprom reportedly has used its market dominance to pit the two entities against one another and undermine projects that would diversify supplies. Many analysts believe that Turkey's influence in Bosnia has increased over the last two decades due to Ankara's close relationship with Bosniak leaders. Some Turkish officials reportedly view Bosnia as a natural sphere of influence given geographic and historical connections. Observers note that Turkish President Recep Tayyip Erdogan has at times invoked Ottoman-era ties to Bosnia and religious kinship with Bosniaks as soft power tools. Turkish influence in Bosnia has expanded since Yugoslavia's collapse. During the 1992-1995 war, Turkey gained prestige among Bosniaks by condemning the international arms embargo against Bosnia, arguing that it prevented Bosniaks from defending themselves. Turkey, as well as other predominantly Muslim countries like Iran and Saudi Arabia, reportedly supplied Bosniak forces with arms. Turkish influence has continued since the war's end. Bosnia is one of the top recipients of Turkish Cooperation and Coordination Agency assistance; much of this support is earmarked for projects to restore Ottoman-era buildings and monuments. A Turkish Cultural Center was established in Bosnia in 2003, and in 2009 the Yunus Emre Foundation, an NGO founded by the Turkish government, opened an office in Sarajevo to promote Turkish language and culture. Turkey has popular support among Bosniaks. In a 2018 International Republican Institute survey, 76% of Bosniak respondents had positive views of Turkey—the strongest support among Bosniaks for any foreign state. Many Bosnian Croats and Bosnian Serbs look to Croatia and Serbia as external protectors, and some analysts believe that Turkey has attempted to establish a similar role for itself vis-à-vis Bosniaks. Observers contend that Erdogan's ruling party has particularly strong ties to the largest Bosniak ethnic party, the SDA. Erdogan and Turkish state-owned media openly supported SDA candidate Bakir Izetbegović in his bid for the Bosniak seat on the presidency in 2014. Some observers believe that Izetbegović's clout within the SDA rests in part on his support from Erdogan. Economic relations between Bosnia and Turkey have deepened in recent years. Turkish FDI in Bosnia accounted for 5.6% of FDI flows in 2016. One notable project is a highway to connect Sarajevo to Belgrade, Serbia. After years of disagreement, Bosnian officials approved the route in February 2019. Turkey is expected to provide funding for some of the expected €3 billion in costs, although the terms of the contract are not yet resolved. Some officials, including French President Emmanuel Macron, have expressed concern over Turkey's alleged ambitions as part of broader EU concern over external influence in the Balkans. However, analysts caution that Turkey's ambitions and capabilities in the Balkans may be overstated. They note that the scope of Turkish investment is sometimes exaggerated in the media, and that proposed projects do not always come to fruition. While Russian and Turkish influence in Bosnia relies in part on soft power, China's presence in Bosnia is primarily economic. Between 2011 and 2019, Chinese investments in Bosnia amounted to an estimated $3.6 billion, primarily in the form of direct lending for energy and transportation projects. Chinese firms have contracts to construct or expand energy plants, including a €350 million loan to construct a coal-fired plant in Stanari, RS. A €1.4 billion deal was signed to construct a highway between Banja Luka and Mlinište. In March 2019, the EU Energy Community criticized the FBiH entity government's decision to guarantee a €600 million loan from China's Exim Bank to build a coal-fired power plant in Tuzla. However, some analysts caution that China's economic influence in Bosnia may be overstated at present. While China's pledged investments in high-visibility projects garner media attention, the actual amount of Chinese FDI is far less than that of the EU. Moreover, many pledged projects do not come to fruition. Nevertheless, EU and U.S. officials have voiced concern over the scope of China's investments in the Balkans, as well as Chinese lending practices. Chinese loans often require recipient state governments to assume the loan burden, potentially leading to high external debt. The EU has also raised concerns that Chinese lending practices violate EU rules in public procurement because they frequently require use of Chinese contractors, laborers, or supplies. In contrast to EU funds, which are partly designed to spur reform, Chinese loans have few conditions and rules linked to transparency or reform. Finally, EU officials have expressed concern that China's economic might could be a source of leverage over recipient states that are candidates or potential candidates for EU membership and thus impede the EU's ability to speak with one voice on relations with China if they do become members. Bosnia was not a core transit country in the "Balkan Route" that hundreds of thousands of migrants and refugees followed in an attempt to reach the EU during heightened flows in 2015 and early 2016. However, recent route shifts have brought more migrant and refugee traffic through Bosnia. Since early 2018, an estimated 23,000 migrants and refugees have entered Bosnia; approximately 25% of them remain in the country. Most of them hope to enter EU territory via Bosnia's neighbor, Croatia, and from there move on and enter the EU's visa- and passport-free Schengen Area. However, the Croatian government has expanded border policing, and apprehended individuals are sent back to Bosnia. The EU provided €2 million in 2018 to help Bosnia respond to the crisis and provide shelter to migrants and refugees who are effectively stranded in Bosnia. The migration crisis has triggered a backlash from some Bosnians, particularly in Una-Sana Canton, which borders Croatia and has the highest concentration of migrants and refugees. Some residents of Bihać, Una-Sana's administrative center, protested against camps situated in their municipality in October 2018, while local authorities in Velika Kladuša, another city in the canton, reportedly obstructed the Ministry of Security's plans to house migrants in a local building. The incident illustrates local backlash as well as the state-level government's difficulty enforcing its decisions, even when it has jurisdiction. Islam was introduced to part of Bosnia's population during Ottoman rule. In socialist Yugoslavia, the semi-official Islamic Religious Community played a key role in religious affairs, including legal rulings and religious education. It was renamed the Islamic Community of Bosnia and Herzegovina in 1992, and remains an important religious institution. Islamic tradition in the Balkans, including Bosnia, is generally moderate and secular. The majority of Bosnia's practicing Muslims follow the Hanafi school of Sunni Islam. However, some analysts have expressed concern over the emergence of groups influenced or funded by state and non-state entities in the Arab Gulf states, where more conservative Hanbali Sunni practices are common. Aid workers, missionaries, and "mujahedeen" fighters from the Gulf States promoted transnational Islamist militancy and Salafist Hanbali religious doctrine during Bosnia's 1992-1995 war; Iran's government also supported Bosniak leaders and forces. After the war, Saudi Arabia provided an estimated $600 million in aid to repair and build hundreds of mosques and establish schools and cultural centers that promote socially conservative Sunni views. Iran has also maintained active cultural outreach and other ties to some Bosnian Muslims. Many analysts contend that Salafi groups have limited support in Bosnia because of the traditionally high level of secularism among Bosnian Muslims. They also note that few Bosnian Muslims who subscribe to Salafist ideas and practices have violent intentions, and many of them live in remote rural communities. While most of these groups were not originally affiliated with official religious organizations in Bosnia, the Grand Mufti of Bosnia's Islamic Community exerted pressure on them to acknowledge his authority and his right to monitor religious content. As a result, an estimated 90% of Salafi groups were brought under official structures. Nevertheless, some experts caution that radicalized groups and individuals may pose a terrorist threat despite their small numbers. Radicalized Muslims were implicated in the bombing of a police station in Bugojno in 2010 and a lone-gunman attack on the U.S. Embassy in Sarajevo in 2011. The Islamic State (IS) and Nusra Front's gains in Syria and Iraq in the 2010s altered the dynamic of the terrorism threat in Bosnia and broadened the use of social media in recruitment. Between 2012 and 2017, an estimated 350 Bosnian citizens traveled from Bosnia or Bosnian diaspora communities to fight with armed groups in Iraq and Syria. More recently, returned foreign fighters are seen as a potential threat as the position of the IS and other armed groups has weakened. Bosnia's stock of illegal weapons, mines, and explosives may exacerbate the risk posed by returnees. As of December 2017, officials believed that just over 100 Bosnians remained in Syria (including women and children), roughly 50 had returned to Bosnia, and 70 had been killed in the conflict. In 2014, the Bosnian government introduced new criminal offenses to prosecute foreign terrorist fighters and recruiters. Several dozen returned fighters and domestic recruiters have been convicted of these offenses. While the U.S. State Department describes Bosnia as a "cooperative counterterrorism partner," it warns that Bosnia's political fragmentation and dysfunction could undermine counterterrorism efforts. For example, in 2017 several ministries proposed new measures to tighten counterterrorism efforts; however, they were not enacted due to political gridlock in state-level and FBiH governments. Initially viewed as a "European problem," the Bosnian conflict eventually helped shape the post-Cold War role of the United States and NATO in European security. When the United States assumed greater responsibilities in resolving the conflict, its role was considerable: leading NATO airstrikes, garnering diplomatic support from Russia and European allies, persuading warring parties to agree to a ceasefire, brokering the Dayton Peace Agreement, and deploying 20,000 troops to Bosnia. According to Richard Holbrooke, the U.S. official who brokered the talks, the Bosnian war was a pivotal period in U.S. foreign policy in Europe: "The three main pillars of [policy]—U.S.-Russian relations, NATO enlargement into Central Europe, and Bosnia—had often worked against each other. Now they reinforced each other: NATO sent its forces out of area for the first time in its history, and Russian troops, under an American commander, were deployed alongside them." Some analysts and policymakers believe that the United States' strong hand in resolving the conflict and in shaping Bosnia's political system have made it a stakeholder in Bosnia's future. U.S. officials, often in cooperation with the EU, have intervened to defuse crises and broker reform talks. The United States also has imposed sanctions against Bosnian officials: in addition to Dodik (see above), the U.S. State Department publicly designated Bosnian Serb politician Nikola Špirić (Dodik's associate) for "significant corruption or gross violation of human rights." U.S. policymakers attach strategic importance to Bosnia's stability; many analysts believe turbulence in Bosnia could reverberate in the Balkans and potentially draw in Croatia and Serbia, while instability in other parts of the region could spill over into Bosnia. When the Trump Administration indicated in 2018 that it would consider supporting a potential Serbia-Kosovo agreement to "adjust borders" between the two—a major break with the long-standing EU and U.S. policy to oppose redrawing borders in the Balkans along ethnic lines—some analysts expressed concern that the Administration could reshape long-standing U.S. policy toward Bosnia. However, the new U.S. Ambassador to Bosnia stated in February 2019 that the U.S. will continue to be "guarantor of Bosnia and Herzegovina's sovereignty and territorial integrity." On the other hand, many observers also note that U.S. engagement in Bosnia (and the Western Balkans) decreased under the administrations of President George W. Bush and President Barack Obama. During this time U.S. policymakers turned their focus to geopolitical crises and challenges in other parts of the globe while ceding the regional lead to the EU. Indeed, some analysts have urged the United States to assume a greater role in Bosnia, arguing that Bosnia's current crises warrant it, and that the EU and the United States are more effective in the region when they work together. Congressional interest in Bosnia dates back to the 1992-1995 war. Many Members featured prominently in foreign policy debates over U.S. intervention in the conflict. In 2015, the House passed a resolution describing the Srebrenica massacres as a genocide and urging the United States to continue to support Bosnia's territorial integrity ( H.Res. 310 , 114 th Congress). In the 114 th and 115 th Congresses, a bill was introduced in the Senate to establish an enterprise fund to promote economic development and the private sector in Bosnia ( S. 2307 and S. 864 ). In April 2018, the House Foreign Affairs Committee's Subcommittee on Europe, Eurasia, and Emerging Threats held a hearing on Bosnia's prospects ahead of its October 2018 elections. Congress's engagement with Bosnia also continues within the broader context of policy concern over the external influence of China, Turkey, and Russia in the Western Balkans and energy security. As a potential candidate for EU membership and NATO partner, Bosnia is eligible for assistance through the Countering Russian Influence Funds under the Countering America's Adversaries Through Sanctions Act (CAATSA) enacted in 2017 ( P.L. 115-44 ). Through congressionally approved (and sometimes expanded) foreign assistance appropriations, Bosnia has received more than $2 billion in aid since 1995. Between 1996 and 1999, the United States pledged $1 billion of the $4 billion international commitment to implementing Dayton's civilian provisions and helping to rebuild Bosnia. The cost of U.S. military operations in Bosnia since 1992 is estimated at more than $10 billion ( Appendix I ). Bosnia continues to receive U.S. foreign assistance, although the amount has decreased in recent years. Assistance to Bosnia in FY2015 and FY2016 was approximately $33 million each year. In FY2017, it was $53.5 million, and $41.5 million in FY2018. The Administration requested $21 million for FY2019 and $16.9 million for FY2020. Nearly 25 years after the Dayton Peace Agreement, Bosnia faces many challenges. In considering U.S. relations with Bosnia, Members of Congress may consider the following questions: How can the United States encourage Bosnia's government to incorporate the legal rulings of the Bosnian Constitutional Court and the European Court of Human Rights into election legislation and the constitution? How can U.S. foreign assistance be used to counter Russian influence in Republika Srpska, in particular Russia's close ties to Bosnian Serb politicians and its use of local media and Sputnik to amplify anti-U.S. narratives and project pro-Russia soft power? What are the implications of potential militarization in Republika Srpska? How can the United States effectively address this alleged trend? How can the United States support a successful reform initiative that secures transparency and accountability, and facilitates a political community in which politicians and voters are committed to the Bosnian state and socioeconomic challenges that transcend all three ethnic groups? Can the Germany-U.K. initiative from 2015 be revived, or is it better to start from scratch? Are the approximately 600 troops in the European Union Force mission in Bosnia sufficient to stabilize Bosnia if violence breaks out? If Serbia and Kosovo agree to normalize relations by redrawing their borders, how can U.S. policymakers prevent this development from destabilizing Bosnia, particularly given Milorad Dodik's threats to seek RS secession if Kosovo is "partitioned"? How can the United States encourage Croatia and Serbia to engage in Bosnia in a manner that helps bridge ethnic divisions and contributes to Bosnia's territorial integrity and sovereignty? Given the pervasiveness of corruption in Bosnia, how can U.S. assistance most effectively be used to counter it? Does foreign assistance contribute to civic groups and independent media that could serve as a check against corruption?	[ "Bosnia and Herzegovina (hereafter, \"Bosnia\") drew heavily on U.S. support after gaining independence from Yugoslavia in 1992. The United States helped end the Bosnian war (1992-1995), one of the most lethal conflicts in Europe since the Second World War, by leading NATO airstrikes against Bosnian Serb forces, brokering the Dayton Peace Agreement in 1995, and deploying 20,000 U.S. troops. Some Members of Congress became involved in policy debates over these measures, and Congress monitored and at times challenged the Bush and Clinton Administrations' response through numerous hearings, resolutions, and legislative proposals. Since 1995, the United States has been a major source of aid to Bosnia and firmly supports its territorial integrity. The United States also supports Bosnia's aspirations for NATO and European Union (EU) membership. Today, Bosnia faces serious challenges. Nearly 25 years after the Dayton Agreement, Bosnia continues to use part of the Agreement as its constitution, which divides the country into two ethnoterritorial entities. Critics charge that Bosnia's political system is too decentralized to enact the reforms required for NATO and EU membership. They also contend that the ethnic power-sharing arrangements and veto points embedded in numerous government bodies are sources of gridlock. Domestic and international courts have ruled against several aspects of Bosnia's constitution, yet the Bosnian government thus far has failed to implement these rulings. Since Bosnia's independence, its politics has been dominated by ethnic parties representing the country's three main groups: Bosniaks (Slavic Muslims), Croats, and Serbs. These parties have prospered under a system that critics charge lacks transparency and accountability. Critics also maintain that ethnic party leaders use divisive nationalist rhetoric to distract from serious issues affecting the country as a whole, including poverty, unemployment, and stalled political reforms. The Bosnian population exhibits low trust in political parties and the government, and disaffection toward the country's elite. U.S. and EU officials brokered several ultimately unsuccessful rounds of constitutional reform negotiations, and continue to call on Bosnia's leaders to implement reforms to make governance more efficient and effective, dismantle patronage networks, and bring Bosnia closer to EU and NATO membership. However, there is little consensus among the country's leaders on how the country should be reformed. Bosnian Serb leaders from the Serb-majority entity (Republika Srpska) have called for greater autonomy and even secession from Bosnia. Some Bosnian Croat leaders have called for partitioning Bosnia's other entity, the Federation of Bosnia and Herzegovina, to create a separate Croat-majority entity. Bosniak leaders, by contrast, generally prefer a more centralized state. Many analysts caution that any move to partition the country could lead to renewed violence, while greater decentralization could make Bosnia's government less functional. U.S. policy has long been oriented toward preserving Bosnia's statehood. Bosnia's 2018 general elections largely returned to power the same entrenched ethnic parties. Of particular concern is the election of Bosnian Serb leader Milorad Dodik to Bosnia's collective presidency. Dodik, a sharp critic of the United States and NATO, has periodically called for a referendum on Republika Srpska's secession. He is under U.S. sanctions for obstructing the Dayton Agreement. In addition to these internal challenges, U.S. and EU officials have expressed concern over external influence in the region. Russia reportedly relies on soft power, energy leverage, and \"spoiler\" tactics to influence Bosnia, particularly in the Serb-majority entity. Turkish soft power draws on Bosnia's Ottoman-era heritage and Turkey's shared religious tradition with Bosniaks. China is a more recent presence in the region, but its heavy investments and lending have prompted concern on both sides of the Atlantic. Policymakers have also expressed concern at the challenges posed by the return of Bosnians who fought with the Islamic State and Nusra Front in Syria and Iraq. Many observers contend that the United States remains a stakeholder in Bosnia's future because of its central role in resolving the conflict and shaping the postwar Bosnian state. Given the history of U.S. involvement in Bosnia, Bosnia's importance to regional stability in the Balkans, and concerns over Russian and Chinese influence in Bosnia, Members of Congress may be interested in monitoring how the country navigates its internal and external challenges. Congress may also consider future U.S. aid levels to Bosnia and the degree to which such assistance supports the long-standing U.S. policy objectives for Bosnia of territorial integrity, NATO and EU integration, energy security, and resilience against malign influence." ]	8,598	gov_report	en	null	f8113f184e34b1df24257645d9db41dbec8c2c4e6e4e7e1b
DOJ and its components, as well as the judiciary, play important roles in requesting and collecting restitution. DOJ and select components: Prosecutors in DOJ’s Criminal Division and the Criminal Divisions of the 94 USAOs are responsible for overseeing criminal matters, including identifying and notifying victims, determining their losses as part of a case investigation, prosecuting cases and negotiating the terms of plea agreements, of which restitution may be a part. Within DOJ’s Criminal Division, the Money Laundering and Asset Recovery Section manages DOJ’s Asset Forfeiture Program. As previously stated, FLUs within each USAO undertake activities to collect restitution from offenders in their district. Additionally, all USAOs have asset forfeiture staff responsible for forfeiting property seized by law enforcement agencies because the property was used in criminal activities or purchased with the proceeds of criminal activities. According to EOUSA guidance, coordination between the FLU and Asset Forfeiture units is highly encouraged to use forfeited assets as a means to collect on unpaid restitution debts. DOJ requires each USAO to have its own policies and procedures related to debt collection efforts but allows them discretion in developing these policies and procedures to ensure that they are appropriate for local conditions. DOJ also requires USAOs to have policies and procedures to make early, effective, and coordinated asset investigations and recovery a routine part of every case involving victims but allows USAOs to specify these policies and procedures. DOJ’s EOUSA provides USAOs with management assistance, guidance, training, and administrative support. Among other activities, EOUSA provides management assistance to USAOs by administering internal evaluations for each USAO, which are intended to provide on-site management support for that office. Further, EOUSA provides guidance to enhance offices’ efforts to request and collect restitution. Judiciary: Within the judiciary, the 94 federal district courts order restitution, receipt restitution payments, and disburse restitution to victims. Within the federal district where the offender was convicted, a probation officer prepares the presentence investigation report (PSR) for the court, which includes information on the victim’s losses and an offender’s financial information. Probation officers may obtain this information from DOJ, which has the statutory responsibility for the enforcement and collection of criminal debt. The court uses the PSR, among other things, to determine whether to order restitution. If an offender is released to the community by the court and placed on supervision, probation officers are responsible for ensuring the offender abides by the terms of release, including paying any restitution owed to victims. The Clerk of each District Court is responsible for the receipt of restitution from offenders and for disbursing payments to victims. The Judicial Conference is the national policy-making body for the federal courts. The Conference operates through a network of committees created to address and advise courts on a wide variety of subjects such as information technology, personnel, probation and pretrial services, space and facilities, security, judicial salaries and benefits, budget, defender services, court administration, and rules of practice and procedure. The Judicial Conference has taken policy positions on restitution-related issues and has supported legislative proposals to improve the restitution process. AOUSC is the agency within the judiciary that provides a broad range of legislative, legal, financial, technology, management, administrative, and program support services to federal courts. AOUSC is responsible for carrying out Judicial Conference policies and a primary responsibility of AOUSC is to provide staff support and counsel to the Judicial Conference and its committees. USSC is an independent agency within the judiciary which, among other activities, establishes and promulgates detailed sentencing guidelines that judges are to consider in sentencing offenders convicted of federal crimes, including guidelines on when and how to order restitution. Additionally, each district court is required to submit to USSC a report of each offender’s sentence that includes, among other information, details on the offenses for which the offender was convicted; the sentence imposed on the offender; and if the judge departed from the sentencing guidelines, information on reasons why. USSC maintains a database containing sentencing data on federal offenders convicted of felonies or serious misdemeanors, analyzes it and publishes these data on an annual basis. USSC is also statutorily required to annually report to Congress its analysis of sentencing-related documents, including an accounting of districts USSC believes have not submitted appropriate information to the commission, among other things. During the course of a federal criminal investigation, federal prosecutors identify and notify victims, as well as determine their losses in conjunction with the federal agents investigating the case. If a defendant pleads guilty or is found guilty at trial, the prosecutor has the burden of proving the victims’ losses in court. To facilitate this, a Victim-Witness coordinator within the USAO responsible for the case provides victims the opportunity to explain their losses in detail, usually through a Victim Impact Statement. This information is then to be provided to a federal probation officer who uses it to begin a PSR. To develop the PSR, probation officers use information provided by the USAO and may contact victims and verify the loss amounts. Additionally, probation officers will investigate an offender’s economic circumstances— such as if the offender has a job, any assets or any dependents. If a judge determines that restitution is to be ordered, the judge must order restitution for the full amount of a victim’s losses for offenses without consideration of the economic circumstances of the defendant. Judges may decline to order restitution in certain instances, for example, where restitution is discretionary, or in certain cases where the number of identifiable victims makes restitution impracticable or the complexity of calculating restitution would unduly prolong the sentencing process. If the court does not order restitution, or orders only partial restitution, the judge must provide the reason, and judges usually do so in a written Statement of Reasons document. Figure 1 provides an overview of the federal restitution process. Upon imposition of a restitution debt by the court, FLU staff use two mechanisms to determine the collectability of the debt and what collection actions to take. First, FLU staff classify the debt into one of four categories to determine the extent to which the FLU will pursue enforcement actions to collect upon the debt. FLUs classify debts from a Priority Code 1 debt (indicating that FLUs will make collection of this debt the highest priority) to a Priority Code 4 debt (indicating that FLUs will make collection of this debt the lowest priority). Second, FLUs may suspend collection action on criminal debts, regardless of their categorization, under certain circumstances if they determine the debts are uncollectible. FLU staff may also determine that debts are permanently uncollectible and categorize them as Priority Code 4 debts. If a debtor does not provide payment, FLU staff then use various enforcement actions to collect the restitution debt. These can include, among other actions, filing liens against an offender’s property, coordinating with asset forfeiture staff to use forfeited assets to pay the restitution debt, and garnishing wages an offender may earn. Victims can be compensated for losses with the proceeds of forfeited assets through DOJ’s Asset Forfeiture Program and in accordance with law and regulation. Federal regulations provide that the proceeds from forfeited assets are first used to cover program costs associated with forfeiture-related activities and next to pay valid owners, lien-holders, and federal financial regulatory agencies. Forfeited assets can then be distributed to other victims of crime as compensation for their losses if their loss is a direct result of the commission of the offense underlying forfeiture or a related offense. Any remaining funds from the forfeited asset may be placed into official use, distributed to foreign governments, state or local law enforcement agencies as part of the equitable sharing program to enhance cooperation with federal investigations. When victims are eligible for compensation using forfeited assets, DOJ employs two processes: restoration and remission. The restoration process involves the USAO staff requesting funds on behalf of a victim when there is both an order of forfeiture and an order of restitution. Under the restoration process, USAO staff request DOJ’s Money Laundering and Asset Recovery Section to use the forfeited asset to pay a restitution debt. If DOJ approves the request for restoration, the funds from the forfeited property are then transferred to the Clerk of the Court who disburses this money to the victim. The remission process requires a victim of a crime to directly petition DOJ to receive funds from the forfeited property. According to officials in DOJ’s Criminal Division, the courts may not order restitution on behalf of victims who suffered a specific actual loss as a direct result of a crime for a variety of reasons, and therefore the remission process serves as a complement to the restoration process to ensure victims are made whole. For example, these officials stated that, among other reasons, the courts may not order restitution if a defendant dies prior to sentencing or if the case is one in which a court is not required to, and does not, order restitution, but the victim has suffered eligible losses. EOUSA and USAO officials in all six of the offices with whom we spoke told us that prosecutors document requests for restitution in their case files and that their offices employ other internal controls, such as the use of templates and forms, throughout the prosecution process to ensure that prosecutors request restitution as appropriate. EOUSA officials told us that although the agency does not track this information, they believed all USAOs generally document requests for restitution in their offices’ case files. Further, USAO officials in all six offices told us that prosecutors document requests for the court to order restitution in their case files by including this information in a written memorandum. To support prosecutors in documenting this information, all six offices we selected provide prosecutors with a prosecution memorandum template. Of the six templates we reviewed, four explicitly include a section for prosecutors to indicate whether victims have been identified and the extent of any victim losses. In addition to these templates, four of six USAOs we selected had forms that prosecutors could use to identify whether cases have victims and their need for restitution when drafting criminal charging documents. Moreover, officials from two of the six USAOs told us their offices use this form as an internal control to ensure prosecutors have identified all victims and considered their need for restitution, if applicable. All six offices we selected also provided prosecutors templates for drafting plea agreements, and templates we reviewed from all six USAOs included language requesting the offender pay restitution, if applicable. However, prosecutors are not required to use plea agreement templates, nor are they required to request restitution as part of a plea agreement. USAO officials from one office stated that including this language in the plea agreement template served to remind prosecutors of their requirement to consider requesting restitution as stated in the U.S. Attorney’s Manual. Select USAO officials also described various forms of management oversight to ensure prosecutors request restitution as appropriate. Specifically, four USAOs we selected require supervisory review of the form that prosecutors fill out when drafting criminal charging documents, which includes information on victims. Additionally, officials in all six USAOs told us that they require supervisory review of plea agreements for every case. For example, officials from two USAOs told us their office requires the Criminal Chief, the supervisor of all criminal cases, to approve documents in the plea agreement, which may include requests for restitution. Federal courts sent information on sentencing decisions to USSC and USSC had information on restitution decisions for 95 percent of all offenders from fiscal years 2014 through 2016. According to our analysis of USSC data, 214,578 federal offenders were sentenced from fiscal years 2014 through 2016 and restitution was ordered for 33,158 of those offenders, or 15 percent. Collectively, courts ordered these offenders to pay $33.9 billion in restitution during this period. Courts did not order restitution for the remaining 181,420 offenders, or 85 percent. Table 1 shows the number of federal offenders sentenced and ordered to pay restitution for fiscal years 2014 through 2016, as well as the total amount of restitution ordered by the courts. The majority of federal offenders were sentenced for immigration or drug- related offenses, and USAO officials in all six offices we selected told us that these types of offenses do not typically have victims with actual losses. For example, from fiscal years 2014 through 2016, USSC data showed that 131,088 offenders, 61 percent of offenders sentenced, were sentenced for immigration or drug-related offenses and courts ordered 999 (or less than 1 percent) of these offenders to pay restitution. USSC data show that courts ordered restitution more often for offenders sentenced for other offenses, such as fraud. For example, courts sentenced 21,551 offenders for fraud offenses from fiscal years 2014 through 2016, and courts ordered restitution for 15,902 of these offenders, or 74 percent. Table 2 shows the number of offenders sentenced and the number ordered to pay restitution by offenses for which restitution was most often and least often ordered by courts from fiscal years 2014 through 2016. The percentage of federal offenders ordered to pay restitution varied across federal court districts; from 2 percent of offenders in one district to 42 percent in another district. USAO officials we interviewed stated that some of this variation may be due to the types of offenses prosecuted within different districts. For example, officials from one USAO stated that their office, which had a high volume of immigration–related offenders, had few cases in which restitution was applicable. Our analysis of USSC data showed that from fiscal year 2014 through fiscal year 2016 and across all districts, districts with a higher than average rate of immigration-related offenders had lower than average rates of restitution ordered. Conversely, districts with above-average rates of offenders convicted of financial offenses such as fraud, embezzlement, money laundering, tax offenses, counterfeiting or bribery had higher than average rates of restitution ordered, as shown in table 3. Judges indicated on documents sent to USSC that restitution was not applicable and thus did not order it for most offenders sentenced from fiscal years 2014 through 2016—167,230 offenders—or 78 percent of all offenders sentenced during this time period. Our analysis of sentencing information for the remaining offenders found that courts ordered restitution at a higher rate as compared to all offenders. Specifically, after excluding offenders for whom restitution was not applicable and were not ordered to pay it, we found that courts ordered restitution for 70 percent of the remaining 47,348 offenders. EOUSA and USAO officials told us that in cases where there are identifiable victims, restitution may not be ordered for other reasons. EOUSA officials told us that restitution may not be ordered for several reasons, such as when victims provide no proof of their losses or when victims recover compensation through other means, such as through civil proceedings. Further, officials from one USAO told us that victims must provide documentation of their losses for restitution and, if victims are not able to provide this documentation, courts may decline to order restitution. Also, in certain cases, courts are not required to order restitution—such as when there is no identifiable victim or, on the other hand, when the number of identifiable victims is so large as to make restitution impractical, among other reasons. Additionally, the court might not order, or order only partial restitution for other reasons, such as when the value of property the defendant returned to the victim was deducted from the restitution award or because the victim received compensation from insurance. If a court does not order restitution, or orders partial restitution, it is required to provide the reason for its decision and to provide that reason to USSC, but our analysis showed USSC did not always have these data. Specifically, from fiscal years 2014 through 2016, we found that restitution was not ordered—and no reason was documented in USSC data for that decision—for 9,848 offenders (5 percent of the 214,578 offenders sentenced during this time period). Information on offenders’ sentences, including restitution, assists USSC in its continuous reexamination of its guidelines and policy statements and ensures that various sentencing practices are achieving their stated purposes. Further, Standards for Internal Control in the Federal Government state that management should evaluate issues identified through monitoring activities or reported by personnel to determine whether any of the issues rise to the level of an internal control deficiency. In response to our questions about the missing information on reasons why restitution was not ordered, AOUSC and USSC officials stated that they were unaware of the missing information or why it was missing. Judiciary officials stated that because various entities within the judiciary participate in the process of collecting and recording information on reasons restitution was not ordered, they did not know which entities could take action to improve USSC data. However, as previously discussed, if the court does not order restitution, or orders only partial restitution, the judge must provide the reason, and judges usually do so in a written Statement of Reasons form. The Judicial Conference, along with USSC, has developed guidance to help judges fill out the Statement of Reasons form and AOUSC supports the Judicial Conference in carrying out its policies. Further, courts must provide USSC the written Statement of Reasons form for sentences imposed. USSC is also responsible for collecting, analyzing, and distributing information on federal sentences provided by each district court, including information related to orders for restitution. However, judicial officials, including from the entities listed above, agreed that further studying the missing data may inform the judiciary of the cause of the missing data, as well as any efforts needed to improve USSC information. Courts are required to provide reasons for not ordering restitution and to provide this information to USSC so that the agency can analyze and report on sentencing data. Determining why USSC data are incomplete could help inform the judiciary whether the issue rises to the level of an internal control deficiency and whether additional action can be taken to improve the transparency of sentencing decisions. Doing so could help the judiciary ensure reasons for not ordering restitution are provided consistently in all cases and potentially improve data provided to USSC, in turn supporting its mission to promote transparency in sentencing decisions. Our analysis of DOJ data showed that DOJ collected $2.95 billion in restitution debt from fiscal years 2014 through 2016, half of which was collected on debts imposed during this period. The extent of collections across the 94 USAOs ranged from a high of $848 million in one USAO to a low of $1.2 million in another USAO. The median amount collected for USAOs was $10.7 million. DOJ was more successful at collecting restitution on newer debts—debts imposed from fiscal years 2014 through 2016. Of the $2.95 billion in restitution debt collected, about half was collected from new debts imposed by courts during this time period. Specifically, DOJ collected $1.5 billion (4 percent), of the $34 billion ordered from fiscal years 2014 through 2016. The remaining half of the debt collected during this time frame was collected from debts imposed between fiscal year 1988 and fiscal year 2014. New debts—imposed in fiscal years 2014 through 2016—were also more likely to be fully paid during this time period compared to all debts. Specifically, from fiscal years 2014 through 2016, DOJ collected the full amount of restitution on 4,003 of the 24,950 debts imposed during this time, 16 percent. However, across all debts, including debts imposed prior to fiscal year 2014, DOJ collected the full amount of restitution ordered on only 5 percent of debts. Across all restitution debts, DOJ collected at least some of the debt for one-third of debts and did not collect any restitution on the remaining two-thirds. More than 60 percent of the restitution DOJ collected in fiscal years 2014 through 2016 was owed to non-federal victims ($1.8 billion), including individuals, corporations and state and local governments. An additional 37 percent of restitution was collected on behalf of federal agencies that were victims of crimes. One percent of restitution collected was community restitution, which is restitution collected for drug offenses that otherwise have no victims and which is disbursed to state victim assistance agencies and state agencies dedicated to the reduction of substance abuse, as shown in table 4. AOUSC officials noted that some collected restitution is not disbursed to non-federal victims due to a lack of accurate contact information for these victims. Specifically, according to AOUSC, as of June 2017, courts had more than $132 million in restitution due to 113,260 victims that could not be disbursed because of a lack of accurate contact information for these victims. DOJ is required to provide courts with victim contact information, and victims are to notify DOJ if their contact information changes. However, AOUSC and USAO officials told us that this notification by victims may not always occur. For example, officials in one USAO told us that due to the length of court proceedings, victims may move without notifying the court prior to the disbursement of restitution and, as a result, the court is unable to disburse restitution to those victims. According to our analysis of DOJ data, at the end of fiscal year 2016, $110 billion in restitution was outstanding and USAOs had identified $100 billion of that debt as uncollectible, as shown in figure 2. USAOs may identify debts as uncollectible and suspend collection actions on a debt for a variety of reasons, including that the offender has no, or only a nominal, ability to pay the debt. Probation officials, EOUSA officials, and officials from five of six USAOs we interviewed stated that most outstanding restitution debt is identified as uncollectible and collection action is suspended because many offenders have little ability to pay the debt—a conclusion supported by USSC data. For example, according to USSC data, 95 percent of offenders ordered to pay restitution from fiscal years 2014 through 2016 received a waiver from paying a court-ordered fine, indicating their inability to pay. While courts are allowed to take an offender’s economic circumstances into consideration when issuing fines, they generally may not do so when ordering restitution. As a result, EOUSA and federal probation officials with whom we spoke stated that offenders ordered to pay restitution often do not have an ability to do so and therefore a large amount of restitution orders is uncollectible. Through various guidance documents, DOJ has identified and recommended numerous practices for DOJ prosecutors and FLU staff to use throughout the restitution process to help ensure full and timely restitution for victims. USAO officials in all six offices with whom we spoke stated that, based on their experience, these practices were generally effective. Specifically, DOJ and EOUSA officials identified practices for prosecutors and FLU staff to use when requesting restitution, facilitating court orders for restitution, and collecting restitution and documented these practices in several guidance manuals. Officials we interviewed from all six USAOs stated they were generally satisfied with the guidance from EOUSA and that they thought most of DOJ’s recommended practices were effective when requesting restitution, facilitating court orders for restitution, and collecting restitution. Requesting restitution. Officials we interviewed from three USAOs identified coordination between prosecutors and case investigators prior to sentencing to identify victims and their losses as an important practice for requesting restitution. USAO officials from three of the six offices stated that gathering detailed information on an offender’s financial resources, which include assets that could be forfeited and used to pay a restitution debt, was a very effective practice related to requesting restitution. Facilitating court orders of restitution. Although the courts, and not prosecutors, are responsible for ordering restitution, DOJ guidance identifies several practices that prosecutors can use to facilitate orders of restitution that may increase the likelihood of full and timely restitution for victims. Officials from three of six USAOs stated that the most effective practice related to ordering restitution was ensuring courts ordered restitution as due and payable immediately. Specifically, when offenders cannot pay restitution in an immediate lump-sum payment, the courts must specify a payment schedule through which the offender will pay restitution based on the offender’s ability to pay. In these cases, USAO officials stated that it is effective for prosecutors to ensure the restitution order specifies that restitution is due and payable immediately. According to an EOUSA official, this permits the agency to immediately pursue all collection remedies allowed by law whenever the debtor has or subsequently obtains the ability to pay. Collecting restitution. Officials from all six USAOs stated that using the Treasury Offset Program (TOP), a program that allows for the reduction or withholding of a debtor’s federal benefits, such as a tax refund, was one of the most effective practices for collecting restitution. Specifically, officials in one USAO told us that TOP requires minimal effort for FLU staff and can result in a high amount of collections. As an example, officials from two USAOs told us their respective offices each recovered more than $500,000 dollars in restitution debt in fiscal year 2016 through TOP. Officials from three of the six offices also identified using wage garnishment as an effective practice for collecting restitution. Across all parts of the restitution process, USAO officials we spoke with also consistently identified DOJ recommended practices related to internal and external communication and collaboration as effective for improving the restitution process. Specifically, the officials identified collaboration between various units in the USAO as an effective practice to ensuring restitution for victims. For example, USAO officials in two of the six offices highlighted coordination between Victim-Witness coordinators and prosecutors to help identify victims and quantify their losses as effective to assisting in the request for restitution. Additionally, USAO officials in all six offices stated that strong coordination between FLU personnel and criminal prosecutors to identify an offender’s financial resources and available assets was an effective practice to help ensure FLU staff could collect restitution using those resources or assets. USAO officials from five of six offices identified external communication between FLU and the federal probation office as an effective practice. Specifically, officials from these USAOs stated that FLUs coordinating with probation officers during the offender’s supervision period to enforce restitution terms was an effective practice for collecting restitution. Additionally, according to EOUSA guidance, FLU staff can use outreach and training with other partners such as the probation office to facilitate information sharing on restitution collection issues and officials from five of six USAOs told us that FLUs conducting training and outreach is a very effective practice. In addition, probation officials we interviewed in each of the six federal judicial districts we selected stated that ongoing communication between USAO staff and probation officers is effective to ensuring victims are identified and receive full and timely restitution. Probation officials from one court district emphasized the importance of a good working relationship with the USAO, stating that the probation office and USAO are better able to ensure victims and their losses are accurately identified and defendants’ ability to pay is adequately addressed when working collaboratively. A probation official from another office said that probation officers regularly coordinated with the USAO’s FLU, and this coordination was particularly important on cases involving complex financial crimes, where the offender has a complicated financial portfolio. Further, probation officials from five of six probation offices also stated that attending training conducted by the FLU is a very effective practice. EOUSA and selected USAO officials told us that while these practices may be useful in some circumstances, they may not be effective or applicable in all cases or in all districts. Specifically, practices DOJ recommends may be effective when offenders have the ability to pay restitution but are simply unwilling to do so; however, USAO officials in five of six offices stated that these practices cannot mitigate the fact that many offenders lack the ability to pay restitution because they lack assets and income. Additionally, while EOUSA guidance recommends that FLU staff contact co-defendants or victims for information on the whereabouts or assets of offenders who owe restitution, officials from three USAOs told us this was not effective. According to one official, although co- defendants are sometimes eager to share information, the information is usually unreliable. USAO officials also identified some recommended practices as not applicable to their district. For example, EOUSA recommends that FLU units request Asset Investigation assistance from EOUSA for complex cases involving large amounts of valuable assets. However, USAO officials in a small, rural district with whom we spoke stated that the types of cases their office prosecutes tend not to be the type of financial cases that warranted use of this resource. DOJ has identified improving debt collection—including court-ordered restitution—as a major management initiative in its 2014-2018 Strategic Plan. However, it does not have any measures or goals in place to assess its performance in meeting this initiative or meet requirements that it evaluate its performance in seeking and recovering restitution as required by statute. In 2001, we recommended that DOJ adequately measure its criminal debt collection performance against established goals to help improve collections and stem the growth in uncollected criminal debt. DOJ concurred with this recommendation, and as of fiscal year 2003, annually assessed each district based on established collection goals for that district. However, as of September 2017, DOJ no longer evaluates each district based on established goals. EOUSA officials stated that DOJ no longer uses these performance goals and that the agency did not maintain records for when or why it stopped. EOUSA officials stated that while the agency does not have any measures or goals to assess USAOs’ performance in improving debt collection, including the collection of federal restitution, they are working with DOJ’s Justice Management Division to develop a suite of analytical tools to monitor the collection of debt across all offices. According to DOJ, some of these analytical tools have been implemented and additional tools will be implemented by March 2018. EOUSA officials stated that these tools will help the agency determine which cases are most likely to result in significant collections and the types and timing of enforcement actions that generate maximum debt recovery results. EOUSA officials further stated the analytical tools will allow the agency to compare districts’ efforts based on a variety of factors (e.g., caseload, staff size, and enforcement actions). These analytical tools may provide EOUSA with valuable insight into the present condition of the collection of restitution across USAOs, but they will not provide DOJ with a baseline performance standard that could be used to indicate if USAOs’ efforts to collect restitution debts are having a measurable impact in meeting DOJ’s objective of improving debt collection. Additionally, EOUSA conducts evaluations of each USAO every 4 years, which include a review of FLU operations, but EOUSA officials stated that these reviews do not include oversight of the collection of restitution. Among other aspects of USAO operations, these internal evaluations review the extent to which each FLU is complying with statutory and DOJ requirements related to debt collection, has sufficient program resources, and adequately manages its caseload. However, DOJ and EOUSA officials told us that it did not plan to use these internal evaluations to meet the Justice for All Reauthorization Act of 2016 requirement to evaluate each USAO on its performance in seeking and recovering restitution for victims. Specifically, the officials stated that these internal evaluations are not an appropriate mechanism to meet the law’s requirements because the internal evaluations do not specifically review the seeking and recovery of restitution for victims. According to DOJ officials responsible for the internal evaluation program, these evaluations are largely intended to provide onsite management assistance and analysis of how the USAO allocates its administrative and legal personnel resources rather than the office’s efficacy in collecting restitution. Consistent with requirements outlined in the Government Performance and Results Act Modernization Act of 2010 (GPRAMA), performance measurement is the ongoing monitoring and reporting of program accomplishments—particularly towards pre-established, objective and quantifiable goals—and agencies are to establish performance measures to assess progress towards those goals. While GPRAMA is applicable to the department or agency level, performance measures and goals are important management tools at all levels of an agency, including the program, project, or activity level. Agencies can use performance measurement to make various types of management decisions to improve programs and results, such as developing strategies and allocating resources, including identifying problems and taking corrective action when appropriate. Further, the Justice for All Reauthorization Act of 2016 requires DOJ to evaluate each USAO in its performance in recovering restitution for victims. DOJ and EOUSA officials told us that DOJ does not require USAOs to establish performance measures or goals to assess their progress in improving the collection of restitution. DOJ and EOUSA officials also told us that each USAO could develop performance goals but that they were unaware of the extent to which USAOs did so, and further, they do not track the extent to which USAOs met performance goals. Additionally, these officials stated that because each USAO faces different constraints in its ability to collect restitution, establishing a uniform and consistent performance measure and goal would be challenging. EOUSA officials noted that some USAOs may have more resources, such as more FLU staff or specialized asset investigators, available to pursue collections as compared to other offices and therefore offices with fewer resources could have difficulty meeting a performance goal. Further, EOUSA and USAO officials stated that the extent to which DOJ can collect on a debt is heavily influenced by factors outside of the agency’s control, such as an offender’s ability to pay. USAOs could use information provided by performance measures and goals—such as an office’s ability to meet a performance goal—to make managerial decisions to help address these constraints, such as by increasing the allocation of staff resources. Further, to avoid comparing USAOs to a nationally set performance goal that does not account for specific constraints faced by each office, DOJ could—as it did in fiscal year 2003—require each USAO to establish its own objective, quantitative collection goals based on historical, district-specific collection statistics. Finally, as previously discussed, each USAO already accounts for external factors that affect the collectability of a debt, such as an offender’s ability to pay, by suspending collection action on debts it identifies as uncollectible. Therefore, any performance measures and goals developed could be based solely on debts that the USAO already has determined to be collectible. Stakeholders we interviewed—including officials from one USAO, probation officials in two districts, and officials with DOJ’s Office of Crime Victims—noted that receiving restitution is both emotionally and financially important to victims. Specifically, officials from one USAO and one probation office noted that while many victims may never receive the full amount of restitution ordered, receiving even a minimal amount of restitution is a symbolic victory and that it is important for victims to know the government is making efforts to collect restitution on their behalf. The legislative history of the MVRA echoes these sentiments, providing that even nominal restitution payments have benefits for the victim of crime, and that orders of restitution are largely worthless without enforcement. Yet, according to our analysis, $10 billion of restitution debt DOJ identified as collectible remained outstanding at the end of fiscal year 2016. Further, the extent to which USAOs collected restitution varied widely— from a high of one USAO district collecting nearly 350 percent of all collectible debt in fiscal years 2014 through 2016 to a low of one district collecting less than one percent of collectible debt in the same period. Without performance measures, including the establishment of goals, DOJ cannot assess if this variation is due to factors outside the control of USAOs or due to management deficiencies that require corrective action. Developing performance measures and goals for each USAO related to the collection of restitution would allow DOJ to assess its progress in achieving its major management initiative in improving debt collection— including debts owed to victims as court-ordered restitution. Doing so would also better position DOJ to meet the requirements of the Justice for All Reauthorization Act of 2016 to evaluate offices in their performance in recovering restitution on behalf of victims and to use performance information to improve the practices of offices as needed. Although asset forfeiture and restitution are separate parts of a criminal sentence, DOJ guidance states that using forfeited assets to benefit victims is a way that DOJ can help ensure eligible victims of crime are compensated for their losses. Further, DOJ regulations and policy require that eligible victims receive compensation from forfeited assets before certain other uses, such as official use or equitable sharing. However, while DOJ tracks the amount of compensation provided to victims through forfeited assets, it does not have assurances that forfeited assets are being used to compensate victims to the greatest extent possible. According to DOJ information, the agency made payments of about $595 million to eligible victims other than owners of the property from the Assets Forfeiture Fund from fiscal years 2014 through 2016, or 15 percent of $3.9 billion in paid expenditures during this period, as shown in table 5. As table 5 shows, DOJ can account for cases in which forfeited assets were used to compensate eligible victims who were not owners or lienholders. However, DOJ does not have information on the overall universe of victims who could have been eligible to receive compensation from forfeited assets. Further, it does not have insight into any reasons why funds from forfeited assets were not used for these victims. Specifically, DOJ officials stated that the department collects information on whether victims have been identified in cases associated with forfeited assets, and if restitution is anticipated in these cases, but it does not track the extent to which these victims were ultimately compensated using forfeited assets. Further, DOJ also does not collect information on reasons why victims were not compensated using funds from forfeited assets. While DOJ is required to use forfeited assets to compensate victims before using those assets for certain other purposes, the agency is unable to provide assurances that it is always doing so because it does not have information on the overall universe of victims or reasons why victims were not compensated using forfeited assets. As a result, DOJ does not have a basis to know whether the $595 million provided to victims from fiscal years 2014 through 2016 is the maximum amount of compensation the agency could have provided to victims using forfeited assets. Full use of forfeited assets for victim compensation has long been, and continues to be, a goal of DOJ. In 2005, an interagency task force—led by DOJ and including the Department of Treasury, Office of Management and Budget and AOUSC—developed a strategic plan to improve the collection of criminal debt. Among other goals included in its strategic plan, the task force stated a goal of examining how asset seizure and forfeiture procedures can be used to maximize recoveries for victims. More recently, DOJ reported in its 2014-2018 Strategic Plan that it would make every effort to recover full and fair restitution for victims using the federal forfeiture statutes to preserve and recover criminal proceeds. Specifically, DOJ stated that using federal forfeiture statutes to recover full and fair restitution for victims is one part of its strategy to protect the rights of the American people and enforce the rule of law. Finally, DOJ officials told us they considered providing compensation to victims as one goal of the Asset Forfeiture Program and EOUSA stated in guidance that asset forfeiture is the most widely available and effective tool to seize assets for restitution purposes. Standards for Internal Control in the Federal Government call on federal managers to design control activities to achieve the agency’s objectives. These controls can include using quality information to make informed decisions, evaluate the entity’s performance in achieving key objectives, and address risks. DOJ officials told us that they do not track the extent to which victims were not compensated using forfeited assets because USAO staff are not required to request that these assets be used for victim compensation. DOJ officials explained that staff are required to indicate in the agency’s forfeited asset database, the Consolidated Asset Tracking System, if victims exist in cases associated with forfeited assets and if restitution is anticipated in these cases. However, these officials stated that staff are not required to then compensate these victims using the forfeited assets or to indicate why these assets were not used for this purpose. DOJ officials told us that decisions to compensate victims using forfeited assets are best left to the judgment of the USAO staff familiar with the case, such as the prosecuting attorney or asset forfeiture staff. DOJ officials pointed to informal communication and coordination among prosecutors, the FLU, and the Asset Forfeiture unit in each USAO as a means to provide compensation to victims as appropriate. However, communication and coordination among these groups has been a challenge for USAOs, as the DOJ Inspector General found in a June 2015 review of DOJ’s debt collection program. Similarly, during our current review, EOUSA and USAO officials we spoke with identified communication and coordination as an area for improvement. EOUSA officials told us that while they thought that FLU staff and Asset Forfeiture unit staff were collaborating more frequently to use forfeited assets to collect restitution debts since the issuance of the DOJ Inspector General’s report, the extent of collaboration between these two units still varied across USAOs. Further, officials we talked to in two USAOs and one probation office noted that USAO staff could improve their use of forfeited assets for restitution payments. For example, officials in one probation office noted that it was their practice to identify forfeited assets that could be used for compensation in the PSR because they had observed that USAO staff were frequently not applying such assets to victim compensation. While DOJ may allow USAO staff to use discretion when requesting restoration or alerting victims to assets available for compensation, increasing the agency’s understanding of the extent to which assets could have been—but were not—used for victim compensation, and the reasons for those decisions, does not affect that discretion. There are legitimate reasons why victims might not be compensated using forfeited assets; for example, the assets may have other owners or lienholders that must be compensated prior to victims, or offenders may have other means by which to pay victims restitution. However, there are also instances where victims may have not received compensation through forfeited assets as a result of unintentional circumstances. For example, according to DOJ’s Asset Forfeiture Manual, forfeiture actions can proceed faster than the parallel criminal case. Consequently, assets might be equitably shared, placed into official use, or remitted to victims who file petitions long before restitution is ordered, and therefore would not be available for other victims who wait for restitution to be ordered after an offender is sentenced. To avoid this outcome, DOJ recommends that USAOs coordinate to ensure the retention of property for victim compensation. However, although DOJ officials responsible for leading DOJ’s asset forfeiture efforts highlighted the need for expedient coordination when USAO staff are considering using forfeited assets to compensate victims, they stated this may not always occur. As a result, otherwise eligible victims may not always be compensated through forfeited assets. By gathering information about the extent to which assets were used for victim compensation—including when they were not used and reasons why not—DOJ could have a better understanding of potential instances where victims could be, but are not, receiving compensation through forfeited funds and could take steps to address them accordingly. Options for gathering such information could include doing a one-time retrospective study of forfeited assets with victims or anticipated restitution to determine the extent that assets were used for victim compensation, or creating a tracking mechanism through its forfeited assets database, or another system. Gathering information on the extent to which forfeited assets were used for victim compensation, including when not used and reasons why not, could position DOJ to take action to increase the use of these assets for victim compensation if warranted. These actions could include providing funds for increased asset forfeiture staff in USAOs, providing additional training or changing policies or procedures for using forfeited assets to compensate victims. Fully and systematically understanding the extent to which issues, such as a lack of coordination within USAOs, result in victims not being compensated using forfeited assets would give DOJ a basis upon which to develop improvements to the Asset Forfeiture Program. Such information would also provide DOJ and staff at all USAOs with information to evaluate its performance in achieving one of the goals of the Asset Forfeiture Program and taking action to meet the agency goal of protecting the rights of the American people—including the right to full and fair restitution for victims. Restitution serves the criminal justice goal of holding offenders accountable and, to the extent possible, restoring victims of federal crimes to their prior position had the crime not occurred. Many victims are unlikely to receive any meaningful portion of court-ordered restitution owed to them because of offenders’ inability to pay these debts. However, the fact that restitution is difficult to collect does not negate the important responsibilities of the judiciary and DOJ to properly manage and oversee all aspects of the restitution process. By law, courts are to state why they did not order restitution and provide that information to USSC. While this information was collected and recorded in USSC data for most offenders, we found that this information was missing for thousands of offenders. It is important for the judiciary to ensure that this information is consistently collected and recorded to assist USSC in its continuous re-examination of its guidelines and policy statements and ensure that various sentencing practices are achieving their stated purposes. The judiciary could support USSC in this endeavor by determining why this information is missing. Results from this study could help inform the judiciary whether this issue rises to the level of an internal control deficiency and whether additional action can be taken to improve the transparency of sentencing decisions. While DOJ has delegated collection activities for restitution to USAOs, it could provide better oversight to ensure it is making reasonable efforts to collect restitution and meeting its responsibility to victims. USAOs have identified a significant portion of outstanding restitution debt as uncollectible, but they have also identified $10 billion of outstanding restitution debt that could be collected. Developing and implementing performance measures and goals for each USAO would allow DOJ to gauge USAOs’ success in collecting this restitution and, by extension, the department’s success in achieving its major management initiative to increase the collection of debt. Further, DOJ could use performance information to improve the practices of offices in seeking and recovering restitution, consistent with a requirement in the Justice for All Reauthorization Act of 2016. Finally, DOJ could gain greater visibility into the use of forfeited assets to compensate victims by gathering information on cases in which victims have been identified and restitution is anticipated but forfeited assets are not used, and any reasons why. Doing so would better position DOJ to take action to increase the use of forfeited assets to compensate eligible victims if warranted and to provide assurance that it is maximizing the use of asset forfeiture in satisfying restitution debts, one of the agency’s most effective mechanisms for satisfying restitution. We are making three recommendations, including one to the judiciary and two to DOJ. Specifically: Judiciary officials, including AOUSC, USSC, and the Judicial Conference, should determine why USSC data on the reasons restitution was not ordered are incomplete. Additionally, if warranted based on this information, judiciary officials should take action to ensure USSC data records include all required information for orders of restitution. (Recommendation 1) To improve oversight of the collection of restitution we recommend that the Attorney General: Develop and implement performance measures and goals for each USAO related to the collection of restitution, and measure progress towards meeting those goals. (Recommendation 2) In cases where forfeited assets were not used to compensate victims, gather information on reasons why forfeited assets were not used for victims. If warranted based on this information, take action to increase the use of forfeited assets to compensate eligible victims. (Recommendation 3) We provided a draft of this report for review and comment to DOJ, the Judicial Conference of the United States, AOUSC, USSC, and the Federal Judicial Center. DOJ concurred with our recommendations and provided technical comments, which we incorporated as appropriate. AOUSC provided written comments, which are reproduced in appendix III. In its written comments, AOUSC noted that it would work with the USSC to address our recommendation. We are sending copies of this report to the appropriate congressional committees and the Attorney General, the Judicial Conference of the United States, the Directors of AOUSC, the Staff Director of USSC, the Federal Judicial Center and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you and your staff have any questions about this report, please contact me at (202) 512-8777 or goodwing@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions are listed in appendix IV. According to our analysis of data from the U.S. Sentencing Commission (USSC), 214,578 federal offenders were sentenced from fiscal years 2014 through 2016. Table 6 shows the number of offenders sentenced and the number and percentage of offenders ordered to pay restitution for each primary offense of conviction in fiscal years 2014 through 2016. The Department of Justice (DOJ) has identified and recommended numerous practices for federal prosecutors and Financial Litigation Unit (FLU) staff to use throughout the restitution process through various guidance documents. We conducted semi-structured interviews with officials from six U.S. Attorneys’ Offices (USAO) to obtain their views on the restitution process and the extent to which they believed DOJ- recommended restitution practices related to the restitution process were effective. In particular, we spoke with USAO officials from the District of Connecticut; the Southern District of California; the District of New Jersey; the Southern District of Ohio; the District of South Dakota; and the District of Wyoming. Tables 7 through 9 show the results of our semi-structured interviews. In particular, table 7 shows practices related to requesting restitution and the extent to which USAO officials found these practices effective. Table 8 shows practices related to facilitating orders of restitution and the extent to which USAO officials found these practices effective. Table 9 shows practices related to collecting restitution and the extent to which USAO officials found these practices effective. Each table also indicates practices that officials we interviewed considered as most important or effective for helping ensure victims receive full and timely restitution. In addition to the contact named above, Chris Ferencik (Assistant Director); Kathleen Donovan (Analyst-in-Charge); Enyinnaya David Aja; David Alexander; Lacinda Ayers; Carla Brown; Emily Hutz; Janet Temko- Blinder; and Adam Vogt, made key contributions to this report.	[ "One of the goals of federal criminal restitution is to restore victims of federal crimes to the position they occupied before the crime was committed by providing compensation. Various entities within the federal government are involved in the process of requesting, ordering, and collecting restitution for crime victims, including DOJ and the judiciary. The Justice for All Reauthorization Act of 2016 includes a provision for GAO to review the federal criminal restitution process for fiscal years 2014 through 2016. This report addresses, among other things: (1) the extent to which information is available on restitution requested by DOJ and ordered by courts; (2) the amount of restitution debt DOJ collected and the amount that remains outstanding; and, (3) the extent to which DOJ has conducted oversight on the collection of restitution. GAO analyzed laws, policies and procedures as well as USSC data on restitution orders and DOJ data on restitution collected from fiscal years 2014 through 2016. GAO also selected a non-generalizable sample of six federal judicial districts based on restitution collections and spoke with USAO officials and federal probation officers. Officials from selected U.S. Attorney's Offices (USAO) stated that they document requests for restitution in case files and employ other internal controls, such as the use of templates and forms, throughout the prosecution process to ensure that prosecutors request restitution as appropriate. GAO's analysis of U.S. Sentencing Commission (USSC) data—an agency within the judiciary—showed that information on restitution orders was available for 95 percent of all offenders sentenced from fiscal years 2014 through 2016. Specifically, 214,578 federal offenders were sentenced during this time period and restitution was ordered for 33,158, or 15 percent, of those offenders. Collectively, courts ordered these offenders to pay $33.9 billion in restitution. Most federal offenders sentenced during these years were sentenced for immigration or drug-related offenses. In interviews, USAO officials stated that these offenses do not typically have victims requiring restitution. GAO found that data on reasons why restitution was not ordered were incomplete for 5 percent of all offenders sentenced from fiscal years 2014 through 2016. Determining why data on restitution orders are incomplete may inform the judiciary of the cause of the incomplete data and any efforts needed to improve USSC data. GAO's analysis of Department of Justice (DOJ) data showed that USAOs collected $2.95 billion in restitution debt in fiscal years 2014 through 2016, see figure below. However, at the end of fiscal year 2016, $110 billion in previously ordered restitution remained outstanding, and USAOs identified $100 billion of that outstanding debt as uncollectible due to offenders' inability to pay. DOJ identified improving debt collection—including restitution—as a major management initiative in its 2014-2018 Strategic Plan. While DOJ is developing analytical tools to monitor the collection of restitution, it has not established performance measures or goals. Performance measures and goals would allow DOJ to gauge USAOs' success in collecting restitution and, by extension, the department's success in achieving a major management initiative. GAO is making three recommendations. GAO is making one to the judiciary to determine why data on restitution orders are incomplete. GAO is making two recommendations to DOJ, including one to implement performance measures and goals for the collection of restitution. The judiciary and DOJ concurred with the recommendations." ]	8,541	gov_report	en	null	b80f0f072c417b7475ceaee6fa5c2f708d36a7d31a2570a4
Beginning the summer 2013 through 2016, there were numerous reports in the media on sexual assault incidents in the U.S. armed services. In many cases, such reports were followed by questions on what actions were taken by the Department of Defense (DOD), the Obama Administration, and Congress to address the issue. This report lists a comprehensive chronology of official activities in response to incidents of military sexual assault, as well as legislative action on the issue. The report is divided into three sections: the DOD and the Obama Administration's actions, congressional action, and legislation in the 113 th (2013-2014) and 114 th (2015-2016) Congresses. Also included is a resources section with related articles, hearings, and reports. Information in this report was compiled from the official government websites of DOD, the Obama White House and Congress.gov for historical background and will not be updated. June 13, 2012 – DOD announced Army Major General Gary S. Patton as the new director of the Sexual Assault Prevention and Response Office (SAPRO). September 25, 2012 – As part of the DOD's efforts to confront the crime of sexual assault in the military, then Secretary of Defense Leon Panetta announced improvements to prospective commander and senior enlisted training and a review of the initial military training environment in every service. December 21, 2012 – DOD released key findings from the Academic Program Year (APY) 2011-2012 Report on Sexual Harassment and Violence at the United States Military Service Academies. According to this report, the overall prevalence rate of unwanted sexual contact increased in all three military academies. From 2011 to 2012, the Air Force Academy in Colorado showed the largest increase in reported sexual assaults from 33 to 52 incidents. Sexual assaults at the Naval Academy in Annapolis, MD, increased from 11 to 15, and were up at the U.S. Military Academy in West Point, NY, from 10 to 13. January 18, 2013 – DOD announced the release of the 2012 Workplace and Gender Relations Survey of Reserve Component Members . This report included rates of unwanted sexual contact, unwanted gender-related behaviors (i.e., sexual harassment and sexist behavior), and gender discriminatory behaviors and sex discrimination reported by survey respondents during the past 12 months. March 7, 2013 – Defense Secretary Chuck Hagel, in a letter responding to Members of Congress, wrote that an internal review was being conducted of a decision by a senior Air Force commander, Lt. Gen. Craig Franklin, to overturn the sexual assault conviction of an Air Force fighter pilot, Lt. Col. James Wilkerson. Colonel Wilkerson was found guilty in November 2012 of aggravated sexual assault and was sentenced to one year in military prison. Lt. General Franklin's decision to overturn the findings of the court-martial freed Colonel Wilkerson, and allowed him to be reinstated in the Air Force. In his letter, Hagel said that while General Franklin's decision could not be overturned, he had asked Pentagon lawyers and the Secretary of the Air Force to review the way in which General Franklin decided the case. He also said he wanted a review of whether the military should change the way it handles sexual assault cases. April 2, 2013 – Secretary Chuck Hagel stated in a message to all DOD personnel on Sexual Assault Awareness and Prevention Month that, "Together, we must work every day to instill a climate that does not tolerate or ignore sexist behavior, sexual harassment, or sexual assault. These have no place in the United States military and violate everything we stand for and the values we defend." April 8, 2013 – Secretary Hagel announced that DOD's Office of General Counsel will review Article 60 of the Uniform Code of Military Justice (UCMJ) after an Air Force officer's court-martial conviction for sexual assault was dismissed using the authority provided by Article 60. May 6, 2013 – The Office of the Secretary of Defense released a 24-page memorandum from Secretary Hagel to all heads of the military services regarding DOD's 2013 Sexual Assault Prevention and Response Strategy, and the release of the Annual Report on Sexual Assault in the Military 2012 (2 volumes). According to this report, in FY2012 (October 1, 2011, through September 30, 2012), the number of sexual assaults reported by members of the military rose 6% to 3,374. An anonymous survey of military personnel showed the number of service members who had experienced unwanted sexual contact could be as many as 26,000 but most never reported the incidents. That number is an increase over the 19,000 estimated assaults in 2011. These reports involved offenses ranging from abusive sexual contact to rape. May 7, 2013 – In a DOD press briefing, Defense Secretary Chuck Hagel and Major General Gary Patton, director of SAPRO, announced new series of actions to further DOD's sexual assault and prevention efforts. Hagel directed service chiefs to develop methods to hold all military commanders accountable for establishing command climates of dignity and respect in incorporating sexual assault prevention and victim care principles in their commands. May 7, 2013 – DOD announced the establishment of the Response Systems to Adult Sexual Assault Crimes Panel consisting of nine selected appointees. Secretary of Defense Hagel appointed five members to serve on the response systems panel, who joined four members appointed by the chairman and ranking member of the Senate Armed Services Committee, and the chairman and ranking member of the House Armed Services Committee. May 14, 2013 – The Army announced that an Army Sergeant First Class assigned to III Corps, Fort Hood, TX, was under investigation for pandering, abusive sexual contact, assault, and maltreatment of subordinates. May 15, 2013 – Returning from NATO meetings in Brussels, the Chairman of the Joint Chiefs of Staff, Army Gen. Martin E. Dempsey, told reporters that sexual assault in the Armed Forces constitutes a crisis in the military. He further stated that "We're losing the confidence of the women who serve that we can solve this problem, and that's a crisis." May 16, 2013 – At the White House, President Obama met with senior military leaders on the issue of sexual assault in the U.S. Armed Forces. The President stated that not only is it "shameful and disgraceful" but also "dangerous to our national security." May 17, 2013 – During a press briefing, Defense Secretary Hagel and Chairman of the Joint Chiefs of Staff Army Gen. Martin Dempsey discussed their meeting with President Obama, Vice President Biden, and senior enlisted and officer leadership in the U.S. military. Dempsey told the Armed Forces Press Service that he believes that the long wars in Iraq and Afghanistan may be factors in the growing incidents of sexual assault. He also stated that: "If a perpetrator shows up at a court-martial with a rack of ribbons and has four deployments and a Purple Heart, there is certainly a risk that we might be a little too forgiving of that particular crime." May 17, 2013 – In an interview, Air Force Chief of Staff, Gen. Mark Walsh, said that sexual assaults in his branch of the military typically involve alcohol use and can be traced to a lack of respect for women. "We have a problem with respect for women that leads to many of the situations that result in sexual assault in our Air Force," he told reporters in his Pentagon office. Walsh further stated that combatting the crisis is his top priority and that he reviews every reported case of sexual assault. May 22, 2013 – The Pentagon announced that DOD's sexual assault prevention staff would be exempt from furloughs. According to Pentagon spokeswoman, Cynthia O. Smith, "The full-time civilians working these programs and implementing policies will not be furloughed. This will ensure responsive victim care and ensure all the programs recently directed by Secretary Hagel are implemented swiftly and efficiently." May 24, 2013 – President Obama addressed graduates of the U.S. Naval Academy in Annapolis, MD, and noted in his commencement speech that the misconduct of some in the military can endanger U.S. forces and undermine U.S. efforts to achieve security and peace worldwide. He further stated that those who commit sexual assault are not only committing a crime, they also "threaten the trust and discipline that make our military strong." May 25, 2013 – In a commencement speech at the U.S. Military Academy at West Point, NY, Defense Secretary Chuck Hagel told graduates that they must be the generation of leaders that will commit to building a culture of respect for every member of the military. He stated that sexual harassment and sexual assault in the military "are a profound betrayal of sacred oaths and sacred trusts." He also quoted President Obama's remarks at the Naval Academy when he said, "these crimes have no place in the greatest military on earth." May 30, 2013 – Pentagon officials reaffirmed DOD's commitment to fighting sexual assault by launching the Safe HelpRoom at http://SafeHelpline.org , a Sexual Assault Support Service for the DOD community. This new service allows victims to participate in moderated group chat sessions to connect with and support one another in a secure online environment. The Safe HelpRoom is in response to a need for peer support services identified by users of DOD's Safe Helpline for sexual assault victims. June 6, 2013 – In a speech at the 2013 Joint Women's Leadership Symposium, Navy Adm. James A. Winnefeld Jr., vice chairman of the Joint Chiefs of Staff, said plans to combat and eliminate sexual assault include a greater investment in specially trained sexual assault investigators and a push for more psychological, medical, and legal assistance for victims. The vice chairman also said officials will examine the scientific roots of behavioral factors associated with potential predators, which will assist sexual assault prevention efforts. June 7, 2013 – The Pentagon released a statement that Maj. Gen. Michael T. Harrison was suspended of his duties as the Commanding General of United States Army Japan and I Corps for failing in his duties as a commander to report or investigate an allegation of sexual assault. June 7, 2013 – Air Force officials announced Maj. Gen. Margaret H. Woodward has been assigned to direct the Air Force Sexual Assault Prevention and Response Office to replace Lt. Col. Jeffrey Krusinski, the former chief of the Air Force Sexual Assault Prevention and Response Program. He was arrested and charged by Arlington County, VA, police for allegedly being drunk and groping a woman in a parking lot one mile from the Pentagon. In the previous year, Maj. Gen. Woodward led the investigation of Air Force training in the wake of a sexual assault scandal centered at Lackland Air Force Base, Texas. June 27, 2013 – Defense Secretary Hagel met in person with the Sexual Assault Response Systems Review Panel for the first time. According to the Pentagon, "the panel will conduct an independent review and assessment of the systems used to investigate, prosecute, and adjudicate crimes involving sexual assault and related offenses under the Uniform Code of Military Justice, and will develop recommendations to improve the effectiveness of those systems." DOD established the panel in accordance with the National Defense Authorization Act (NDAA) for Fiscal Year 2013 ( P.L. 112-239 , Section 576 (a)). Previously, Hagel held a teleconference with panel members. July 3, 2013 – The Chief of the National Guard Bureau, Army Gen. Frank J. Grass, launched a comprehensive campaign designed to assist National Guard units in combating sexual assault as part of a military-wide effort to protect victims and eradicate the crime from the ranks. July 9, 2013 – DOD Inspector General (IG) released its report, Joint Warfighting and Readiness Evaluation of the Military Criminal Investigative Organizations Sexual Assault Investigations . The report evaluated the Military Criminal Investigative Organizations' (MCIOs') sexual assault investigations in 2010 to determine whether they were adequately investigated. The report found most MCIO investigations (89%) met or exceeded the investigative standards and returned only cases with significant deficiencies (11%) to the MCIOs for corrective action. July 18, 2013 – The Air Force adopted two new measures to eliminate sexual assault from within the ranks, including requiring mandatory discharge for airmen, officer or enlisted, who commit sexual assault, and requiring the Air Force's most senior commanders to review actions taken on these cases. In addition, the Air Force Academy is reviewing the results of a survey on sexual assault taken on June 24, 2013. Suggestions from survey respondents ranged from involving faculty with character coaching to a complete revamping of how the Air Force Academy trains its freshmen. July 18, 2013 – Secretary of the Navy Ray Mabus announced additional resources for investigators and a new initiative designed to enhance accountability and transparency across the Navy. Mabus approved nearly $10 million to hire more than 50 additional Naval Criminal Investigative Service (NCIS) Family and Sexual Violence Program personnel to shorten investigation times, and directed the Navy and Marine Corps to regularly publish online the results of each service's courts- martial. July 18, 2013 – The Air Force announced that airmen who commit sexual assaults will be discharged, and senior commanders must review actions taken on sexual assault cases under new Air Force initiatives as of July 2, 2013. August 15, 2013 – Defense Secretary Hagel announced seven new anti-sexual assault initiatives in a memo detailing "... absolute and sustained commitment to providing a safe environment in which every service member and DOD civilian is free from the threat of sexual harassment and assault," he wrote in a statement. "Our success depends on a dynamic and responsive approach. We, therefore, must continually assess and strive to improve our prevention and response programs." October 3, 2013 – Air Force Col. Alan R. Metzler, the deputy director for SAPRO, emphasized that the first step to stopping sexual assault in the military is through prevention but when prevention fails, new measures to improve victims' confidence and combat underreporting were needed. Metzler outlined the DOD Sexual Assault Advocate Certification Program (D-SAACP) and the Defense Sexual Assault Incident Database (DSAID), two initiatives set to improve the advocacy services provided to victims of sexual assault. November 9, 2013 – Army Maj. Gen. Gary S. Patton, director of DOD's SAPRO, reported on DOD's recent prevention and awareness successes before the Response Systems to Adult Sexual Assault Crimes Panel. He testified that new DOD initiatives to combat sexual assault helped create a 46% jump in victims reporting compared to the previous year. December 20, 2013 – President Obama instructed Defense Secretary Hagel and Chairman Dempsey to continue their efforts to make substantial improvements with respect to sexual assault prevention and response, including to the military justice system. He also directed that they report back with a full-scale review of their progress, by December 1, 2014. January 10, 2014 – Army Maj. Gen. Jeffrey J. Snow, the new SAPRO chief announced the release of the Annual Report to Congress on Sexual Harassment and Violence at the Military Service Academies . The report covered the 2012-13 academic year, and found in 2013, reports of sexual assault decreased at the U.S. Military Academy at West Point, New York and the U.S. Air Force Academy in Colorado Springs, Colorado. The number of reported incidents went up at the U.S. Naval Academy in Annapolis, Maryland. January 30, 2014 – The independent Response Systems to Adult Sexual Assault Crimes Panel accepted a subcommittee recommendation that senior military commanders retain authority for referring these crimes to courts-martial. May 1, 2014 – DOD released the 2013 Annual Report on Sexual Assault in the Military . The report covered the period from Oct. 1, 2012, through Sept. 30, 2013, and revealed 5,061 reports of sexual assault in the Defense Department, a 50 percent jump from the previous year. More than 70 percent of all cases that the military had jurisdiction resulted in criminal charges. July 17, 2014 – DOD collaborated with the Justice Department's Office for Victims of Crime to develop a curriculum that expands on the skills learned in initial sexual assault response coordinator and sexual assault prevention and response victim advocate training. December 4, 2014 – Secretary Hagel released DOD's Report to the President of the United States on Sexual Assault Prevention and Response on its progress in addressing sexual assault in the military, and announced four directives to further strengthen the department's prevention and response program. According to this report, based on survey data, servicemembers experienced fewer sexual assaults in FY2014 than in FY2012, an estimated 19,000, down from 26,000. January 16, 2015 – Secretary Hagel at the Air Force Sexual Assault Prevention and Response Summit remarked that the fight to end sexual assault in the military must be "personal." He cited "encouraging progress" over the last year, but acknowledged more can be done, notably in areas such as social retaliation, which he said stems from the overall environment. February 11, 2015 – The annual report on sexual harassment and violence at the military service academies estimated that overall rates of unwanted sexual contact at the military service academies declined in Academic Program Year (APY) 2013-2014, decreased for both men and women, indicating that fewer sexual assaults occurred at the academies in APY 13-14 than in APY 11-12. February 19, 2015 – Health and criminal investigation experts spoke at the Army's Sexual Harassment/Assault Response Program Summit on the underreporting of male victims of sexual assault in the military due to factors such as shame and fear of being ostracized. March 26, 2015 – SAPRO head Army Maj. Gen. Jeffrey Snow monitored 50 initiatives put in place by past Defense secretaries Leon Panetta and Chuck Hagel. According to Snow, the most recent data, gathered last year, shows the past-year prevalence of sexual assault is down significantly, Snow said. Estimates indicate there were 6,000 to 7,000 fewer sexual assaults in 2014 than in 2012. May 1, 2015 – According to the 2014 RAND Military Workplace Stud y, "the percentage of active duty women who experienced unwanted sexual contact over the past year declined from 6.1% in 2012 to an estimated 4.3% in 2014. For active duty men, the estimated prevalence rate dropped from 1.2% in 2012 to 0.9% in 2014. Based on these rates, an estimated 18,900 service members experienced unwanted sexual contact in 2014, down from around 26,000 in 2012." May 22, 2015 – Defense Secretary Ash Carter announced Army Maj. Gen. Camille M. Nichols will assume duties as director of SAPRO effective June 8, 2015. January 8, 2016 – DOD announced the release of the Annual Report on Sexual Harassment and Violence at the Military Service Academies for A cademic P rogram Y ear 2014-2015 . Data in the report indicated the academies received 91 sexual assault reports during the academic year, an increase of 32 reports over the previous year. April 2 8 , 2016 – Defense Secretary Ash Carter announced a sexual assault retaliation prevention and response strategy aimed at how the department supports servicemembers who experience retaliation, while aligning prevention and response efforts across the services. May 5, 2016 – The annual report of the Defense Department's Sexual Assault Prevention and Response Program indicated that DOD's efforts are having an impact. In FY2015, service members made 6,083 reports of sexual assault – the same rate as the previous fiscal year, with four in 1,000 servicemembers reporting sexual assault despite a smaller active force size. In addition, 21 percent of those making restricted reports in fiscal 2015 chose to convert to unrestricted reports, enabling them to participate in the military justice process. September 19 , 2016 – The Naval Academy in Annapolis, MD, hosted an all-day training event to strengthen how military and civilian communities work together to support servicemembers who report sexual assault in a joint program between DOD and the Justice Department. October 19, 2016 – DOD released the 2016 Military Investigation and Justice Experience Survey that allowed servicemembers who have experienced sexual assault and elected to participate in the military justice process the opportunity to provide DOD with direct feedback on their experiences; and to improve the services and support servicemembers reporting sexual assault. December 15, 2016 – Defense Department officials announced the release of the "DOD Plan to Prevent and Respond to Sexual Assault of Military Men," designed to enhance outreach to military men and increase efforts to help them recover. The following information was compiled using Congress.gov, Congressional Quarterly (CQ.com), House.gov, Senate.gov, and Roll Call. See the section "Resources" for a list of congressional hearings, reports and other documents. January 23, 2013 – The House Armed Services Committee held a hearing on sexual misconduct at Lackland Air Force Base in San Antonio, TX. January 25, 2013 – H.R. 430 , Protect Our Military Trainees Act, was introduced. This legislation would have amended the Uniform Code of Military Justice to protect new members of the Armed Forces who are undergoing basic training from the sexual advances of the members of the Armed Forces responsible for their instruction. It also requires that violators be punished as a court-martial may direct. March 5, 2013 – H.R. 975 , the Servicemember Mental Health Review Act, was introduced. This bill would have amended Title 10, United States Code, to extend the duration of the Physical Disability Board of Review and to the expand the authority of such Board to review the separation of members of the Armed Forces on the basis of a mental condition not amounting to disability, including separation on the basis of a personality or adjustment disorder. This would have included a review of those victims who have suffered military sexual trauma. March 13, 2013 – S. 548 , Military Sexual Assault Prevention Act of 2013, was introduced, read twice, and referred to the Senate Armed Services Committee. This legislation aimed to amend Title 10, United States Code, and to improve capabilities of the Armed Forces to prevent and respond to sexual assault and sexual harassment in the Armed Forces. March 13, 2013 – Victims of sexual assault in the military testified before a Senate panel examining the military's handling of sexual assault cases and stated that the "military justice system is broken." They urged Congress to make changes in the law that would stem the rape, sexual assault, and sexual harassment that they said are pervasive in the service branches. Several male Navy veterans testified before the Senate Armed Service Committee's military personnel panel investigating sexual assaults in the military. One recounted that he was raped in 2000 by a higher-ranking petty officer aboard a submarine. He told the committee that he carries permanent shame not for the sexual assault but over how the Navy forced him to leave. He stated in his testimony, "I carry my discharge as an official and permanent symbol of shame, on top of the trauma of the physical attack, the retaliation and its aftermath." March 20, 2013 – S. 628 , Servicemember Mental Health Review Act, was introduced, read twice and referred to the Committee on Armed Services. Related to H.R. 975 , this bill would have amended Title 10, United States Code, to extend the duration of the Physical Disability Board of Review and to the expand the authority of such board to review the separation of members of the Armed Forces on the basis of a mental condition not amounting to disability, including separation on the basis of a personality or adjustment disorder. This would have included a review of those victims who may have suffered military sexual trauma. April 17, 2013 – H.R. 1593 , Sexual Assault Training Oversight and Prevention (STOP) Act, was introduced. This bill seeks to amend Title 10, United States Code, by establishing a Sexual Assault Oversight and Response Council and an enhanced Sexual Assault Oversight and Response Office "to improve the prevention of and response to sexual assault in the Armed Forces, and by requiring the appointment of a Director of Military Prosecutions for sexual-related offenses committed by a member of the Armed Forces." April 26, 2013 – A U.S. senator reportedly put a hold on the nomination of Air Force Lt. Gen. Susan Helms, nominated to serve as vice commander of the U.S. Space Command. Earlier in February 2012, Gen. Helms rejected the recommendation of legal counsel and overturned the conviction of an Air Force captain who had been found guilty of aggravated sexual assault of a female lieutenant. May 7, 2013 – S. 871 , Combating Military Sexual Assault Act of 2013, was introduced, read twice and referred to the Committee on Armed Services. This legislation would have aimed to provide any victim with a special military lawyer who would assist them throughout the process, prohibit sexual contact between instructors and trainees during and within 30 days of completion of basic training or its equivalent, and ensure that sexual assault response coordinators are available to help members of the National Guard and Reserve. May 7, 2013 – H.R. 1864 , to amend Title 10, United States Code, would have required an Inspector General investigation of allegations of retaliatory personnel actions taken in response to making protected communications regarding sexual assault, was introduced and referred to the House Armed Services Committee. This bill would have required the Inspector General of the Department of Defense (DOD), the Department of Homeland Security (DHS) with respect to the Coast Guard, or any of the military departments to investigate allegations of retaliatory personnel actions taken in response to making protected communications regarding alleged instances of rape, sexual assault, or other forms of sexual misconduct in violation of the Uniform Code of Military Justice. May 7, 2013 – At the Senate Armed Services Committee, Subcommittee on Personnel hearing Gen. Mark Welsh, the Air Force's Chief of Staff, told the committee that he and Air Force Secretary Michael Donley were "appalled" by the charges against Lt. Col. Jeffrey Krusinski, branch chief of the Air Force's Sexual Assault and Prevention Office. He was arrested and charged by Arlington County, VA, police for allegedly being drunk and groping a woman in a parking lot one mile from the Pentagon. "Sexual assault prevention and response efforts are critically important to us," Welsh said. "It is unacceptable that this occurs anywhere, at any time, in our Air Force." May 8, 2013 – H.R. 1867 , the Better Enforcement for Sexual Assault Free Environments (BE SAFE) Act of 2013, was introduced, read twice, and referred to the House Armed Services Committee. This bill would have amended Title 10, United States Code, "to require an Inspector General investigation of allegations of retaliatory personnel actions taken in response to making protected communications regarding sexual assault." This bill would ensure those found guilty of rape, sexual assault, sodomy, or an attempt to commit any of those crimes, are—at a minimum—dismissed or dishonorably discharged from the military. The five-year statute of limitations within the military's justice system for sexual assault cases would be eliminated, and legal assistance services available to victims would be expanded. May 8, 2013 – In a hearing of the Defense Subcommittee of the Senate Appropriations Committee, senators questioned the Air Force's top leaders over rising sexual assaults in the military. Some senators cited DOD statistics from the Annual Report on Sexual Assault in the Military 2012 on the number of incidents of sexual assaults the same week Lt. Col. Jeffrey Krusinski, Chief of the Air Force's Sexual Assault Prevention and Response Branch, was arrested and charged with sexual battery. May 9, 2013 – A hearing of the Defense Subcommittee of the House Appropriations Committee on the Air Force budget was held. Witnesses included Michael Donley, Secretary of the Air Force, and General Mark Welsh, Air Force Chief of Staff. Members of the committee questioned them on Defense Secretary Hagel's review of the decision by Lt. Gen. Craig Franklin to dismiss Lt. Col. James Wilkerson's sexual assault conviction. May 14, 2013 – H.Res. 213 , a resolution to establish the "Special Committee on Sexual Assault and Abuse in the Armed Forces" was introduced. A "Dear Colleague" memorandum urged support of this legislation referencing Gen. Martin Dempsey's denouncement of military sexual assault as a "crisis" and the need for Congress to address this problem in a "deeper, more comprehensive manner." This Special Committee would have included 19 members appointed by the Speaker and Minority Leader, as well as chairman and ranking members of the committees on Armed Services, Appropriations, Judiciary, and Oversight and Government Reform. May 14, 2013 – H.R. 1960 , a bill to authorize appropriations for FY2014 for military activities of the Department of Defense, for military construction, and for defense activities of the Department of Energy, to prescribe military personnel strengths for such fiscal year, and for other purposes, was introduced. The FY2014 NDAA addressed the issue of sexual assault in the military by establishing minimum sentencing guidelines for any service members found guilty of sexual assault as well as other provisions. May 15, 2013 – H.R. 1986 , Sexual Assault Nurse Examiner (SANE) Deployment Act, was introduced. This bill would have provided for the assignment of Sexual Assault Nurse Examiners-Adult/Adolescent to brigades and equivalent units of the Armed Forces. May 15, 2013 – H.R. 2002 , Combating Military Sexual Assault Act of 2013, was introduced and referred to the House Committee on Armed Services. This bill was related to S. 871 , and would have provided any sexual assault victim with a special military lawyer who would assist them throughout the process, prohibit sexual contact between instructors and trainees during and within 30 days of completion of basic training or its equivalent, and ensure that sexual assault response coordinators (SARCs) are available to help members of the National Guard and Reserve. May 16, 2013 – H.R. 2016 , Military Justice Improvement Act of 2013, was introduced and referred to the Committee on Armed Services. This bill would have required "a commanding officer who receives a report of a sexual-related offense involving a member in such officer's chain of command to act immediately upon such report by way of referral to the appropriate criminal investigative office or service." This bill was related to S. 538 , Military Sexual Assault Prevention Act of 2013, and S. 967 , Military Justice Improvement Act of 2013. May 16, 2013 – S. 967 , Military Justice Improvement Act of 2013, was introduced, read twice, and referred to the Committee on Armed Services. This bill would have required a commanding officer who receives a report of a sex-related offense involving a member in such officer's chain of command to act immediately upon such report by way of referral to the appropriate criminal investigative office or service. May 21, 2013 – S. 992 , a bill to provide for offices on sexual assault prevention and response under the Chiefs of Staff of the Armed Forces, to require reports on additional offices and selection of sexual assault prevention and response personnel, and for other purposes. This bill was read twice and referred to the Committee on Armed Services. May 22, 2013 – A House panel passed a number of changes in sexual assault prevention programs that limited commander discretion in reducing or dismissing rape and assault charges and expanded support services for victims. The House Armed Services Subcommittee on Military Personnel approved the personnel issues as part of H.R. 1960 , the FY2014 NDAA bill. May 22, 2013 – The Senate Appropriations Subcommittee on Defense held a hearing on the Army's FY 2014 Budget Request. Witnesses included Secretary of the Army, John McHugh and Chief of Staff of the Army, General Raymond T. Odierno. Army Secretary McHugh announced at this hearing that the service will soon require soldiers being considered for sexual assault prevention jobs to undergo behavioral-health evaluations as a way of screening out potential sex offenders from these high-profile positions. This was in response to a senator's question about the criteria for sexual assault prevention jobs. McHugh said that service record and availability are the only criteria commanders are using to fill these jobs since sexual-assault prevention positions do not fall under any military occupational specialty and lack career incentives. May 23, 2013 – S. 1032 , Better Enforcement for Sexual Assault Free Environments Act of 2013, was introduced, read twice and referred to the Committee on Armed Services. This bill would amend Title 10, United States Code, to make certain improvements in the Uniform Code of Military Justice related to sex-related offenses committed by members of the Armed Forces. June 4, 2013 – The uniformed chiefs of the Army, Navy, Air Force, Marine Corps, and Coast Guard appeared before a hearing of the Senate Armed Services Committee, Subcommittee on Military Personnel. These military leaders acknowledged that despite a "zero tolerance" for sexual abuse, they had neglected the "epidemic" in the ranks by not always monitoring subordinate commanders. Chairman of the Joint Chiefs of Staff, Army Gen. Martin Dempsey pointed to competing demands and pressures of fighting two wars in Iraq and Afghanistan, as a justification for lack of adequate monitoring. The Service Chiefs voiced support for legislative changes that would take tougher action against offenders and provide more support for victims of military sexual assault. They opposed a legislative proposal that would remove unit commanders' legal power to oversee major criminal cases and transfer that authority to uniformed prosecutors. The Army Chief of Staff, Gen. Ray Odierno, noted that taking away commanders' authority in matters of military justice would adversely impact discipline and that "we cannot, however, simply 'prosecute' our way out of this problem. At its heart, sexual assault is a discipline issue that requires a culture change." June 4, 2013 – S. 1092 was introduced, read twice, and referred to the Senate Armed Services Committee. This bill would have amended Title 10, United States Code, to require an Inspector General investigation of allegations of retaliatory personnel actions taken in response to making protected communications regarding sexual assault. June 6, 2013 –would allow victims of sexual assault to apply for a permanent change The House Armed Services Committee passed H.R. 1960 , the NDAA for FY2014, by a vote of 59-2. According to the Committee's Fact Sheet, "the FY14 NDAA of station or unit transfer, while authorizing the Secretary of Defense to inform commanders of their authority to remove or temporarily reassign service members who are the alleged perpetrators of sexual assault. It also requires the provision of victims' counsels, qualified and specially trained lawyers in each of the services, to be made available to provide legal assistance to the victims of sex-related offenses. The FY14 NDAA adds rape, sexual assault, or other sexual misconduct to the protected communications of service members with a Member of Congress or an Inspector General." June 14, 2013 – The House passed H.R. 1960 , the NDAA for FY2014 by a vote of 315 to 108 (Roll no. 244). This bill includes a provision protecting victims of sexual assault in the Armed Forces as protected communications under military whistle-blower laws, to shield victims against retaliatory actions. The measure seeks to encourage more victims to report assaults, rape and other forms of sexual misconduct. June 17, 2013 – H.R. 2397 , "Department of Defense Appropriations Act, 2014," was introduced and referred to the House Committee on Appropriations. It was reported as an original measure, H.Rept. 113-113 . Lawmakers wrote in this committee report that they were "outraged by the pervasive problem of sexual assault in the Armed Forces. Sexual assault is not just an issue in the military; it is an epidemic. To address it, the Committee believes that there must be a culture change at every level of the military, from the most senior leadership to the most junior ranks." Included was a measure that would provide $182 million for the Pentagon's Sexual Assault Prevention and Response Office (SAPRO) and for an expansion of a victim's counseling program. For FY2013, the programs received $95 million. The bill included $25 million that was not requested by the administration in a transfer account to expand assistance across the Defense Department. June 20, 2013 – S. 1197 , NDAA for Fiscal Year 2014, was introduced in the Senate. This bill would have authorized "appropriations for fiscal year 2014 for military activities of the Department of Defense, for military construction, and for defense activities of the Department of Energy, to prescribe military personnel strengths for such fiscal year, and for other purposes," and referred to the Committee on Armed Services. The original measure was reported to the Senate in Report No. 113-44 and placed on the Legislative Calendar under General Orders (Calendar No. 91). Included in this bill was Title V—Military Personnel Policy, Subtitle E—Sexual Assault Prevention and Response and Military Justice. June 27, 2013 – H.R. 1864 , a bill "To amend Title 10, United States Code, to require an Inspector General investigation of allegations of retaliatory personnel actions taken in response to making protected communications regarding sexual assault," was agreed to/passed in the House, 423-0 (Roll no. 294). July 18, 2013 – Army Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, and Navy Adm. James A. Winnefeld Jr., the vice chairman, in a hearing before the Senate Armed Services Committee said that commanders should retain responsibility for prosecuting service members accused of sexual assault, and taking that authority away could harm good order and discipline. July 2 2 , 2013 – H.R. 2777 , Stop Pay for Violent Offenders Act, was introduced "to amend Title 10, United States Code, to authorize the Secretaries of the military departments to suspend the pay and allowances of a member of the Armed Forces who is held in confinement pending trial by court-martial or by civil authority for any sex-related offense or capital offense." July 24, 2013 – H.Amdt. 408 to H.R. 2397 , an amendment to provide funds to identify individuals who were separated from the military on the grounds of a disorder subsequent to reporting a sexual assault and, if appropriate, correcting their record. This amendment (A065) was agreed to by voice vote. July 24, 2013 – H.R. 2397 , "Department of Defense Appropriations Act, 2014," was passed/agreed to in House, 315 - 109 (Roll no. 414). October 22, 2013 – H.R. 3304 , the NDAA for FY2014, was introduced in the House. As introduced, the bill would have provided for a defense counsel interview of victim of an alleged sex-related offense in presence of trial counsel, counsel for the victim, or a Sexual Assault Victim Advocate, prohibition on service in the Armed Forces by individuals who have been convicted of certain sexual offenses, Coast Guard regulations regarding request for permanent change of station or unit transfer by victim of sexual assault, temporary administrative reassignment or removal of an active duty member accused of committing a sexual assault, Inspector General investigation of allegations of retaliatory personnel actions taken in response to making protected communications regarding sexual assault, compliance tracking of commanding officers in conducting organizational climate assessments for purposes of preventing and responding to sexual assaults, advancement of submittal deadline for report of independent panel on assessment of military response systems to sexual assault, retention of certain forms on sexual assault, timely access to Sexual Assault Response Coordinators by the National Guard and Reserves, and qualifications and selection of Department of Defense sexual assault prevention and response personnel and required availability of Sexual Assault Nurse Examiners. It also would establish commanding officer actions regarding sexual assault reports, an eight-day incident reporting requirement in response to unrestricted report of sexual assault in which the victim is a member of the Armed Forces, and curricula that addresses the prevention of sexual assault at the military service academies. December 26, 2013 – H.R. 3304 , the NDAA for FY2014 became P.L. 113-66 . As enacted, the bill included more than two dozen provisions to address an epidemic of sexual assault in the military in Title XVII—Sexual Assault Prevention and Response and Related Reforms, Subtitle A—Reform of Uniform Code of Military Justice. February 26, 2014 – Dr. Karen S. Guice, principal deputy assistant secretary of defense for health affairs, and other Defense Department officials testified before the Senate Armed Services Committee's personnel subcommittee on the relationship between military sexual assault survivors and the subsequent development of suicide and post-traumatic stress disorder. April 9, 2014 – H.R. 4435 , the Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015, was introduced in the House. The bill would have applied Title XVII of the National Defense Authorization Act for Fiscal Year 2014 ( P.L. 113-66 ; 127 Stat. 950) to the military service academies, consulted with victims of sexual assault regarding victims' preference for prosecution of offense by court-martial or civilian court, created a confidential review of characterization of terms of discharge for victims of sexual offenses, revised requirements relating to DOD policy on retention of evidence in a sexual assault case to allow return of personal property upon completion of related proceedings, required the DOD Inspector General to review separation of members who made unrestricted reports of sexual assault, and would have created a deadline for submission of report containing results of review of Office of Diversity Management and Equal Opportunity role in sexual harassment cases. Prior to passing in the House, the House Armed Services Committee rejected an amendment from Congresswoman Speier that would have removed the military chain of command from decisions to prosecute sexual assault cases and other major crimes, except offenses that are unique to the military. She offered an alternative proposal, which would have only removed commanding officers' prosecutorial discretion for instances of sexual assault, that was also rejected by a 28-34 vote. It was received in the Senate, read twice, and placed on Senate Legislative Calendar under General Orders. Calendar No. 425. June 2, 2014 — S. 2410 , the Carl Levin National Defense Authorization Act for Fiscal Year 2015, was introduced in the Senate. It was placed on Senate Legislative Calendar under General Orders. Calendar No. 402. The bill included measures on military justice such as enhancing sexual assault prevention and response, the application of P.L. 113-66 , Title XVII to military academies, and the collaboration between the Departments of Justice and Defense. December 19 , 2014 — H.R. 3979 , the Carl Levin and Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015, was signed as P.L. 113-291 . Subtitle D—Military Justice, Including Sexual Assault and Domestic Violence Prevention and Response addressed the following: modification of DOD policy on retention of evidence in a sexual assault cases to permit return of personal property upon completion of related proceedings; requirements relating to Sexual Assault Forensic Examiner; analysis and assessment of disposition of most serious offenses; a plan for limited use of certain information on sexual assaults in restricted reports by military criminal investigative organizations; the establishment of a Defense Advisory Committee on Investigation, Prosecution, and Defense of Sexual Assault in the Armed Forces; confidential review of the terms of discharge of sexual assault survivors; deadline for submission of report containing results of review of Office of Diversity Management and Equal Opportunity role in sexual harassment cases; and applied Title XVII of the NDAA for Fiscal Year 2014 ( P.L. 113-66 ; 127 Stat. 950) to the military service academies. January 13, 2015 — S. 178 , the Justice for Victims of Trafficking Act of 2015 was introduced in the Senate. Title V of this bill "Military Sex Offender Reporting" stipulates that the Secretary of Defense shall provide the Attorney General information about sex offenders in the military to be included in the National Sex Offender Registry and the Dru Sjodin National Sex Offender Public Website. It became P.L. 114-22 on May 29, 2015. February 3, 2015 — H.R. 677 , American Heroes COLA Act of 2015, was introduced in the House, passed on February 9, and the next day was received in the Senate, read twice, and referred to the Committee on Veterans' Affairs. Section 6 proposed that veterans whose claims were being reviewed again in relation to a previously denied claim relating to military sexual trauma be given priority, among other claims. February 12, 2015 — H.R. 956 , the Military Track, Register and Alert Communities Act of 2015 (Military TRAC Act) was introduced in the House and referred to the House Armed Services Committee's Subcommittee on Military Personnel on November 23. This bill intended to require DOD to maintain a sex offender registry of individuals convicted of certain sex offenses under the Uniform Code of Military Justice or of other military offenses appropriate for sex offender registration purposes. April 13, 2015 — H.R. 1735 , the National Defense Authorization Act for Fiscal Year 2016, was introduced in the House. Subtitle D addressed military justice, including sexual assault and domestic violence prevention and response. April 24, 2015 — H.R. 2029 , the Consolidated Appropriations Act, 2016 was introduced in the House and later became P.L. 114-113 . Section 8057 specified that "$25,000,000 shall be for continued implementation and expansion of the Sexual Assault Special Victims' Counsel Program." May 14, 2015 — S. 1356 , the National Defense Authorization Act for Fiscal Year 2016 was introduced in the Senate and later became P.L. 114-92 on November 25, 2015. Subtitle D "Military Justice, Including Sexual Assault and Domestic Violence Prevention and Response" amended the Uniform Code of Military Justice, authorized Special Victims' Counsel for civilian DOD employees, required the DOD to develop a policy to standardize the training for Special Victims' Counsel, required the establishment of Defense Advisory Committee on Investigation, Prosecution, and Defense of Sexual Assault in the Armed Forces within 90 days, required the development of a plan to improve prevention and response to sexual assaults of male members of the Armed Forces, required the establishment of a strategy to prevent retaliation against Armed Forces members who report or intervene on behalf of sexual assault victims, and authorized the President to modify Rule 304(c) of the Military Rules of Evidence to conform to the rules governing the admissibility of the corroboration of admissions and confessions in the trial of criminal cases in the U.S. district courts. June 11, 2015 — S. 1558 , Department of Defense Appropriations Act, 2016, was introduced in the Senate. The bill would have required specified O&M funds to be used for continued implementation and expansion of the Sexual Assault Prevention and Response Program. June 11, 2015 — S. 1567 , a bill to amend Title 10, United States Code, to provide for a review of the characterization or terms of discharge from the Armed Forces of individuals with mental health disorders alleged to affect terms of discharge, was introduced in the Senate. The bill proposed to address medical evidence reviews for former members applying for relief from the terms of their discharge due to military sexual trauma among other conditions. June 11, 2015 — S.Amdt. 1578 to S.Amdt. 1463 in H.R. 1735 , National Defense Authorization Act for Fiscal Year 2016, was proposed in the Senate and later considered and defeated on June 16. This bill was intended to reform procedures for determinations to proceed to trial by court-martial for certain offenses under the Uniform Code of Military Justice. It did not achieve 60 votes in the Senate by Yea-Nay Vote. The final vote was 50 - 49. April 12, 2016 — H.R. 4909 , the NDAA for FY2017, was introduced in the House where it passed on May 18. On May 26, it was received in the Senate, read twice, and placed on Senate Legislative Calendar under General Orders. Calendar No. 502. April 18, 2016 — H.R. 4991 , the Prevent Retaliation and Open up Transparency to Expand Care for Troops (PROTECT) Act of 2016, was introduced in the House and later referred to the House Armed Services' Subcommittee on Military Personnel. The bill intended to amend the Uniform Code of Military Justice to establish the offense of retaliation with provisions that would permit any person intent on retaliating against anyone for reporting or planning to report a criminal offense to be punished as a court-martial may direct. May 18, 2016 — S. 2943 , the National Defense Authorization Act for Fiscal Year 2017, was introduced in the Senate and became P.L. 114-328 on December 23. Subtitle D specified requirements for the review by a discharge review board of claims by former members asserting post-traumatic stress disorder (PTSD) or traumatic brain injury (TBI) in connection with combat or sexual trauma. Subtitle E "Military Justice and Legal Assistance Matters" required an annual report on sexual assault and response efforts, required Sexual Assault Prevention and Response Office to establish evaluation metrics and best practices in the prevention of and response to retaliation, and modified the definition of sexual harassment for the purposes of investigations of complaints of harassment by commanding officers. Title XXXV "Maritime Matters" established requirements for policies and training regarding sexual harassment and sexual assault prevention and response at the U.S. Merchant Marine Academy and required the Inspector General of the Department of Transportation to submit a report to Congress about the sexual harassment and sexual assault prevention and response program at the U.S. Merchant Marine Academy. Title LIV "Court-Martial Jurisdiction" specified the sexual offenses over which general courts-martial have exclusive jurisdiction. Title LX "Punitive Articles" created a new section of the Uniform Code of Military Justice addressing accountability for sexual misconduct committed by recruiters and trainers during the various phases within the recruiting and basic military training environments, revised the definition of ''sexual act'' with respect to the offenses of rape and sexual assault. May 19, 2016 — H.R. 5293 , Department of Defense Appropriations Act, 2017, was introduced in the House, passed on June 16, received in the Senate the next day, where it received a motion to proceed to consideration. The bill would have required O&M funds to be used for continued implementation and expansion of the Sexual Assault Prevention and Response (SAPR) Program. May 26, 2016 — S. 3000 , Department of Defense Appropriations Act, 2017, was introduced in the Senate and placed on Senate Legislative Calendar under General Orders. Calendar No. 500. The Senate Committee on Appropriations, Subcommittee on Department of Defense held several hearings prior from February-April. The bill would have required specified O&M funds to be used for continued implementation and expansion of the SAPR Program. DOD Directive No. 6495.01. "Sexual Assault Prevention and Response (SAPR) Program," January 23, 2012, Incorporating Change 3, April 11, 2017, at http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodd/649501p.pdf DOD Directive No. 6495.02. "Sexual Assault Prevention and Response (SAPR) Program Procedures," March 28, 2013, Incorporating Change 3, May 24, 2017, at https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/649502p.pdf DOD Inspector General (IG). E valuation of the Military Criminal Investigative Organizations Sexual Assault Investigations, DODIG-2013-091, July 9, 2013, 104 p . at http://www.dodig.mil/reports.html/Article/1118941/evaluation-of-the-military-criminal-investigative-organizations-sexual-assault/ Sexual Assault Prevention and Response Office (SAPRO) at https://www.sapr.mil/ Includes the full text of DOD Annual Reports, FY2004 - FY2016, and reports on Sexual Harassment and Violence at the U.S. Military Service Academies, Academic Program Years (APY) 2005-2018. "Final 2014–2015 Academic Program Year Annual Report on Sexual Harassment and Sexual Assault at the United States Merchant Marine Academy," Maritime Administration, undetermined date, at https://www.marad.dot.gov/wp-content/uploads/pdf/Final-2014-2015-SASH-Report.pdf "Department of Transportation U.S. Merchant Marine Academy Culture Audit, Deliverable 4. Final Report," U.S. Merchant Marine Academy, December 2016, at https://cms.dot.gov/sites/dot.gov/files/docs/mission/civil-rights/263966/dot-usmma-report.pdf "Sexual Assault Prevention and Response (SAPR) Program," United States Coast Guard, LMI, December 2016, at https://media.defense.gov/2017/Mar/29/2001723560/-1/-1/0/CIM_1754_10E.PDF "Preliminary 2015-2016 Academic Year Biennial Survey and Report on Sexual Harassment and Sexual Assault at the United States Merchant Marine Academy," Maritime Administration, January 12, 2017, at https://www.marad.dot.gov/wp-content/uploads/pdf/Preliminary-2015-2016-SASH-Report.pdf Military Justice: Oversight and Better Collaboration Needed for Sexual Assault Investigations and Adjudications , GAO-11-579, Jun 22, 2011, 42 p. http://www.gao.gov/products/GAO-11-579 Preventing Sexual Harassment: DOD Needs Greater Leadership Commitment and an Oversight Framework , GAO-11-809, Sep 21, 2011, 47 p. http://www.gao.gov/assets/590/585344.pdf Prior GAO Work on DOD's Actions to Prevent and Respond to Sexual Assault in the Military , GAO-12-571R, Mar 30, 2012, 40 p. http://www.gao.gov/assets/590/589780.pdf DOD Has Taken Steps to Meet the Health Needs of Deployed Servicewomen, but Actions Are Needed to Enhance Care for Sexual Assault Victims, GAO-13-182, January 29, 2013, 40 p. http://www.gao.gov/assets/660/651624.pdf Military Personnel: Actions Needed to Address Sexual Assaults of Male Servicemembers, Report to the Committee on Armed Services , GAO-15-284, March 19, 2015, 86 p. http://www.gao.gov/products/GAO-15-284 Sexual Assault: Actions Needed to Improve DOD's Prevention Strategy and to Help Ensure It Is Effectively Implemented, GAO-16-61, November 4, 2015, 59 p. http://www.gao.gov/products/GAO-16-61 DOD and Coast Guard: Actions Needed to Increase Oversight and Management Information on Hazing Incidents Involving Servicemembers, GAO-16-226, Feb 9, 2016, 74 p. http://www.gao.gov/products/GAO-16-226 The following news sources are listed in chronological order to make it easier to follow the numerous incidents of wide-spread misconduct reported in the media. Military.com has ongoing news on military sexual assault at http://www.military.com/topics/sexual-assault . Montgomery, Nancy. "Johnson Found Guilty of Last Two Counts; Awaits Sentencing." Stars and Stripes , June 13, 2012, at http://www.stripes.com/news/johnson-found-guilty-of-last-two-counts-awaits-sentencing-1.180204 Carroll, Chris. "Air Force has Identified 31 Alleged Victims in Lackland Sex Abuse Scandal," Stars and Stripes, June 28, 2012, at http://www.stripes.com/news/air-force-has-identified-31-alleged-victims-in-lackland-sex-abuse-scandal-1.181597 Dao, James. "Instructor for Air Force Is Convicted in Sex Assaults," New York Times , July 20, 2012, at http://www.nytimes.com/2012/07/21/us/lackland-air-force-base-instructor-guilty-of-sex-assaults.html?pagewanted=all&_r=0 Blansett, Susan and Hoffman, Michael. "Sexual Assault Cases Flood Military Courts," Military.com, August 13, 2012, at http://www.military.com/daily-news/2012/08/13/sex-assault-cases-flood-military-courts.html Risen, James. "Honor Betrayed: Attacked at 19 by an Air Force Trainer, and Speaking Out," New York Times , February 26, 2013, at http://www.nytimes.com/2013/02/27/us/former-air-force-recruit-speaks-out-about-rape-by-her-sergeant-at-lackland.html?pagewanted=all Mulrine, Anne. "Seeking the Sex-Assault Solution," Air Force Magazine , April 2013, at http://www.airforcemag.com/MagazineArchive/Pages/2013/April%202013/0413solution.aspx "5 Former Lackland Commanders Disciplined," Military.com, May 2, 2013, at http://www.military.com/daily-news/2013/05/02/5-former-lackland-commanders-disciplined.html Kime, Patricia. "Lawmakers Act Fast with New Legislation on Military Sexual Assault." Army Times , May 7, 2013. Shapira, Ian. "July Trial Set for Jeffrey Krusinski, Air Force Officer Accused of Sexual Battery." Washington Post , May 9, 2013, at https://www.washingtonpost.com/local/july-trial-set-for-air-force-officer-accused-of-sexual-battery/2013/05/09/8a21eb92-b8d9-11e2-92f3-f291801936b8_story.html?utm_term=.e0d4951e6573 Steinhauer, Jennifer. "Lawmakers, at White House, Discuss Sex Abuse in Military." New York Times , May 9, 2013, at http://www.nytimes.com/2013/05/10/us/politics/lawmakers-huddle-at-white-house-on-sex-abuse-in-military.html?_r=0 Whitlock, Craig. "Pentagon Grapples with Sex Crimes by Military Recruiters," Washington Post , May 12, 2013, at http://articles.washingtonpost.com/2013-05-12/world/39210853_1_military-recruiters-sexual-abuse-army-reserve Sisk, Richard. "Assault Prevention NCO Investigated for Sex Crimes." Military.com, May 15, 2013, at http://www.military.com/daily-news/2013/05/15/assault-prevention-nco-investigated-for-sex-crimes.html Whitlock, Craig. "Some in Congress want Changes in Military Law as a Result of Sex Crimes," Washington Post , May 15, 2013, at http://www.washingtonpost.com/world/national-security/some-in-congress-want-changes-in-military-law-as-result-of-sex-crimes/2013/05/15/672a2a8a-bd8b-11e2-a31d-a41b2414d001_story.html Sisk, Richard. "Sex Assault Crisis Pushes Senate to Overhaul UCMJ," Military.com, May 16, 2013, at http://www.military.com/daily-news/2013/05/16/sex-assault-crisis-pushes-senate-to-overhaul-ucmj.html Tilghman, Andrew. "Dempsey: DOD May Have Become 'Too Forgiving' of Sexual Assault," Army Times , May 17, 2013. Brady, Gen. Roger Brady (ret.). "Commentary: Telling Truths about Sexual Assault is Risky," Air Force Times , May. 21, 2013. Salcedo, Michele. "Senator: Fire Commanders Allowing Sex Assault," Army Times, May 26, 2013. Tucker, Eric. "More Details Released on Annapolis Sex Assault Investigation: Allegations Made Against Three Football Players," Navy Times , May 30, 2013. Lardner, Richard. "Brass Seeks to Temper Military Justice Overhaul," Associated Press, June 3, 2013, at http://www.military.com/daily-news/2013/06/03/brass-seeks-to-temper-military-justice-overhaul.html Cassata, Donna and Richard Lardner. "Sexual Assaults Force Changes to Military Justice," Associated Press, June 4, 2013, at http://www.military.com/daily-news/2013/06/04/sexual-assaults-force-changes-to-military-justice.html Zengerle, Patricia. "U.S. Lawmakers Act to Limit Military Authority in Sex Assault Cases," Reuters, June 5, 2013, at http://www.reuters.com/article/2013/06/05/us-usa-military-sexassault-congress-idUSBRE9541IG20130605 Cassata, Donna and Richard Lardner. " House OKs 2-Yr Jail Term for Military Sex Assault ," Associated Press, June 14, 2013, at http://www.military.com/daily-news/2013/06/14/house-oks-2-year-jail-term-for-military-sex-assault.html Montgomery, Nancy. " After 2 decades of sexual assault in military, no real change in message ," Stars and Stripes , July 7, 2013, at https://www.stripes.com/news/after-2-decades-of-sexual-assault-in-military-no-real-change-in-message-1.229091 Steinhauer, Jennifer. "Complex Fight in Senate over Curbing Military Sex Assaults," New York Times , June 14, 2013, at http://www.nytimes.com/2013/06/15/us/politics/in-senate-complex-fight-over-curbing-sexual-military-assaults.html?pagewanted=all Dao, James. "In Debate over Military Sexual Assault, Men Are Overlooked Victims," New York Times , June 23, 2013, at http://www.nytimes.com/2013/06/24/us/in-debate-over-military-sexual-assault-men-are-overlooked-victims.html?pagewanted=all&_r=0 Sisk, Richard. "Military Tries to Sever Booze, Sex Assault Link," Military.com, July 8, 2013, at http://www.military.com/daily-news/2013/07/08/military-tries-to-sever-booze-sex-assault-link.html Watson, Julie. "Military Works to Change Culture to Combat Rape," Associated Press, July 15, 2013, at http://www.military.com/daily-news/2013/07/15/military-works-to-change-culture-to-combat-rape.html Olson, Wyatt. "IG Review Finds Deficiencies in Sex Assault Cases," Stars and Stripes, July 16, 2013, at http://www.military.com/daily-news/2013/07/16/ig-review-finds-deficiencies-in-sex-assault-cases.html Shanker, Thom. "New Support for Military in Sex Cases," New York Times , July 24, 2013, at http://www.nytimes.com/2013/07/25/us/politics/new-support-for-military-in-sex-cases.html Taranto, James. "A Strange Sort of Justice at West Point," The Wall Street Journal, July 26, 2013, at https://www.wsj.com/articles/a-strange-sort-of-justice-at-west-point-1376453937 Cassata, Donna, "Senator Targets Military Law over Sexual Assault," Associated Press, July 29, 2013, at http://www.military.com/daily-news/2013/07/29/senator-targets-military-law-over-sexual-assault.html?comp=7000023317843&rank=3 Groer, Annie. " Military brass claim progress in pursuing sexual assault cases ," Washington Post, August 1, 2013, at https://www.washingtonpost.com/blogs/she-the-people/wp/2013/08/01/military-brass-claim-progress-in-pursing-sexual-assault-cases/?utm_term=.72e55e7e218c Jennifer Koons. "Sexual Assault in the Military: Can the Pentagon stem the rise in incidents?" CQ Researcher , vol. 23, no. 29 (A ugust 9, 2013 ), p p. 693-716 . Laird, Lorelei. " Military lawyers confront changes as sexual assault becomes big news ," ABA (American Bar Association) Journal , September 2013, at http://www.abajournal.com/magazine/article/military_lawyers_confront_changes_as_sexual_assault_becomes_big_news/ Jelinek, Pauline. " Pentagon: Reports of Sexual Assault Up 46 Percent ," Associated Press, November 8, 2013, at http://www.military.com/daily-news/2013/11/08/pentagon-reports-of-sexual-assault-up-46-percent.html Matthews, Michael F. " The Untold Story of Military Sexual Assault ," The New York Times, November 24, 2013, at http://www.nytimes.com/2013/11/25/opinion/the-untold-story-of-military-sexual-assault.html " Men Sexually Assaulted in the Military Speak Out ," Baltimore Sun, December 20, 2013, at http://www.military.com/daily-news/2013/12/20/men-sexually-assaulted-in-the-military-speak-out.html Kageyama, Yuri and Richard Lardner. "Documents Reveal Chaotic Military Sex-Abuse Record," Associated Press, February 10, 2014, at http://www.military.com/daily-news/2014/02/10/documents-reveal-chaotic-military-sex-abuse-record.html Montgomery, Nancy. "AF Program Rare Bright Spot in Sex Assault Fight," Stars and Stripes , February 27, 2014, at http://www.military.com/daily-news/2014/02/27/air-force-program-rare-bright-spot-in-sex-assault-fight.html Cox, Matthew. "Alcohol Policies Reviewed as Sex Assault Rises," Military.com, May 1, 2014, at http://www.military.com/daily-news/2014/05/01/alcohol-policies-reviewed-as-sex-assault-rises.html Burns, Robert. "Army Knocks 2-Star Down to 1-Star Rank," Associated Press, August 27, 2014, at http://www.military.com/daily-news/2014/08/27/army-knocks-2-star-down-to-1-star-rank.html Milham, Matt. "Army: It's Good News That Sexual Assault Reports Are Up," Stars and Stripes , September 26, 2014, at http://www.military.com/daily-news/2014/09/26/army-its-good-news-that-sexual-assault-reports-are-up.html Draper, Robert. The Military's Rough Justice on Sexual Assault," New York Times , November 26, 2014, at https://www.nytimes.com/2014/11/30/magazine/the-militarys-rough-justice-on-sexual-assault.html Sisk, Richard. "Sexual Assault Reports Increase 8%, Pentagon Cites Progress," Military.com, December 4, 2014, at http://www.military.com/daily-news/2014/12/04/sexual-assault-reports-increase-8-pentagon-cites-progress.html Baldor, Lolita C. "Male Military Sex Assault Victims Slow to Complain," Associated Press, December 9, 2014, at http://www.military.com/daily-news/2014/12/09/male-military-sex-assault-victims-slow-to-complain.html Roulo, Claudette. "Sexual Assault Rates Decrease at Military Service Academies," DOD News, Defense Media Activity, February 11, 2015, at http://archive.defense.gov/news/newsarticle.aspx?id=128158 Pellerin, Cheryl. "DOD Honors Sexual Assault Response Coordinators," DOD News, April 23, 2015, at https://www.defense.gov/News/Article/Article/604510/ Rowe, Major Derek. "General courts-martial for sexual assault: How do they work?" Air Force News , April 28, 2015, at http://www.af.mil/News/Commentaries/Display/Article/586763/general-courts-martial-for-sexual-assault-how-do-they-work/ Sisk, Richard. "Military Sexual Assault Reports Increased 11 Percent Last Year," Military.com, May 1, 2015, at http://www.military.com/daily-news/2015/05/01/military-sexual-assault-reports-increased-11-percent-last-year.html Johnson, Lieutenant General Michelle D., U.S. Air Force Academy superintendent; Vice Admiral Walter E. "Ted" Carter Jr., superintendent, U.S. Naval Academy; Lieutenant General Robert L. Caslen, superintendent, U.S. Military Academy; Rear Admiral James A. Helis, superintendent, U.S. Merchant Marine Academy; Rear Admiral Sandra L. Stosz, superintendent, U.S. Coast Guard Academy. "Lessons to Share: The five superintendents of federal service academies discuss how their institutions -- which faced scrutiny over sexual assault before many other colleges attracted such attention -- have responded to the issue," Inside Higher Ed, May 7, 2015, at https://www.insidehighered.com/views/2015/05/07/essay-how-federal-service-academics-prevent-and-punish-sexual-assault Tilghman, Andrew. "Military sexual assault claims: 1 in 20 lead to jail time," Military Times, May 13, 2015, at https://www.militarytimes.com/2015/05/13/military-sexual-assault-claims-1-in-20-lead-to-jail-time/ Schogol, Jeff. "Defense seeks dismissal of sexual assault case transferred to Washington," Air Force Times, October 17, 2015, at https://www.airforcetimes.com/news/your-air-force/2015/10/17/defense-seeks-dismissal-of-sexual-assault-case-transferred-to-washington/ Whitlock, Craig. "In the war against sexual assault, the Army keeps shooting itself in the foot," Washington Post, December 19, 2015, at https://www.washingtonpost.com/news/checkpoint/wp/2015/12/19/in-the-war-against-sexual-assault-the-army-keeps-shooting-itself-in-the-foot/?utm_term=.d856136e939b Defense Media Activity. "Defense Department Proposes UCMJ Changes," DOD News, December 28, 2015, at https://www.defense.gov/News/Article/Article/638108/defense-department-proposes-ucmj-changes/ Losey, Stephen. "USAF launches new strategy to curb sexual assault," Air Force Times, December 30, 2015, at https://www.airforcetimes.com/news/your-air-force/2015/12/30/usaf-launches-new-strategy-to-curb-sexual-assault/ Kime, Patricia. "Sexual assault reporting rises at U.S. service academies," Military Times , January 8, 2016, at https://www.militarytimes.com/news/your-military/2016/01/08/sexual-assault-reporting-rises-at-u-s-service-academies/ Larter, David B. "Navy sex assault victims may be eligible for early separation," Navy Times, January 20, 2016, at https://www.navytimes.com/news/your-navy/2016/01/20/navy-sex-assault-victims-may-be-eligible-for-early-separation/ Cox, John Woodrow. "Why sex assault reports have spiked at the Naval Academy, West Point and the Air Force Academy, Washington Post , March 11, 2016, at https://www.washingtonpost.com/news/checkpoint/wp/2016/03/11/why-sex-assault-reports-have-spiked-at-the-naval-academy-west-point-and-the-air-force-academy/?utm_term=.a5e15f2f16f1 Whitlock, Craig, Thomas Gibbons-Neff. "Military bringing more charges against ofﬁcers for sexual assault," Washington Post, March 20, 2016, at https://www.stripes.com/news/us/military-bringing-more-charges-against-of%EF%AC%81cers-for-sexual-assault-1.400140#.WeTFNOFRXUc Lardner, Richard. "Pentagon misled lawmakers on military sexual assault cases," Associated Press , April 18, 2016, at https://apnews.com/23aed8a571f64a9d9c81271f0c6ae2fa/pentagon-misled-lawmakers-military-sexual-assault-cases Kheel, Rebecca. "Senators ask Obama to investigate whether Pentagon misled Congress," The Hill, April 19, 2016, at http://thehill.com/policy/defense/276832-senators-ask-obama-to-investigate-pentagons-sexual-assault-comments Secretary of the Air Force Public Affairs. "Air Force report on sexual assault highlights program's progress," Air Force News , May 05, 2016, at http://www.af.mil/News/Article-Display/Article/752653/air-force-report-on-sexual-assault-highlights-programs-progress/ Tilghman, Andrew. "Military sex assault: Just 4 percent of complaints result in convictions," Military Times , May 5, 2016, at https://www.militarytimes.com/veterans/2016/05/05/military-sex-assault-just-4-percent-of-complaints-result-in-convictions/ Montgomery, Nancy. "US Military Court Addresses 'Incapable of Consent' to Sex Issue," Stars and Stripes , May 18, 2016, at http://www.military.com/daily-news/2016/05/18/us-military-court-addresses-incapable-of-consent-to-sex-issue.html Losey, Stephen. "Military must do right by wrongly-discharged sexual assault victims, advocates say," Air Force Times , May 19, 2016, at https://www.airforcetimes.com/news/your-air-force/2016/05/19/military-must-do-right-by-wrongly-discharged-sexual-assault-victims-advocates-say/ Lyle, Amaani. "DoD Safe Helpline Offers Specialized Support to Sexual Assault Victims," DOD News, July 15, 2016, at https://dod.defense.gov/News/Article/Article/841166/dod-safe-helpline-offers-specialized-support-to-sexual-assault-victims/ Rein, Lisa. "Merchant Marine Academy under fire for sexual assault allegations," Stars and Stripes, August 12, 2016, at https://www.stripes.com/news/us/merchant-marine-academy-under-fire-for-sexual-assault-allegations-1.423595 Lyle, Amaani. "DoD Unveils Plan to Broaden Sexual Assault Support to Men," DOD News, Defense Media Activity, December 15, 2016, at https://www.defense.gov/News/Article/Article/1030795/dod-unveils-plan-to-broaden-sexual-assault-support-to-men/ The following sources are listed in alphabetical order by author. Burgess, Ann W., Donna M. Slattery, and Patricia A. Herlihy. "Military Sexual Trauma: A Silent Syndrome." Journal of Psychosocial Nursing & Mental Health Services 51, no. 2 (2013): 20-6. D'Ambrosio-Woodward, Tricia. "Military Sexual Assault: A Comparative Legal Analysis of the 2012 Department of Defense Report on Sexual Assault in the Military: What It Tells Us, What It Doesn't Tell Us, and How Inconsistent Statistic Gathering Inhibits Winning the 'Invisible War.'" Wisconsin Journal of Law, Gender & Society 29, no. 2 (2014): 173-211. Farris, Coreen, Terry L. Schell and Terri Tanielian. Physical and Psychological Health Following Military Sexual Assault: Recommendations for Care, Research, and Policy . Santa Monica, CA: RAND Corporation, 2013. http://www.rand.org/pubs/occasional_papers/OP382 Firestone, Juanita M., J. M. Miller, and Richard Harris. "Implications for Criminal Justice from the 2002 and 2006 Department of Defense Gender Relations and Sexual Harassment Surveys." American Journal of Criminal Justice : AJCJ 37, no. 3 (2012): 432-451. Gibson, Carolyn J., Kristen E. Gray, Jodie G. Katon, Tracy L. Simpson, and Keren Lehavot. "Sexual Assault, Sexual Harassment, and Physical Victimization during Military Service across Age Cohorts of Women Veterans." Women's Health Issues 26, no. 2 (2016): 225-231. Harrell, Margaret C., Laura Werber, Marisa Adelson, Sarah J. Gaillot, Charlotte Lynch and Amanda Pomeroy. A Compendium of Sexual Assault Research . Santa Monica, CA: RAND Corporation, 2009. http://www.rand.org/pubs/technical_reports/TR617 Holland, Kathryn, Rabelo, Verónica, and Cortina, Lilia. Sexual Assault Training in the Military: Evaluating Efforts to End the 'Invisible War.' American Journal of Community Psychology 54, no. 3/4 (2014): 289-303. Morral, Andrew R., Kristie Gore, and Terry L. Schell. Sexual Assault and Sexual Harassment in the U.S. Military, Volume 1. Design of the 2014 RAND Military Workplace Study . Santa Monica, CA: RAND Corporation, National Defense Research Institute, 2014. https://www.rand.org/pubs/research_briefs/RB9841.html Morral, Andrew R., Kristie Gore, and Terry L. Schell. Sexual Assault and Sexual Harassment in the U.S. military: Volume 2. Estimates for Department of Defense Service members from the 2014 RAND Military Workplace Study . Santa Monica, CA: RAND Corporation, National Defense Research Institute, 2015. https://www.rand.org/pubs/research_reports/RR870z2-1.html O'Brien, Carol, Jessica Keith, and Lisa Shoemaker. "Don't Tell: Military Culture and Male Rape." Psychological Services 12, no. 4 (2015): 357-365. Stander, Valeria A. and Cynthia J. Thomsen. "Sexual Harassment and Assault in the U.S. Military: A Review of Policy and Research Trends." AMSUS Military Medicine (Association of Military Surgeons of the United States) 181, no. 1S (2016): 20-27. This chronological list of hearings was compiled from Congress.gov and CQ.com. U.S. Congress, House Armed Services Committee, A Review of Sexual Misconduct by Basic Training Instructors at Lackland Air Force Base , 113 th Cong., 1 st sess., January 23, 2013, H.A.S.C. No. 113-2 (Washington, DC: GPO, 2013). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for 2014 , Part 1, 113th Cong., 1 st sess., February 26, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Armed Services Committee, Subcommittee on Personnel, Testimony on Sexual Assault in the Military, 113 th Cong., 1 st sess., March 13, 2013, S. Hrg. 113-303 (Washington, DC: GPO, 2013). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2014 , 113th Cong., 1 st sess., April 17, 2013 (Washington, DC: GPO, 2013). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for 2014, Part 2 , 113th Cong., 1 st sess., April 24, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2014 , 113th Cong., 1 st sess., April 24, 2013 (Washington, DC: GPO, 2013). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, President Obama's Fiscal 2014 Budget Proposal for the U.S. Navy and Marine Corps , 113 th Cong., 1 st sess., May 7, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Armed Services Committee, D epartment of Defense Authorization for Appropriations for Fiscal Year 2014 and the Future Years Defense Program , 113 th Cong., 1 st sess., May 7, 2013 (Washington, DC: GPO, 2013). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, President Obama's Fiscal 2014 Budget Proposal for the U.S. Army , 113 th Cong., 1 st sess., May 8, 2013. (Washington, DC: GPO, 2013). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, President Obama's Fiscal 2014 Budget Proposal for the U.S. Air Force , 113 th Cong., 1 st sess., May 8, 2013 (Washington, DC: GPO, 2013). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, President Obama's Fiscal 2014 Budget Proposal for the U.S. Air Force , 113 th Cong., 1 st sess., May 9, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2014 , 113th Cong., 1 st sess., May 22, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Armed Services Committee, Pending Legislation Regarding Sexual Assaults in the Military , 113 th Cong., 1 st sess., June 4, 2013, S. Hrg. 113–320 (Washington, DC: GPO, 2013). U.S. Congress, Senate Armed Services Committee, Subcommittee on Personnel, Markup of the National Defense Authorization Act for Fiscal Year 2014 , 113 th Cong., 1 st sess., June 11, 2013 (Washington, DC: GPO, 2013). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2014 , 113th Cong., 1 st sess., June 11, 2013 (Washington, DC: GPO, 2013). U.S. Congress, House Armed Services Committee, Subcommittee on Military Personnel, Women in Service Review s , 113 th Cong., 1 st sess., July 24, 2013, H.A.S.C. No. 113–50 (Washington, DC: GPO, 2013). U.S. Congress , Senate Armed Services Committee, Subcommittee on Personnel, The Relationships Between Military Sexual Assault, Post-Traumatic Stress Disorder and Suicide, and on Department of Defense and Department of Veterans Affairs Medical Treatment and Management of Victims of Sexual Trauma , 113 th Cong., 2 nd sess., February 26, 2014, S. Hrg. 113-480 (Washington, DC: GPO, 2013) . U.S. Congress, Armed Services Committee , Fiscal Year 2015 National Defense Authorization Budget Request from the Department of Defense , 113 th Cong., 2 nd sess., March 6 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Armed Services Committee, Fiscal Year 2015 National Defense Authorization Budget Request from the Department of the Navy , 113 th Cong., 2 nd sess., March 12 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for 2015, Part 1 , 113 th Cong., 2 nd sess., March 13, 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Armed Services Committee , Fiscal Year 2015 National Defense Authorization Budget Request from the Department of the Air Force , 113 th Cong ., 2 nd sess., March 14, 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Armed Services Committee , Fiscal Year 2015 National Defense Authorization Budget Request from the Department of the Army , 113 th Cong., 2 nd sess., March 25 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense , Department of Defense Appropriations for 2015 , 113th Cong., 2 nd sess., March 26 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Appropriations Committee, Subcommittee , Department of Defense Appropriations for 2015 , Part 2, 113 th Cong., 2 nd sess., April 2, 2014, (Washington, DC: GPO, 2014). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense , Department of Defense Appropriations for 2015 , 113th Cong., 2 nd sess., April 2 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, House Armed Services Committee , National Defense Priorities from the Members for the Fiscal Year 2015 National Defense Authorization Act , 113 th Cong ., 2 nd sess., April 9 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2015 , 113th Cong., 2 nd sess., April 9, 2014 (Washington, DC: GPO, 2014). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense, Department of Defense Appropriations for Fiscal Year 2015 , 113th Cong., 2 nd sess., April 30, 2014 (Washington, DC: GPO, 2014). U.S. Congress, Senate Appropriations Committee, Subcommittee on Defense , Department of Defense Appropriations for 2015 , 113th Cong., 2 nd sess., June 18 , 2014 (Washington, DC: GPO, 2014). U.S. Congress, Senate Armed Services Committee , Department of Defense Authorization for Appropriations for Fiscal Year 2016 and the Future Years Defense Program , Part 1 , 114th Cong., 1 st sess., March 3 , 10 , 12 , 18 , 19, 26, April 4, 30 , 2015 (Washington, DC: GPO, 2015). U.S. Congress, Senate Armed Services , Department of Defense Authorization for Appropriations for Fiscal Year 2016 and the Future Years Defense Program , Part 7 Strategic Forces, 114 th Cong., 1 st sess., March 4, 25, April 15, 22, 29 , 2015 (Washington, DC: GPO, 2015). U.S. Congress, Senate Armed Services Committee, Department of Defense Authorization for Appropriations for Fiscal Year 2016 and the Future Years Defense Program , Part 3 Readiness and Management Support, 114 th Cong., 1 st sess., March 11, 25, April 22, 2015 (Washington, DC: GPO, 2015). U.S. Congress, Senate Armed Services Committee, The Current State of Readiness of U.S. Forces in Review of the Defense Authorization Request for Fiscal Year 2016 and the Future Years Defense Program , 114 th Cong., 1 st sess., March 25, 2015 (Washington, DC: GPO, 2015). U.S. Congress, Senate Armed Services Committee, Department of Defense Authorization for Appropriations for Fiscal Year 2017 and the Future Years Defense Program , Part 1 , 114 th Cong., 2 nd sess., February 11, 23, March 3, 10, 15, 17, April 5, 7, 26, 2016 (Washington, DC: GPO, 2016). U.S. Congress, House Armed Services Committee, The Fiscal Year 2017 Na tional Defense Authorization Budget Request from the Department of Defense , 114 th Cong., 2 nd sess., March 22, 2016 (Washington, DC: GPO, 2016). U.S. Congress, Senate Armed Services Committee, Subcommittee on Strategic Forces, The Current State of Research, Diagnosis, and Treatment for Post-Traumatic Stress Disorder and Traumatic Brain Injury , 114 th Cong., 2 nd sess., April 20, 2016 (Washington, DC: GPO, 2016). U.S. Congress, House Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2014 on H.R.1960 with Additional and Dissenting Views, 113 th Cong., 1 st sess., H. Rept. 113-102 (Washington, DC: GPO, 2013). U.S. Congress, House Committee on Appropriations, Department of Defense Appropriations Bill, 2014 to Accompany H.R. 2397 together with Additional Views, 113 th Cong., 1 st sess., H. Rept. 113-113 (Washington, DC: GPO, 2013). U.S. Congress, Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2014 to accompany S. 1197, 113 th Cong., 1 st sess., S. Rept. 113-44 (Washington, DC: GPO, 2013). U.S. Congress, Senate Committee on Appropriations, Department of Defense Appropriations Bill, 2014 to accompany S.1429, 113 th Cong., 1 st sess., S. Rept. 113-85 (Washington, DC: GPO, 2013). U.S. Congress, House Committee on Armed Services, First Annual Report on the Activities of the Committee on Armed Services for the One Hundred Thirteenth Congress , 113 th Cong., 1 st sess., H. Rept. 113-309 (Washington, DC: GPO, 2013). U.S. Congress, House Committee on Armed Services, Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 to accompany H.R.4435, 113 th Cong, 2 nd sess., H. Rept. 113-446 (Washington, DC: GPO, 2014). U.S. Congress, House Committee on Armed Services, Howard P. "Buck" McKeon National Defense Authorization Act for Fiscal Year 2015 supplemental report to accompany H.R.4435, 113 th Cong. 2 nd sess., H. Rept. 113-446 part 2 (Washington, DC: GPO, 2014). U.S. Congress, Senate Committee on Armed Services, Carl Levin National Defense Authorization Act for Fiscal Year 2015 to accompany S.2410, 113 th Cong, 2 nd sess., S. Rept. 113-176 (Washington, DC: GPO, 2014). U.S. Congress, House Committee on Appropriations, Department of Defense Appropriations Bill, 2015 to accompany H.R.4870, 113 th Cong., 2 nd sess., H. Rept. 113-473 (Washington, DC: GPO, 2014). U.S. Congress, Senate Committee on Appropriations, Department of Defense Appropriations Bill, 2015 to accompany H.R.4870, 113 th Cong., 2 nd sess., S. Rept. 113-211 (Washington, DC: GPO, 2014). U.S. Congress, House Committee on Armed Service, National Defense Authorization Act for Fiscal Year 2016 to accompany H.R.1735, 114 th Cong., 1 st sess., H. Rept. 114-102 (Washington, DC: GPO, 2015). U.S. Congress, Senate Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2016 to accompany S.1376, 114 th Cong., 1 st sess., S. Rept. 114-49 (Washington, DC: GPO, 2015). U.S. Congress, House Committee on Appropriations, Department of Defense Appropriations Bill, 2016 to accompany H.R.2685, 114 th Cong., 1 st sess., H. Rept. 114-139 (Washington, DC: GPO, 2015). U.S. Congress, Senate Committee on Appropriations, Department of Defense Appropriations Bill, 2016 to accompany S.1558, 114 th Cong., 1 st sess., S. Rept. 114-63 (Washington, DC: GPO, 2015). U.S. Congress, House Conference Report, National Defense Authorization Act for Fiscal Year 2016 to accompany H.R.1735, 114 th Cong., 1 st sess., H. Rept. 114-270 (Washington, DC: GPO, 2015). U.S. Congress, House Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2017 on H.R.4909, 114 th Cong., 2 nd sess., H. Rept. 114-537 (Washington, DC: GPO, 2016). U.S. Congress, Committee on Armed Services, National Defense Authorization Act for Fiscal Year 2017 to accompany S.2943, 114 th Cong, 2 nd sess., S. Rept. 114-255 (Washington, DC: GPO, 2016). U.S. Congress, House Committee on Appropriations, Department of Defense Appropriations Bill, 2017 to accompany H.R.5293, 114 th Cong., 2 nd sess., H. Rept. 114-577 (Washington, DC: GPO, 2016). U.S. Congress, Senate Committee on Appropriations, Department of Defense Appropriations Bill, 2017 to accompany S.3000, 114 th Cong., 2 nd sess., S. Rept. 114-263 (Washington, DC: GPO, 2016). U.S. Congress, House Conference Report, National Defense Authorization Act for Fiscal Year 2017 to accompany S. 2943, 114 th Cong, 2 nd sess., H. Rept. 114-840 (Washington, DC: GPO, 2016).	[ "This report focuses on previous activity in Congress regarding high profile incidents of sexual assault in the military during the summer 2013 through 2016. Included are separate sections on the official responses related to these incidents by the Department of Defense (DOD), the Obama Administration, and Congress including legislation during the 113th (2013-2014) Congress and 114th Congress (2015-2016). The last section is a resource guide for sources in this report and related materials on sexual assault and prevention during this period. This report will not be updated and supersedes CRS Report R43168, Military Sexual Assault: Chronology of Activity in Congress and Related Resources. For current information regarding Congress and issues on sexual assault in the military, see CRS Report R44944, Military Sexual Assault: A Framework for Congressional Oversight, by Kristy N. Kamarck and Barbara Salazar Torreon. For legislative initiatives in the 115th Congress, see CRS Report R44923, FY2018 National Defense Authorization Act: Selected Military Personnel Issues, by Kristy N. Kamarck, Lawrence Kapp, and Barbara Salazar Torreon and CRS Report R45343, FY2019 National Defense Authorization Act: Selected Military Personnel Issues, by Bryce H. P. Mendez et al." ]	12,479	gov_report	en	null	00dfb31b36bf405150303a6ef755b72997e486d594da1a10
Section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act ( P.L. 93-288 , hereinafter the Stafford Act) authorizes the President to "declare" a Fire Management Assistance Grant (FMAG). The current FMAG system was established by regulation in October of 2001. These grants provide federal assistance for fire suppression activities. This authority has been delegated to the Federal Emergency Management Agency's (FEMA's) Regional Administrators. Once issued, the FMAG declaration authorizes various forms of federal assistance such as the provision of equipment, personnel, and grants to state, local, and tribal governments for the control, management, and mitigation of any fire on certain public or private forest land or grassland that might become a major disaster. This federal assistance requires a cost-sharing component such that state, local, and tribal governments are responsible for 25% of the expenses. This report discusses the most frequently asked questions received by the Congressional Research Service on FMAGs. It addresses questions regarding how FMAGs are requested, how requests are evaluated using thresholds, and the types of assistance provided under an FMAG declaration. FMAGs can be requested by a state when the governor determines that a fire is burning out of control and threatens to become a major disaster. At that point, a request for assistance can be submitted to FEMA. Typically, requests are submitted to the FEMA Regional Administrator. Requests can be submitted any time—day or night—and can be submitted by telephone to expedite the process. Telephone requests must be followed by written confirmation within 14 days of the phone request. Under the Sandy Recovery Improvement Act of 2013 (SRIA, Division B of P.L. 113-2 ), tribes are equivalent to states in their ability to request a major disaster declaration, an emergency declaration, or a request for an FMAG declaration. Note that some tribal land holdings are administered by the federal government and, therefore, receive fire suppression support through the National Interagency Fire Center (NIFC). The NIFC supports interagency "wildland" firefighting efforts on federal lands by the U.S. Forest Service, National Weather Service, National Park Service, Bureau of Indian Affairs (BIA), U.S. Fish and Wildlife Service and FEMA's U.S. Fire Administration. Unlike FMAGs, such support generally does not require tribes to reimburse firefighting costs (FMAGs require the state to pay a 25% cost-share). In addition, tribes with their own fire suppression resources may receive reimbursement from BIA for their costs related to fire suppression on tribal lands. The FMAG request should include cost estimates to support the request as well as information about the fire including the size of the fire(s) in acres or square miles, the population of the community (or communities) threatened, the number of persons evacuated (if applicable), weather conditions, and the degree to which state and local resources are committed to this fire and other fires in federal, state, and/or local jurisdictions. The verbal request must be followed up with a completed "Request for Fire Management Assistance Declaration" (FEMA form 078-0-1) and the "Principal Advisor's Report" (FEMA form 078-0-2). The following criteria are used to evaluate wildfires and make a determination whether to issue an FMAG: the threat to lives and property including critical facilities, infrastructures, and watershed areas; the availability of state and local fire resources; high fire danger conditions based on nationally accepted indices such as the National Fire Danger Ratings System; and the potential economic impacts of the fire. In addition, FEMA has developed fire cost thresholds that are typically updated on an annual basis. There are two types of fire cost thresholds used to help determine if a state or tribal nation is eligible for fire assistance: (1) individual thresholds for a single fire, and (2) cumulative thresholds for multiple fires. Cumulative thresholds are applied to multiple fires burning simultaneously, or the accumulation of multiple fires in a single fire season. Threshold amounts vary by state (see Table 1 ). Taking Pennsylvania as an example, generally, a single fire would need to meet or exceed $927,274 in damages for Pennsylvania to be eligible for an FMAG declaration. In contrast, the formula for the cumulative fire threshold for a given state is one of two amounts—$500,000 or the amount of that state's individual fire threshold multiplied by three, whichever is greater. Returning to the Pennsylvania example, the sum of three individual fire thresholds equals $2,781,822. Since that amount is larger than $500,000, cumulative fire damages in Pennsylvania must meet or exceed $2,781,822 to be eligible for assistance. In contrast, the individual fire threshold for Alaska is $100,000, but the cumulative threshold is $500,000, not the sum of three individual fire thresholds ($300,000). If FEMA denies the request for assistance, the state has one opportunity to appeal the denial. The appeal must be submitted in writing to the Regional Administrator no later than 30 days from the date of the denial letter. The appeal should contain any additional information that strengthens the original request for assistance. The Regional Administrator will review the appeal, prepare a recommendation, and forward the appeal package to the FEMA Headquarters Office. The FEMA Headquarters Office will notify the state of its determination in writing within 90 days of receipt of the appeal (or receipt of additional requested information). The state may request a time extension to submit the appeal. The request for an extension must be submitted in writing to the Regional Administrator no later than 30 days from the date of the denial letter. The request for an extension must include a justification for the need for an extension. The FEMA Headquarters Office will notify the state in writing whether the extension request is granted or denied. No, an emergency or major disaster can be declared after an FMAG declaration has been issued. However, the emergency or major disaster declaration must be initiated by a separate request for assistance by the state or tribal government. FMAGs are funded through FEMA's Disaster Relief Fund (DRF), the main account FEMA uses to provide disaster assistance. The DRF is a no-year account—unused funds from the previous fiscal year are carried over to the next fiscal year. Funds in the DRF fall into two categories. The first category is for disaster relief costs associated with major disasters under the Stafford Act. This category reflects the impact of the Budget Control Act ( P.L. 112-25 , BCA), which allows appropriations to cover the costs incurred as a result of major disasters to be paid through an "allowable adjustment" to the discretionary spending limits. The second category is colloquially known as "base funding." Base funding includes activities not tied to major disasters under the Stafford Act. Base funding is scored as discretionary spending that counts against the discretionary spending limits, whereas FMAGs are funded through the DRF's base funding category. The decision to issue a FMAG declaration is not contingent on the DRF balance. Similarly, FMAGs do not reduce the amount of funding available for major disasters. When the DRF balance was low in the past, FEMA used its "immediate needs funding" (INF) policy until supplemental appropriations were passed to replenish the DRF. Under INF, long-term projects (such as mitigation work) are put on hold and only activities deemed urgent are funded. FMAGs would most likely fall into the category of events with an "urgent" need. Under the INF policy, FEMA also delays interagency reimbursements, and recovers funds from previous years in order to stretch its available funds. As with many other Stafford Act disaster assistance grant programs (Public Assistance, Hazard Mitigation Grant assistance, Other Needs Assistance) the cost-share for FMAGs is based on a federal share of 75% of eligible expenses. The grantee (the state) and subgrantees (local communities) assume the remaining 25% of eligible costs. Under the FMAG process, FEMA reimburses grantees for eligible activities they have undertaken. The state application for specific grant funds must be submitted within 90 days after the FMAG is granted. That time frame permits the state to gather all information and supporting data on potentially eligible spending to include in their grant application package. The package must also stipulate that the fire cost threshold was met. Following submission of the grant application FEMA has 45 days to approve or deny the application. FMAG assistance is similar in some basic respects to other FEMA assistance. For example, FMAGs will not replicate or displace the work of other federal agencies, nor will FEMA pay straight-time salaries for public safety forces, though it will reimburse overtime expenses for the event. Other eligible expenses can include costs for equipment and supplies (less insurance proceeds); mobilization and demobilization; emergency work (evacuations and sheltering, police barricading and traffic control, arson investigation); prepositioning federal, out-of-state, and international resources for up to 21 days when approved by the FEMA Regional Administrator; personal comfort and safety items for firefighter health and safety; field camps and meals in lieu of per diem; and/or the mitigation, management, and control of declared fires burning on comingled federal land, when such costs are not reimbursable by another federal agency. Until recently, only major disaster declarations made statewide hazard mitigation grants available. Division D of P.L. 115-254 (Disaster Recovery Reform Act, hereinafter DRRA) amended the Stafford Act to make hazard mitigation available for FMAG declarations as well. Under Section 404 of the Stafford Act as amended by DRRA, mitigation grants from the Hazard Mitigation Grant Program (HMGP) are provided to states and tribes on a sliding scale based on the percentage of funds spent for FMAG assistance. For states and federally recognized tribes with a FEMA-approved Standard State or Tribal Mitigation Plan, the formula provides for up to 15% of the first $2 billion of estimated aggregate amounts of disaster assistance, up to 10% for amounts between $2 billion and $10 billion, and 7.5% for amounts between $10 billion and $35.333 billion. FEMA assistance through FMAGs is a direct relationship with the states to assist the state in fighting the fire on state lands. FMAGs are employed so a disaster declaration may not be necessary. The Forest Service and other federal agencies do provide other types of assistance related to wildfire management, such as postfire recovery assistance, or assistance planning and mitigating the potential risk from future wildfires. Most of these programs provide financial and technical assistance to state partners. In addition, other USDA agencies administer various other programs to provide disaster recovery assistance to nonfederal forest landowners, including the Emergency Forest Restoration Program and the Emergency Watershed Program. This depends on the type of assistance being provided by the Forest Service. FMAG assistance is not generally available in conjunction with emergency suppression assistance from the Forest Service, or any other federal agency engaged in suppression operations. FMAGs provide assistance for suppression operations on nonfederal lands, whereas suppression operations on federal lands are the responsibility of the federal agency with jurisdiction. Limited exceptions may occur for declared fires on lands in which the ownership is comingled federal and nonfederal, and the costs incurred by the eligible entity are not entitled to any other type of federal reimbursement. However, FMAGs may be provided in conjunction with other Forest Service assistance programs, such as any technical and financial assistance provided through the agency's state and volunteer fire assistance programs or state and private forestry office. FMAG and other federal assistance may potentially occur in conjunction when there is a cooperative agreement between federal, state, and other governmental or tribal partners to coordinate emergency wildfire protection and response activities. The cooperative agreement often delineates different geographic areas where the state government is responsible for initial suppression operations, regardless of land ownership, and vice versa, where the federal government may be responsible for providing suppression operations in lands under nonfederal ownership. The cooperative agreements (sometimes referred to as "fire compacts") specify how costs are to be apportioned among the partners, including provisions allowing for reimbursement, in accordance with applicable federal and state statutes. In the circumstance where a state (or other eligible entity) conducted suppression operations on federal land and the costs were not reimbursable, an FMAG may potentially be applied for and used to cover eligible costs. No, most fires that begin on federal land are the responsibility of the federal agency that owns or manages the land, and are not eligible to receive FMAG assistance. There are some exceptions, however. For example, FMAGs may be available to assist with declared fires that occur in areas with a mix of federal and nonfederal land, if the state has a responsibility for suppression activities under a cooperative agreement with the applicable federal agency, and those costs are not reimbursable under another federal statute.	[ "Section 420 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 93-288, hereinafter the Stafford Act) authorizes the President to \"declare\" a Fire Management Assistance Grant (FMAG). In the interest of saving time, the authority to make the declaration has been delegated to the Federal Emergency Management Agency's (FEMA's) Regional Administrators. Once issued, the FMAG declaration authorizes various forms of federal fire suppression assistance such as the provision of equipment, personnel, and grants to state, local, and tribal governments for the control, management, and mitigation of any fire on certain public or private forest land or grassland that might become a major disaster. This federal assistance requires a cost-sharing component such that state, local, and tribal governments are responsible for 25% of the expenses. This report answers frequently asked questions about FMAGs. This report will be updated as events warrant." ]	2,096	gov_report	en	null	526d812057ca29c7ad0e6b1e48a0fc3a63a2a4ecd914c4f8
IHS was established within the Public Health Service in 1955 to provide health services to members of AI/AN tribes, primarily in rural areas on or near reservations. IHS provides these services directly through a network of hospitals, clinics and health stations, while also providing funds to tribally operated facilities. These federally and tribally operated facilities are located primarily in service areas that are rural, isolated, and underserved. In fiscal year 2017, IHS allocated about $1.9 billion for health services provided by federally and tribally operated facilities. Federally operated IHS facilities, which received over 5.2 million outpatient visits and over 15,000 inpatient admissions in 2016, provide mostly primary and emergency care, as well as some ancillary and specialty services in 26 hospitals, 55 health centers, and 21 health stations. According to IHS, federally operated IHS hospitals range in size from 4 to 133 beds and generally are open 24 hours a day for emergency care needs; health centers offer a range of care, including primary care services and some ancillary services, such as pharmacy, laboratory, and X-ray services, and are open for at least 40 hours a week; and health stations offer only primary care services on a regularly scheduled basis and are open fewer than 40 hours a week. The 12 IHS area offices are responsible for distributing funds to the facilities in their areas, monitoring their operation, and providing guidance and technical assistance (see fig. 1). In addition, five human resources regional offices assist the area offices in the recruitment and hiring of providers. IHS federally operated facilities employ both federal civil service personnel and Commissioned Corps officers. IHS may pay higher salaries for certain federal civil service providers through the development and implementation of special pay tables, which specify the ranges of salaries that these certain providers can receive. According to IHS officials, the Commissioned Corps officers follow the same process for applying for positions at IHS as federal civil service employees. However, the Commissioned Corps officers are uniformed health professionals whose pay and allowances are different. IHS also supplements its workforce capacity with both temporary and long-term contracts with individual physicians or a medical staffing company. IHS downloads information on all funded and active positions from the Capital Human Resource Management System, an HHS data system used for personnel and payment transactions that IHS began using in 2016 to track all employee vacancies. According to IHS officials, the accuracy of the data is verified quarterly by regional human resources officers. As the IHS health care workforce also includes Commissioned Corps officers—who have a separate personnel system—the information on Commissioned Corps officers assigned to IHS are entered into the Capital Human Resource Management System manually, according to IHS officials. According to the National Rural Health Association, the challenges of rural health care delivery are different than those in urban areas. These challenges include those related to more complex patient health status and poorer socioeconomic conditions, as well as physician workforce shortages. According to the Agency for Healthcare Research and Quality, compared with their urban counterparts, residents of rural counties are older, poorer, more likely to be overweight or obese, and sicker. Those living in rural areas also have greater transportation difficulties reaching health care providers, often traveling great distances to reach a doctor or hospital. Exacerbating these challenges is a relative scarcity of medical providers in rural areas compared to urban areas. For example, the National Center for Health Statistics reported the primary care physician- to-patient ratio in rural areas in 2012 was 39.8 physicians per 100,000 people, compared to 53.3 physicians per 100,000 in urban areas. IHS data demonstrate large percentages of vacancies for providers in the 8 areas in which IHS has substantial direct care responsibilities. As of November 2017, the overall percentage of vacancies for physicians, nurses, nurse practitioners, CRNAs, certified nurse midwives, physician assistants, dentists, and pharmacists in these areas was 25 percent, ranging from 13 to 31 percent across the areas. (See fig. 2) However, variation in vacancy rates existed among provider types across IHS areas. For example, while the overall percentage of vacancies for physicians, nurses, nurse practitioners, dentists, and physician assistants each exceeded 25 percent, the vacancy rate for pharmacists was less than 25 percent. In addition, for certain provider types in some areas, more than one-third of the positions were vacant. For example, although 29 percent of the total positions for physicians across these 8 areas were vacant, the vacancy rate ranged from 21 percent in the Oklahoma City area to 46 percent in the Bemidji and Billings areas. (See fig. 3.) As another example, although 27 percent of the total positions for nurses across these 8 areas were vacant, the vacancy rate ranged from 10 percent in the Oklahoma City area to 36 percent in the Albuquerque and Bemidji areas. (See fig. 4.) Similarly, across these 8 areas 32 percent of the total positions for nurse practitioners were vacant, ranging from 12 percent in the Oklahoma City area to 47 percent in the Albuquerque area; 27 percent of the total positions for dentists were vacant, ranging from 14 percent in the Phoenix area to 39 percent in the Bemidji area; and 30 percent of the total positions for physician assistants were vacant, and although 4 of the areas had few such positions (the Albuquerque, Bemidji, Oklahoma City, and Portland areas each had 7 or fewer positions), the percentage of vacancies in the 4 areas with 15 or more such positions ranged from 21 percent in the Phoenix area to 40 percent in the Billings area. In contrast, 13 percent of the total positions for pharmacists were vacant, ranging from 3 percent in the Bemidji area to 17 percent in the Albuquerque area. For more information about the vacancies for specific clinical positions, see appendix I. While sizeable vacancies existed across provider types and areas, the majority of positions in all eight areas were occupied by civilians, and about 13 percent were filled by Commissioned Corps officers who are fulfilling assignments with a minimum 2-year term. The percentages of positions by IHS area that were vacant, filled by civilians, and filled by Commissioned Corps officers as of November 2017 are shown in figure 5. IHS officials told us they have experienced considerable challenges in filling vacancies for providers—as well as negative effects on patient care and provider satisfaction when positions are vacant. According to IHS officials, the rural locations and geographic isolation of some IHS facilities create recruitment and retention difficulties. IHS data indicate that 36 of the 102 IHS facilities, including four hospitals, are identified as isolated hardship (ISOHAR) posts. Agency documentation describes ISOHAR posts as ‘‘unusually difficult, which may present moderate to severe physical hardships for individuals assigned to that geographic location,’’ and states that physical hardships may include crime or violence, pollution, isolation, a harsh climate, scarcity of goods on the local market, and other problems. In addition, IHS has reported that insufficient housing, substandard schools, lack of entertainment opportunities, and shopping centers located more than three hours away are all typical not only of ISOHAR posts, but also of many other IHS facility locations. Officials stated that, especially for job candidates and employees with families, these can be critical factors in choosing whether or not to accept or stay in a position. For example, officials from the Portland Area office told us the Colville Service Unit has experienced challenges recruiting physicians because the service unit is 110 miles away from Spokane, and many of the smaller towns nearby have limited amenities—including limited employment opportunities for spouses and school systems that may not meet the expectations of some prospective employees. In addition to hardships generally associated with rural locations, IHS facilities can experience additional challenges specific to recruiting and retaining providers for facilities on tribal lands. For example, Navajo area officials told us that providers who are non-native or are not married to a tribal member generally must go off the reservation to find housing if it is not provided by IHS. According to IHS, the Navajo Nation is one of the largest Indian reservations in the United States, consisting of more than 25,000 contiguous square miles and three satellite communities, and extending into portions of Arizona, New Mexico, and Utah. Living off the reservation can result in long commutes, contributing to a difficult work- life balance. Furthermore, IHS officials noted, public transportation such as buses or trains do not exist in proximity to most IHS facilities. IHS facility staff told us long-standing vacancies have a direct negative effect on patient access to quality health care, as well as employee morale. Officials from multiple facilities we visited told us they have had to cut certain patient services due to ongoing provider vacancies. For example, officials from the Phoenix Area office told us the Nevada Skies Youth Wellness Center, an adolescent substance abuse treatment center, decreased the number of beds available due to staffing vacancies. Similarly, officials from the Rosebud Hospital stated the facility has diverted obstetrics patients to other facilities since July 2016 due to a shortage of physicians, nurses, and nurse anesthetists. During the diversion, those patients were referred to other hospitals in Valentine, Nebraska, and Winner, South Dakota—about 45 miles away. An official from the Sioux San Hospital said that because of vacancies in the diagnostic testing laboratory, the hospital stopped conducting Chlamydia tests in-house and instead sends specimens out to another laboratory for testing. As a result, the official stated it takes about a week longer to get the test results, which can delay treatment. In addition facility staff we interviewed told us the increased stress and fatigue of providers working to make up for staffing shortages results in decreased employee morale. These staff stated that, in some cases, this stress and fatigue has caused providers to leave IHS. One doctor we spoke with described this dynamic of vacancies begetting additional vacancies as a “never-ending cycle” for the facility. In an effort to recruit and retain permanent employees, IHS has used strategies that are similar to strategies used by VHA and tribal facilities in our review. Specifically, IHS has provided financial incentives, professional development opportunities, and some access to housing. The agency has also taken steps to recruit students and connect with potential applicants through webinars, career fairs, and conferences. IHS offers increased special salary rates for certain health care positions, as well as other financial incentives, such as recruitment and retention bonuses. IHS also offers student loan repayments, in return for health professionals’ commitment to work at IHS for a specified period of time. Special salary rates. IHS offers special higher salary rates for physicians, dentists, nurses, CRNAs, certified nurse midwives, nurse practitioners, optometrists, pharmacists, and physician assistants. IHS officials stated that special salary rates are an important recruitment and retention tool for providers, and that without them, federally operated IHS facilities would be at a competitive disadvantage with the private sector, VHA, and tribally operated facilities. In 2015 IHS reported that recruiting and retaining CRNAs was “an ongoing problem for IHS—mostly due to pay,” and the agency rarely had “a sufficient applicant pool.” IHS reported “CRNA services were integral to IHS operations” and without the ability to recruit and retain these providers, IHS was “at risk of having to curtail services to clients.” As a result, according to IHS officials, the agency developed special salary rates for CRNAs, which became effective on December 31, 2015. As of November 2017, IHS had no CRNA vacancies. However, according to IHS officials, the agency has only developed seven national special pay tables and two local special pay tables for Alaska, as of January 2018, due to a lack of human resources personnel trained in this process. Officials told us only one human resources staff person at IHS is experienced with developing special pay tables, which takes a substantial amount of work. However, they stated that this task is only one of her job responsibilities, and she can complete about one special pay table each year. In comparison, according to an official, VHA has developed and regularly revises over 3,000 special salary rates based on local market conditions. For example, IHS officials stated that Phoenix Indian Medical Center cannot offer salaries that are competitive with VHA because salaries for providers in the Phoenix area are relatively high compared to national salaries, and IHS has not developed local salary rates in the Phoenix market. For example, using pay rates effective January 7, 2018, a nurse just starting a career in the Phoenix area could make $63,871 at VHA (local pay table), versus $44,835 at IHS (national pay table). Although offering increased salaries is an important strategy that IHS uses for recruitment, IHS still experiences challenges in offering competitive salaries. Officials from two area offices told us the maximum amount for a physician salary or certain nursing salaries were not enough for some potential hires, who sought employment elsewhere. While IHS may seek approval from HHS to exceed the maximum salary of certain pay tables, IHS officials said the approval process can be lengthy, which has resulted in the loss of promising candidates—including emergency medicine, general surgery, radiology, and anesthesiologist providers. Similarly, officials from one area office stated that federally operated IHS facilities have experienced challenges competing with other health care systems in recruiting local health care providers, including tribally operated facilities. For example, officials from the Oklahoma City area office told us their area has four of the largest American Indian tribes in the country running their own health systems. According to these officials, in addition to IHS funds, these tribes use money from other sources to pay health care salaries. IHS officials explained that, as a result, tribes can pay higher salaries and may be able to offer other incentives that IHS is unable to provide. Recruitment, relocation, and retention incentives. IHS may offer recruitment, relocation, and retention incentives. Specifically, for positions that are difficult to fill or for individuals who are unlikely to accept the position without an incentive, IHS may offer potential employees a recruitment incentive up to 25 percent of their annual salary. IHS may also pay a relocation incentive for a current employee who must relocate for a position that would otherwise be difficult to fill. In addition, IHS may pay a retention incentive of up to 25 percent of an employee’s current salary if he or she (1) has unusually high or unique qualifications or if there is a special need of the agency, which makes retention essential, or (2) is likely to leave IHS without the retention incentive. Officials from the Phoenix area office told us IHS facilities use the retention bonuses extensively for nursing staff, in particular, to help match the market pay. IHS also analyzed the recruitment and retention of nurses and, as a result of this analysis, requested an exception to the 25 percent limit on recruitment, relocation, and retention incentives, from the Office of Personnel Management (OPM). In December, 2017, OPM approved IHS’s request to offer incentives up to 50 percent, and IHS officials told us that they are currently reviewing implementation options. Loan repayment. IHS’s Loan Repayment Program pays provider education loans in exchange for an initial two-year service commitment to practice in health facilities serving AI/AN communities. Recipients agree to serve two years in exchange for up to $20,000 per year in loan repayment funding and up to an additional $5,000 per year to offset tax liability, which IHS pays directly to the Internal Revenue Service. Loan repayment recipients can extend their initial two-year contract on an annual basis until their original approved educational loan debt is paid. In fiscal year 2017, a total of 1,267 providers—about 8 percent of the federal IHS workforce—were receiving IHS loan repayments. This included 434 new two-year contracts, 396 one-year extension contracts, and 437 providers starting the second year of their fiscal year 2016 two-year contract. However, IHS’s Loan Repayment Program is not able to pay for the loans of all providers who request it due to limited funding. According to officials in one area office, this has caused providers to either decline a job offer or leave IHS. According to IHS’s fiscal year 2019 budget justification, in fiscal year 2017, 412 providers employed by IHS who applied for loan repayment, did not receive one. An additional 376 applicants either declined a job offer because they did not receive loan repayment funding or were unable to find a suitable assignment meeting their personal or professional needs. Officials in the Billings Area Office told us several physicians stated during exit interviews that they were leaving because they did not receive the loan repayment funding they hoped to receive. According to area office officials, the Billings area lost 5 physicians in 2 weeks because they were not awarded loan repayments. In addition to its own loan repayment program, IHS has worked with HHS’s Health Resources and Services Administration (HRSA) to increase opportunities for providers to apply for loan repayment through the National Health Service Corps. Specifically, IHS worked with HRSA to increase the number of facilities deemed medically underserved and therefore designated Health Professional Shortage Areas. According to IHS, this resulted in 684 health care delivery sites for placement of National Health Service Corps providers, and the number of placements increased to 443 providers as of August 2016. As of January 2018, according to IHS officials, there were 499 providers serving at 797 eligible sites. Applicants cannot receive loan repayment from more than one program concurrently. Officials from several facilities told us they provide access to professional development opportunities for IHS employees as a retention tool. For example, Northern Navajo Medical Facility (Shiprock) officials said they are sending nurse managers and two to three potential future leaders to the American Organization of Nurse Executive trainings. Officials told us this training allows the nurses to network with private executives and look at fellowships. In addition, Chinle Comprehensive Health Care Facility officials told us they paid for a 2-year residency at University of Texas Health Science Center so one of their dentists could obtain additional training in pediatric dentistry. Officials told us that, in return, the dentist agreed to stay at the Chinle Comprehensive Health Care Facility for 6 years. In addition, Shiprock service unit officials told us they have offered their providers, through a partnership with the University of New Mexico, an online Masters of Science in Public Health program in health management. When housing is limited near IHS facilities, IHS has made some housing available to assist with recruitment and retention of providers. Area officials told us federally operated IHS facilities in the Albuquerque, Great Plains, Phoenix, Billings, and Navajo areas provide some government- subsidized housing for providers and their families. At four of the seven facilities we visited—the Kayenta Health Center, Chinle Comprehensive Health Care Facility, Rosebud Hospital, and Pine Ridge Hospital—we observed some staff housing. Kayenta Health Center. Officials from Kayenta Health Center told us that they provide 158 housing units, from 1 bedroom to 4 bedrooms. In addition, the facility has a 19-unit building, similar to a hotel (fully furnished), for temporary contract providers. Officials said they are considering opening units in this building to permanent employees. Chinle Comprehensive Health Care Facility. Officials from Chinle Comprehensive Health Care Facility told us there are 264, 1 to 4 bedroom housing units available for providers both on its campus and nearby. IHS officials also told us they provide access to 19 parking spaces for camping vehicles. Rosebud Hospital. Officials from Rosebud Hospital stated they provide 150 housing units and are also constructing a 19-unit hotel- style building. They said that most, if not all, candidates from outside of the area ask about housing unit availability when deciding whether to accept a position. Pine Ridge Hospital. Officials from Pine Ridge Hospital told us that IHS also provides 105 housing units for its employees. IHS officials explained the housing is a necessity for on-call providers because staff without on-site housing are required to commute extreme distances in very harsh environments to locate housing outside of reservation boundaries. See figure 6 for examples of government-subsidized provider housing near the Kayenta Health Center, Chinle Comprehensive Health Care Facility, Rosebud Hospital, and Pine Ridge Hospital. See appendix II for information about housing provided by one selected tribe. However, there is a greater demand for housing than IHS can provide. During our site visit, Chinle Health Care Facility officials stated that government-subsidized housing availability to meet employee demand is severely limited at all of their three facilities, and the availability of private housing in the community is “non-existent.” As a result, IHS officials from Chinle told us that some providers commute 60 to 90 minutes to work one-way each day. IHS officials told us that, after conducting a needs assessment in 2016, they determined the unmet need for housing at IHS facilities was 1,100 units. According to these officials, the needs assessment also helped them identify some of the greatest needs for housing. The President’s fiscal year 2017 budget proposal for IHS requested $12 million to build new staff housing units “in isolated and remote locations for healthcare professionals to enhance recruitment and retention.” According to agency officials, based on its needs assessment, HHS provided $24 million to build new staff housing units at the Rosebud and Pine Ridge hospitals in the Great Plains area, at the Crownpoint and Chinle health care facilities in the Navajo areas, and at the Supai clinic in the Phoenix area. IHS has also taken steps to recruit future providers by providing scholarships, externships, internships, and residency rotations to health professional students. Scholarships. IHS’s scholarship program provides financial support to qualified AI/AN candidates in exchange for a minimum 2-year service commitment within an Indian health program. Nearly 7,000 AI/AN students have received scholarship awards since the program started in 1978. The awards include (1) scholarships for candidates enrolled in preparatory or undergraduate prerequisite courses in preparation for entry to a health professions school, (2) pre-graduate scholarships for candidates enrolled in courses leading to a bachelor’s degree, including pre-medicine, pre-dentistry, and pre-podiatry, and (3) health professions scholarships for candidates who are enrolled in an eligible health profession degree program. According to IHS, in fiscal year 2017, there were 805 new scholarship applications submitted. After evaluating the applications, 331 applications were deemed eligible for funding, and the program was able to fund 108 new awards. The IHS Scholarship program also reviewed applications from previously awarded scholars who were continuing their education. In fiscal year 2017, 154 continuation awards were funded. In addition to the scholarship program, according to IHS officials, the agency funds two medical students enrolled at the Uniformed Service University of the Health Sciences each year. Each graduate agrees to a 10-year obligation to IHS after medical school graduation and completion of training. In future years, IHS endeavors to fund two additional medical students at the Uniformed Service University of Health Sciences. Externships and internships. IHS provides scholarship recipients with opportunities to receive clinical experience in IHS facilities. In fiscal year 2017, the agency funded 94 students, who were employed for 30 to 120 workdays per calendar year. In addition, IHS provides externships to students temporarily called to active duty as Commissioned Corps officers through the Commissioned Officer Student Training and Extern Program (COSTEP). IHS officials said that the agency funded about 60-70 students in COSTEP in 2016. IHS also offers a Virtual Internship program through a partnership with the Department of State. Virtual interns spend 10 hours a week from September through May working remotely on their projects, which have included producing bilingual Navajo and English videos for rural health clinics, developing Navajo-specific health education materials on palliative care, improving behavioral health data collection methods, and creating social media strategies and campaigns for health promotion. For the 2017-2018 academic year, about 15 students are participating in virtual internships with IHS. Residency rotations. IHS service units offer rotation opportunities for medical, nursing, optometry, dental, and pharmacy residents as a recruitment tool because research shows students are likely to stay and practice medicine in the area where they studied. For example, the Oklahoma City area has a Memorandum of Agreement with the Oklahoma State College of Medicine, which permits area officials to annually recruit up to two residents from the current year’s residency class to become federal employees while completing their residency program. For every year that IHS sponsors the residents’ position at the university, the resident has a one-year service obligation. In addition, IHS officials from Chinle stated that the service unit participates in educational agreements with numerous universities and residency programs to host medical students, nursing students, and medical residents for rotations. According to officials, recent graduates from residency programs applying for permanent positions with the Chinle Comprehensive Health Care Facility often cite prior rotations at the service unit, or word of mouth from students or residents who have rotated through the service unit, as a reason for applying. The IHS Pharmacy Resident Program is another recruitment program that offers residency training to pharmacists who are willing to serve in high-need locations. Pharmacy residents who are Commissioned Corps officers are required to complete 2 years of service at an IHS federal or tribal facility. Twenty-six Commissioned Corps and civilian pharmacists participate in the Pharmacy Residency Program. See app. II for information on residency programs at tribally operated facilities. IHS officials said they have conducted webinars and career fairs in an attempt to connect with health professional students. For example, in 2016, IHS conducted two informational webinars to recruit Commissioned Corps applicants to facilities in the Great Plains area with critical clinical vacancies. According to IHS officials, approximately 60 applicants attended the two webinars, resulting in 15 nurse hires. In addition, Nashville area officials stated that the area office conducted a marketing campaign at the National Congress of American Indians Conference. Officials explained that the area office provided information about desirable aspects of living in the Nashville area and collected e-mail addresses and areas of interest from potential job candidates. IHS’s Office of Human Resources also partners with HRSA’s Bureau of Health Workforce by participating in nationwide virtual career fairs to promote the National Health Service Corps scholarship and loan repayment opportunities. IHS has also worked with the Office of the Surgeon General to increase the recruitment and retention of Commissioned Corps officers. In May 2017, the Office of the Surgeon General gave IHS priority access to new Commissioned Corps leads—meaning IHS has at least 30 days to make contact with potential applicants to the Commissioned Corps before other agencies have the opportunity to contact them. According to IHS officials, since being given priority access to Commissioned Corps leads, the agency has made 20 direct clinical care selections, of which 15 have entered on duty. In addition to its recruitment and retention strategies, IHS uses strategies to mitigate the negative effects of vacancies by helping to maintain patient access to services, and helping to reduce provider burnout when positions are vacant. Specifically, IHS provides telehealth services; implements alternative staffing models, including hiring nurse practitioners and physician assistants in lieu of physicians; temporarily assigns Commissioned Corps officers to alternate duty stations as needed; and contracts with temporary providers. IHS’s telehealth services include two agency-wide programs that provide teleophthalmology and telebehavioral health services. Teleophthalmology. The IHS Joslin Vision Network (IHS-JVN) Teleophthalmology Program provides annual diabetic eye exams to AI/AN patients in almost all IHS areas with federally operated facilities. According to IHS, patients’ retinal images are scanned locally and sent to a reading center where doctors interpret the images and report back. Officials told us the IHS-JVN program examined 22,000 patients in 2016. Telebehavioral health. The Telebehavioral Health Center of Excellence provides direct care services through video conferencing to patients at remote facilities from providers at IHS facilities that are able to provide the services. These services are provided in all IHS areas with federally operated facilities, and more than 5,800 patient visits occurred in 2016. Additionally, officials told us there are regional telebehavioral health programs, such as in the Oklahoma City area that, combined with the Telebehavioral Health Center of Excellence, saw over 10,000 patients in 2016. IHS officials stated that patients appreciate the telebehavioral services in their communities, because they are the only behavioral health services available in many communities. The IHS psychiatrist who provides services is located in Oklahoma City because, according to IHS officials, it is easier to recruit providers to a more urban location. In addition to these agency-wide telehealth programs, IHS officials identified multiple other local telehealth arrangements that facility staff have developed to help maintain patient access to medical services. For example, there is a diabetes consultant for the Portland area who conducts telenutrition services. There is also a teledermatology program for the Phoenix Area federal facilities operated out of the Phoenix Indian Medical Center. Additionally, several service units—including Pine Ridge Hospital, Rosebud Hospital, and the Sioux San Medical Center—have contracts for emergency department telehealth services. Figure 7 shows telehealth equipment in the Rosebud Hospital emergency department. Staff from multiple facilities told us they have implemented alternative staffing models to focus on hiring for non-physician practitioner positions because these positions are slightly easier to fill. For example, Northern Navajo Medical Center officials told us the facility, facing an emergency department physician shortage, hired physician assistants and nurse practitioners instead. These officials said they converted two physician positions into four physician assistant and nurse practitioner positions. In addition, Chinle officials stated that they added two physician assistants to the urgent care department due to complaints about patient wait times, and patient wait times have decreased as a result. Officials also mentioned dental therapists as an additional type of clinical professional who may be added to the Chinle Health Care Facility staffing model because the service unit has been unable to recruit and retain enough dentists to meet patient need. IHS officials stated that they have worked with the Office the Surgeon General to deploy Commissioned Corps officers, mainly to the Great Plains area, and have also coordinated voluntary temporary duty assignments of Commissioned Corps officers (within IHS and from other agencies) to temporarily fill staffing shortages or meet other mission- critical needs. IHS officials stated that Commissioned Corps officers may also be temporarily assigned to an IHS site to provide services, such as behavioral health support during a suicide cluster. IHS officials from 9 of the 10 geographic areas with federally operated facilities and all seven facilities in our review told us they regularly use temporary contract providers—such as through locum tenens contracts and contracts with university fellowship programs—to maintain patient access to care when positions are vacant. Locum tenens. Officials from the Kayenta Health Center said they contract with temporary providers to compensate for vacancies, and the facility contracts with about 9 providers who rotate to fill 3 vacant emergency department positions. Officials from the Portland area stated that they use temporary providers when there is a staffing shortage with providers. They explained that the Portland area has provider vacancies that have been open for years, and temporary providers fill these vacancies for an extended period of time, usually with a rotating series of providers. Chinle Health Care Facility officials said temporary providers, when of sufficiently high quality, have been recruited to join the permanent corps of civilian service staff. However, they told us locum tenens can cost between $50,000-$200,000 more annually than permanent physicians’ salaries, exclusive of benefits, depending on the specialties and hourly rates associated with the contracts. They said they are finding that increasingly higher hourly rates are needed to ensure a sufficient supply of high-quality temporary providers. IHS officials at all levels of the agency told us they prefer to hire permanent providers, rather than use locum tenens contracts. Facility officials explained that persistent turnover in temporary staff may jeopardize continuity of care. For example, Sioux San Medical Center officials expressed concern about the quality of the care provided by temporary contractors, as well as the consistency of the care provided because the contractors rotate frequently. IHS officials told us that many providers prefer to be on contract due to the higher compensation rates as a contractor, even when taking federal benefits into account. University physicians. IHS officials explained that area offices may also contract with university fellowship programs to provide visiting providers. For example, according to IHS, the Chinle Health Care Facility has entered into long-term contractual agreements with two academic fellowship programs—University of California-San Francisco Health Program and the University of Utah Global Health Fellowship. Officials told us these programs provide U.S. residency- trained, board certified physicians interested in global health to work 6-month assignments alternating with another fellow at an international site. In addition, IHS officials stated that the Navajo area office is collaborating with the University of California-San Francisco and its global health fellowship to assign global health fellows to a Navajo Area site for 6 months out of each year. The officials explained that 24 fellows were placed in Navajo-area facilities in 2017 at costs substantially lower than that of locum tenens contracts. According to IHS, the Great Plains area office has collaborated with the University of Washington’s global health fellowship program to assign global health fellows in Internal Medicine to Pine Ridge Hospital for 11- month placements. Agency-wide information on the extent to which facilities use these temporary providers, and the amount spent on them, is not readily available to IHS leadership. While IHS has agency-wide information on vacancies through the Capital Human Resource Management System, IHS delegates the acquisitions process for temporary provider contracts to the head of each area-level Contracting Office. Therefore, agency-wide information on the number of full-time equivalent employees that are temporary providers working at IHS facilities, as well as the cost of these providers, is not readily available. As discussed, officials we spoke with at IHS facilities told us that temporary providers can cost more depending on the specialties and hourly rates. Without agency-wide information on the extent to which such providers are used, IHS is not fully informed about facilities’ reliance and expenditures on temporary providers or their potential effect on patient care, which is inconsistent with federal internal control standards regarding the availability of relevant information to facilitate management decision making and performance monitoring. Specifically, federal internal controls standards state that agency management should obtain, process, and use quality information to make informed decisions and evaluate the agency’s performance in achieving key objectives and addressing risks. IHS’s lack of agency-wide information on the costs and number of temporary providers used at its facilities impedes its ability to make decisions about how best to target its resources to address gaps in provider staffing and ensure that health services are available and accessible across IHS facilities. Maintaining a stable clinical workforce capable of providing quality and timely care is critical for IHS to ensure that comprehensive health services are available and accessible to American Indian/Alaska Native people. However, despite efforts to recruit and retain providers, IHS continues to face considerable challenges to overcome its long-standing struggle to fill sizeable provider vacancies, including geographic isolation and limited amenities. Although IHS is authorized to offer recruitment and retention incentives, such as loan repayments and subsidized housing, the demand for these incentives has been greater than the agency can meet due to resource constraints. However, more complete information on contract providers could help IHS officials make decisions on where to better target its limited resources to address gaps in provider staffing and ensure that health services are available and accessible to American Indian/Alaska Native people across IHS facilities. We are making the following recommendation to IHS: The Director of IHS should obtain, on an agency-wide basis, information on temporary provider contractors, including their associated cost and number of full-time equivalents, and use this information to inform decisions about resource allocation and provider staffing. (Recommendation 1) We provided a draft of this report to HHS and the Department of Veterans Affairs (VA) for review and comment. We received written comments from HHS that are reprinted in appendix III. HHS concurred with our recommendation. In its comments, HHS stated that IHS plans to update its policies by December 2018 to include a centralized reporting mechanism requirement for all temporary contracts issued for providers. HHS also stated that, upon finalization of the policy, IHS will broadly incorporate and implement the reporting mechanism agency-wide and maintain it on an annual basis. HHS also provided technical comments, which we incorporated as appropriate. VA provided comments on a draft of this report in an email, stating that VA officials continue to work to improve recruitment and retention of providers at VHA to ensure that they have the correct number of providers with the appropriate skills. We are sending copies of this report to HHS, the Department of Veterans Affairs, and appropriate congressional committees. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov/. If you or your staff have any questions about this report, please contact me at (202) 512-7114 or farbj@gao.gov. Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report. Other major contributors to this report are listed in appendix IV. Appendix I: Provider Vacancies with the Indian Health Service (IHS) IHS data collected in November 2017, included the number of positions and vacancies for several types of providers, including physicians, nurses, dentists, pharmacists, nurse practitioners, certified registered nurse anesthetists, certified nurse midwives, and physician assistants. Most of these positions are in the 8 of 12 IHS areas in which IHS has substantial direct care responsibilities. Vacancies for nurse practitioners, nurse midwives, dentists, pharmacists, and physician assistants are provided in this appendix. Nurse practitioners. Nationwide, 97 of 303 positions were vacant in November 2017, and vacancy rates in the 8 areas in which IHS has substantial direct care responsibilities ranged from 12 percent in the Oklahoma City area to 47 percent in the Albuquerque area. (See fig. 8) Certified nurse midwives. Nationwide, 8 of 55 positions were vacant in November 2017. See table 1. Dentists. Nationwide, 81 of 306 positions were vacant in November 2017 and vacancy rates in the 8 areas in which IHS has substantial direct care responsibilities ranged from 14 percent in the Phoenix area to 39 percent in the Bemidji area. (See fig. 9.) Pharmacists. Nationwide, 80 of 637 positions were vacant in November 2017 and vacancy rates in the 8 areas in which IHS has substantial direct care responsibilities ranged from 3 percent in the Bemidji area to 17 percent in the Albuquerque area. (See fig. 10.) Physician assistants. Nationwide, 37 of 125 positions were vacant in November 2017. See table 2. Tribal officials from the Chickasaw Nation and Choctaw Nation described their use of strategies to address vacancies, which were very similar to strategies used by the Indian Health Service (IHS). Like the IHS, one tribe uses the availability of housing units near its medical facility as a recruitment tool for health care providers. Both tribes that described their strategies to recruit and retain providers told us they use their physician residency program in Family Medicine as a recruitment tool. Availability of housing units near the medical facility. Tribal officials from the Choctaw Nation told us the tribe uses housing units—58 housing units that range from studio apartments to multi- room houses—as a recruitment strategy for providers. The provider housing units are occupied by physicians, as well as by physician residents who need housing during their residency or for medical students doing clinical rotations through the facility. According to tribal officials, a factor they considered in making housing units available for providers was the location of its hospital in a rural area of Oklahoma, in a town with a population of about 1,000, which lacks sufficient housing. In September 2017, tribal officials told us all the available housing units were occupied, and the tribe was in the process of constructing at least two 4-bedroom houses. See fig. 11 for photos of a completed multi-room house and one under construction. Offering the housing units to provider staff is also part of the tribe’s overall strategy of offering quality-of-life benefits to attract and retain providers. Implementing Accredited Physician Residency Programs. Tribal officials we interviewed noted that they developed physician training programs—specifically graduate medical education, commonly known as residency training—which they use as an important recruitment tool for physicians. One tribe has implemented its Family Medicine residency program, while the other tribe intends for its Family Medicine residency program to be operational in July 2018. Both residency programs are accredited by the American Osteopathic Association, in addition to the American College of Osteopathic Family Practice for one tribe and the American Council for Graduate Medical Education for the other tribe. One program is accredited for 3 resident physicians per year for a total of 9 physician residents at a time, while the other program is accredited for 4 resident physicians per year. We previously found that physicians may practice in geographic areas similar to those where they complete their residency training. Tribal officials with the implemented Family Medicine residency program told us it is successful in that they hired 7 of the 9 residents who completed the residency program. There is also a retention benefit—current providers have the opportunity to stay up-to-date on the latest medical treatment methods by serving as either mentors or as faculty for the residents. In addition to the contact named above, Kathleen M. King (Director), Ann Tynan (Assistant Director), Kelly DeMots (Assistant Director/Analyst-in- Charge), Sam Amrhein, Kristen Anderson, Muriel Brown, Kaitlin Farquharson, Peter Mann-King, Maria Ralenkotter, Lisa Rogers, and Jennifer Whitworth made key contributions to this report.	[ "IHS is charged with providing health care to AI/AN people who are members or descendants of 573 tribes. According to IHS, AI/AN people born today have a life expectancy that is 5.5 years less than all races in the United States, and they die at higher rates than other Americans from preventable causes. The ability to recruit and retain a stable clinical workforce capable of providing quality and timely care is critical for IHS. GAO was asked to review provider vacancies at IHS. This report examines (1) IHS provider vacancies and challenges filling them; (2) strategies IHS has used to recruit and retain providers; and (3) strategies IHS has used to mitigate the negative effects of provider vacancies. GAO reviewed IHS human resources data for the provider positions that the agency tracks. GAO also reviewed policies, federal internal control standards, and legal authorities related to providers in federally operated IHS facilities. GAO interviewed IHS officials at the headquarters and area level and at selected facilities. GAO selected facilities based on variation in their number of direct care outpatient visits and inpatient hospital beds in 2014. Indian Health Service (IHS) data show sizeable vacancy rates for clinical care providers in the eight IHS geographic areas where the agency provides substantial direct care to American Indian/Alaska Native (AI/AN) people. The overall vacancy rate for providers—physicians, nurses, nurse practitioners, certified registered nurse anesthetists, certified nurse midwives, physician assistants, dentists, and pharmacists—was 25 percent, ranging from 13 to 31 percent across the areas. IHS officials told GAO that challenges to filling these vacancies include the rural location of many IHS facilities and insufficient housing for providers. Officials said long-standing vacancies have a negative effect on patient access, quality of care, and employee morale. IHS uses multiple strategies to recruit and retain providers, including offering increased salaries for certain positions, but it still faces challenges matching local market salaries. IHS also offers other financial incentives, and has made some housing available when possible. In addition, IHS uses strategies, such as contracting with temporary providers, to maintain patient access to services and reduce provider burnout. Officials said these temporary providers are more costly than salaried employees and can interrupt patients' continuity of care. However, IHS lacks agency-wide information on the costs and number of temporary providers used at its facilities, which impedes IHS officials' ability to target its resources to address gaps in provider staffing and ensure access to health services across IHS facilities. GAO recommends that IHS obtain, on an agency-wide basis, information on temporary provider contractors, including their associated cost and number of full-time equivalents, and use this information to inform decisions about resource allocation and provider staffing. IHS concurred with GAO's recommendation." ]	6,957	gov_report	en	null	0f6c000c1653bd9ad797ec6f7ab49051531cf0181ac1c572
The Navy currently has 51 attack submarines—comprising 33 Los Angeles class, 3 Seawolf class, and 15 Virginia class submarines (see fig. 1). Attack submarines are homeported at bases in the United States: in New London, Connecticut; Pearl Harbor, Hawaii; Norfolk, Virginia; San Diego, California; and Bangor, Washington; 4 are homeported overseas, in the U.S. territory of Guam. Submarine Safety Controls and Culture On April 10, 1963, the USS Thresher (SSN 593) sank during deep submergence tests off the coast of New England. One hundred and twelve officers and enlisted sailors and 17 civilians perished in the tragedy. The accident investigation concluded that the Navy did not have adequate procedures in place to prevent and respond to a catastrophic flooding incident. time, and that maintenance delays reduce the amount of time during which ships and submarines are available for training and operations. Submarine fleet and squadron officials emphasized the strict safety culture that permeates the submarine community. This emphasis on meeting safety certification criteria means that the Navy operates a supply-based submarine force that does not compromise on adherence to training and maintenance standards to meet combatant commander demands, according to these officials (see sidebar). Officials added that the Navy will delay deployment dates if necessary to ensure that these standards are met. As a result, deployed readiness is high and attack submarines are in excellent materiel condition as compared with the rest of the Navy fleet. The loss of the USS Thresher and its crew spurred the Navy to establish stringent safety requirements for submarines to prevent another loss at sea. Following the accident, the Navy established submarine safety certification criteria to provide maximum reasonable assurance that critical systems would protect the crew from flooding and allow the submarine to conduct an emergency surfacing should flooding occur. This program, known as SUBSAFE, is still in use today, to ensure that these critical systems receive a high quality of work and that all work is properly documented. According to the Navy, the SUBSAFE certification status of a submarine is fundamental to its mission capability, as it provides a thorough and systematic approach to quality, and to a culture that permeates the entire submarine community. According to Navy officials, since the SUBSAFE program was established in 1963, no SUBSAFE-certified submarine has ever been lost. The Navy has been unable to begin or complete the vast majority of its attack submarine maintenance periods on time resulting in significant maintenance delays and operating and support cost expenditures. Our analysis of Navy maintenance data shows that between fiscal year 2008 and the end of fiscal year 2018, attack submarines will have incurred 10,363 days of idle time and maintenance delays as a result of delays in getting into and out of the shipyards. Our analysis found that the primary driver affecting attack submarines are delays in completing depot maintenance. For example, of the 10,363 total days of lost time since fiscal year 2008, 8,472 (82 percent) were due to depot maintenance delays. As we previously reported, completing ship and submarine maintenance on time is essential to Navy readiness, as maintenance periods lasting longer than planned could reduce the number of days during which ships and crews are available for training or operations. Attack submarines also face delays in beginning maintenance when the public shipyards have no available capacity, in some cases forcing submarines to idle pierside because they are no longer certified to conduct normal operations. According to Navy officials, the SUBSAFE program—its program to ensure and certify submarine safety—requires submarines to adhere to strict maintenance schedules and pass materiel condition assessments before they are allowed to submerge. Attack submarines that go too long without receiving required maintenance are at risk of having their materiel certification expire. Should this certification expire, these submarines are restricted to sitting idle, pierside, while they wait until a shipyard has the capacity to begin their maintenance period (see fig. 2). We found that since fiscal year 2008, 14 attack submarines have spent a combined 61 months (1,891 days) idling while waiting to enter shipyards for maintenance. Idle time incurred while waiting to begin a maintenance period is often coupled with maintenance delays while at the shipyards, thus compounding total delays. We also found that the Navy incurs significant costs in operating and supporting submarines that are experiencing maintenance delays and idle time. We analyzed the operating and support costs the Navy incurs on average to estimate the costs of crewing, maintaining, and supporting attack submarines that are delayed in getting into and out of the shipyards. Using historical daily cost data the Navy adjusted for inflation, we estimated that since fiscal year 2008 the Navy has spent more than $1.5 billion in fiscal year 2018 constant dollars on attack submarines sitting idle while waiting to enter the shipyards, and on those delayed in completing their maintenance at the shipyards (see table 1). While the Navy would incur these costs regardless of whether the submarine was delayed, idled, or deployed, our estimate of $1.5 billion represents costs incurred from fiscal year 2008 through fiscal year 2018 for attack submarines without receiving any operational capability in return. While acknowledging the magnitude of these costs, Navy officials stated that there may be some benefits that could be realized from these operating and support costs since crews on idle attack submarines can conduct some limited training. Operating and support costs include payment of crew salaries, purchasing of spare parts, and conducting of maintenance, among other things, but they do not represent the full operational impact incurred by the Navy from the idle time and maintenance delays. For example, attack submarine depot-level maintenance requires the use of a drydock, and officials from the three public shipyards we visited told us that their drydock capacity was limited. A delayed attack submarine maintenance period can restrict the use of a drydock for much longer than originally anticipated, thereby preventing the shipyard from using that drydock to maintain other vessels, including other types of ships, or to conduct necessary repairs on the facilities. The Navy has started to address workforce shortages and facilities needs at the public shipyards. These efforts to address the Navy’s maintenance challenges are important steps, but they will require several years of sustained management attention to reach fruition. As we reported in September 2017, maintenance on ships and submarines may be delayed for numerous reasons, including workforce gaps and inexperience, the poor condition of facilities and equipment, parts shortages, changes in planned maintenance work, and weather. According to Navy officials, all of these issues continue to affect the Navy’s ability to complete attack submarine maintenance on time. According to officials, the Navy has begun to address some of these challenges. For example: The public shipyards have been hiring to address workforce shortages. The number of civilian full-time employees at the shipyards increased from 25,087 in 2007 to 34,160 in 2017, with a goal to reach 36,100 by 2020. Navy officials cautioned that this newly hired workforce is largely inexperienced and will require time to attain full proficiency. The Navy has released a plan to guide public shipyard capital investments. In September 2017 we reported that the Navy projected an inability to support 50 planned submarine maintenance periods over the ensuing 23 years, due to capacity and capability shortfalls at the public shipyards. We recommended that the Navy develop a comprehensive plan for shipyard capital investment. In February 2018 the Navy published its shipyard optimization plan, outlining an estimated $21 billion investment needed to address shipyard facility and equipment needs over 20 years to meet the operational needs of the current Navy fleet, but not the larger fleet size planned for the future. While the public shipyards have operated above capacity for the past several years, attack submarine maintenance delays are getting longer and idle time is increasing. The Navy expects the maintenance backlogs at the public shipyards to continue. We estimate that, as a result of these backlogs, the Navy will incur approximately $266 million in operating and support costs in fiscal year 2018 constant dollars for idle submarines from fiscal year 2018 through fiscal year 2023, as well as additional depot maintenance delays. The Navy may have options to mitigate idle time and maintenance delays. For example, officials at the private shipyards—General Dynamics Electric Boat and Huntington Ingalls Industries-Newport News Shipbuilding—told us that they will have available capacity for repair work for at least the next 5 years. Although the Navy has shifted about 8 million man-hours in attack submarine maintenance to private shipyards over the past 5 years, it has done so sporadically, having decided to do so in some cases only after experiencing lengthy periods of idle time. According to private shipyard officials, the sporadic shifts in workload have resulted in repair workload gaps that have disrupted private shipyard workforce, performance, and capital investment—creating costs that are ultimately borne in part by the Navy. We believe that the Navy has not fully mitigated this challenge because it has not completed a comprehensive business case analysis to inform maintenance workload allocation across public and private shipyards, and to proactively minimize attack submarine idle time and maintenance delays. Such an analysis would help the Navy better assess private shipyard capacity to perform attack submarine maintenance and would help it incorporate a complete accounting of all costs, benefits, and risks, including: the large operating and support costs of having attack submarines sitting idle; the qualitative benefits associated with providing additional availability to the combatant commanders; and the potential for additional work at private shipyards to reduce schedule risk to submarine construction programs by allowing the yards to build and maintain a stable shipyard workforce. The April 2011 DOD Product Support Business Case Analysis Guidebook provides standards for DOD’s process for conducting analyses of costs, benefits, and risks. It states that data sources used to conduct a business case analysis should be comprehensive and should include both quantitative and qualitative values. It notes that benefits, such as the availability of a weapon system, may be qualitative in nature, and that DOD should evaluate all possible support options, to include government- and contractor-provided maintenance. Navy leadership has acknowledged that they need to be more proactive in leveraging private shipyard repair capacity, but officials cautioned that maintenance could cost more at a private shipyard than at a public shipyard. However, without a complete accounting of all costs, benefits, and risks, the Navy will remain unable to determine whether the cost of performing a maintenance period at a private shipyard would outweigh the mission benefits of having reduced idle time, additional operational availability, and the potential for reduced risk to submarine construction programs. The nation’s investment in attack submarines provides the United States an asymmetric advantage to gather intelligence undetected, attack enemy targets, and insert special forces, among other capabilities. However, the Navy’s attack submarine fleet has suffered from persistent and costly maintenance delays. Although the Navy has several activities underway to reduce maintenance delays for the attack submarine fleet, it has not yet taken additional steps to maximize attack submarine readiness that fully address challenges such as the allocation of maintenance periods between public and private shipyards. Without addressing this challenge, the Navy will not achieve the full benefit of the nation’s investment in its attack submarines, and it risks continued expenditure of operating and support funding to crew, maintain, and support attack submarines that provide no operational capability because they are delayed in getting into and out of maintenance. The Secretary of the Navy should ensure that the Chief of Naval Operations conducts a business case analysis to inform maintenance workload allocation across public and private shipyards; this analysis should include an assessment of private shipyard capacity to perform attack submarine maintenance, and should incorporate a complete accounting of both (a) the costs and risks associated with attack submarines sitting idle, and (b) the qualitative benefits associated with having the potential to both mitigate risk in new submarine construction and provide additional availability to the combatant commanders. We provided a draft of the classified version of the report to DOD for review and comment. That draft contained the same recommendation as this unclassified version as well as three additional recommendations DOD deemed sensitive. In written comments provided by DOD (reprinted in appendix II), DOD concurred with our recommendation stating that it has taken the first steps to take a more holistic view of submarine maintenance requirements and impacts across both the public and private shipyards. The Navy also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to congressional committees; the Secretary of Defense; the Secretary of the Navy, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3489 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. To assess the extent to which the Navy has experienced maintenance delays in its attack submarine fleet, we analyzed attack submarine maintenance delay and idle time data from Naval Sea Systems Command, and we reviewed prior GAO work on shipyard maintenance delays. The Navy determines depot maintenance delays by counting each day in which a submarine maintenance period extends beyond the planned completion date. Two Navy offices within Naval Sea Systems Command—that is, the Logistics, Maintenance, and Industrial Operations office and Program Executive Office Submarines—track days incurred from depot-level maintenance delays and idle time. To determine the total number of days of maintenance delays for each fiscal year within our scope, we subtracted the planned completion date from the actual completion date to produce the number of days of maintenance delays for each maintenance period for each submarine. We added together the days of maintenance delays across all attack submarines for each fiscal year, and then added the fiscal year totals to produce the overall total. Although the data included some maintenance periods that began before fiscal year 2008, we counted days of maintenance delays only from periods that were incurred in fiscal years 2008 through 2018. We also tracked the total number of days that the Navy completed maintenance periods ahead of schedule—that is, 153—but we noted these separately instead of subtracting them from the total number of days of maintenance delays. To estimate costs associated with these delays, we analyzed annual data from fiscal years 2011 through 2017 (the most current data available at the time of our review) from the Navy’s Visibility and Management of Operating and Support Costs system. We also reviewed prior work on determining the operating and support costs of Navy ships. The Navy calculates total operating and support expenditures for each attack submarine on an annual basis, as well as the yearly average expenditure for each attack submarine class, including Los Angeles class, Seawolf class, and Virginia class blocks one and two. For each class, we converted the Navy’s annual class averages into daily average costs by adding the annual class averages together for each year that data were available, fiscal years 2011 through 2017, then dividing that number by the total number of days. We then multiplied the daily class average by the total number of days of maintenance delays and idle time incurred by submarines within that class, according to our calculations outlined above, between fiscal year 2008 and fiscal year 2018, and we added these totals together to produce the total estimated operating and support cost for days of maintenance delays and idle time incurred during this period. The data did not include annual class average costs for fiscal years 2008, 2009, 2010, or 2018. However, the annual class averages for fiscal years 2011 through 2017 did not show significant variation, so we applied these averages to 2008, 2009, 2010, and 2018. To assess the extent to which the Navy has addressed any challenges and developed mitigation plans for any maintenance delays, we reviewed the Navy’s plans to address attack submarine maintenance delays and interviewed Navy headquarters, fleet, and squadron officials, attack submarine crews, and public and private shipyard officials to understand any plans to address attack submarine maintenance delays and idle time. We analyzed data on factors contributing to attack submarine maintenance delays, such as cannibalization rates. We visited three of the four public shipyards, including Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility, Portsmouth Naval Shipyard, and Norfolk Naval Shipyard, to observe operations, training, and the condition of the facilities and equipment, and to interview officials about challenges affecting operational efficiency and performance. We also met with Navy maintainers at Naval Station Norfolk and Naval Submarine Base New London, and with the crew of the submarine tenders USS Frank Cable (AS-40) and USS Emory S. Land (AS-39) in Guam. We toured the two private shipyards that conduct attack submarine repair work—General Dynamics Electric Boat and Huntington Ingalls Industries-Newport News Shipbuilding—and interviewed executives at both locations. We also toured attack submarines and met with crew leadership, selected according to which submarines and crews were available for tours at each of the sites we visited. We visited the USS Boise (SSN 764) at Naval Station Norfolk and four attack submarines in depot-level maintenance: the USS Albany (SSN 753), the USS Jefferson City (SSN 759), the USS New Mexico (SSN 779), and the USS Springfield (SSN 761). We met with the crews of two attack submarines assigned to the operating forces at the time of our visit, the USS Missouri (SSN 780) and the USS North Dakota (SSN 784). We evaluated the Navy’s plans to address any challenges against criteria in federal standards for internal control, which state that agencies should evaluate performance in achieving key objectives and addressing risks; the Department of Defense’s business case analysis guidebook, which provides standards for the process used to conduct analyses of costs, benefits, and risks; the Project Management Book of Knowledge, which provides best practices for project management; and the Secretary of the Navy’s December 2017 Strategic Readiness Review, which calls for the early identification of systemic risks before problems occur. To assess the reliability of the data sources for conducting analyses to address all of the objectives in this report, we reviewed systems documentation and interviewed officials to understand system operating procedures, organizational roles and responsibilities, and error-checking mechanisms. We selected the time frames for each of the data series above after assessing their availability and reliability, to maximize the amount of data available for us to make meaningful comparisons. We assessed the reliability of each of the data sources. The Navy provided information based on our questions regarding data reliability, including information on an overview of the data, data-collection processes and procedures, data quality controls, and overall perceptions of data quality. The Navy provided documentation of how the systems are structured and what written procedures are in place to help ensure that the appropriate information is collected and properly categorized. Additionally, we interviewed Navy officials to obtain further clarification on data reliability, discuss how the data were collected and reported, and explain how we planned to use the data. We also conducted our own error checks to look for inaccurate or questionable data, and we discussed with officials any data irregularities we found. We conducted these assessments on the following data for attack submarines: Navy deployed and surge-ready submarines from fiscal years 2011 through 2018; maintenance timeliness from fiscal years 2000 through 2018; idle time from fiscal years 2008 through 2018; operating and support costs from fiscal years 2011 through 2017; and cannibalization rates from 2012 through 2017. Some of these data were used in prior reports, and their reliability had previously been assessed. After further assessing any data that we had not recently used, we determined that they were sufficiently reliable for the purposes of summarizing attack submarine readiness trends and related information. We interviewed officials, and where appropriate obtained documentation, at the following locations: Office of the Chief of Naval Operations Undersea Warfare Division (N97) Warfare Integration Division (N83) U.S. Fleet Forces Command Commander, Submarine Force, U.S. Atlantic Fleet Commander, Submarine Squadron 4 Commander, Regional Support Group Groton Commander, Submarine Force, U.S. Pacific Fleet Commander, Submarine Squadron 1 Commander, Submarine Squadron 7 Commander, Submarine Squadron 15 Naval Sea Systems Command (NAVSEA) Logistics, Maintenance, and Industrial Operations (NAVSEA 04) Program Executive Office, Submarines Attack Submarine Program Office (PMS 392) Submarine Maintenance Engineering, Planning, and Procurement (SUBMEPP) Supervisor of Shipbuilding, Conversion, and Repair (SUPSHIP) Newport News, Virginia Navy Education and Training Command Submarine Learning Facility Norfolk Navy Board of Inspection and Survey Norfolk Naval Shipyard, Norfolk, Virginia Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility, Pearl Harbor, Hawaii Portsmouth Naval Shipyard, Kittery, Maine Newport News Shipbuilding, Virginia, operated by Huntington Ingalls Industries Electric Boat, Groton, Connecticut, operated by General Dynamics The performance audit upon which this report is based was conducted from August 2017 to October 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We worked with DOD to prepare this unclassified version of the report for public release. This public version was also prepared in accordance with these standards. Report numbers with a C or RC suffix are Classified. Classified reports are available to personnel with the proper clearances and need to know, upon request. Columbia Class Submarine: Immature Technologies Present Risks to Achieving Cost Schedule and Performance Goals. GAO-18-158. Washington, D.C.: Dec. 21, 2017. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Affecting the Fleet. GAO-17-809T. Washington, D.C.: Sept. 19, 2017. Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations. GAO-17-548. Washington, D.C.: Sept. 12, 2017. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet. GAO-17-798T. Washington, D.C.: Sept. 7, 2017. Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-841. Washington, D.C.: Sept. 7, 2016. Navy and Marine Corps: Services Face Challenges to Rebuilding Readiness. GAO-16-481RC. Washington, D.C.: May 25, 2016. (SECRET//NOFORN) Military Readiness: Progress and Challenges in Implementing the Navy’s Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May 2, 2016. Navy Force Structure: Sustainable Plan and Comprehensive Assessment Needed to Mitigate Long-Term Risks to Ships Assigned to Overseas Homeports. GAO-15-329. Washington, D.C.: May 29, 2015. In addition to the contact named above, Suzanne Wren, Assistant Director; Chris Watson, Analyst in Charge; Herb Bowsher; Chris Cronin; Ally Gonzalez; Cynthia Grant; Carol Petersen; Amber Sinclair; and Cheryl Weissman made key contributions to this report.	[ "According to the Navy, its 51 attack submarines provide the United States an asymmetric advantage to gather intelligence undetected, attack enemy targets, and insert special forces, among others. These capabilities make attack submarines some of the most–requested assets by the global combatant commanders. GAO was asked to review the readiness of the Navy's attack submarine force. This report discusses the extent to which the Navy (1) has experienced maintenance delays in its attack submarine fleet and costs associated with any delays; and (2) has addressed any challenges and developed mitigation plans for any maintenance delays. GAO analyzed readiness information from fiscal years 2008-2018, operating and support costs, maintenance performance, and other data; visited attack submarines and squadrons; and interviewed public and private shipyard and fleet officials. This is a public version of a classified report issued in October 2018. Information the Department of Defense deemed classified or sensitive, such as attack submarine force structure requirements and detailed data on attack submarine maintenance delays, has been omitted. The Navy has been unable to begin or complete the vast majority of its attack submarine maintenance periods on time resulting in significant maintenance delays and operating and support cost expenditures. GAO's analysis of Navy maintenance data shows that between fiscal year 2008 and 2018, attack submarines have incurred 10,363 days of idle time and maintenance delays as a result of delays in getting into and out of the shipyards. For example, the Navy originally scheduled the USS Boise to enter a shipyard for an extended maintenance period in 2013 but, due to heavy shipyard workload, the Navy delayed the start of the maintenance period. In June 2016, the USS Boise could no longer conduct normal operations and the boat has remained idle, pierside for over two years since then waiting to enter a shipyard (see figure). GAO estimated that since fiscal year 2008 the Navy has spent more than $1.5 billion in fiscal year 2018 constant dollars to support attack submarines that provide no operational capability—those sitting idle while waiting to enter the shipyards, and those delayed in completing their maintenance at the shipyards. The Navy has started to address challenges related to workforce shortages and facilities needs at the public shipyards. However, it has not effectively allocated maintenance periods among public shipyards and private shipyards that may also be available to help minimize attack submarine idle time. GAO's analysis found that while the public shipyards have operated above capacity for the past several years, attack submarine maintenance delays are getting longer and idle time is increasing. The Navy may have options to mitigate this idle time and maintenance delays by leveraging private shipyard capacity for repair work. But the Navy has not completed a comprehensive business case analysis as recommended by Department of Defense guidelines to inform maintenance workload allocation across public and private shipyards. Navy leadership has acknowledged that they need to be more proactive in leveraging potential private shipyard repair capacity. Without addressing this challenge, the Navy risks continued expenditure of operating and support funding to crew, maintain, and support attack submarines that provide no operational capability because they are delayed in getting into and out of maintenance. GAO recommends that the Navy conduct a business case analysis to inform maintenance workload allocation across public and private shipyards. The Department of Defense concurred with GAO's recommendation." ]	3,817	gov_report	en	null	63bfe4332c2b9854797561b506336d4a5f5b878b005b6b0b
This report provides background information and issues for Congress on the Aegis ballistic missile defense (BMD) program, which is carried out by the Missile Defense Agency (MDA) and the Navy, and gives Navy Aegis cruisers and destroyers a capability for conducting BMD operations. The issue for Congress is whether to approve, reject, or modify Department of Defense (DOD) acquisition strategies and proposed funding levels for the Aegis BMD program. Congress's decisions on the Aegis BMD program could significantly affect U.S. BMD capabilities and funding requirements, and the BMD-related industrial base. For an overview of the strategic and budgetary context in which the Aegis BMD program may be considered, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress , by Ronald O'Rourke. Most of the Navy's cruisers and destroyers are called Aegis ships because they are equipped with the Aegis ship combat system—an integrated collection of sensors, computers, software, displays, weapon launchers, and weapons named for the mythological shield that defended Zeus. The Aegis system was originally developed in the 1970s for defending ships against aircraft, anti-ship cruise missiles (ASCMs), surface threats, and subsurface threats. The system was first deployed by the Navy in 1983, and it has been updated many times since. The Navy's Aegis ships include Ticonderoga (CG-47) class cruisers and Arleigh Burke (DDG-51) class destroyers. A total of 27 CG-47s (CGs 47 through 73) were procured for the Navy between FY1978 and FY1988; the ships entered service between 1983 and 1994. The first five ships in the class (CGs 47 through 51), which were built to an earlier technical standard in certain respects, were judged by the Navy to be too expensive to modernize and were removed from service in 2004-2005, leaving 22 ships in operation (CGs 52 through 73). A total of 62 DDG-51s were procured for the Navy between FY1985 and FY2005; the first entered service in 1991 and the 62 nd entered service in FY2012. The first 28 ships are known as Flight I/II DDG-51s. The next 34 ships, known as Flight IIA DDG-51s, incorporate some design changes, including the addition of a helicopter hangar. No DDG-51s were procured in FY2006-FY2009. The Navy during this period instead procured three Zumwalt (DDG-1000) class destroyers. The DDG-1000 design does not use the Aegis system and does not include a capability for conducting BMD operations. Navy plans do not call for modifying the three DDG-1000s to make them BMD-capable. Procurement of DDG-51s resumed in FY2010, following procurement of the three DDG-1000s. A total of 20 DDG-51s were procured in FY2010-FY2019. DDG-51s procured in FY2017 and subsequent years are being built to a new version of the DDG-51 design called the Flight III version. The Flight III version is to be equipped with a new radar, called the Air and Missile Defense Radar (AMDR) or the SPY-6 radar, that is more capable than the SPY-1 radar installed on all previous Aegis cruisers and destroyers. Sales of the Aegis system to allied countries began in the late 1980s. Allied countries that now operate, are building, or are planning to build Aegis-equipped ships include Japan, South Korea, Australia, Spain, and Norway. Most of Japan's Aegis-equipped ships are currently BMD-capable, and Japan plans to make all of them BMD-capable in coming years. The Aegis-equipped ships operated by South Korea, Australia, Spain, and Norway are not BMD-capable. Aegis ships are given a capability for conducting BMD operations by incorporating changes to the Aegis system's computers and software, and by arming the ships with BMD interceptor missiles. In-service Aegis ships can be modified to become BMD-capable ships, and DDG-51s procured in FY2010 and subsequent years are being built from the start with a BMD capability. The Aegis BMD system exists in several variants. Listed in order of increasing capability, these include (but are not necessarily limited to) 3.6.X variant, the 4.0.3 variant, the 4.1 variant (also known as the Aegis Baseline [BL] 5.4 variant), the 5.0 CU (Capability Upgrade) variant (also known as the BL 9.1 variant), the 5.1 variant (also known as the BL 9.2 variant), and the 6.X variant (also known as the BL 10 variant). Figure 1 summarizes the capabilities of some of these variants (using their designations as of 2016) and correlates them with the phases of the European Phased Adaptive Approach (or EPAA; see discussion below) for European BMD operations. As shown in Figure 1 , the Aegis BMD system was originally designed primarily to intercept theater-range ballistic missiles, meaning short-, medium-, and intermediate-range ballistic missiles (SRBMs, MRBMs, and IRBMs, respectively). In addition to its capability for intercepting theater-range ballistic missiles, detection and tracking data collected by the Aegis BMD system's radar might be passed to other U.S. BMD systems that are designed to intercept intercontinental ballistic missiles (ICBMs), which might support intercepts of ICBMs that are conducted by those other U.S. BMD systems. With the advent of the Aegis BMD system's new SM-3 Block IIA interceptor (which is discussed further in the next section), DOD is now evaluating the potential for the Aegis BMD system to intercept certain ICBMs. Section 1680 of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017) directed DOD to "conduct a test to evaluate and demonstrate, if technologically feasible, the capability to defeat a simple intercontinental ballistic missile threat using the standard missile 3 block IIA missile interceptor." DOD's January 2019 missile defense review report states the following: The SM-3 Blk IIA interceptor is intended as part of the regional missile defense architecture, but also has the potential to provide an important "underlay" to existing GBIs [ground-based interceptors] for added protection against ICBM threats to the homeland. This interceptor has the potential to offer an additional defensive capability to ease the burden on the GBI system and provide continuing protection for the U.S. homeland against evolving rogue states' long-range missile capabilities. Congress has directed DoD to examine the feasibility of the SM-3 Blk IIA against an ICBM-class target. MDA will test this SM-3 Blk IIA capability in 2020. Due to the mobility of sea-based assets, this new underlay capability will be surged in a crisis or conflict to further thicken defensive capabilities for the U.S. homeland. Land-based sites in the United States with this SM-3 Blk IIA missile could also be pursued. A March 18, 2019, press report states: The Pentagon plans a "first-of-its-kind" test of an unprecedented weapons capability to intercept and destroy an enemy Intercontinental Ballistic Missile "ICBM" -- from a Navy ship at sea using a Standard Missile-3 Block IIA. The concept, as articulated by Pentagon officials and cited briefly in this years' DoD "Missile Defense Review," would be to use an advanced SM-3 IIA to "underlay" and assist existing Ground-Based Interceptors (GBI), adding new dimensions to the current US missile defense posture.… The testing, Pentagon officials tell Warrior, is slated for as soon as next year. The effectiveness and promise of the Raytheon-built SM-3 IIA shown in recent testing have inspired Pentagon weapons developers to envision an even broader role for the weapon. The missile is now "proven out," US weapons developers say…. "The SM-3 IIA was not designed to take out ICBMs, but is showing great promise. This would be in the upper range of its capability -- so we are going to try," the Pentagon official told Warrior…. The SM-3 IIA's size, range, speed and sensor technology, the thinking suggests, will enable it to collide with and destroy enemy ICBMs toward the beginning or end of their flight through space, where they are closer to the boundary of the earth's atmosphere. "The SM-3 IIA would not be able to hit an ICBM at a high altitude, but it can go outside the earth's atmosphere," the Pentagon official said. "You want to hit it as far away as possible because a nuke could go off." A March 26, 2018, press report states the following: [MDA] Director Lt. Gen. Sam Greaves said MDA "is evaluating the technical feasibility of the capability of the SM-3 Block IIA missile, currently under development, against an ICBM-class target." "If proven to be effective against an ICBM, this missile could add a layer of protection, augmenting the currently deployed GMD [ground-based missile defense] system," Greaves said in written testimony submitted March 22 to the Senate Armed Services strategic forces subcommittee. [Greaves] said MDA will conduct a demonstration of the SM-3 Block IIA against an ICBM-like target by the end of 2020." The BMD interceptor missiles used by Aegis ships are the Standard Missile-3 (SM-3), the SM-2 Block IV, and the SM-6. The SM-3 is designed to intercept ballistic missiles above the atmosphere (i.e., exo-atmospheric intercept), in the midcourse phase of an enemy ballistic missile's flight. It is equipped with a "hit-to-kill" warhead, called a kinetic vehicle, that is designed to destroy a ballistic missile's warhead by colliding with it. MDA and Navy plans call for fielding increasingly capable versions of the SM-3 in coming years. The current versions, called the SM-3 Block IA and SM-3 Block IB, are to be supplemented in coming years by SM-3 Block IIA. Compared to the Block IA version, the Block IB version has an improved (two-color) target seeker, an advanced signal processor, and an improved divert/attitude control system for adjusting its course. Compared to the Block IA and 1B versions, which have a 21-inch-diameter booster stage at the bottom but are 13.5 inches in diameter along the remainder of their lengths, the Block IIA version has a 21-inch diameter along its entire length. The increase in diameter to a uniform 21 inches provides more room for rocket fuel, permitting the Block IIA version to have a burnout velocity (a maximum velocity, reached at the time the propulsion stack burns out) that is greater than that of the Block IA and IB versions, as well as a larger-diameter kinetic warhead. The United States and Japan have cooperated in developing certain technologies for the Block IIA version, with Japan funding a significant share of the effort. The SM-2 Block IV is designed to intercept ballistic missiles inside the atmosphere (i.e., endo-atmospheric intercept), during the terminal phase of an enemy ballistic missile's flight. It is equipped with a blast fragmentation warhead. The existing inventory of SM-2 Block IVs—72 as of February 2012—was created by modifying SM-2s that were originally built to intercept aircraft and ASCMs. A total of 75 SM-2 Block IVs were modified, and at least 3 were used in BMD flight tests. MDA and the Navy are now procuring a more capable terminal-phase (endo-atmospheric intercept) BMD interceptor based on the SM-6 air defense missile (the successor to the SM-2 air defense missile). The SM-6 is a dual-capability missile that can be used for either air defense (i.e., countering aircraft and anti-ship cruise missiles) or ballistic missile defense. A July 23, 2018, press report states the following: The Defense Department has launched a prototype project that aims to dramatically increase the speed and range of the Navy's Standard Missile-6 by adding a larger rocket motor to the ship-launched weapon, a move that aims to improve both the offensive and defensive reach of the Raytheon-built system. On Jan. 17, the Navy approved plans to develop a Dual Thrust Rocket Motor with a 21-inch diameter for the SM-6, which is currently fielded with a 13.5-inch propulsion package. The new rocket motor would sit atop the current 21-inch booster, producing a new variant of the missile: the SM-6 Block IB. On September 17, 2009, the Obama Administration announced a new approach for regional BMD operations called the Phased Adaptive Approach (PAA). The first application of the approach is in Europe, and is called the European Phased Adaptive Approach (EPAA). EPAA calls for using BMD-capable Aegis ships, a land-based radar in Europe, and two Aegis Ashore sites in Romania and Poland to defend Europe against ballistic missile threats from countries such as Iran. Phase I of EPAA involved deploying Aegis BMD ships and a land-based radar in Europe by the end of 2011. Phase II involved establishing the Aegis Ashore site in Romania with SM-3 IB interceptors in 2016. Phase 3 involves establishing the Aegis Ashore site in Poland with SM-3 IIA interceptors by perhaps FY2020. The completion of construction of the Poland site has been delayed by at least a year, MDA says, due to contractor performance issues. Each Aegis Ashore site in the EPAA is to include a structure housing an Aegis system similar to the deckhouse on an Aegis ship and 24 SM-3 missiles launched from a relocatable Vertical Launch System (VLS) based on the VLS that is installed in Navy Aegis ships. Although BMD-capable Aegis ships were deployed to European waters before 2011, the first BMD-capable Aegis ship officially deployed to European waters as part of the EPAA departed its home port of Norfolk, VA, on March 7, 2011, for a deployment to the Mediterranean that lasted several months. Under the FY2020 budget submission, the number of BMD-capable Navy Aegis ships is projected to increase from 38 at the end of FY2018 to 59 at the end of FY2024. During the period FY2018-FY2024, the portion of the force equipped with earlier Aegis variants is to decrease, and the number equipped with later variants is to increase. On October 5, 2011, the United States, Spain, and NATO jointly announced that, as part of the EPAA, four BMD-capable Aegis ships were to be forward-homeported (i.e., based) at the naval base at Rota, Spain. The four ships were transferred to Rota in FY2014 and FY2015. Navy officials have said that the four Rota-based ships can provide a level of level of presence in the Mediterranean for performing BMD patrols and other missions equivalent to what could be provided by about 10 BMD-capable Aegis ships that are homeported on the U.S. east coast. The Rota homeporting arrangement thus effectively releases about six U.S. Navy BMD-capable Aegis ships for performing BMD patrols or other missions elsewhere. The Aegis BMD development effort, including Aegis BMD flight tests, has been described as following a development philosophy long held within the Aegis program office of "build a little, test a little, learn a lot," meaning that development is done in manageable steps, then tested and validated before moving on to the next step. For a summary of Aegis BMD flight tests since 2002, see Appendix A . Japan is modifying all six of its Aegis destroyers to include the Aegis BMD capability. As of August 2017, four of the six ships reportedly had been modified, and Japan planned to modify a fifth by March 2018, or perhaps sooner than that. In November 2013, Japan announced plans to procure two additional Aegis destroyers and equip them as well with the Aegis BMD capability, which will produce an eventual Japanese force of eight BMD-capable Aegis destroyers. The two additional ships are expected to enter service in 2020 and 2021. Japanese BMD-capable Aegis ships have participated in some of the flight tests of the Aegis BMD system using the SM-3 interceptor (see Table A-1 in Appendix A ). Japan cooperated with the United States on development the SM-3 Block IIA missile. Japan developed certain technologies for the missile, and paid for the development of those technologies, reducing the missile's development costs for the United States. Japan plans to procure and operate two Aegis Ashore systems that reportedly are to be located at Ground Self-Defense Force (GSDF) facilities in Akita Prefecture in eastern Japan and Yamaguchi Prefecture in western Japan, and would be operated mainly by the GSDF (i.e., Japan's army). The two systems reportedly will be equipped with a new Lockheed-made radar called the Long Range Discrimination Radar (LRDR) rather than the Raytheon-made SPY-6 AMDR that is being installed on U.S. Navy Flight III DDG-51s, and reportedly will go into operation by 2023. A July 6, 2018, press report states that "The U.S. and Japan are looking to jointly develop next-generation radar technology that would use Japanese semiconductors to more than double the detection range of the Aegis missile defense system." An October 12, 2018, press report states that "the South Korean military has decided to buy ship-based SM-3 interceptors to thwart potential ballistic missile attacks from North Korea, a top commander of the Joint Chiefs of Staff revealed Oct. 12. Other countries that MDA views as potential naval BMD operators (using either the Aegis BMD system or some other system of their own design) include the United Kingdom, the Netherlands, Spain, Germany, Denmark, and Australia. Spain, South Korea, and Australia either operate, are building, or are planning to build Aegis ships. The other countries operate destroyers and frigates with different combat systems that may have potential for contributing to BMD operations. The Aegis BMD program is funded mostly through MDA's budget. The Navy's budget provides additional funding for BMD-related efforts. Table 1 shows MDA procurement and research and development funding for the Aegis BMD program. Research and development funding for the land-based SM-3 is funding for Aegis Ashore sites. MDA's budget also includes additional funding not shown in the table for operations and maintenance (O&M) and military construction (MilCon) for the Aegis BMD program. One issue for Congress is whether to approve, reject, or modify MDA's FY2019 procurement and research and development funding requests for the program. In considering this issue, Congress may consider various factors, including whether the work that MDA is proposing to fund for FY2019 is properly scheduled for FY2019, and whether this work is accurately priced. Another potential issue for Congress concerns required numbers of BMD-capable Aegis ships versus available numbers of BMD-capable Aegis ships. Some observers are concerned about the potential operational implications of a shortfall in the available number of BMD-capable relative to the required number. Regarding the required number of BMD-capable Aegis ships, an August 15, 2018, Navy information paper states the following: The [Navy's] 2016 Force Structure Assessment [FSA] sets the requirement [for BMD-capable ships] at 54 BMD-capable ships, as part of the 104 large surface combatant requirement, to meet Navy unique requirements to support defense of the sea base and limited expeditionary land base sites…. The minimum requirement for 54 BMD ships is based on the Navy unique requirement as follows. It accepts risk in the sourcing of combatant commander (CCDR) requests for defense of land. - 30 to meet CVN escort demand for rotational deployment of the carrier strike groups - 11 INCONUS for independent BMD deployment demand - 9 in forward deployed naval forces (FDNF) Japan to meet operational timelines in USINDOPACOM - 4 in FDNF Europe for rotational deployment in EUCOM. A related potential issue for Congress is the burden that BMD operations may be placing on the Navy's fleet of Aegis ships, particularly since performing BMD patrols requires those ships to operate in geographic locations that may be unsuitable for performing other U.S. Navy missions, and whether there are alternative ways to perform BMD missions now performed by U.S. Navy Aegis ships, such as establishing more Aegis Ashore sites. A June 16, 2018, press report states the following: The U.S. Navy's top officer wants to end standing ballistic missile defense patrols and transfer the mission to shore-based assets. Chief of Naval Operations Adm. John Richardson said in no uncertain terms on June 12 that he wants the Navy off the tether of ballistic missile defense patrols, a mission that has put a growing strain on the Navy's hard-worn surface combatants, and the duty shifted towards more shore-based infrastructure. "Right now, as we speak, I have six multi-mission, very sophisticated, dynamic cruisers and destroyers―six of them are on ballistic missile defense duty at sea," Richardson said during his address at the U.S. Naval War College's Current Strategy Forum. "And if you know a little bit about this business you know that geometry is a tyrant. "You have to be in a tiny little box to have a chance at intercepting that incoming missile. So, we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land." Richardson continued, saying the Navy could be used in emergencies but that in the long term the problem demands a different solution. "It's a pretty good capability and if there is an emergent need to provide ballistic missile defense, we're there," he said. "But 10 years down the road, it's time to build something on land to defend the land. Whether that's AEGIS ashore or whatever, I want to get out of the long-term missile defense business and move to dynamic missile defense." The unusually direct comments from the CNO come amid growing frustration among the surface warfare community that the mission, which requires ships to stay in a steaming box doing figure-eights for weeks on end, is eating up assets and operational availability that could be better used confronting growing high-end threats from China and Russia. The BMD mission was also a factor in degraded readiness in the surface fleet. Amid the nuclear threat from North Korea, the BMD mission began eating more and more of the readiness generated in the Japan-based U.S. 7th Fleet, which created a pressurized situation that caused leaders in the Pacific to cut corners and sacrifice training time for their crews, an environment described in the Navy's comprehensive review into the two collisions that claimed the lives of 17 sailors in the disastrous summer of 2017. Richardson said that as potential enemies double down on anti-access technologies designed to keep the U.S. Navy at bay, the Navy needed to focus on missile defense for its own assets. "We're going to need missile defense at sea as we kind of fight our way now into the battle spaces we need to get into," he said. "And so restoring dynamic maneuver has something to do with missile defense. A June 23, 2018, press report states the following: The threats from a resurgent Russia and rising China―which is cranking out ships like it's preparing for war―have put enormous pressure on the now-aging [U.S. Navy Aegis destroyer] fleet. Standing requirements for BMD patrols have put increasing strain on the U.S. Navy's surface ships. The Navy now stands at a crossroads. BMD, while a burden, has also been a cash cow that has pushed the capabilities of the fleet exponentially forward over the past decade. The game-changing SPY-6 air and missile defense radar destined for DDG Flight III, for example, is a direct response to the need for more advanced BMD shooters. But a smaller fleet, needed for everything from anti-submarine patrols to freedom-of-navigation missions in the South China Sea, routinely has a large chunk tethered to BMD missions. "Right now, as we speak, I have six multimission, very sophisticated, dynamic cruisers and destroyers―six of them are on ballistic missile defense duty at sea," Chief of Naval Operations Adm. John Richardson said during an address at the recent U.S. Naval War College's Current Strategy Forum. "You have to be in a tiny little box to have a chance at intercepting that incoming missile. So we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land." And for every six ships the Navy has deployed in a standing mission, it means 18 ships are in various stages of the deployment cycle preparing to relieve them. The Pentagon, led by Defense Secretary Jim Mattis, wants the Navy to be more flexible and less predictable―"dynamic" is the buzzword of moment in Navy circles. What Richardson is proposing is moving standing requirements for BMD patrols away from ships underway and all the associated costs that incurs, and toward fixed, shore-based sites, and also surging the Navy's at-sea BMD capabilities when there is an active threat.... In a follow-up response to questions posed on the CNO's comments, Navy spokesman Cmdr. William Speaks said the Navy's position is that BMD is an integral part of the service's mission, but where long-term threats exist, the Navy should "consider a more persistent, land-based solution as an option." "This idea is not about the nation's or the Navy's commitment to BMD for the U.S. and our allies and partners―the Navy's commitment to ballistic missile defense is rock-solid," Speaks said. "In fact, the Navy will grow the number of BMD-capable ships from 38 to 60 by 2023, in response to the growing demand for this capability. "The idea is about how to best meet that commitment. In alignment with our national strategic documents, we have shifted our focus in an era of great power competition―this calls us to think innovatively about how best to meet the demands of this mission and optimize the power of the joint force."... While the idea of saving money by having fixed BMD sites and freeing up multimission ships is sensible, it may have unintended consequences, said Bryan McGrath, a retired destroyer skipper and owner of the defense consultancy The FerryBridge Group. "The BMD mission is part of what creates the force structure requirement for large surface combatants," McGrath said on Twitter after Defense News reported the CNO's comments. "Absent it, the number of CG's and DDG's would necessarily decline. This may in fact be desirable, depending on the emerging fleet architecture and the roles and missions debate underway. Perhaps we need more smaller, multi-mission ships than larger, more expensive ones. "But it cannot be forgotten that while the mission is somewhat wasteful of a capable, multi-mission ship, the fact that we have built the ships that (among other things) do this mission is an incredibly good thing. If there is a penalty to be paid in peacetime sub-optimization in order to have wartime capacity--should this not be considered a positive thing?" McGrath went on to say that the suite of combat systems that have been built into Aegis have been in response to the BMD threat. And indeed, the crown jewels of the surface fleet―Aegis Baseline 9 software, which allows a ship to do both air defense and BMD simultaneously; the Aegis common-source library; the forthcoming SPY-6; cooperative engagement―have come about either in part or entirely driven by the BMD mission.... A Navy official who spoke on condition of anonymity, to discuss the Navy's shifting language on BMD, acknowledged the tone had shifted since the 2000s when the Navy latched onto the mission. But the official added that the situation more than a decade later has dramatically shifted. "The strategic environment has changed significantly since the early 2000s―particularly in the western Pacific. We have never before faced multiple peer rivals in a world as interconnected and interdependent as we do today," the official said. "Nor have we ever seen technologies that could alter the character of war as dramatically as those we see emerging around us. China and Russia have observed our way of war and are on the move to reshape the environment to their favor." In response to the threat and Defense Secretary Jim Mattis' desire to use the force more dynamically, the Navy is looking at its options, the official said. "This includes taking a look at how we employ BMD ships through the lens of great power competition to compete, deter and win against those who threaten us." A January 29, 2019, press report states the following: The Navy is looking to get out of the missile defense business, the service's top admiral said today, and the Pentagon's new missile defense review might give the service the off-ramp it has been looking for to stop sailing in circles waiting for ground-based missile launches. This wasn't the first time Adm. John Richardson bristled in public over his ships sailing in "small boxes" at sea tasked with protecting land, when they could be out performing other missions challenging Chinese and Russian adventurism in the South China Sea and the North Atlantic…. "We've got exquisite capability, but we've had ships protecting some pretty static assets on land for a decade," Richardson said at the Brookings Institute. "If that [stationary] asset is going to be a long-term protected asset, then let's build something on land and protect that and liberate these ships from this mission." Japan is already moving down the path of building up a more robust ground-based sensor and shooter layer, while also getting its own ships out to sea armed with the Aegis radar and missile defense system, both of which would free up American hulls from what Richardson on Monday called "the small [geographic] boxes where they have to stay for ballistic missile defense." Another related potential issue for Congress concerns burden sharing—how allied contributions to regional BMD capabilities and operations compare to U.S. naval contributions to overseas regional BMD capabilities and operations, particularly in light of constraints on U.S. defense spending, worldwide operational demands for U.S. Navy Aegis ships, and calls by some U.S. observers for increased allied defense efforts. The issue can arise in connection with both U.S. allies in Europe and U.S. allies in Asia. Regarding U.S. allies in Asia, a December 12, 2018, press report states the following: In June, US Navy Chief of Naval Operations (CNO) Admiral John Richardson said during a speech at the US Naval War College that the US Navy should terminate its current practice of dedicating several US Navy warships solely for Ballistic Missile Defense (BMD). Richardson wanted US warships to halt BMD patrols off Japan and Europe as they are limiting, restrictive missions that could be better accomplished by existing land-based BMD systems such as Patriot anti-missile batteries, the US Terminal High Altitude Area Defense (THAAD) anti-missile system and the Aegis Ashore anti-missile system. In the months since dropping his bombshell, Richardson—and much of the debate—has gone quiet. "My guess is the CNO got snapped back by the Pentagon for exceeding where the debate actually stood," one expert on US naval affairs told Asia Times. But others agree with him. Air Force Lt Gen Samuel A Greaves, the director of the US Missile Defense Agency (MDA), acknowledges Richardson's attempts to highlight how these BMD patrols were placing unwelcome "strain on the (US Navy's) crews and equipment." But there are complications. While it may free US Navy warships for sea-control, rather than land defense, there is a concern that next- generation hypersonic cruise missiles could defeat land-based BMD systems, such as Aegis Ashore, while the US Navy's Aegis-equipped warships offer the advantages of high-speed mobility and stealth, resulting in greater survivability overall. As Japan prepares to acquire its first Aegis Ashore BMD system – and perhaps other systems such as the THAAD system which has been deployed previously in Romania and South Korea – the possibility that the US Navy will end its important BMD role represents abrupt change…. Japan's decision to deploy Aegis Ashore can fill in any gap created by a possible US Navy cessation of BMD patrols. "The land-based option is more reliable, less logistically draining, and despite being horrendously expensive, could be effective in the sense that it provides a degree of reassurance to the Japanese people and US government, and introduces an element of doubt of missile efficacy into [North Korean] calculations," said [Garren Mulloy, Associate Professor of International Relations at Daito Bunka University in Saitama, Japan], adding, however, that these systems could not cover Okinawa. "Fixed sites in Japan could be vulnerable, and the Aegis vessels provide a flexible forward-defense, before anything enters Japanese airspace, but with obviously limited reactions times," Mulloy said. "Aegis Ashore gives more reaction time – but over Japanese airspace."… The silence about this sudden possible shift in the US defense posture in the western Pacific is understandable: it is a sensitive topic in Washington and Tokyo. However, the Trump administration has urged its allies to pay more for their own defense needs and to support US troops deployed overseas. Meanwhile, Tokyo needs to proceed cautiously given the likelihood that neighbors might view a move on BMD as evidence that Tokyo is adopting an increasingly aggressive defense posture in the region. But for them, it is a no-win situation. If the US does ditch the BMD patrol mission, China and North Korea might view the shift as equally menacing given that it greatly enhances the US Navy's maritime warfare capabilities. Another potential issue for Congress is whether to convert the Aegis test facility in Hawaii into an operational land-based Aegis BMD site. DOD's January 2019 missile defense review report states, in a section on improving or adapting existing BMD systems, that Another repurposing option is to operationalize, either temporarily or permanently, the Aegis Ashore Missile Defense Test Center in Kauai, Hawaii, to strengthen the defense of Hawaii against North Korean missile capabilities. DoD will study this possibility to further evaluate it as a viable near-term option to enhance the defense of Hawaii. The United States will augment the defense of Hawaii in order to stay ahead of any possible North Korean missile threat. MDA and the Navy will evaluate the viability of this option and develop an Emergency Activation Plan that would enable the Secretary of Defense to operationalize the Aegis Ashore test site in Kauai within 30 days of the Secretary's decision to do so, the steps that would need to be taken, associated costs, and personnel requirements. This plan will be delivered to USDA&S, USDR&E, and USDP within six months of the release of the MDR. A January 25, 2019, press report states the following: The Defense Department will examine the funding breakdown between the Navy and the Missile Defense Agency should the government make Hawaii's Aegis Ashore Missile Defense Test Center into an operational resource, according to the agency's director. "Today, it involves both Navy resources for the operational crews -- that man that site -- as well as funds that come to MDA for research, development and test production and sustainment," Lt. Gen. Sam Greaves said of the test center when asked how the funding would shake out between the Navy and MDA should the Pentagon move forward with the recommendation. Another potential issue for Congress concerns the potential for ship-based lasers, electromagnetic railguns (EMRGs), and gun-launched guided projectiles (GLGPs, previously known as hypervelocity projectiles [HVPs]) to contribute in coming years to Navy terminal-phase BMD operations and the impact this might eventually have on required numbers of ship-based BMD interceptor missiles. Another CRS report discusses the potential value of ship-based lasers, EMRGs, and GLGPs for performing various missions, including, potentially, terminal-phase BMD operations. Another potential oversight issue for Congress is technical risk and test and evaluation issues in the Aegis BMD program. Regarding this issue, a December 2018 report from DOD's Director, Operational Test and Evaluation (DOT&E)—DOT&E's annual report for FY2018—stated the following in its section on the Aegis BMD program: Assessment • Results from flight testing, high-fidelity M&S, HWIL, and distributed ground testing demonstrate that Aegis BMD can intercept non-separating, simple-separating, and complex-separating ballistic missiles in the midcourse phase. However, flight testing and M&S did not address all expected threat types, ground ranges, and raid sizes. • FTM-45 successfully and fully demonstrated the Aegis BL 9.2 organic engagement capability and corrective action for the previous FTM-29 missile failure. FTM-29 was only partially able to demonstrate EOR capability given the in-flight missile failure. In FTM-29, the Aegis Weapon System supported the SM-3 Block IIA missile and demonstrated bi-directional communication between the SM-3 Block IIA guidance section and the KW until loss of signal at horizon. However, the weapon system did not exercise all aspects of communication after KW eject. DOT&E considers the FTM-29 failure to be an example of a shortfall in conducting ground testing in an operationally representative way, and an example of a deficiency found in OT that DT should have discovered. • The MDA implemented process improvements to better identify, report, and fi x common failures and anomalies identified during SM-3 ground testing prior to flight testing. • SM CTV-03 demonstrated the capability of the Aegis BMD 4.1 upgrade to fi re an SM-6 Dual I missile. The BMD 4.1 build incorporates BL 9.C1 capabilities into the BMD 4.0 baseline. • FS-17 demonstrated the Aegis BMD 4.0.3 capability to interoperate with NATO partners over operational communication architectures during cruise missile and ballistic missile engagements, and to use remote data provided by NATO partners to prosecute remote engagements. JFTM-05 Event 2 demonstrated inter-ship communication between U.S. and Japanese destroyers using a realistic communications architecture while prosecuting ballistic missile engagements. Pacific Dragon demonstrated interoperability between U.S. Aegis BMD assets, Japanese destroyers, and Republic of Korea naval assets. • Aegis BMD has exercised rudimentary engagement coordination with Terminal High-Altitude Area Defense firing units, but not with Patriot. The MDA plans to include Patriot in FTO-03. MDA ground tests have routinely demonstrated that inter-element coordination and interoperability need improvement to increase situational awareness and improve engagement efficiency. • The MDA has been collaborating with DOT&E and the Under Secretary of Defense (Research and Engineering) to establish an affordable ground testing approach to support assessments of reliability. DOT&E cannot assess SM-3 missile reliability with confidence until the MDA is able to provide additional ground test data that simulates the in-flight environment. DOT&E is working with the MDA to determine if existing ground test venues are able to provide the needed missile reliability data. Recommendations The MDA should: 1. Ensure that ground tests of all SM-3 missile components, sections, and all-up rounds use the same configuration as will be flown in flight tests (i.e., "test as you fly"). 2. Determine how to properly score acceptance ground test data for production missiles to enable their use in estimating SM-3 reliability. 3. Fund and execute high-fidelity M&S RFRs for Aegis BL 9.2 SM-3 Block IIA and SM-6 Dual II scenarios that span the engagement battlespace. Regarding the SM-6 missile, the January 2018 DOT&E report also stated the following: Assessment • As reported in the DOT&E FY18 SM-6 BLK I FOT&E Report, the SM-6 remains effective and suitable with the exception of the classified deficiency identified in the FY13 IOT&E Report. The SM-6 Block 1 satisfactorily demonstrated compatibility with Aegis Weapon System Baseline 9 Integrated Fire Control capability. • In FY17-18, the Navy developed and tested specific software improvements to SM-6 BLK I to mitigate the classified performance problems discovered during IOT&E. As previously reported, testing conducted by the Navy demonstrated the software improvements perform as intended, but did not eliminate them. Recommendation 1. The Navy should continue to improve software based on IOT&E results and verify corrective actions with flight tests. Table 2 summarizes congressional action on the FY2020 request for MDA procurement and research and development funding for the Aegis BMD program. Appendix A. Aegis BMD Flight Tests Table A-1 presents a summary of Aegis BMD flight tests since January 2002. As shown in the table, since January 2002, the Aegis BMD system has achieved 33 successful exo-atmospheric intercepts in 42 attempts using the SM-3 missile (including 4 successful intercepts in 5 attempts by Japanese Aegis ships, and 2 successful intercepts in 3 attempts attempt using the Aegis Ashore system), and 7 successful endo-atmospheric intercepts in 7 attempts using the SM-2 Block IV and SM-6 missiles, making for a combined total of 40 successful intercepts in 49 attempts. In addition, on February 20, 2008, a BMD-capable Aegis cruiser operating northwest of Hawaii used a modified version of the Aegis BMD system with the SM-3 missile to shoot down an inoperable U.S. surveillance satellite that was in a deteriorating orbit. Including this intercept in the count increases the totals to 34 successful exo-atmospheric intercepts in 43 attempts using the SM-3 missile, and 41 successful exo- and endo-atmospheric intercepts in 50 attempts using SM-3, SM-2 Block IV, and SM-6 missiles.	[ "The Aegis ballistic missile defense (BMD) program, which is carried out by the Missile Defense Agency (MDA) and the Navy, gives Navy Aegis cruisers and destroyers a capability for conducting BMD operations. Under the FY2020 budget submission, the number of BMD-capable Navy Aegis ships is projected to increase from 38 at the end of FY2018 to 59 at the end of FY2024. BMD-capable Aegis ships operate in European waters to defend Europe from potential ballistic missile attacks from countries such as Iran, and in in the Western Pacific and the Persian Gulf to provide regional defense against potential ballistic missile attacks from countries such as North Korea and Iran. The Aegis BMD program is funded mostly through MDA's budget. The Navy's budget provides additional funding for BMD-related efforts. MDA's proposed FY2020 budget requests a total of $1,784.2 million (i.e., about $1.8 billion) in procurement and research and development funding for Aegis BMD efforts, including funding for two Aegis Ashore sites in Poland and Romania. MDA's budget also includes operations and maintenance (O&M) and military construction (MilCon) funding for the Aegis BMD program. Issues for Congress regarding the Aegis BMD program include the following: whether to approve, reject, or modify MDA's FY2020 funding procurement and research and development funding requests for the program; required numbers of BMD-capable Aegis ships versus available numbers of BMD-capable Aegis ships; the burden that BMD operations may be placing on the Navy's fleet of Aegis ships, and whether there are alternative ways to perform BMD missions now performed by U.S. Navy Aegis ships, such as establishing more Aegis Ashore sites; burden sharing—how allied contributions to regional BMD capabilities and operations compare to U.S. naval contributions to overseas regional BMD capabilities and operations; whether to convert the Aegis test facility in Hawaii into an operational land-based Aegis BMD site; the potential for ship-based lasers, electromagnetic railguns (EMRGs), and hypervelocity projectiles (HVPs) to contribute in coming years to Navy terminal-phase BMD operations and the impact this might eventually have on required numbers of ship-based BMD interceptor missiles; and technical risk and test and evaluation issues in the Aegis BMD program." ]	6,599	gov_report	en	null	20b5876304722f112df8dc629cf778d75beae3ca7887d6fd
U.S. agencies perform a wide variety of activities that contribute to export promotion, and responsibility for these activities is widely dispersed. Some of the services these agencies provide are intended, at least in part, to assist U.S. companies in entering foreign markets or expanding their presence abroad. For example, the U.S. government distributes trade-related information to exporters, conducts foreign country market research, and provides counseling to U.S. companies throughout the export process. U.S. agencies may also use diplomatic tools to advocate on behalf of U.S. companies to help ensure they can compete on a level playing field in export markets. Three of these agencies—State, Commerce, and USDA—receive appropriations that are restricted from being used to promote the sale or export of U.S. tobacco or tobacco products. These agencies promote the growth of other U.S. exports through various activities, as discussed in table 1. Congress has restricted the use of funds that are generally appropriated for State, Commerce, and USDA from being used to promote the sale or export of U.S. tobacco and tobacco products since the 1990s. In 1990, we reported that U.S. policy and programs for assisting the export of tobacco and tobacco products worked at cross purposes to U.S. health policy and initiatives, both domestically and internationally. Congress later restricted the use of funds that are generally appropriated to State, Commerce, and USDA from being used to promote the sale or export of U.S. tobacco and tobacco products. During fiscal years 1994 through 2003, Congress prohibited funds generally appropriated for USDA through annual appropriations acts from being used to promote the sale or export of tobacco or tobacco products. In fiscal year 2004, Congress permanently prohibited funds appropriated for USDA from being used to promote the sale or export of tobacco or tobacco products. According to USDA officials, USDA stopped its efforts to gather and disseminate tobacco-related production and consumption information overseas in the early 2000s. Congress restricted the use of certain appropriated funds, including appropriations for Commerce and State, from being used to promote the sale or export of U.S. tobacco and tobacco products from fiscal years 1998 through 2017. Congress passed the Departments of Commerce, Justice, State, the Judiciary and Related Agencies Appropriations Act, 1998, which prohibited the funds provided by the act from being used to promote the sale or export of tobacco or tobacco products. This act also prohibited the funds provided by the act from being used to seek the reduction or removal of foreign country restrictions on the marketing of tobacco or tobacco products. The act provided an exception for the funds to be used to address foreign-country restrictions on tobacco marketing that are not applied equally to all tobacco or tobacco products of the same type. These restrictions have been enacted through annual appropriations acts through fiscal year 2018. In fiscal year 2018, Congress altered the restriction language on tobacco promotion in the act making appropriations for State, which, according to State, makes promotion activities permissive with respect to the use of State appropriations. Congress used the term “should” in the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2018 (2018 State Appropriations Act) instead of the term “shall” as in prior acts making appropriations for State. Specifically, the 2018 State Appropriations Act states that “None of the funds made available by this Act should be available to promote the sale or export of tobacco or tobacco products. . . .” In contrast, prior acts making appropriations for State stated “None of the funds made available by this Act shall be available to promote the sale or export of tobacco or tobacco products. . . .” According to State officials, they interpreted the term “shall” in prior appropriations acts as a mandatory action, whereas the use of the term “should” gives the agency more discretion in how it addresses the restrictions. However, State has not changed how it addresses the restrictions and does not plan to promote the sale or export of U.S. tobacco, according to State officials. The legislation restricting fiscal year 2018 appropriations provided to Commerce and USDA from being used to promote tobacco retains the mandatory “shall” language. According to Commerce and USDA officials, the change to State’s restriction language does not affect the agencies’ activities because Commerce and USDA are still subject to the mandatory restrictions outlined in their agencies’ appropriations language. State collaborates with Commerce, USDA, and other agencies to develop and periodically issue an interagency guidance cable to implement funding restrictions on promoting tobacco. According to officials, this cable serves as the primary source of guidance for implementing the restrictions on promoting tobacco for their officials at all posts overseas. State collaborates with Commerce, USDA, and other agencies to develop and periodically issue an interagency guidance cable to all posts overseas to facilitate their implementation of funding restrictions on promoting tobacco. State officials draft the updated cable and Commerce, USDA, and other agency officials have the opportunity to review and comment on it before State issues it through its cable system. This cable serves as the primary source of guidance for implementing the restrictions, according to officials at these agencies (see table 2). State has updated and issued the interagency guidance cable four times since 2013 to address changes in tobacco technology and other emerging issues, according to State officials. We identified two significant changes to the cable over the past 5 years. Addition of information concerning attendance at corporate social responsibility events: In May 2013, State added a provision that post officials should consult with headquarters before attending corporate social responsibility events involving U.S. tobacco companies. State officials in headquarters acknowledged that post officials may not link some activities, such as participating in corporate social responsibility events, to the promotion of or selling of products. They noted that this is why it is important to make post officials aware of the actions they should or should not take through the interagency guidance cable. Changes to the scope of tobacco products: In recent updates to the cable, State expanded the description of “tobacco and tobacco products” to address the emergence of new delivery systems for tobacco. Specifically, in 2014 State added the language “tobacco delivering products, such as electronic cigarettes” to provide an example of a tobacco product. In 2016, State changed the description to “electronic nicotine delivery systems such as e-cigarettes.” Then in 2018, State added “non-combustible products such as smokeless tobacco” to the description of tobacco products. In response to the revised funding restriction language in the 2018 State Appropriations Act, State modified the 2018 cable stating that the changes make promotion activities permissive with respect to the use of State appropriations. However, State decided not to change the portion of the cable describing specific actions officials should or should not take in the version it issued in April 2018, because according to State officials, they do not plan to promote tobacco. In addition, Commerce and USDA officials said that the change to State’s restriction language has not changed how they interpret the guidance. Commerce relies on both the interagency guidance cable as well as its client eligibility policy to implement restrictions on promoting tobacco. Commerce’s client eligibility policy applies to all export promotion services that Commerce provides and educates officials on how to effectively manage U.S. company requests for commercial assistance. The policy’s section on exceptions and other bases for declining services to companies states that Commerce is prohibited by law from promoting the export of tobacco or tobacco-related products. Commerce issued its updated client eligibility policy in October 2018. USDA relies on the interagency guidance cable to provide direction to its officials overseas, and does not have agency-specific guidance for implementing its permanent funding restrictions on promoting tobacco. USDA officials said that the cable sufficiently addresses the funding restrictions on the agency’s promotion activities and helps to ensure that all officials serving at posts overseas conduct activities in a consistent manner. Most State, Commerce, and USDA officials overseas we interviewed were aware of the restrictions on promoting tobacco. Most officials we interviewed had received some guidance concerning the restrictions, but several officials did not recall receiving the interagency guidance cable. Moreover, two of the agencies’ current training courses do not address the restrictions. Officials in 21 of the 24 offices overseas we interviewed were aware of the restrictions. The three offices that were not aware of the restrictions were from State. Although these officials were not aware of the restrictions, they said they had never provided services to U.S. tobacco companies. Commerce and USDA headquarters officials said that it is widely known within their agencies that staff should not promote tobacco. Commerce and USDA officials said the guidance concerning these restrictions has been consistent for many years and that staff in the field and in headquarters are very aware of the restrictions. Most officials overseas had received some guidance concerning the restrictions on promoting tobacco. Officials in 21 of the 24 offices overseas we interviewed had received written or verbal guidance concerning the restrictions on promoting tobacco at some point in their career. For example, officials in 15 offices mentioned receiving the State-issued interagency guidance cable when we asked them what type of tobacco-related guidance they had received. In addition, officials in four of the eight Commerce offices recalled receiving agency-specific guidance. Some officials said that their supervisors had informed them they are not allowed to promote tobacco exports. Some officials did not recall receiving the interagency guidance cable, which agency officials said serves as the primary source of guidance for implementing the restrictions, and some were not aware that State periodically issues the cable. For example, one USDA official stated that he could not recall the last time he received guidance and noted that cables can easily be overlooked. He recommended that USDA improve its efforts to distribute the cable and have supervisors maintain an annual checklist to ensure staff have read and understand it or incorporate it into annual training. A State official told us that he was in Washington, D.C. when State issued the prior cable and he did not learn about it until he had been stationed at his next overseas post for several months. A Commerce official noted that some officials new to post may not receive the interagency guidance cable for several months. All officials working overseas can access the interagency guidance cable through the State cable database or access other resources if a tobacco- related issue arises. For example, the Commerce client eligibility policy and the interagency guidance cable are available on an internal Commerce website. USDA officials in headquarters stated that they do not remind officials overseas about the restrictions or available guidance, but that, in response to our audit work, they plan to send an annual reminder. Finally, many post officials we interviewed said that they are aware of the activities their colleagues are undertaking and would have the opportunity to educate their colleagues before they provided any services to a tobacco company. Officials in 15 of the 24 offices overseas we interviewed said they did not receive any training concerning restrictions on promoting tobacco. In the past, State, Commerce, and USDA did not include information about the funding restrictions or related guidance in training materials. State and USDA officials in headquarters confirmed that training materials for officials conducting export promotion activities overseas do not address funding restrictions on promoting tobacco. According to an official at State’s Foreign Service Institute, tobacco products may be discussed in a trade-related course when describing those products officials should not advocate for, or in the 6-month economic studies course when examining the nexus between trade issues and public policy. However, State could not provide documentation of where this is specifically addressed in its curriculum. A USDA official stated that none of the Foreign Agricultural Service training courses explicitly discuss restrictions on promoting tobacco. According to Commerce officials, the training for new trade specialists did not include information about the restrictions on promoting tobacco when Commerce last provided the training in 2014. However, in response to our audit work, Commerce added this information into its training materials for new trade specialists in September 2018. Officials who do not receive training on the restrictions early in their careers may not be aware that they are prohibited from promoting tobacco. For example, one Commerce official told us he did not know about the restrictions while serving at his first post when he attended a meeting that involved representatives from the tobacco industry. He noted that he now questions whether he would have attended the meeting if he had known about the restrictions. Federal internal control standards state that appropriate training, aimed at developing employee knowledge, skills, and abilities, is essential to an organization’s operational success. If agencies do not explicitly include information about the restrictions and related guidance in training materials for officials conducting export promotion activities overseas, officials may work at a post for several months, or longer, before learning about the restrictions. The State, Commerce, and USDA officials we interviewed said they have implemented the funding restrictions on tobacco as outlined in the interagency guidance cable issued by State. For example, post officials said they have not promoted the sale or export of tobacco or tobacco products or attended events solely sponsored by tobacco companies, though many officials said they attended events at which officials from tobacco companies were present. Post officials identified three areas of the guidance that may benefit from additional clarification, according to interviews with agency officials and our review of agency emails. Our interviews with State, Commerce, and USDA officials in 24 offices in nine countries and our review of agency documents, showed that posts have implemented the interagency guidance outlining actions they should not take (see table 3.) Post officials identified three areas of the guidance that may benefit from additional clarification, according to our interviews with agency officials and our review of agency emails: attendance at events, the types of permitted services, and the description of tobacco products. Officials from all three agencies raised questions about whether and when it is permissible to attend events at which tobacco company representatives are present. The guidance does not specifically address attendance at events also attended by representatives of tobacco companies. State headquarters officials said the vast majority of questions received from posts concern whether personnel at a post may participate in an event when representatives from a company engaged in the tobacco industry are also expected to participate in that event. We also reviewed emails in which Commerce officials asked for additional guidance about attending events or meetings with tobacco companies. For example, one post official asked whether the embassy could invite a tobacco company to participate in an embassy-organized trade mission that would include meetings with the local governor and mayor. In this case, Commerce headquarters officials advised that the tobacco company’s participation could be construed as U.S. government support for the company’s commercial activities and recommended against including the tobacco company. A USDA official in headquarters also noted that attending events could, in some cases, be construed as supporting tobacco companies, and noted that this is an area where staff could use more guidance. Representatives from several tobacco control organizations expressed concern that interactions between U.S. government officials and representatives from tobacco companies at events organized by business associations created a perception that the U.S. government supported tobacco company sales in the country. For example, in 2017 a business association hosted a trade mission to one Southeast Asian country that included representatives from 30 U.S. companies, including a U.S. tobacco company. In response, two tobacco control organizations wrote to the U.S. ambassador in that country voicing their concern that U.S. government officials’ attendance at meetings that included the tobacco company representatives violated the spirit of the interagency guidance cable and gave the appearance that the U.S. government supports the tobacco company. Subsequently, the Deputy Chief of Mission distributed guidance specific to that post stating that officials were not allowed to attend a trade mission’s events or meetings if representatives from a tobacco company were scheduled to give a presentation. Several post officials said that attending events organized by business associations is a key function of their job. They attend these events to, among other things, exchange information about the local business climate and learn about the concerns of American companies. Commerce and USDA officials identified ambiguities in the guidance concerning the types of services they are allowed to provide to tobacco companies or the tobacco industry. In 14 of the 21 Commerce emails we reviewed, officials at posts asked for additional guidance about the types of services they are permitted to provide to tobacco companies or the types of companies or products they can support. For example, some post officials asked whether they could engage with the host country government to obtain information about pending tobacco-related legislation at the request of a tobacco company. In one case, Commerce headquarters advised post officials that the restrictions did not prohibit them from raising concerns on a legislative proposal that would discriminate against foreign tobacco companies. They further noted that because of the sensitive nature of tobacco-related issues, any policy decision to engage should be weighed carefully. Commerce’s client eligibility policy does not provide a description of the types of actions Commerce officials should and should not take with regards to tobacco companies and products. The interagency guidance cable also does not provide information about some types of services, such as whether officials should engage with host country government officials to learn about pending tobacco-related legislation. According to a USDA official, some officials overseas interpret “promotional” activities differently and did not agree on whether both marketing and trade-related activities, such as enforcing trade agreements, are promotional activities. Commerce officials at post asked for additional guidance about whether they could provide export promotion services to companies exporting certain tobacco-related products in 3 of the 21 emails we reviewed. For example, some Commerce officials asked whether they could provide services to companies selling component parts for electronic nicotine delivery systems, such as e-liquids. Commerce’s prior client eligibility policy, issued in May 2017, did not include a list of tobacco products covered by the policy; whereas, the interagency guidance cable issued in 2014 states that tobacco products include tobacco delivery systems, such as electronic cigarettes, and the updated version issued in 2018 added non-combustible products, such as smokeless tobacco, to this description. However, neither the interagency guidance cable nor Commerce’s updated client eligibility policy specifically states whether the description includes component parts for electronic cigarettes and other tobacco products. GAO previously reported that electronic cigarettes include a wide range of products that share the same basic design and generally consist of three main parts: a power source, a heating element, and a cartridge or tank containing liquid solution, which is often sold separately. According to State officials in headquarters, the guidance on promoting tobacco was written for a broad audience and to make post officials mindful of the restrictions. They said they trust that officials overseas will use their professional judgment and in-country expertise to determine if post’s support for an event or a company will be construed as promotion of a tobacco product. Moreover, State and Commerce officials said that they expect officials overseas to ask headquarters questions to clarify the interagency guidance cable. While federal standards for internal control state that management should clearly document internal controls in policies and guidance to prevent officials from failing to achieve an objective or address a risk, we found that the interagency guidance does not provide examples of the factors post officials should consider when attending business association events. The guidance also lacks sufficient examples of the types of services officials are allowed to provide to tobacco companies and a clear description of tobacco products. More specific guidance would help ensure that State, Commerce, and USDA officials consistently implement their agency-specific funding restrictions on promoting tobacco exports. The United States exported over $2 billion in tobacco and tobacco-related products in 2017. Congress has enacted restrictions on the use of certain appropriated funds to promote the sale or export of U.S. tobacco or tobacco products since the 1990s, and State, Commerce, and USDA have developed and updated guidance to implement these restrictions. However, not all officials were aware of the restrictions and more than half had not received training about the restrictions. Including information about the restrictions in training materials would help make officials aware of the restrictions early in their careers and prompt them to seek guidance if a tobacco-related issue arises. If officials conducting export promotion activities are unaware of the funding restrictions on promoting tobacco sales and exports, they may also be unaware of the activities they should and should not undertake. Moreover, some officials said that the guidance is unclear in some areas. Although officials said they need to attend business association events to support all U.S. companies conducting business in a country, they were unsure whether they can attend events where representatives from U.S. tobacco companies may be present. In addition, some officials also indicated that the current guidance lacks clarity on the types of services officials are allowed to provide to tobacco interests and what constitutes a tobacco product. Although we did not identify any instances in which a State, Commerce, or USDA official directly promoted U.S. tobacco products, clearer guidance would help to ensure that officials will consistently implement their agency-specific funding restrictions. We are making three recommendations, including two to State and one to USDA. Specifically: The Secretary of State should work with the Foreign Service Institute to include information about the funding restrictions and relevant guidance on promoting the sale or export of tobacco or tobacco products in its training materials for employees conducting export promotion activities overseas. (Recommendation 1) The Secretary of Agriculture should include information about the funding restrictions and relevant guidance on promoting the sale or export of tobacco or tobacco products in training materials for employees conducting export promotion activities overseas. (Recommendation 2) The Secretary of State, in consultation with the Secretary of Commerce and the Secretary of Agriculture, should assess the interagency guidance cable on promoting tobacco in light of questions raised by officials at posts overseas and update it to address ambiguities, as needed. (Recommendation 3) We provided a draft of this report to State, Commerce, USDA, and USTR for review and comment. In their comments, reproduced in appendix III, State concurred with our recommendations and described planned actions to address them. USDA concurred with the recommendation and told us that they had no comments on the draft report. Commerce and USTR told us that they had no comments on the draft report. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, the Secretary of the Department of State, the Secretary of the Department of Commerce, the Secretary of the U.S. Department of Agriculture, the U.S. Trade Representative, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. This report examines (1) the guidance select U.S. agencies have issued to implement funding restrictions on promoting tobacco exports overseas, (2) to what extent overseas officials from select U.S. agencies were aware of the restrictions and guidance, and (3) to what extent select U.S. agencies have implemented this guidance overseas. To address our first objective, we reviewed U.S. appropriations laws that prohibited the funds appropriated therein from being used to promote the sale or export of tobacco or tobacco products. We also reviewed guidance issued by the Departments of State (State) and Commerce (Commerce) concerning the promotion of tobacco exports overseas. We also interviewed officials in headquarters from State, Commerce, the U.S. Department of Agriculture (USDA), and the Office of the U.S. Trade Representative (USTR) about the funding restrictions on promoting tobacco exports overseas and the development and revision of guidance on tobacco promotion. To address our second objective, we interviewed officials in headquarters from State, Commerce, and USDA about any training officials posted overseas receive concerning the funding restrictions on promoting tobacco exports. In addition, we held structured interviews with 35 State, Commerce, and USDA officials overseas conducting export promotion activities and reached out to an additional 10 officials to ask about activities associated with the solicitation of gifts and attendance at corporate social responsibility events. These officials were located across 11 posts and in 9 countries. We interviewed officials in Cambodia, Croatia, Dominican Republic, Honduras, Indonesia, Philippines, South Africa, Thailand, and Vietnam. Because multiple officials from one agency attended a meeting in some cases, we are reporting their combined responses as one “office” response. Thus, we are reporting the results from the 24 offices we interviewed—9 State, 8 Commerce, and 7 USDA offices. We selected this non-generalizable sample of countries based on criteria that included the countries’ large or increasing amounts of U.S. tobacco imports, relatively high tobacco smoking prevalence rates, and geographic dispersion. The information obtained from these interviews is neither generalizable nor reflects the experiences of all State, Commerce, and USDA officials serving at posts overseas, but it does provide insights into officials’ experiences at post and illustrative examples across our sample on the topics discussed. To address our third objective, we interviewed officials in headquarters from State, Commerce, and USDA about post officials’ implementation of guidance regarding the promotion of tobacco exports, the types of questions they receive from post officials about the funding restrictions and guidance, and the additional advice they provide to post officials overseas. We asked post officials about the clarity of guidance, whether they attended events sponsored or attended by representatives of U.S. tobacco companies, and whether they discussed tobacco-related issues with host country government officials during our structured interviews with the 24 State, Commerce, and USDA offices overseas. We also analyzed a Commerce database, agency emails, and State cables and conducted a literature search. Commerce documents all the fee-based services it provides to companies in a database. We obtained a list of approximately 30,000 fee-based services Commerce provided in fiscal years 2013 through 2017, which included the name of the companies to which Commerce provided these services. We then downloaded a list of 763 U.S. tobacco companies from Nexus using criteria such as industry classification codes related to tobacco and tobacco products and the location of company headquarters. We limited the list of U.S. tobacco companies to those with revenues greater than $5 million. We then compared the two lists to determine if Commerce provided any fee-based services to U.S. tobacco companies. To assess the reliability of the Commerce fee-based services data, we reviewed relevant documentation and interviewed knowledgeable officials about system controls. We determined that Commerce’s fee-based services data were sufficiently reliable for the purposes of our reporting objectives. In addition, we requested State, Commerce, and USDA email communications concerning tobacco-related issues sent between January 2015 and February 2018 from post officials to headquarters. State was only able to provide one such email. USDA provided several emails, but the emails were not from USDA post officials to USDA officials in headquarters. Commerce provided us 21 emails that matched our request and an additional 20 emails from officials working throughout the United States. We analyzed the Commerce email communications to identify commonly asked questions or concerns about the existing guidance and actions the agencies should take to support U.S. tobacco companies or the tobacco industry. We also requested State cables from the eight countries in our sample sent between January 2013 and December 2017 that referenced at least 1 of the 10 U.S. tobacco companies with the highest revenues. We received and reviewed cables from six of these countries. We also conducted a literature search to identify instances in which U.S. government officials may have conducted activities addressed by the interagency tobacco guidance cable. To identify relevant articles, such as trade or industry articles, we searched various databases, including ProQuest and Nexus. From these sources, we identified one article relevant to our research objective. We performed these searches in December 2017 and searched for articles published from January 2013 to December 2017. We also interviewed representatives of the tobacco control community and business associations to obtain their perspectives concerning U.S. government support for tobacco exports and U.S. government interactions with U.S. tobacco companies. Specifically, we interviewed the World Health Organization (WHO), four global or regional tobacco control nongovernmental organizations, and several local nongovernmental organizations in two countries in our scope. In addition, we interviewed officials from the local American Chamber of Commerce and the U.S.- Association of Southeast Asian Nations Business Council in two countries. The information obtained from these interviews is neither generalizable nor reflects the experiences of all tobacco control organizations or business associations, but it does provide insights into these officials’ experiences. We conducted this performance audit from November 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The United States exported over $2.1 billion in tobacco and tobacco products in 2017. Figure 1 shows how tobacco exports fluctuated from 2007 to 2017. Specifically, total tobacco exports have ranged from a high of approximately $2.4 billion in 2007 to a low of about $1.7 billion in 2012. U.S. tobacco exports to Asia have decreased by 68 percent over the past 11 years, whereas exports to North America have increased 10-fold (see fig. 2). Most of the decrease in exports to Asia is attributable to reduced exports to Japan, which fell 95 percent from 2007 to 2017. Most of the increases in exports to North America are attributable to Canada, which accounted for approximately 40 percent of total U.S. tobacco exports in 2017. David B. Gootnick, (202) 512-3149 or gootnickd@gao.gov. In addition to the contact named above, Cheryl Goodman (Assistant Director), Celia Thomas (Assistant Director), Amanda Bartine, Leah DeWolf, Jewel Conrad, Aldo Salerno, and Neil Doherty made key contributions to this report. Grace Lui, Justin Fisher, and Ming Chen provided technical assistance.	[ "The World Health Organization estimates that tobacco use kills over 7 million people each year, more than tuberculosis, HIV/AIDS, and malaria combined. Since the 1990s, Congress has enacted restrictions regarding the use of certain appropriated funds to promote U.S. tobacco exports. GAO was asked to review the implementation of these restrictions. This report examines (1) guidance select U.S. agencies have issued to implement these restrictions, (2) whether overseas officials from select U.S. agencies were aware of the restrictions and guidance, and (3) select U.S. agencies' implementation of the guidance overseas. GAO reviewed U.S. laws, agency guidance, and internal communications; analyzed Commerce data; and interviewed agency officials in Washington, D.C. and in 24 offices across 11 overseas posts in 9 countries. GAO selected these countries based on criteria that included U.S. tobacco export totals, smoking rates, and geographic dispersion. Congress has restricted the use of certain appropriated funding to promote tobacco exports and the Departments of State (State), Commerce (Commerce), and Agriculture (USDA) have issued interagency guidance through the cable system that they rely on to implement these restrictions. State collaborates with these and other agencies to periodically update this cable. The cable informs officials about the types of actions they should take—such as providing routine business facilitation services to all U.S. companies—and the types of actions they should not take—such as attending events sponsored by tobacco companies. Most, but not all, officials overseas that GAO interviewed were aware of the restrictions and received some guidance concerning the restrictions. However, GAO found that some officials did not recall receiving the interagency guidance cable. In addition, State and USDA's current training materials do not address the restrictions. Federal internal control standards state that appropriate training is essential to an organization's operational success. Thus, providing officials overseas with training about the funding restrictions and related guidance would help to ensure that officials are aware of the restrictions. U.S. officials overseas have implemented restrictions on promoting tobacco, but some officials said that the interagency guidance lacks clarity. Officials said that they have not promoted tobacco by, for example, attending events sponsored solely by tobacco companies. However, officials identified three areas of the guidance that are unclear: (1) attendance at events not sponsored by U.S. tobacco companies but attended by representatives of these companies; (2) the types of services officials can provide tobacco companies; and (3) the description of tobacco products, such as whether component parts for electronic cigarettes are included. Federal standards for internal control state that management should clearly document internal controls in policies and guidance to prevent officials from failing to achieve an objective or address a risk. By providing more specific guidance, the agencies would help ensure that officials consistently implement the funding restrictions on promoting tobacco. GAO recommends that (1) State and USDA include information about the funding restrictions and guidance in training materials for relevant employees and (2) State, in consultation with Commerce and USDA, assess and update the interagency guidance cable, as needed, on promoting tobacco in light of questions raised by officials at posts overseas. State and USDA concurred with the recommendations." ]	5,128	gov_report	en	null	62d13b7a4d82174165aff7eb6ed3bd7b4cb0b87255a7173e
We found that from October 2013 through March 2017, the five selected VA medical centers required reviews of a total of 148 providers’ clinical care after concerns were raised about their care, but officials at these medical centers could not provide documentation to show that almost half of these reviews were conducted. We found that all five VA medical centers lacked at least some documentation of the reviews they told us they conducted, and in some cases, we found that the required reviews were not conducted at all. Specifically, across the five VA medical centers, we found the following: The medical centers lacked documentation showing that one type of review—focused professional practice evaluations (FPPE) for cause—had been conducted for 26 providers after concerns had been raised about their care. FPPEs for cause are reviews of providers’ care over a specified period of time, during which the provider continues to see patients and has the opportunity to demonstrate improvement. Documentation of these reviews is explicitly required under VHA policy. Additionally, VA medical center officials confirmed that FPPEs for cause that were required for another 21 providers were never conducted. The medical centers lacked documentation showing that retrospective reviews—which assess the care previously delivered by a provider during a specific period of time— had been conducted for 8 providers after concerns had been raised about their clinical care. One medical center lacked documentation showing that reviews had been conducted for another 12 providers after concerns had been raised about their care. In the absence of any documentation, we were unable to identify the types of reviews, if any, that were conducted for these 12 providers. We also found that the five selected VA medical centers did not always conduct reviews of providers’ clinical care in a timely manner. Specifically, of the 148 providers, the VA medical centers did not initiate reviews of 16 providers for 3 months, and in some cases, for multiple years, after concerns had been raised about the providers’ care. In a few of these cases, additional concerns about the providers’ clinical care were raised before the reviews began. We found that two factors were largely responsible for the inadequate documentation and untimely reviews of providers’ clinical care we identified at the selected VA medical centers. First, VHA policy does not require VA medical centers to document all types of reviews of providers’ clinical care, including retrospective reviews, and VHA has not established a timeliness requirement for initiating reviews of providers’ clinical care. Second, VHA’s oversight of the reviews of providers’ clinical care is inadequate. Under VHA policy, networks are responsible for overseeing the credentialing and privileging processes at their respective VA medical centers. While reviews of providers’ clinical care after concerns are raised are a component of credentialing and privileging, we found that none of the network officials we spoke with described any routine oversight of such reviews. This may be in part because the standardized tool that VHA requires the networks to use during their routine audits does not direct network officials to ensure that all reviews of providers’ clinical care have been conducted and documented. Further, some of the VISN officials we interviewed told us they were not using the standardized audit tool as required. Without adequate documentation and timely completion of reviews of providers’ clinical care, VA medical center officials lack the information they need to make decisions about providers’ privileges, including whether or not to take adverse privileging actions against providers. Furthermore, because of its inadequate oversight, VHA lacks reasonable assurance that VA medical center officials are reviewing all providers about whom clinical care concerns have been raised and are taking adverse privileging actions against the providers when appropriate. To address these shortcomings, we recommended that VHA 1) require documentation of all reviews of providers’ clinical care after concerns have been raised, 2) establish a timeliness requirement for initiating such reviews, and 3) strengthen its oversight by requiring networks to oversee VA medical centers to ensure that such reviews are documented and initiated in a timely manner. VA concurred with these recommendations and described plans for VHA to revise existing policy and update the standardized audit tool used by the networks to include more comprehensive oversight of VA medical centers’ reviews of providers’ clinical care after concerns have been raised. We found that from October 2013 through March 2017, the five VA medical centers we reviewed had only reported one of nine providers required to be reported to the NPDB under VHA policy. These nine providers either had adverse privileging actions taken against them or resigned or retired while under investigation before an adverse privileging action could be taken. None of these nine providers were reported to state licensing boards as required by VHA policy. The VA medical centers documented that these nine providers had significant clinical deficiencies that sometimes resulted in adverse outcomes for veterans. For example, the documentation shows that one provider’s surgical incompetence resulted in numerous repeat surgeries for veterans. Another provider’s opportunity to improve through an FPPE for cause had to be halted and the provider was removed from providing care after only a week due to concerns that continuing the review would potentially harm patients. In addition to these nine providers, one VA medical center terminated the services of four contract providers based on deficiencies in the providers’ clinical performance, but the facility did not follow any of the required steps for reporting providers to the NPDB or relevant state licensing boards. This is concerning, given that the VA medical center documented that one of these providers was terminated for cause related to patient abuse after only 2 weeks of work at the facility. Two of the five VA medical centers we reviewed each reported one provider to the state licensing boards for failing to meet generally accepted standards of clinical practice to the point that it raised concerns for the safety of veterans. However, we found that the medical centers’ reporting to the state licensing board took over 500 days to complete in both cases, which was significantly longer than the 100 days suggested in VHA policy. Across the five VA medical centers, we found that providers were not reported to the NPDB and state licensing boards as required for two reasons. First, VA medical center officials were generally not familiar with or misinterpreted VHA policies related to NPDB and state licensing board reporting. For example, at one VA medical center, we found that officials failed to report six providers to the NPDB because they were unaware that they had been delegated responsibility for NPDB reporting. Officials at two other VA medical centers incorrectly told us that VHA cannot report contract providers to the NDPB. At another VA medical facility, officials did not report a provider to the NPDB or to any of the state licensing boards where the provider held a medical license because medical center officials learned that one state licensing board had already found out about the issue independently. Therefore, VA officials did not believe that they needed to report the provider. This misinterpretation of VHA policy meant that the NPDB and the state licensing boards in other states where the provider held licenses were not alerted to concerns about the provider’s clinical practice. Second, VHA policy does not require the networks to oversee whether VA medical centers are reporting providers to the NPDB or state licensing boards when warranted. We found, for example, that network officials were unaware of situations in which VA medical center officials failed to report providers to the NPDB. We concluded that VHA lacks reasonable assurance that all providers who should be reported to these entities are reported. VHA’s failure to report providers to the NPDB and state licensing boards as required facilitates providers who provide substandard care at one facility obtaining privileges at another VA medical center or at hospitals outside of VA’s health care system. We found several cases of this occurring among the providers who were not reported to the NPDB or state licensing boards by the five VA medical centers we reviewed. For example, we found that two of the four contract providers whose contracts were terminated for clinical deficiencies remained eligible to provide care to veterans outside of that VA medical center. At the time of our review, one of these providers held privileges at another VA medical center, and another participated in the network of providers that can provide care for veterans in the community. We also found that a provider who was not reported as required to the NPDB during the period we reviewed had their privileges revoked 2 years later by a non-VA hospital in the same city for the same reason the provider was under investigation at the VA medical center. Officials at this VA medical center did not report this provider following a settlement agreement under which the provider agreed to resign. A committee within the VA medical center had recommended that the provider’s privileges be revoked prior to the agreement. There was no documentation of the reasons why this provider was not reported to the NPDB under VHA policy. To improve VA medical centers’ reporting of providers to the NPDB and state licensing boards and VHA oversight of these processes, we recommended that VHA require its networks to establish a process for overseeing VA medical centers to ensure they are reporting to the NPDB and to state licensing boards and to ensure that this reporting is timely. VA concurred with this recommendation and told us that it plans to include oversight of timely reporting to the NPDB and state licensing boards as part of the standard audit tool used by the networks. If you or your staff members have any questions concerning this testimony, please contact me at (202) 512-7114 (williamsonr@gao.gov). Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Marcia A. Mann (Assistant Director), Kaitlin M. McConnell (Analyst-in-Charge), Summar C. Corley, Krister Friday, and Jacquelyn Hamilton. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "This testimony summarizes the information contained in GAO's November 2017 report, entitled VA Health Care: Improved Policies and Oversight Needed for Reviewing and Reporting Providers for Quality and Safety Concerns ( GAO-18-63 ). Department of Veterans Affairs (VA) medical center (VAMC) officials are responsible for reviewing the clinical care delivered by their privileged providers—physicians and dentists who are approved to independently perform specific services—after concerns are raised. The five VAMCs GAO selected for review collectively required review of 148 providers from October 2013 through March 2017 after concerns were raised about their clinical care. GAO found that these reviews were not always documented or conducted in a timely manner. GAO identified these providers by reviewing meeting minutes from the committee responsible for requiring these types of reviews at the respective VAMCs, and through interviews with VAMC officials. The selected VAMCs were unable to provide documentation of these reviews for almost half of the 148 providers. Additionally, the VAMCs did not start the reviews of 16 providers for 3 months to multiple years after the concerns were identified. GAO found that VHA policies do not require documentation of all types of clinical care reviews and do not establish timeliness requirements. GAO also found that the Veterans Health Administration (VHA) does not adequately oversee these reviews at VAMCs through its Veterans Integrated Service Networks (VISN), which are responsible for overseeing the VAMCs. Without documentation and timely reviews of providers' clinical care, VAMC officials may lack information needed to reasonably ensure that VA providers are competent to provide safe, high quality care to veterans and to make appropriate decisions about these providers' privileges. GAO also found that from October 2013 through March 2017, the five selected VAMCs did not report most of the providers who should have been reported to the National Practitioner Data Bank (NPDB) or state licensing boards (SLB) in accordance with VHA policy. The NPDB is an electronic repository for critical information about the professional conduct and competence of providers. GAO found that selected VAMCs did not report to the NPDB eight of nine providers who had adverse privileging actions taken against them or who resigned during an investigation related to professional competence or conduct, as required by VHA policy, and none of these nine providers had been reported to SLBs. GAO found that officials at the selected VAMCs misinterpreted or were not aware of VHA policies and guidance related to NPDB and SLB reporting processes resulting in providers not being reported. GAO also found that VHA and the VISNs do not conduct adequate oversight of NPDB and SLB reporting practices and cannot reasonably ensure appropriate reporting of providers. As a result, VHA's ability to provide safe, high quality care to veterans is hindered because other VAMCs, as well as non-VA health care entities, will be unaware of serious concerns raised about a provider's care. For example, GAO found that after one VAMC failed to report to the NPDB or SLBs a provider who resigned to avoid an adverse privileging action, a non-VA hospital in the same city took an adverse privileging action against that same provider for the same reason 2 years later." ]	1,743	gov_report	en	null	bced7d8c4f573d1008fbdd146e9671ebbcea8251a2432687
T he Congressional Review Act (CRA) allows Congress to review certain types of federal agency actions that fall under the statutory category of "rules." Enacted in 1996 as part of the Small Business Regulatory Enforcement Fairness Act, the CRA requires agencies to report the issuance of "rules" to Congress and provides Congress with special procedures under which to consider legislation to overturn those rules. A joint resolution of disapproval will become effective once both houses of Congress pass a joint resolution and it is signed by the President, or if Congress overrides the President's veto. For an agency's action to be eligible for review under the CRA, it must qualify as a "rule" as defined by the statute. The class of rules covered by the CRA is broader than the category of rules that are subject to the Administrative Procedure Act's (APA's) notice-and-comment requirements. As such, some agency actions, such as guidance documents, that are not subject to notice-and-comment rulemaking procedures may still be considered rules under the CRA and thus could be overturned using the CRA's procedures. The 115 th Congress used the CRA to pass, for the first time, a resolution of disapproval overturning an agency guidance document that had not been promulgated through notice-and-comment procedures. The resolution was signed into law by the President on May 21, 2018. In all of the previous instances in which the CRA was used to overturn agency actions, the disapproved actions were regulations that had been adopted through APA rulemaking processes. Congress's use of the CRA in this instance raised questions about the scope of the CRA and Congress's ability to use the CRA to overturn agency actions that were not promulgated through APA notice-and-comment procedures. Under the CRA, the expedited procedures for considering legislation to overturn rules become available only when agencies submit their rules to Congress. In many cases in which agencies take actions that meet the legal definition of a "rule" but have not gone through notice-and-comment rulemaking procedures, however, agencies fail to submit those rules. Thus, questions have arisen as to how Members can use the CRA's procedures to overturn agency actions when an agency does not submit the action to Congress. This report first describes what types of agency actions can be overturned using the CRA by providing a close examination and discussion of the statutory definition of "rule." The report then explains how Members can use the CRA to overturn agency rules that have not been submitted to Congress. Under the CRA, before a rule can take effect, an agency must submit to both houses of Congress and the Government Accountability Office (GAO) a report containing a copy of the rule and information on the rule, including a summary of the rule, a designation of whether the rule is "major," and the proposed effective date of the rule. For most rules determined to be "major," the agency must allow for an additional period to elapse before the rule can take effect—primarily to give Congress additional time to consider taking action on the most economically impactful rules—and GAO must write a report on each major rule to the House and Senate committees of jurisdiction within 15 days. The report is to contain GAO's assessment of the agency's compliance with various procedural steps in the rulemaking process. After a rule is received by Congress, Members have the opportunity to use expedited procedures to overturn the rule. A Member must submit the resolution of disapproval and Congress must take action on it within certain time periods specified in the CRA to take advantage of the expedited procedures, which exist primarily in the Senate. Those expedited, or "fast track," procedures include the following: a Senate committee can be discharged from the further consideration of a CRA joint resolution disapproving the rule by a petition signed by at least 30 Senators; any Senator may make a nondebatable motion to proceed to consider the disapproval resolution, and the motion to proceed requires a simple majority for adoption; and if the motion to proceed is successful, the CRA disapproval resolution would be subject to up to 10 hours of debate, and then voted upon. No amendments are permitted and the disapproval resolution requires a simple majority to pass. If both houses pass the joint resolution, it is sent to the President for signature or veto. If the President were to veto the resolution, Congress could vote to override the veto under normal veto override procedures. If a joint resolution of disapproval is submitted and acted upon within the CRA-specified deadlines and signed by the President (or if Congress overrides the President's veto), the CRA states that the "rule shall not take effect (or continue)." In other words, if part or all of the rule had already taken effect, the rule would be deemed not to have had any effect at any time. If a rule is disapproved, the status quo that was in place prior to the issuance of the rule would be reinstated. In addition, when a joint resolution of disapproval is enacted, the CRA provides that a rule may not be issued in "substantially the same form" as the disapproved rule unless it is specifically authorized by a subsequent law. The CRA does not define what would constitute a rule that is "substantially the same" as a nullified rule. The CRA governs "rules" promulgated by a "federal agency," using the definition of "agency" provided in the APA. That APA definition broadly defines an agency as "each authority of the Government of the United States, ... but does not include ... Congress; ... the courts of the United States; ... courts martial and military commissions." Accordingly, the CRA generally covers rules issued by most executive branch entities. In the context of the APA, however, courts have held that this definition excludes actions of the President. The more difficult interpretive issue is what types of agency actions should be considered "rules" under the CRA. The CRA adopts a broad definition of the word "rule" from the APA, but then creates three exceptions to that definition. This APA definition of "rule" encompasses a wide range of agency action, including certain agency statements that are not subject to the notice-and-comment rulemaking requirements outlined elsewhere in the APA: "[R]ule" means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing[.] The CRA narrows this definition by providing that the term "rule" does not include (A) any rule of particular applicability, including a rule that approves or prescribes for the future rates, wages, prices, services, or allowances therefor, corporate or financial structures, reorganizations, mergers, or acquisitions thereof, or accounting practices or disclosures bearing on any of the foregoing; (B) any rule relating to agency management or personnel; or (C) any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties. Determining whether any particular agency action is a rule subject to the CRA therefore entails a two-part inquiry: first, asking whether the statement qualifies as a rule under the APA definition and, second, asking whether the statement falls within any of the exceptions noted above to the CRA's definition of rule. These two steps are illustrated below in Figure 1 . This section of the report walks through the two elements of this inquiry in more detail. First, while the APA's definition of "rule" is expansive, courts have held that "Congress did not intend that the ... definition ... be construed so broadly that every agency action" should be encompassed under this provision. As a preliminary matter, courts have distinguished agency rulemaking actions from adjudicatory and investigatory functions. And under the statutory text, to qualify as a rule, an agency statement must meet three requirements: it must be "of general ... applicability," have "future effect," and be "designed to implement, interpret, or prescribe law or policy." Second, even if an agency statement does qualify as an APA "rule," the CRA expressly exempts three categories of rules from its provisions: rules "of particular applicability," rules "relating to agency management or personnel," and "any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties." Both inquiries are heavily fact specific, and require looking beyond a document's label to the substance of the agency's action. The CRA defines the word "rule" by incorporating in part the APA's definition of that term. Although there is very little case law interpreting the meaning of "rule" under the CRA, cases interpreting the APA's definition of "rule" may provide persuasive authority for interpreting the CRA because the CRA explicitly relies on that provision as the basis for its own definition of the term "rule." The APA provides a general framework governing most agency action—not only agency rulemaking, but also administrative adjudications. The APA accordingly distinguishes different types of agency actions, separating rules from orders and investigatory acts. These distinctions may also be relevant when deciding whether an agency action is a rule subject to the CRA. The APA distinguishes a "rule" from an "order," defining an "order" as "the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making but including licensing." Orders are the product of agency adjudication, in contrast to rules, which result from rulemaking. To determine whether an agency action is a rule or an order in the context of the APA, courts look beyond the document's label to the substance of the action. One federal court of appeals described the distinction between rulemaking and adjudication as follows: First, adjudications resolve disputes among specific individuals in specific cases, whereas rulemaking affects the rights of broad classes of unspecified individuals.... Second, because adjudications involve concrete disputes, they have an immediate effect on specific individuals (those involved in the dispute). Rulemaking, in contrast, is prospective, and has a definitive effect on individuals only after the rule subsequently is applied. Courts have also distinguished rules from agency investigations. A separate provision of the APA addresses an agency's authority to compel the submission of information and perform "investigative act[s] or demand[s]." When agencies conduct investigative actions such as requiring regulated parties to submit informational reports, courts have held that they are not subject to the APA's rulemaking requirements. However, courts have also noted that some actions related to investigations may qualify as rules. For instance, in one case, a federal court of appeals observed that the procedures governing an agency's decision to investigate "are separate from and precede the agency's ultimate act," concluding that the procedures at issue constituted a rule. An agency statement will qualify as a "rule" under the APA definition if it (1) is "of general or particular applicability," (2) has "future effect," and (3) is "designed to implement, interpret, or prescribe law or policy." With regard to the first requirement, as the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) has noted, most agency statements will be "of general or particular applicability" and will fulfill this condition. The second requirement—that a rule be "of ... future effect" —is the subject of some ambiguity. Courts have largely agreed that this requirement is likely intended to distinguish agency rulemaking from agency adjudication. Courts often differentiate rules and orders by noting that orders are retrospective, while rules have "future effect." Rules operate prospectively, in the sense that they are intended to "inform the future conduct" of those subject to the rules. Additionally, courts have sometimes said that the "future effect" requirement excludes any agency statements that do not "bind the agency." Thus, for example, in a concurring opinion in a 1988 Supreme Court case, Justice Scalia suggested that the "future effect" requirement must be read to mean "that rules have legal consequences only for the future." He argued that the only way to distinguish rules from orders—which can have both future and past legal consequences—was to define rules as having only prospective operation. Judge Silberman of the D.C. Circuit, concurring in an opinion from that court, drew on Justice Scalia's interpretation of this requirement to argue that it would be unreasonable to conclude that every single agency statement with future effect is a rule under the APA. Instead, he argued that only agency statements that "seek to authoritatively answer an underlying policy or legal issue" should be considered rules. These opinions raise several unanswered questions, which could suggest some hesitation before reading the phrase "future effect" in the APA definition of a rule to mean "binding." First, these cases do not fully explain what it means for an agency statement to be binding or address the case law suggesting that the term "future effect" merely pertains to the prospective nature of the statement. Second, and perhaps more critical, this case law reading "future effect" to mean that APA "rules" must bind the agency does not explain how to distinguish this requirement from the separate inquiry into whether an agency action is subject to notice-and-comment rulemaking procedures. As discussed in more detail below, some (but not all) APA "rules" must go through procedures commonly known as notice-and-comment rulemaking. To distinguish so-called "legislative" rules that are subject to notice-and-comment procedures from "interpretive" rules, which are not, courts generally ask whether the rule has "the force of law" —or stated another way, whether the rule is "legally binding." Arguably, then, this "legal effect" test for notice-and-comment rulemaking may be equivalent to asking whether a rule binds an agency. However, the "future effect" inquiry tests whether an agency action is a "rule" under 5 U.S.C. §551(4), and the "legal effect" inquiry tests whether such a rule is subject to the notice-and-comment procedures outlined in 5 U.S.C. §553. Because the tests are tied to two distinct statutory provisions, they arguably should not both turn on whether a rule is legally binding. This is especially true where courts have generally held that interpretive rules may not be subject to notice-and-comment but are nonetheless "rules" within the meaning of the APA. The fact that Congress expressly exempted "interpretative rules" from the rulemaking procedures applicable to "rules" may itself suggest that such agency actions are rules—otherwise, the exemption would be unnecessary. The third requirement for an agency action to be considered an APA rule is that it must be "designed to implement, interpret, or prescribe law or policy." The D.C. Circuit has held that agency documents that merely state an "established interpretation" and "tread no new ground" do not "implement, interpret, or prescribe law or policy" and therefore are not rules. Similarly, an agency statement is not a rule if it "does not change any law or official policy presently in effect." Thus, courts have concluded that "educational" documents that merely "reprint[]" or "restate" existing law are not rules under the APA. The D.C. Circuit has also held that an agency's budget request is not a rule. The APA outlines specific rulemaking procedures that agencies must follow when they formulate, amend, or repeal a rule. The APA generally requires publication in the Federal Register and institutes procedural requirements that are often referred to as notice-and-comment rulemaking. Under notice-and-comment rulemaking, agencies must notify the public of a proposed rule and then provide a meaningful opportunity for public comment on that rule. However, not all agency acts that qualify as "rules" under the APA definition are required to comply with the APA's rulemaking procedures. In particular, the APA provides that notice and comment is not required for "interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice." Additionally, the APA's rulemaking procedures do not, in relevant part, apply to "matter[s] relating to agency management or personnel." Therefore, agency statements such as guidance documents or procedural rules may not be required to undergo notice-and-comment rulemaking, but may still be APA "rules." Courts frequently hold that agency's guidance documents are exempt from APA notice-and-comment rulemaking requirements because those documents are properly classified either as interpretative rules or as general policy statements. Interpretive rules merely explain or clarify preexisting legal obligations without themselves "purport[ing] to impose new obligations or prohibitions," while general policy statements simply describe how an agency "will exercise its broad enforcement discretion" without binding the agency. But as mentioned above, the critical factor distinguishing both interpretive rules and general policy statements from "legislative" rules that must be promulgated through notice-and-comment procedures is "whether the agency action binds private parties or the agency itself with the 'force of law,'" or whether the rule "has legal effect." General policy statements ordinarily are not legally binding, and accordingly are not "substantive" rules required to undergo notice-and-comment rulemaking procedures. It should be noted that some cases from the D.C. Circuit have suggested that general policy statements are not "rules" at all under the APA definition. For example, in one case, the D.C. Circuit said that the "primary distinction between a substantive rule—really any rule—and a general statement of policy, then, turns on whether an agency intends to bind itself to a particular legal position." As discussed above, courts have also sometimes held that where an agency statement does not "bind" an agency, it has no "future effect" and therefore cannot qualify as an APA "rule." This "binding effect" requirement has clear parallels to these cases holding that general policy statements are not rules because they do not bind the agency. However, these latter decisions do not explicitly ground this characterization of general policy statements in the text of the APA requiring rules to have "future effect." Accordingly, it is not clear how these two inquiries interrelate. Other cases have characterized general policy statements as APA rules, notwithstanding the fact that such a statement may not be legally binding in a future administrative proceeding. The CRA incorporates the APA definition of "rule" by reference, and, consequently, should likely be read to incorporate judicial constructions of that definition. Thus, for example, although the CRA does not itself reference agency "orders," some courts have nonetheless imported the APA's distinction between rules and orders when interpreting the CRA. Accordingly, if an agency acts through an order or investigatory act, rather than a rule, the requirements of the CRA likely will not apply. In recent years, some commentators have discussed using the CRA to revoke agencies' guidance documents, raising the question of which guidance documents qualify as CRA "rules." As a preliminary matter, it is important to note that "guidance document" is not a defined term under either the CRA or the APA. Even if an agency has characterized a statement as a guidance document rather than a rule, it still may qualify as a "rule" under the CRA. Instead, the relevant question is whether any agency statement labeled as guidance—which could include, for example, actions such as memoranda, letters, or agency bulletins—falls within the statutory definition of "rule" and, if so, whether it is nonetheless exempt from the CRA under any of the exceptions to that definition. As discussed above, agency statements labeled as guidance are frequently exempt from the APA's notice-and-comment rulemaking procedures because they fall within the exceptions for interpretive rules or general policy statements. However, while the CRA adopts the APA's definition of rule, the CRA's exceptions to that definition are not identical to the APA's exemptions from its notice-and-comment procedures. Notably, the CRA does not exclude from its definition of rule either general policy statements or interpretative rules. Instead, the category of agency "rules" subject to the requirements of the CRA appears to encompass most "rules" that must go through the APA's notice-and-comment rulemaking procedures, along with some that do not. Consequently, agency guidance documents that are exempt from the APA's notice-and-comment procedural requirements may nonetheless be subject to the CRA, if they do not fall within one of the CRA's exceptions. But the effect of a disapproval resolution in such a case may be limited because such guidance documents generally lack legal effect in the first place. The post-enactment legislative history of the CRA indicates that the CRA was intended to encompass some agency statements that would not be subject to the APA's notice-and-comment rulemaking requirements. Following the enactment of the CRA in 1996, the law's sponsors inserted into the Congressional Record a statement in which they asserted that the law would cover a wide swath of agency actions: The committees intend this chapter to be interpreted broadly with regard to the type and scope of rules that are subject to congressional review. The term "rule" in subsection 804(3) begins with the definition of a "rule" in subsection 551(4) and excludes three subsets of rules that are modeled on APA sections 551 and 553. This definition of a rule does not turn on whether a given agency must normally comply with the notice-and-comment provisions of the APA.... The definition of "rule" in subsection 551(4) covers a wide spectrum of activities. This statement suggests that Congress intended the CRA to reach a broad range of agency activities, including agency policy statements, interpretive rules, and certain rules of agency organization, despite the fact that those actions are not subject to the APA's requirements for notice and comment. However, as discussed above, there is some ambiguity regarding whether certain non-binding statements are rules at all. If general policy statements or other non-binding agency actions are not "rules" under the APA definition, then arguably, they are not rules under the CRA. But importantly, GAO has concluded that general policy statements should be considered "rules" under the CRA. As discussed in more detail below, GAO's resolution of this issue may stand as the last word on the matter, given the role that GAO has come to play in advising Congress on which agency actions are subject to the CRA. Even if an agency action is a "rule" within the APA definition, it will not be subject to the CRA if it falls within one of the three exceptions to the CRA's definition of a "rule." The CRA incorporates the APA definition of rule, but exempts from that definition any rules "of particular applicability," rules "relating to agency management or personnel," and "any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties." Some of these exemptions track language in the APA, and accordingly, cases interpreting those APA provisions may be useful to interpret the CRA exceptions. Additionally, the CRA does not "apply to rules that concern monetary policy proposed or implemented by the Board of Governors of the Federal Reserve System or the Federal Open Market Committee." The CRA also contains a partial exception for rules where an agency has, "for good cause," dispensed with notice-and-comment rulemaking procedures, as well as for rules related to "a regulatory program for a commercial, recreational, or subsistence activity related to hunting, fishing, or camping ." However, this section does not exempt rules from the CRA procedures entirely; it merely allows the agency to determine when the rule shall take effect, notwithstanding the CRA's requirements. While the APA's definition of "rule" includes agency statements "of general or particular applicability," the CRA expressly exempts "any rule of particular applicability." Courts have said that this language refers to "legislative-type promulgations" that are "directed to" specifically named parties. In opinions from GAO analyzing whether various agency actions fall within the particular-applicability exception, GAO has stated that to be generally applicable, the CRA does not require a rule to "generally apply to the population as a whole." Instead, "all that is required is a finding" that a rule "has general applicability within its intended range, regardless of the magnitude of that range." For example, in one case, GAO concluded that an agency decision adopting and implementing a plan to counter decreased river flows in a certain river basin was not a matter of particular applicability. Although the decision applied to a specific geographic area, it would, in the view of GAO, nonetheless "have significant economic and environmental impact throughout several major watersheds in the nation's largest state." The CRA gives examples of some types of rules of particular applicability by specifying that this exemption includes any "rule that approves or prescribes for the future rates, wages, prices, services, or allowances therefor, corporate or financial structures, reorganizations, mergers, or acquisitions thereof, or accounting practices or disclosures bearing on any of the foregoing." Moreover, the post-enactment statement for the record written by the CRA's sponsors maintained that "IRS private letter rulings and Customs Service letter rulings are classic examples of rules of particular applicability." Under the APA, courts have also held, for example, that agency actions designating specific sites as covered by environmental laws are rules of "particular applicability." The second CRA exemption excludes "any rule relating to agency management or personnel." The APA contains a similar exemption from its general rulemaking requirements. Within the context of the APA, courts have concluded that this exemption covers agency statements such as policies for hiring employees. A rule will not fall within this exemption solely because it is "directed at government personnel." Instead, courts have viewed this APA exception to cover internal matters that do not substantially affect parties outside an agency. Notwithstanding the general presumption of courts that where Congress adopts language from another statute, it also intends to incorporate any settled judicial interpretations of that same language, it is unclear whether this substantial-effect requirement developed by courts in the context of the APA should be read into the CRA. The CRA's second exemption, for "any rule relating to agency management or personnel," does not expressly mention a rule's effect on third parties. By contrast, the CRA's third exemption does. This distinction in language could be read to mean that Congress intentionally chose to create a substantial-effect requirement for the third exception while omitting this limitation from the second one, so that the CRA's second exception excludes "any rule relating to agency management or personnel" regardless of its impact on third parties. On this view, this difference in phrasing would displace the ordinary presumption that Congress incorporates case law interpreting similar statutory provisions. This interpretation of the second exemption could mean that the CRA's exception for rules relating to agency management or personnel may be interpreted more broadly than the APA exception. However, it is also possible that Congress chose not to include the substantial-effect requirement in this second exception because "prior judicial interpretation" of the identical phrases in the APA made such language unnecessary. Congress may have added a substantial-effect requirement to the third exception in order to settle some ambiguity in the cases interpreting the parallel provision of the APA, as described below. Finally, the CRA exempts "any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties." The APA also excludes "rules of agency organization, procedure, or practice" from notice-and-comment rulemaking procedures. Courts have held that this APA exception includes actions like agency decisions relating to how regulated entities must go about satisfying investigative requirements. Unlike the CRA, the APA does not explicitly limit this exception to those rules that do not "substantially affect the rights or obligations of non-agency parties." Nonetheless, because courts have read such a limitation into the APA exemption, the case law defining this requirement may be relevant to determine the scope of this CRA exemption. However, in the cases interpreting this parallel APA exclusion, the impact of a rule on a third party is not the only factor courts use to distinguish between substantive rules, which are required to go through notice-and-comment procedures, and procedural rules, which are not. Instead, courts have engaged in two kinds of inquiries. The first is the "substantial impact test," which asks whether the agency action substantially impacts the regulated industry. However, the D.C. Circuit has noted that even rules best characterized as procedural measures may have a significant effect on regulated parties, and, accordingly, has held that "a rule with a 'substantial impact' upon the persons subject to it is not necessarily a substantive rule." Consequently, the D.C. Circuit has also asked whether the rule "encodes a substantive value judgment." Nonetheless, because the text of the CRA expressly excludes rules "of agency organization, procedure, or practice" that do not "substantially affect the rights or obligations of non-agency parties," the CRA appears to mandate the use of something akin to the substantial impact test to determine whether a rule falls within this exception. In fact, one of the sponsors of the CRA emphasized prior to its passage that to determine whether a rule should be excluded under this provision, "the focus ... is not on the type of rule but on its effect on the rights or obligations of nonagency parties." He went on to say that the exclusion covered only rules "with a truly minor, incidental effect on nonagency parties." GAO has sometimes drawn on the APA case law described above in its own opinions analyzing whether various actions fall within the purview of the CRA. However, because the substantial-impact test and the substantive-value-judgment test were developed in the context of the APA to test whether rules "implicate the policy interests animating notice-and-comment rulemaking," these judicially created tests might not be directly applicable to determine whether an agency statement is subject to the CRA. The CRA requires that agencies submit actions that fall within the CRA's definition of a rule to both houses of Congress and to GAO before the actions may take effect. Thus, the submission requirement applies generally to rules that are promulgated through APA notice-and-comment procedures, as well as to other types of agency statements, as discussed above. Specifically, Section 801(a)(1)(A) of the CRA requires the agency to submit a report containing a copy of the rule to each house of Congress and the Comptroller General; a concise general statement relating to the rule, including whether it is a major rule; and the proposed effective date of the rule. The agency is also required to submit additional information pertaining to any cost-benefit analysis the agency conducted, along with information on the agency's actions resulting from other regulatory impact analysis requirements, including the Regulatory Flexibility Act and the Unfunded Mandates Reform Act. For major rules, after receiving this information, GAO is then required to assess the agency's compliance with these additional informational requirements and include its assessment in the major rule report. The report is required to be submitted to the House and Senate committees of jurisdiction within 15 calendar days of the submission of the rule or its publication in the Federal Register , whichever date is later. The "report" that agencies are required to submit along with the rule, in practice, is a two-page form on which they provide the information required under Section 801(a)(1)(A) and, for major rules, most of the information required to be included in GAO's major rule report. In FY1999 appropriations legislation, Congress required the Office of Management and Budget (OMB) to provide agencies with a standard form to use to meet this reporting requirement. OMB issued the form in March 1999 as part of a larger guidance to agencies on compliance with the CRA. A copy of the form is provided in Appendix A of this report. When final rules are submitted to Congress, notice of each chamber's receipt and referral appears in the respective House and Senate sections of the daily Congressional Record devoted to "Executive Communications." Notice of each chamber's receipt is also entered into a database that can be searched using Congress.gov. When the rule is submitted to GAO, a record of its receipt at GAO is noted in a database on GAO's website as well. Once the rule is received in Congress and published in the Federal Register , the time periods during which the CRA's expedited procedures are available begin, and Members can use the procedures to consider a resolution of disapproval. Thus, submission of rules to Congress under the CRA is critical because the receipt of the rule in Congress triggers the CRA's expedited procedures for introduction and consideration of a joint resolution disapproving the rule. In other words, if an agency fails to submit a rule to Congress, the House and Senate are unable to avail themselves of the special "fast track" procedures to consider a joint resolution striking down the rule. Following enactment of the CRA in 1996, some Members of Congress and others raised concerns over agencies not submitting their rules on several occasions. At a hearing on the CRA in 1997, one year after its enactment, witnesses noted that agencies were not in full compliance with the submission requirement. It was also noted at the hearing, however, that it appeared agencies were seeking "in good faith" to comply with the statute. At a hearing in 1998 on implementation of the CRA, GAO's general counsel testified that agencies were often not sending their rules to GAO or Congress. Also in 1998, to further improve agency compliance with the CRA, Congress required OMB to issue guidance on certain provisions of the CRA, specifically including the submission requirement in 5 U.S.C. §801(a)(1). To meet this requirement, then-OMB Director Jacob J. Lew issued a memorandum for agencies in March 1999. The Lew memorandum provided information such as where agencies should send their rules in the House and Senate, including the addresses of the Office of the President of the Senate and the Speaker of the House, the offices in each chamber that receive the rules; what information the agencies should include with the rule; and an explanation of what types of rules are required to be submitted. Because agencies were initially inconsistent about fulfilling the submission requirement, GAO began to monitor agencies' compliance with the submission requirement by comparing the final rules that were published in the Federal Register with rules that were submitted to GAO. This was not a role that was required under the CRA; rather, GAO conducted these reviews voluntarily. As then-GAO general counsel Robert Murphy testified in 1998, GAO conducted a review to determine whether all final rules covered by the Congressional Review Act and published in the Register were filed with the Congress and the GAO. We performed this review both to verify the accuracy of our own data base and to ascertain the degree of agency compliance with the statute. We were concerned that regulated entities may have been led to believe that rules published in the Federal Register were effective, when, in fact, they were not unless filed in accordance with the statute. After its review of agency compliance with the submission requirement, in November 1997, GAO submitted to OMB's Office of Information and Regulatory Affairs (OIRA) a list of the rules that had been published in the Federal Register but had not been submitted to GAO. According to GAO, OIRA distributed this list to affected agencies; GAO then followed up again with the agencies that had rules that remained un-submitted in February 1998. GAO stated in its March 1998 testimony that "In our view, OIRA should have played a more proactive role in assuring that the agencies were both aware of the statutory filing requirements and were complying with them." GAO continued to conduct similar reviews regularly, comparing the list of rules that agencies submitted to GAO against rules that were published in the Federal Register . Until 2012, GAO periodically sent letters to OIRA regarding rules that it had not received. In March 2012, GAO notified OIRA that, due to constraints on its resources, it would no longer be sending lists of rules not received. Instead, GAO decided to continue to track only major rules not received, not all final rules, as they had previously done. In general, although there have been exceptions noted by GAO, agencies appear to be fairly comprehensive in submitting rules to Congress and GAO when those rules have been promulgated through an APA rulemaking process. GAO's federal rules database lists thousands of such rules each year. In the case of rules that are not subject to notice-and-comment procedures, however, agencies often do not fulfill the submission requirement, and tracking compliance for these types of agency actions is more difficult. Although GAO has voluntarily tracked agency compliance with the submission requirement, its methodology for doing so did not result in a complete list of agency actions that should have been submitted. GAO's point of reference was to compare regulations that were published in the Federal Register against regulations it received pursuant to the CRA. Most rules that are required to be published in the Federal Register are indeed subject to the CRA, making this a potentially helpful method of identifying rules that were not submitted. However, many of the other agency actions that are not subject to notice-and-comment requirements are not generally published in the Federal Registe r and are also not submitted to GAO. Therefore, using this method, many rules that should have been submitted likely were undetected by GAO and thus not included in the lists of un-submitted rules it sent to OIRA and to the agencies. It is precisely this issue that led to Members requesting GAO's opinion on individual agency actions that were of specific interest to them and were not submitted to Congress (nor, in most cases, published in the Federal Register ). The higher incidence of noncompliance with the CRA's submission requirement for agency actions that were conducted outside the notice-and-comment rulemaking process is likely due in large part to the practical difficulty of submitting the substantial number of agency statements that qualify as rules under the CRA. The CRA's submission requirement could potentially include a wide variety of items such as FAQs posted on agency websites, press releases, bulletins, information memoranda, and statements made by agency officials. In congressional testimony in 1997, one administrative law scholar argued that agencies "annually take tens of thousands of actions" that would fall under the CRA's definition of rule, and that Were agencies to comply fully with [the CRA's] requirement that all these matters be filed with Congress as a condition of their effectiveness (as it appears, thus far, they are not doing), Congress and the GAO would be swamped with filings. Burying Congress in paper might even seem a useful means of diverting attention from larger, controversial matters; haystacks can be useful for concealing needles. No one believes many, if any, of these rules will be the subjects of resolutions of disapproval. Yet for them even simple accompanying documents to permit data analysis and tracking, such as GAO has been proposing, would impose significant aggregate costs, well beyond their possible benefit. In addition, it seems possible that many agencies are unaware of the breadth of the CRA's coverage. Reading through various agencies' responses to the GAO opinions discussed below suggests that many agencies appear to be aware that notice-and-comment rules are generally covered by the CRA, but they may be unaware that many other types of actions are covered. For example, in an opinion it issued in 2012 regarding an action taken by the Department of Health and Human Services, GAO stated that "We requested the views of the General Counsel of HHS on whether the July 12 Information Memorandum is a rule for purposes of the CRA by letter dated August 3, 2012. HHS responded on August 31, 2012, stating that the Information Memorandum was issued as a non-binding guidance document, and that HHS contends that guidance documents do not need to be submitted pursuant to the CRA." GAO concluded, however, "We cannot agree with HHS's conclusion that guidance documents are not rules for the purposes of the CRA and HHS cites no support for this position." Because submission of rules is key to Congress's ability to use the CRA, if an agency does not submit a rule to Congress, this could potentially frustrate Congress's ability to review rules under the act. To avoid Congress being denied its opportunity for review of rules in this way, however, the Senate appears to have developed a practice that allows it to employ the CRA's review mechanism even when an agency does not submit a rule for review. That practice has involved seeking an opinion from GAO on whether an agency action should have been submitted under the CRA (i.e., whether the action is covered by the CRA's definition of "rule"). In several instances since the enactment of the CRA in 1996, Members of Congress sought an opinion from GAO as to whether certain agency actions were covered by the CRA, despite the agency not having undertaken notice-and-comment rulemaking or having submitted the action to Congress. GAO has issued 21 opinions of this type as of March 5, 2019. In many of these opinions, GAO has defined the term "rule" as used in the CRA expansively. In 11 of the 21 opinions, GAO opined that the agency statement in question was a rule under the CRA that should have been submitted to the House and Senate for review. These opinions are summarized below in this report and are listed in a table in Appendix B . In recent years, the Senate has considered publication in the Congressional Record of a GAO opinion classifying an agency action as a rule as the trigger date for the initiation period to submit a disapproval resolution and for the action period during which such a joint resolution qualifies for expedited consideration in the Senate. Thus, the question of whether Congress may use the CRA's expedited parliamentary disapproval mechanism generally hinges upon the nature of GAO's opinion in such cases. By allowing the GAO opinion to serve as a substitute for the actual submission of a rule, the Senate can still avail itself of the CRA's expedited procedures to overturn rules. In responding to these requests from Members for opinions on whether certain agency actions are covered, GAO has played an important role in determining the applicability of the CRA, although the specific role that GAO has played in this regard is not explicitly outlined in the statute. But a review of the history of the early implementation of the CRA, and a consideration of GAO's other activities under the CRA, suggests that the role GAO currently plays with regard to determining whether a specific agency action is a "rule" is linked to other activities GAO has engaged in regarding the CRA. As has been noted, GAO's primary statutory requirement under the CRA is to provide a report to the committees of jurisdiction on each major rule, and to include in the report information about the agency's compliance with various steps of the rulemaking process for each major rule. For non-major rules, soon after the CRA was enacted, GAO voluntarily created an online database of rules submitted to it under the CRA, suggesting that it was willing to go beyond what was required of it by the statute to facilitate implementation. As GAO's general counsel explained in congressional testimony in 1998, "Although the law is silent as to GAO's role relating to the nonmajor rules, we believe that basic information about the rules should be collected in a manner that can be of use to Congress and the public. To do this, we have established a database that gathers basic information about the 15-20 rules we receive on the average each day." The database can be used to search for rules by elements such as the title, issuing agency, date of publication, type of rule (major or non-major), and effective date. The website also contains links to each of GAO's major rule reports. Perhaps most notably, however, GAO's determination of whether agency actions are considered "rules" under the CRA appears to be closely linked to its monitoring of agency compliance with the submission requirement as discussed above. The question of whether an agency action is a rule under the CRA is also a question of whether it should be submitted; arguably, then, GAO is addressing a very similar question in its opinions on whether certain agency actions are covered as it was in its initial reports to OIRA on agency compliance with the submission requirement. A discussion of GAO's role in a congressional hearing on the Tongass Land Management Plan in 1997 provides some evidence of the voluntary and, initially, ad hoc nature of GAO's role in this regard. One of the issues that was addressed at the hearing was whether the plan should be considered a rule under the CRA; GAO's general counsel was invited to testify at the hearing. Six days before the hearing, GAO issued its second opinion on the applicability of the CRA, in which it stated that the Tongass Land Management Plan should have been submitted as a rule under the CRA. Former Senator Larry Craig, who had requested the opinion, asked GAO's general counsel at the hearing about GAO's role: It is our understanding of your testimony and our own reading of the Regulatory Flexibility Act that the General Accounting Office has been given the role of advising Congress and perhaps agencies on whether their policy decisions constitute rules. It is our understanding that the GAO's independent opinion is generally given considerable weight by the agencies. Is this also the GAO's understanding of its role? In response, GAO's general counsel, Robert Murphy, stated that the CRA does not provide any identification of who is to decide what a rule is, unlike the issue of whether a rule is a major rule or not, which, as [OIRA Administrator] Ms. Katzen pointed out, has been assigned to her. So in that sense, I cannot say that GAO has a special role under the statute for making that determination. The decision, the opinion, that we issued last week on the question [of whether the Tongass Land Management Plan was a rule under the CRA] was done in our role as adviser to the Congress in response to the request of three chairmen of congressional committees. Thus, GAO acknowledged that its opinion was provided not pursuant to any specific provision of the statute, but in a more general, advisory capacity. In the years following, Members continued to request GAO opinions advising Congress on the matter of whether an agency action should have been submitted. Although GAO has issued 21 opinions on the applicability of the CRA since 1996, Congress's response to those opinions has varied over time. Initially, the GAO opinions finding that the agency actions in question were rules under the CRA did not lead to the introduction of joint resolutions of disapproval—Members appear not to have introduced any joint resolutions of disapproval following a GAO opinion until 2008. In 2008, GAO issued an opinion stating that a letter from the Centers for Medicare & Medicaid Services to state health officials concerning the State Children's Health Insurance Program was a rule for the purposes of the CRA; in response, Senator John D. Rockefeller introduced S.J.Res. 44 to disapprove the guidance provided in the letter. According to a press release from the Committee on Finance at the time, however, the committee did not take further action on the resolution of disapproval because it had missed the window during which the action would have been required to be taken under the CRA to use its expedited procedures. The first time either chamber took action on a resolution of disapproval introduced following a GAO opinion was in 2012, when the House passed H.J.Res. 118 (112 th Congress), a resolution of disapproval that would have overturned an information memorandum issued by the Department of Health and Human Services relating to the implementation of the Temporary Assistance for Needy Families (TANF) program. The first time the Senate took action on such a resolution of disapproval was on April 18, 2018, when it passed S.J.Res. 57 , overturning guidance from the Bureau of Consumer Financial Protection (CFPB) pertaining to indirect auto lending and the Equal Credit Opportunity Act. The House passed S.J.Res. 57 on May 8, 2018, and the President signed it into law on May 21, 2018. Standing alone, a GAO opinion deciding whether an agency action is a "rule" covered by the CRA does not have legal effect. As discussed, GAO's role in determining whether actions are subject to the CRA is not provided for in the CRA, and its opinions are, in essence, advisory. The opinions do not have any immediate effect other than advising Congress as to whether GAO considers an agency action to meet the definition of "rule" under the CRA. As a matter of course, however, it appears that the Senate has chosen to treat the GAO opinions as dispositive on the issue. In several cases, individual Senators have stated that once a GAO opinion determining that an agency action is a rule is published in the Congressional Record , the time periods under the CRA commence and the agency action in question becomes subject to the CRA disapproval mechanism. The enactment in May 2018 of a joint resolution of disapproval that was introduced following a GAO opinion regarding a 2013 CFPB bulletin that had not been submitted by the agency further indicates that Congress, in at least some cases, is willing to consider the GAO opinion as a substitute for the agency's submission of a rule to Congress. GAO described this practice in November 2018 in one of its opinions relating to the applicability of the CRA: "Congress has opted to treat the receipt of a GAO opinion concluding that an agency action is a rule as triggering the statutory provisions that otherwise would have been triggered by the agency's submission. Thus, Congress has used GAO opinions to cure the impediment created by the agency's failure to submit the rule, protecting its review and oversight authorities." In sum, GAO opinions facilitate congressional review of rules that were not—but should have been—submitted under the CRA. A CRA provision barring judicial review makes it unlikely that a GAO opinion or any other congressional determination stating that a rule is subject to the CRA would be subject to challenge in court. This provision states that "[n]o determination, finding, action, or omission under this chapter shall be subject to judicial review." Accordingly, most courts have refused to review any claims arguing that an agency action should have been submitted to Congress as a rule under the CRA. As a result, the question of whether an agency action is subject to the CRA and its fast-track procedures will likely be settled in the political arena rather than in the courts, and, if Congress continues to treat GAO opinions as determinative, those opinions likely will be the final word on the issue. The provision barring judicial review may mean that one other critical aspect of the CRA may be addressed outside of the courts and through GAO opinions: whether a rule has taken effect. As discussed previously, the CRA states that agencies must submit covered rules to Congress and the Comptroller General "before a rule can take effect," suggesting that a rule may not become operative until the report required by the CRA is submitted to Congress. Indeed, the post-enactment statement inserted into the Congressional Record by the CRA's sponsors stated that, barring two exceptions listed in the CRA, "any covered rule not submitted to Congress and the Comptroller General will … not [take] effect until it is submitted pursuant to subsection 801(a)(1)(A)." However, courts have refused to adjudicate claims arguing that various rules are not in effect because an agency has failed to submit the rules to Congress. Accordingly, it is unlikely that a court would be willing to enforce this provision and declare that a rule lacks effect because it was not submitted to Congress. If an agency has not submitted a disputed action to Congress, it is possible that this inaction was the result of the agency's view that the rule was not subject to the CRA. A GAO opinion stating that an agency action does constitute a rule, while not itself rendering a rule ineffective, may be the first indication to the agency that the rule did not "take effect" because the agency did not fulfill the CRA submission requirement. But in the context of agency rules that inherently lack legal effect, the determination that they lack "effect" under the CRA may not have much practical impact. In the context of rulemaking, to "take effect" usually means that something has become legally effective. As noted, however, the CRA encompasses some non-legislative rules that inherently lack legal effect. The fact that the CRA requires agencies to submit some agency statements that lack legal effect suggests that the term "effect," as used in the CRA's submission requirement, means something other than legal effect. While reviewing notice-and-comment rulemakings, some courts have held that the CRA suspends a rule's operation notwithstanding the fact that a rule may technically have become effective. With respect to rules such as general policy statements that generally lack legal force, however, even if an agency failed to comply with the CRA's submission requirement and erroneously regarded the rule as being operative, it is less likely that the operation of the statement had a discernible and independent effect on the agency's actions. This section briefly summarizes each of the 21 GAO opinions to date on whether certain agency actions were rules and, thus, eligible for disapproval under the CRA. When GAO appeared to consider one or more of the CRA exceptions to the definition of "rule" as fundamental to its analysis, the summaries identify which exception GAO focused on in its opinion. The opinions are listed in chronological order by the date on which GAO issued the opinion. For a more concise summary of each of these opinions, see the table in Appendix B . The Emergency Sale Timber Program was enacted as part of the Emergency Supplemental Appropriations and Rescissions Act of 1995. The program was intended to "increase the sales of salvage timber in order to remove diseased and damaged trees and improve the health and ecosystems of federally owned forests." On July 2, 1996, the Secretary of Agriculture sent a memorandum entitled "Revised Direction for Emergency Timber Salvage Sales Conducted Under Section 2001(b) of P.L. 104-19 " to the Chief of the Forest Service, containing "clarifications in policy" for the program. GAO concluded that the memorandum was a rule under the CRA because some of its contents "clearly are of general applicability and future effect in interpreting section 2001 of P.L. 104-19 " and because, contrary to the argument the Department of Agriculture made to GAO when GAO requested its views on the matter, the memorandum "does not fall within the agency procedure or practice exclusion [in 5 U.S.C. §804(3)(C)]." On May 23, 2007, the Department of Agriculture's Forest Service issued the Tongass National Forest Land and Resource Management Plan, which "sets forth the management direction for the Tongass Forest and the desired condition of the Forest to be attained through Forest-wide multiple-use goals and objectives." GAO concluded that the plan was a rule under the CRA and was not excepted under 5 U.S.C. §804(3) because "decisions made in the Plan substantially affect non-agency parties and are, therefore, not 'agency procedures.'" President William Clinton signed Executive Order 13061 on September 11, 1997, announcing policies related to the American Heritage River Initiative (AHRI). The AHRI was intended to support American communities' efforts to restore and protect their rivers; the President was to designate, by proclamation, 10 rivers that would take part in the program. GAO concluded that Executive Order 13061 was not a rule under the CRA because the President is not an "agency" for the purposes of the CRA (or, for that matter, under the APA). As such, actions taken by the President are not subject to the CRA. On February 5, 1998, the Environmental Protection Agency (EPA) issued its "Interim Guidance for Investigating Title VI Administrative Complaints Challenging Permits." According to EPA, the intent of the guidance was to update EPA's procedural and policy framework regarding complaints alleging discrimination in the environmental permitting context. GAO concluded that "considered as a whole, the Interim Guidance clearly affects the rights of non-agency parties" and thus was a rule under the CRA and not exempt under 5 U.S.C. §804(3). On May 3, 2000, the Farm Credit Administration (FCA) issued a booklet entitled "National Charters," and then the FCA published the booklet in the Federal Register on July 20, 2000. The booklet "provide[d] guidance on the national charter application process and the national charter territory. Specifically, the Booklet explain[ed] how a direct lender association can apply for a national charter; what the territory of a national charter will be; and what conditions the FCA will impose in connection with granting a national charter." GAO concluded that "we find that the Booklet, while labeled a statement of policy by the FCA, in actuality, meets the requirements of a legislative rule—which should have been issued using informal rulemaking procedures, including notice and comment." GAO then concluded that the booklet constituted a rule under the CRA and was not exempt under 5 U.S.C. §804(3) because the policies established in the booklet would have an effect on non-agency parties, and because statements made within the booklet clearly indicate that "the FCA recognizes the effect of the Booklet and national charters on other parties." The Trinity River Record of Decision (ROD) was issued in December 2000 and documented the Department of the Interior's selection of the actions that it deemed necessary to "restore and maintain the anadromous fish in the Trinity River." The ROD identified the department's selected courses of action for addressing the decreased river flows in the Trinity River Basin. GAO concluded that the ROD was a "rule" under the CRA because "its essential purpose is to set policy for the future," it was not a rule of agency procedure or practice under 5 U.S.C. §804(3), and "it will have broad effect on both rivers' ecosystems and potentially significant economic effect within the Sacramento and Trinity River basins." On July 18, 2002, the Department of Veterans Affairs (VA) issued a memorandum to network directors regarding the VA's marketing activities to enroll new veterans in the VA health care system. Specifically, the memorandum directed the network directors to no longer engage in trying to enroll new veterans through the use of certain types of activities, such as health fairs, veteran open houses, and enrollment displays at VSO meetings. GAO concluded that the memorandum was not a rule under the CRA because it "is clearly excluded from the coverage of the CRA by one of the enumerated exceptions found in 5 U.S.C. §804(3)"—specifically, GAO considered the memorandum to be a statement of agency procedure or practice that did not affect the rights or obligations of non-agency parties. Rather, the memorandum governed internal agency procedures and did not affect the ability of veterans to enroll in the VA health care system. On January 23, 2003, the VA issued a memorandum terminating the Vendee Loan Program, a program that allowed the VA to make loans for the sale of foreclosed VA-loan-guaranteed property. In the memorandum, which was addressed to all directors and loan guarantee officers, the VA Secretary announced that it would no longer finance the sale of acquired properties. GAO concluded that the memorandum was not a rule under the CRA because it was a rule relating to agency management (i.e., excepted under 5 U.S.C. §804(3)(B)) or a rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties (i.e., excepted under 5 U.S.C. §804(3)(C)). GAO noted that "this is the type of management decision left to the discretion of the Secretary of VA in order to maintain the effective functioning and long-term stability of the program," and that "since the vendee loans were a purely discretionary method for VA to use to dispose of foreclosed properties, the change in the agency's 'organization' or 'practice' does not affect any party's right or obligation." On August 17, 2007, the Centers for Medicare & Medicaid Services issued a letter to state health officials concerning the State Children's Health Insurance Program (SCHIP). The letter "purports to clarify the statutory and regulatory requirements concerning prevention of crowd out for states wishing to provide SCHIP coverage to children with effective family incomes in excess of 250 percent of the federal poverty level (FPL) and identifies a number of particular measures that these states should adopt." GAO concluded that the letter was a rule for the purposes of the CRA because it was a "statement of general applicability and future effect designed to implement, interpret, or prescribe law or policy with regard to the SCHIP program," and because GAO did "not believe that the August 17 letter comes within any of the exceptions to the definition of rule contained in the Review Act." On July 12, 2012, the Department of Health and Human Services' Administration for Children and Families issued an information memorandum concerning the Temporary Assistance for Needy Families (TANF) program. The memorandum notified states that HHS was willing to exercise waiver authority over some of the program's work requirements. GAO concluded that the information memorandum was a rule for the purposes of the CRA because it was a "statement of general applicability and future effect, designed to implement, interpret, or prescribe law or policy with regard to TANF," and it did not fall within any of the three exceptions to the definition of a rule. As GAO stated, the memorandum applied to states and therefore was of general applicability, rather than particular applicability; it applied to the states and not agency management or personnel; and it established "the criteria by which states may apply for waivers from certain requirements of the TANF program. These criteria affect the obligations of the states, which are non-agency parties." On January 8, 2014, the Environmental Protection Agency issued a proposed rule entitled "Standards of Performance for Greenhouse Gas Emissions from New Stationary Sources: Electric Utility Generating Units." The proposed rule was intended to establish "standards for fossil fuel-fired electric steam generating units (utility boilers and Integrated Gasification Combined Cycle (IGCC) units) and for natural gas-fired stationary combustion turbines." GAO concluded that the proposed rule in question was not an action that was covered by the CRA, because the CRA was intended to apply only to final rules: "The issuance of a proposed rule is an interim step in the rulemaking process intended to satisfy APA's notice requirement, and, as such, is not a triggering event for CRA purposes." Furthermore, GAO stated "the precedent provided in our prior opinions underscores that proposed rules are not rules for CRA purposes, and GAO has no role with respect to them." On March 22, 2013, the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation, issued interagency guidance on leveraged lending. The guidance "outline[d] for agency-supervised institutions high-level principles related to safe-and-sound leveraged lending activities, including underwriting considerations, assessing and documenting enterprise value, risk management expectations for credits awaiting distribution, stress-testing expectations, pipeline portfolio management, and risk management expectations for exposures held by the institution." GAO concluded that the leveraged-lending guidance was a rule under the CRA because it was a general statement of policy that had future effect and because GAO could "readily conclude that the guidance does not fall within any of the three exceptions in the CRA." GAO's opinion, which was issued on October 19, 2017, was silent on the matter of the timing of its opinion relative to the guidance, which was issued in 2013. On December 9, 2016, the U.S. Department of Agriculture's Forest Service approved an amendment to the Tongass Land and Resource Management Plan. The plan identified the uses that may occur in each area of the forest. The Forest Service is required under the National Forest Management Act of 1976 to update forest plans at least every 15 years and potentially more frequently. GAO concluded that the amendment to the plan was a rule under the CRA because the amendment "has a substantial impact on the regulated community such that it is a substantive rather than a procedural rule for purposes of CRA." As such, the plan could not be considered to fall within the exception in 5 U.S.C. §804(3)(C), despite the argument presented by USDA when GAO asked the agency its views on the matter. On December 30, 2016, the Department of the Interior's Bureau of Land Management issued its resource management plan for four areas in Alaska: the Draanjik Planning Area, the Fortymile Planning Area, the Steese Planning Area, and the White Mountains Planning Area. Land management plans such as these are intended to provide specific information for the use of public lands and are required under the Federal Land Policy and Management Act of 1976. GAO concluded that the plan was a rule under the CRA because it was of general applicability, had future effect, and was designed to implement, interpret, or prescribe law or policy, and because it did not fit into any of the three exceptions. Of particular relevance appeared to be the exception in 5 U.S.C. §804(3)(C): "Because the Eastern Interior Plan designates uses by nonagency parties that may take place in the four areas it governs, it is not a rule of agency organization, procedure or practice." On March 21, 2013, the Consumer Financial Protection Bureau issued a bulletin on "Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act." The bulletin "provide[d] guidance about indirect auto lenders' compliance with the fair lending requirements of the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B." GAO concluded that the bulletin was a rule under the CRA because it "is a statement of general applicability, since it applies to all indirect auto lenders; it has future effect; and it is designed to prescribe the Bureau's policy in enforcing fair lending laws," and because the bulletin "does not fall within any of the [CRA's] exceptions." GAO's opinion, which was issued on October 19, 2017, was silent on the matter of the timing of its opinion relative to the bulletin, which was issued in 2013. On January 23, 2017, President Donald J. Trump released a presidential memorandum establishing his Administration's policy on global health assistance funding, often referred to as the "Mexico City Policy." The policy prohibited assistance to foreign nongovernmental organizations and other entities that perform or promote abortion as a method of family planning. To implement this policy, the Department of State issued a fact sheet entitled "Protecting Life in Global Health Assistance" on May 15, 2017, and the U.S. Agency for International Development (USAID) issued revisions to its "Standard Provisions for U.S. Nongovernmental Organizations" on March 2, 2017. GAO concluded that the two agency actions in question were not rules for the purposes of the CRA because, although the fact sheets were issued by federal agencies, they were merely implementing a decision of the President, under a statute that specifically granted broad policymaking authority to the President. GAO based this decision on a 1989 D.C. Circuit case, DKT Memorial Fund v. Agency for International Development , which held that agency actions implementing the decision of President Ronald Reagan to establish the Mexico City Policy were not reviewable under the APA. The court held that the disputed decision involved "not a rulemaking by an agency, but rather a policy-making at the highest level by the executive branch," concluding that it did not have authority under the APA "to review the wisdom of policy decisions of the President" where the relevant statute granted the President broad discretion in the area of foreign affairs. GAO determined that in accordance with this precedent, the agency actions implementing President Trump's policy decision were not subject to the CRA. In guidance for the 2018 tax filing season, IRS announced on its website that it "would not accept electronically filed individual income tax returns where the taxpayer does not meet ACA reporting requirements, specifically to report full-year health coverage, claim a coverage exemption, or report a shared responsibility payment (known as 'silent returns')." GAO concluded that the agency statement was not a rule under the CRA because it "is a rule of agency procedure or practice that does not substantially affect taxpayers' rights or obligations," thus falling into the exception in 5 U.S.C. §804(3)(C). In effect, according to GAO, the "statement changes the timing of IRS compliance measures, but it does not change IRS's basis for assessing taxpayers' compliance with existing law—namely, the requirement to file a complete tax return and to meet ACA reporting requirements." The Social Security Administration's (SSA) Hearings, Appeals, and Litigation Law Manual (HALLEX) describes how SSA will process and adjudicate claims for disability benefits under the Social Security Act. Two sections of the manual stated a policy under which an SSA adjudicator could not rely on information from the Internet, including from social media networks, in deciding a claim for benefits (with two exceptions). GAO concluded that these two sections of HALLEX were not rules under the CRA because they were merely "procedures that govern the use of evidence from the Internet during those proceedings" and they "do not impose new burdens on claimants or alter claimants' rights or obligations during the SSA appeal process." Thus, GAO concluded that "the HALLEX sections are procedural rules that meet the [5 U.S.C. §804(3)(C)] exception." On July 26, 2018, the IRS issued Revenue Procedure 2018-38, which "modifies the information certain tax-exempt entities are required to report to IRS on their annual returns." On July 30, 2018, the IRS submitted Revenue Procedure 2018-38 to Congress under the CRA. On September 7, 2018, then-Senator Orrin Hatch submitted a request to GAO seeking its opinion on whether the revenue procedure was covered by the CRA's definition of "rule." The IRS had apparently made the determination, despite having submitted the document under the CRA, that the document was not covered by the CRA. Rather, the IRS argued that it had submitted the rule "out of an abundance of caution" and to "allow Congress to decide whether it is a rule by consulting GAO." The circumstances surrounding this GAO opinion were somewhat unique, because the IRS had already submitted the revenue procedure to Congress under the CRA by the time the question was raised as to whether the revenue procedure was covered by the definition of "rule." This appeared to be the first time that GAO had considered the application of the CRA when an agency submitted a rule and later made the argument that the rule was not covered. In its opinion, GAO primarily addressed the issue of whether the submission of the rule was sufficient to trigger the CRA's timelines rather than whether the revenue procedure met the statutory definition of "rule." GAO stated in its opinion that the purpose of the GAO opinions is "to cure the impediment created by the agency's failure to submit the rule, protecting [Congress's] review and oversight authorities," and, therefore, because the IRS had already submitted the rule, a GAO opinion on the CRA's applicability would be unnecessary. Furthermore, GAO confirmed that the IRS revenue procedure was available for congressional review under the CRA because the IRS had already submitted it: "IRS's submission triggered Congress's review and oversight powers under CRA, starting with the transmittal of the rule to the committees of jurisdiction." GAO also stated, "As Congress is not deprived of exercising its powers under CRA, there is no impediment to those powers that a GAO opinion might cure. We, therefore, take no position on whether the revenue procedure is a rule otherwise." On April 6, 2018, the Attorney General issued a memorandum directing federal prosecutors to adopt a zero-tolerance policy for illegal border crossings at the southwestern border of the United States. GAO concluded that the April 2018 memorandum was not a rule under the CRA because it was a rule of agency organization, procedure, or practice, and it did not change individuals' rights or obligations: "The rights and obligations in question are prescribed by existing immigration laws and remain unchanged by the agency's internal enforcement procedures at issue here." Thus, GAO concluded that the memorandum was covered by the exception in 5 U.S.C. §804(3)(C). In March 2018, the Secretary of Commerce issued a memorandum to the Under Secretary of Commerce for Economic Affairs justifying the Secretary's decision to add a citizenship question to the 2020 census. According to GAO, the memorandum "described a December 12, 2017 request from the Department of Justice (DOJ) that the Census Bureau include a citizenship question on the 2020 census" and directed the Under Secretary to include such a question. Soon after the Secretary issued the memorandum, pursuant to statutory requirements, the Census Bureau delivered a report to Congress containing its planned questions for the 2020 census, including the citizenship question. GAO concluded that the memorandum was not a rule under the CRA, stating that "it was direction from a supervisor to a subordinate in conjunction with the statutory process whereby the Secretary informs Congress of the questions that will be on the census.… As such, the memorandum does not meet CRA's definition of a rule because it was not designed to implement, interpret, or prescribe law or policy." Because the memorandum did not meet the definition of "rule" under section 551 of the APA, GAO did not discuss whether the memorandum would have been covered by any of the exceptions. Appendix A. Submission Form for Rules Under the CRA Appendix B. Summary of GAO Opinions	[ "The Congressional Review Act (CRA) allows Congress to review certain types of federal agency actions that fall under the statutory category of \"rules.\" The CRA requires that agencies report their rules to Congress and provides special procedures under which Congress can consider legislation to overturn those rules. A joint resolution of disapproval will become effective once both houses of Congress pass a joint resolution and it is signed by the President, or if Congress overrides the President's veto. The CRA generally adopts a broad definition of the word \"rule\" from the Administrative Procedure Act (APA), defining a rule as \"the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency.\" The CRA, however, provides three exceptions to this broad definition: any rule of particular applicability, including a rule that approves or prescribes for the future rates, wages, prices, services, or allowances therefor, corporate or financial structures, reorganizations, mergers, or acquisitions thereof, or accounting practices or disclosures bearing on any of the foregoing; any rule relating to agency management or personnel; or any rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties. The class of rules the CRA covers is broader than the category of rules that are subject to the APA's notice-and-comment requirements. As such, some agency actions, such as guidance documents, that are not subject to notice-and-comment rulemaking procedures may still be considered rules under the CRA and thus could be overturned using the CRA's procedures. The effect of Congress disapproving a rule that is not subject to notice-and-comment rulemaking may be subject to debate, given that such rules are generally viewed to lack any legal effect in the first place. Nonetheless, the CRA does encompass some such rules, as highlighted by the recent enactment of a CRA resolution overturning a bulletin from the Consumer Financial Protection Bureau that was not subject to the notice-and-comment procedures. Even if an agency action falls under the CRA's definition of \"rule,\" however, the expedited procedures for considering legislation to overturn the rule only become available when the agency submits the rule to Congress. In many cases in which agencies take actions that fall under the scope of a \"rule\" but have not gone through notice-and-comment rulemaking procedures, agencies fail to submit those rules. Thus, questions have arisen as to how Members can avail themselves of the CRA's special fast-track procedures if the agency has not submitted the action to Congress. To protect its prerogative to review agency rules under the CRA, Congress and the Government Accountability Office (GAO) have developed an ad hoc process in which Members can request that GAO provide a formal legal opinion on whether a particular agency action qualifies as a rule under the CRA. If GAO concludes that the action in question falls within the CRA's definition of \"rule,\" Congress has treated the publication of the GAO opinion in the Congressional Record as constructive submission of the rule. In other words, an affirmative opinion from GAO can allow Congress to use the CRA procedures to consider legislation overturning an agency action despite the agency not submitting that action to Congress." ]	12,318	gov_report	en	null	64783ddf48e7a912be7c5d5b7e10f3ac6cad81444d8aff62
Geographic shifts in the veterans’ population, changes in health care delivery, an aging infrastructure, and limited stakeholder involvement affect VA’s efforts to align its services and real property portfolio to meet the needs of veterans. For example, there has been a shift over time from inpatient to outpatient care. This shift will likely result in underutilized space once used for inpatient care. In such instances, it is often difficult and costly for VA to modernize, renovate, and retrofit these older facilities. In June 2017, VA reported that its facility inventory includes 430 vacant or mostly vacant buildings that are, on average, more than 60 years old, and an additional 784 buildings that are underutilized. The historic status of some VA facilities adds to the complexity of converting or disposing of them. In 2014, VA reported holding 2,957 historic buildings, structures, or land parcels—the third most in the federal government after DOD and the Department of the Interior. In some instances, it may be more expensive to renovate than to demolish and rebuild outdated facilities. In other cases, however, there may not be an option to demolish if these buildings are designated as historic. For example, planning officials at four medical facilities in our review told us that state historic preservation efforts prevented the VA from demolishing vacant buildings, even though these buildings require upkeep costs and pose potential safety hazards. (See fig. 1.) VA has also encountered challenges to its facility alignment efforts, in part, because it has not consistently followed best practices for effectively engaging stakeholders. VA may align its facilities to meet veterans’ needs by expanding or consolidating facilities or services. Stakeholders— including veterans; local, state, and federal officials; Veterans Service Organizations; historic preservation groups; VA staff; and Congress— often view changes as working against their interests or those of their constituents, especially when services are eliminated or shifted from one location to another. We found that VA has not consistently engaged with stakeholders, and, in some cases, this inconsistency resulted in adversarial relationships that reduced VA’s ability to better align facilities with the needs of the veteran population. In our April 2017 report, we recommended that VA improve stakeholder communication guidance and evaluate its efforts. VA agreed with our recommendations and outlined a plan to implement them. Two of the planning processes VA uses to align its facilities—VA’s Strategic Capital Investment Planning (SCIP) and the VA Integrated Planning (VAIP)—have limitations. VA relies on the SCIP process to plan and prioritize capital projects system-wide, but SCIP’s limitations—including subjective narratives, long timeframes, and restricted access to information—undermine VA’s ability to achieve its goals. For example, the time between when planning officials at VA medical facilities begin developing the SCIP narratives and when they are notified that a project is funded has taken between 17 and 23 months over the past 6 fiscal-year’s SCIP submissions. (See fig. 2.) As such, VA routinely asks its facility planners to submit their next year’s planned project narratives before knowing if their project submissions from the previous year have been funded. An official from the office that oversees SCIP told us that the timing of the budgeting process, which is outside VA’s control, contributes to these delays. While these aspects are outside of VA’s control, VA has chosen to wait about 6 to 10 months to report the results of the SCIP scoring process to the medical facilities. This situation makes it difficult for local officials to understand the likelihood that their projects will receive funding. A VA official said that for future SCIP cycles, VA plans to release the scoring results for minor construction and non-recurring maintenance projects to local officials earlier in the process. At the time of our review, however, the official did not have a time frame for when VA would do this. Although VA acknowledges many of these limitations, it has taken little action in response. Federal standards for internal control state that agencies should evaluate and determine appropriate corrective action for identified limitations on a timely basis. If VA does not address known limitations with the SCIP process, it will not have reasonable assurance that SCIP can be used to accurately identify the capital necessary to address VA’s service and infrastructure gaps. In our April 2017 report, we recommended that VA address identified limitations to the SCIP process, including limitations to scoring and approval, and access to information. VA concurred with the recommendation to the extent the limitations were within its control. While VA has taken some actions, the recommendation remains open. The VAIP process produces a market-level health services delivery plan for each Veterans Integrated Service Network (VISN) and a facility master plan for each medical facility. VA has estimated the entire process to create plans for VISNs and facilities to cost $108 million when fully complete. However, the VAIP process’s facility master plans assume all future growth in services will be provided directly through VA facilities. This assumption is not accurate given that (1) VA obligated about $10.1 billion to purchase care from non-VA providers in fiscal year 2015 and (2) VA can provide care directly through its medical facilities or purchase health care services from non-VA providers through both the Non-VA Medical Care Program (referred to as “care in the community” by VA) and clinical contracts. The Office of Management and Budget’s acquisition guidance notes that investments in major capital assets should be made only if no alternative private sector source can support the function at a lower cost. In our April 2017 report, we recommended that VA assess the value of the VAIP’s facility master plans as a facility-planning tool, and based on conclusions from the review, to either (1) discontinue the development of VAIP’s facility master plans or (2) address the limitations of VAIP’s facility master plans. VA concurred with the recommendation, and in August 2017, VA noted that it has discontinued its VAIP facility master plans while VA pursues a national realignment strategy, after which it plans to adjust its future facility master plans to incorporate pertinent information, including care in the community realignment opportunities. As Congress evaluates proposed legislation for disposing of or realigning VA property, it may wish to consider seven elements DOD relied on as it developed its recommendations for the BRAC Commission. Establish goals for the process. The Secretary of Defense emphasized the importance of transforming the military to make it more efficient as part of the 2005 BRAC round. Other goals for the 2005 BRAC process included fostering jointness among the four military services, reducing excess infrastructure, and producing savings. Prior rounds focused more on reducing excess infrastructure and producing savings. Develop criteria for evaluating closures and realignments. DOD proposed selection criteria, which were made available for public comment via the Federal Register. Ultimately, Congress enacted the final BRAC selection criteria in law with minor modification and specified that four selection criteria, known as the “military value criteria,” were to be given priority in developing closure and realignment recommendations. Further, Congress required that the Secretary of Defense develop and submit to Congress a force structure plan that described the estimated size of major military units needed to address probable threats to national security for the 20- year period beginning in 2005, along with a comprehensive inventory of global military installations. In authorizing the 2005 BRAC round, Congress specified that the Secretary of Defense publish a list of recommendations for the closure and realignment of military installations inside the United States based on the statutorily-required 20-year force structure plan and infrastructure inventory, and on the final selection criteria. Estimate costs and savings to implement closure and realignment recommendations. To address the cost and savings criteria, DOD developed and used the Cost of Base Realignment Actions (COBRA) model, a quantitative tool that DOD has used since the 1988 BRAC round to provide consistency in potential cost, savings, and return-on-investment estimates for closure and realignment options. We found the COBRA model to be a generally reasonable estimator for comparing potential costs and savings among alternatives. (See fig. 3.) As with any model, the quality of the output from COBRA was a direct function of the data DOD included in the model. Also, DOD’s COBRA model relied to a large extent on standard factors and averages and did not represent budget quality estimates that were developed once BRAC decisions were made and detailed implementation plans were developed. Nonetheless, the financial information provided important input into the selection process as decision makers weighed the financial implications—along with military value criteria and other considerations—in arriving at final decisions about the suitability of various closure and realignment options. Establish an organizational structure. The Office of the Secretary of Defense emphasized the need for joint cross-service groups to analyze common business-oriented functions. For the 2005 BRAC round, as for the 1993 and 1995 rounds, these joint cross-service groups performed analyses and developed closure and realignment options in addition to those developed by the military departments. Our evaluation of DOD’s 1995 BRAC round found that few cross- service recommendations were made, in part because of the lack of high-level leadership to encourage consolidations across the departments’ functions. In the 1995 BRAC round, the joint cross- service groups submitted options through the military services for approval, but few were approved. The number of approved recommendations that the joint cross-service groups developed significantly increased in the 2005 BRAC round. This increase was, in part, because high-level leadership ensured that the options were approved not by the military departments but rather by a DOD senior- level group, known as the Infrastructure Steering Group. As shown in figure 4, the Infrastructure Steering Group was placed organizationally on par with the military departments. Establish a common analytical framework. To ensure that the selection criteria were consistently applied, the Office of the Secretary of Defense, the military departments, and the seven joint cross- service groups first performed a capacity analysis of facilities and functions. Before developing the candidate recommendations, DOD’s capacity analysis relied on data calls to hundreds of locations to obtain certified data to assess such factors as maximum potential capacity, current capacity, current usage, and excess capacity. Then, the military departments and joint cross-service groups performed a military value analysis for the facilities and functions based on primary military value criteria, which included a facility’s or function’s current and future mission capabilities, physical condition, ability to accommodate future needs, and cost of operations. Develop BRAC oversight mechanisms to improve accountability for implementation. In the 2005 BRAC round, the Office of the Secretary of Defense for the first time required the military departments to develop business plans to better inform the Office of the Secretary of Defense of the status of implementation and financial details for each of the BRAC 2005 recommendations. These business plans included: (1) information such as a listing of all actions needed to implement each recommendation; (2) schedules for personnel relocations between installations; and (3) updated cost and savings estimates by DOD based on current information. This approach permitted senior-level intervention if warranted to ensure completion of the BRAC recommendations by the statutory completion date. Involve the audit community to better ensure data accuracy. The DOD Inspector General and military department audit agencies played key roles in identifying data limitations, pointing out needed corrections, and improving the accuracy of the data used in the process. In their oversight roles, the audit organizations, which had access to relevant information and officials as the process evolved, helped to improve the accuracy of the data used in the BRAC process and thus strengthened the quality and integrity of the data used to develop closure and realignment recommendations. For example, the auditors worked to ensure certified information was used for BRAC analysis and reviewed other facets of the process, including the various internal control plans, the COBRA model, and other modeling and analytical tools that were used in the development of recommendations. We identified two key challenges that affected DOD’s implementation of BRAC 2005 and would need to be addressed for VA to adopt a BRAC- like process for its asset and infrastructure review. Some transformational-type BRAC recommendations required sustained senior leadership attention and a high level of coordination among many stakeholders to complete by the required date. Implementation of some transformational BRAC recommendations—especially those where a multitude of organizations had roles to play to ensure the achievement of the goals of the recommendation—illustrated the need to involve key stakeholders and effective planning. For example, the Defense Logistics Agency committed sustained high-level leadership and included relevant stakeholders to address implementation challenges faced with the potential for disruptions to depot operations during implementation of the BRAC consolidation recommendation. To implement the BRAC recommendations, the agency had to develop strategic agreements with the services that ensured that all stakeholders agreed on its plans for implementation, and had to address certain human capital and information technology challenges. Large number of actions and interdependent recommendations complicated the implementation process. The large number and variety of BRAC actions presented challenges during implementation. The BRAC 2005 round had more individual actions (813) than the four prior rounds combined (387). The executive staff of the Commission told us that it was more difficult to assess the costs and the amount of time for the savings to offset the implementation costs since many of the recommendations contained multiple interdependent actions, all of which needed to be reviewed. Specifically, many of the BRAC 2005 recommendations were interdependent and had to be completed in a sequential fashion within the statutory implementation period. In cases where interdependent recommendations required multiple relocations of large numbers of personnel, delays in completing one BRAC recommendation had a cascading effect on the implementation of other recommendations. Specifically, DOD had to synchronize the relocations of over 123,000 people with about $24.7 billion in new construction or renovation. Commission officials told us that in prior BRAC rounds each base was handled by a single integrated recommendation. However, in BRAC 2005, many installations were simultaneously affected by multiple interconnected BRAC recommendations. Given the complexity of interdependent recommendations, the Office of the Secretary of Defense required the military departments and defense agencies to provide periodic updates on implementation challenges and progress. Chairman Roe, Ranking Member Walz, and Members of the Committee, this concludes our prepared statement. We are happy to answer any questions related to our work on VA’s efforts to align its medical facilities and services or on DOD’s BRAC process. If you or your staff members have any questions concerning this testimony, please contact David Wise at (202) 512-2834 or wised@gao.gov regarding federal real property, or Brian Lepore at (202) 512-4523 or leporeb@gao.gov regarding the BRAC process. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals who made key contributions to this testimony include Keith Cunningham, Assistant Director; Gina Hoffman, Assistant Director; Tracy Barnes; Jeff Mayhew; Kevin Newak; Richard Powelson; Malika Rice; Jodie Sandel; Eric Schwab; Amelia M. Weathers; and Crystal Wesco. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "VA operates one of the largest health care systems in the United States, utilizing more than 6,000 federally owned and 1,500 leased buildings. DOD has repeatedly applied the BRAC process to reduce the amount of unneeded property that it owns and leases and to save billions of dollars that could be applied to higher priority defense needs. This statement is based on GAO's April 2017 report related to VA facility alignment ( GAO-17-349 ) and numerous GAO reports related to the BRAC process as summarized in a June 2011 testimony ( GAO-11-704T ) and a March 2012 testimony ( GAO-12-513T ). This statement addresses (1) the factors that affect VA's facility alignment and the extent to which VA's capital-planning process facilitates the alignment of facilities with the veterans' population, and (2) the key elements and challenges affecting DOD and the Commission in BRAC 2005. Detailed information on our scope and methodologies for this work can be found in these published products, cited throughout this testimony. Geographic shifts in the veterans' population, changes in health care delivery, aging infrastructure, and limited stakeholder involvement affect the Department of Veterans Affairs' (VA) efforts to align its services and real property portfolio to meet the needs of veterans. For example, a shift over time from inpatient to outpatient care will likely result in underutilized space once used for inpatient care. Further, the historic status of some VA facilities adds to the complexity of converting or disposing of them. In such instances, it is often difficult and costly for VA to modernize, renovate, and retrofit these older facilities. GAO reported that two of the planning processes VA uses to align its facilities—VA's Strategic Capital Investment Planning (SCIP) and the VA Integrated Planning (VAIP)—have limitations that undermine VA's efforts to achieve its goals. Specifically: VA relies on the SCIP process to plan and prioritize capital projects, but VA routinely asks its facility planners to submit their next year's planned project narratives before knowing if their previous submissions have been funded. The overlapping budget cycle, which is outside of VA's control, combined with other SCIP limitations—including subjective narratives, long time frames, and restricted access to information—make it difficult for VA to rely on SCIP to accurately identify the capital necessary to address its service and infrastructure gaps. VA concurred that it needs to address SCIP limitations that are within its control, as GAO recommended; VA has made some progress in implementing the recommendation has made some progress in implementing the recommendation.\\ The VAIP process is estimated to cost $108 million and to produce market-level service delivery plans and facility master plans. However, the VAIP master plans incorrectly assume that all future growth in services will be provided directly through VA facilities without considering alternatives, such as purchasing care from the community. GAO recommended that VA consider discontinuing the VAIP facility master plans pending an assessment of their value as a facility-planning tool. VA agreed with the recommendation and is implementing it while pursuing a national realignment strategy.. Key elements of the Department of Defense's (DOD) 2005 Base Realignment and Closure (BRAC) process could benefit VA's asset and infrastructure review. The key elements included: (1) establishing goals for the process, (2) developing criteria for evaluating closures and realignments, and (3) establishing an organizational structure to develop closure and realignment options. GAO identified key challenges that affected DOD's implementation of BRAC 2005 and the results achieved; these challenges would need to be addressed if VA is to successfully apply the process. These challenges included: (1) large, complex recommendations required sustained senior leadership's attention and a high level of coordination among many stakeholders, and (2) the large number of actions that depend on each other for successful implementation. In the April 2017 report, GAO made recommendations related to capital planning and stakeholder involvement. VA concurred with the recommendations to the extent that they were within its control and has started making improvements." ]	2,561	gov_report	en	null	174556232f2d7bf5ab477491480b96a74d365e7497069e2a
Since DHS’s creation in 2003, significant internal control and financial management system deficiencies have hampered its ability to reasonably assure effective financial management and to manage operations. These deficiencies contributed to our decision to designate DHS’s management functions, including financial management, as high risk. To help address these deficiencies, DHS initiated a decentralized approach to upgrade or replace legacy financial management systems and has been evaluating various options for modernizing them, including the use of SSPs. DHS initiated three projects for modernizing the systems of selected DHS components, including its TRIO modernization project. The TRIO project has focused on migrating the financial management systems of Coast Guard, DNDO, and TSA to a modernized solution provided by IBC. DHS’s efforts to effectively assess and manage risks associated with this project are essential to DHS’s realizing its modernization goals. In 2013, OMB issued a memorandum directing agencies to consider federal SSPs as part of their AAs. Also, in May 2014, Treasury and OMB designated IBC as one of four federal SSPs for financial management to provide core accounting and other services to federal agencies. This designation was based on Treasury and OMB’s evaluation of the four service providers’ ability to assist federal agencies in meeting their accounting and financial management needs, including experience with implementing financial management systems and providing other financial management services to customers, cost of services provided, compliance with financial management and internal control requirements, commitment to shared services, capacity, and long-term growth strategy. FIT’s responsibilities related to the governance and oversight of federal SSPs were subsequently transferred to USSM after USSM was established in October 2015. Because of concerns that its Core Accounting System (CAS) Suite was outdated, inefficient, and did not reliably meet requirements, Coast Guard completed an AA in January 2012 to assist in developing a path forward for modernizing its financial management system. In August 2012, Coast Guard established its CAS Replacement project team to further evaluate two of the alternatives considered in its AA and develop a recommended course of action. In addition, Coast Guard determined that hosting, owning, operating, and managing a financial management system were not among its core competencies. Because TSA and DNDO also relied on CAS as their primary accounting system, they also conducted AAs to identify the best alternative for transitioning to a modernized financial management system solution. The AAs conducted by the TRIO components during 2012 and 2013 considered the use of federal and commercial SSPs and other options. In addition, Coast Guard completed additional market research including further analysis of commercial SSPs in June 2013. In July 2013, the TRIO components determined that migrating to a federal SSP was the best course of action and subsequently conducted discovery phase efforts with IBC from November 2013 through May 2014 to further explore the functional requirements for procurement, asset, and financial management services. Based on these efforts, in July 2014, the TRIO components recommended that they proceed with implementation of the IBC shared services solution. In August 2014, FIT and OMB concurred with this recommendation, and DHS entered into an interagency agreement (IAA) with IBC for implementation. Figure 1 shows a timeline of these key events. The IAA for implementation and related performance work statement included a description of the services that IBC is to provide and the roles and responsibilities of DHS, the TRIO components, and IBC. The IAA also required IBC to prepare a detailed project management plan describing how the requirements would be managed and updated and an integrated master schedule (IMS) for identifying tasks to be completed, duration, percentage completed, dependencies, critical path, and milestones. According to the February 2015 project management plan, DNDO, TSA, and Coast Guard were expected to go-live on the IBC solution in the first quarter of fiscal years 2016, 2017, and 2018, respectively. However, in May 2016, DHS and IBC determined that TSA’s and Coast Guard’s planned implementation dates were not viable because of various challenges impacting the TRIO project and recommended a 1-year delay for their respective implementation dates. Figure 2 summarizes planned and completed key implementation events for the TRIO project as of May 2016. GAO, SEI, and other entities have developed and identified best practices to help guide organizations in effectively planning and managing various activities, including acquisitions of major information technology systems. These include GAO’s identified best practices for the AOA process and best practices identified by SEI for risk management. GAO-identified best practices for AOA process. GAO identified 22 best practices for a reliable, high-quality AOA process that can be applied to a wide range of activities in which an alternative must be selected from a set of possible options, as well as to a broad range of capability areas, projects, and programs. These practices can provide a framework to help ensure that entities consistently and reliably select the project alternative that best meets mission needs. Not conforming to these best practices may lead to an unreliable process, and the entity will lack assurance that the preferred alternative best meets the mission needs. Appendix II provides additional details on GAO’s identified AOA process best practices and how they can be applied to a wide range of activities in which an alternative must be selected from a set of possible options, as well as to a broad range of capability areas, projects, and programs. SEI’s risk management practices. SEI’s practices for the risk management process area call for the identification of potential problems before they occur so that risk-handling activities can be planned throughout the life of a project to mitigate adverse impacts on achieving objectives. These practices are determining risk sources and categories, defining parameters used to analyze and categorize risks and to control the risk management effort, establishing and maintaining the strategy to be used for risk identifying and documenting risks, evaluating and categorizing each identified risk using defined risk categories and parameters and determining its relative priority, developing a risk mitigation plan in accordance with the risk monitoring the status of each risk periodically and implementing the risk mitigation plan as appropriate. Although the TRIO components conducted AAs to identify the preferred alternative for modernizing their financial management systems, their efforts did not always follow best practices. For example, Coast Guard’s and TSA’s AAs supporting their selection of migrating to a federal SSP for modernizing their financial management systems did not fully or substantially meet all four characteristics of a reliable, high-quality AOA process. In addition, we found that DHS guidance did not fully or substantially incorporate five of GAO’s identified best practices for conducting an AOA process. The TRIO components’ AAs included descriptions of the key factors, such as scores for each alternative against the selection criteria used to assess it. Based on these AAs, DHS and the TRIO components selected the federal SSP alternative as their preferred choice and subsequently selected IBC as their federal SSP. However, because Coast Guard’s and TSA’s AAs did not fully or substantially meet all four characteristics of a reliable, high-quality AOA process, they are at increased risk regarding their decision on the solution that represents the best alternative for meeting their mission needs. Based on the extent to which the DHS TRIO components followed the GAO-identified 22 best practices for conducting an AOA process, we found that DNDO’s AA process substantially met the four characteristics of a reliable, high-quality AOA process while the Coast Guard and TSA AA processes both substantially met one and partially met three of these four characteristics. For example, we found that TSA’s AA partially met the “well-documented” characteristic, in part, because risk mitigation strategies, assumptions, and constraints associated with each alternative were not discussed in its AA. In addition, we found that Coast Guard’s AA partially met the “credible” characteristic, in part, because there was no indication that it contained sensitivity analyses, an evaluation of the impact of changing assumptions on its overall costs or benefits analyses. Our overall assessment is summarized in table 1. Appendix III provides additional details on our assessment of the TRIO components’ AAs for each of the GAO-identified 22 AOA best practices. Further, in comparing DHS AOA and AA guidance to the GAO-identified 22 AOA process best practices, we found that although DHS’s guidance for conducting both AOAs and AAs fully or substantially incorporated 17 of the identified best practices, the guidance did not fully or substantially incorporate 5 of these practices. For example, although the guidance addressed risk management in general terms, it did not detail the need to document risk mitigation strategies for each alternative. Not documenting the risks and related mitigation strategies for each alternative prevents decision makers from performing a meaningful trade-off analysis necessary to choose a recommended alternative. In addition, while DHS guidance describes the need for an AA or AOA review, it describes reviews conducted within the organizational chain of command and does not address the need for an independent review—one of the most reliable means to validate an AOA process. Further, although the guidance noted that weights for selection criteria may become more subjective when they cannot be derived analytically, additional guidance on weighting selection criteria was limited. Our overall assessment is summarized in table 2. Because of these limitations in guidance, and because Coast Guard and TSA did not fully adhere to the GAO-identified best practices, Coast Guard’s and TSA’s AAs did not fully or substantially reflect all four characteristics of a reliable, high-quality AOA process. As a result, Coast Guard and TSA increased their risk of selecting a solution that may not represent the best alternative for meeting their mission needs. Documentation supporting TRIO components’ AA efforts included descriptions of the key factors, metrics, and processes involved in conducting their analyses, including the (1) alternatives considered, (2) market research conducted, (3) three alternatives evaluated, (4) selection criteria used by each and how the criteria were weighted, (5) scores for each alternative against the selection criteria, and (6) alternatives that scored the best under the AOA evaluation. The TRIO components conducted market research to develop reasonable alternative solutions for consideration. For example, through its market research, TSA identified OMB-designated federal SSPs and commercial entities as potential alternatives for hosting and implementing a modernized and integrated financial management system. According to its AA, TSA was able to gain an understanding of the offerings, capabilities, and related costs associated with these alternatives through reviews of documentation and interviews. After developing a diverse range of financial system modernization alternatives for consideration, each of the TRIO components assessed them for viability using various factors—such as measures of effectiveness, cost, risk, and value—and identified the three top-rated alternatives for further evaluation. For example, Coast Guard identified nine alternatives for consideration and analyzed, scored, and ranked them to determine its top three alternatives for further analysis: incrementally improve the current CAS Suite and remove certain outdated components, host the financial management system internally using software and tools already owned, and use an SSP to host the financial management system. Each component identified its three alternatives for further evaluation and used defined selection criteria to rate them. For example, DNDO’s selection criteria included four categories of operational effectiveness that were weighted according to their level of importance. Based on their evaluations, each component identified the best alternative for its respective financial management system needs. According to Coast Guard’s November 2012 decision memorandum, Coast Guard further narrowed the alternatives it focused on to (1) using an SSP to host its financial management system and (2) hosting the system internally using already-owned software and tools, and it also gathered rough order of magnitude cost estimates for both alternatives. Based on its evaluation, Coast Guard determined that the two alternatives were comparable. According to this memorandum, Coast Guard further determined that owning, hosting, operating, and managing a financial management system were not among its core competencies. Based on this determination, OMB direction to agencies to use (with limited exceptions) shared services, and other factors, Coast Guard decided that migrating to an SSP was the best alternative. TSA found in its February 2013 analysis that the differences between federal and commercial SSP alternatives were not significant and, as a result, recommended that a competitive procurement be conducted to better evaluate each alternative. However, DHS officials told us that TSA subsequently determined that a competitive procurement was not warranted and chose to migrate to a federal SSP. This determination was based on additional OMB guidance issued in March 2013 directing agencies to consider federal SSPs as part of their AAs and stating that commercial SSPs are an appropriate solution and would be funded by OMB only in instances in which the agency’s business case demonstrates that a commercial SSP can provide a better value for the federal government. In addition, DNDO determined that migrating to a federal SSP was its best alternative in May 2013. Because its preliminary research focused primarily on the federal SSP marketplace, Coast Guard conducted additional market research to include a more robust analysis of commercial SSPs. Coast Guard’s June 2013 market research report described the results of this effort, including its evaluation of responses from 11 commercial SSPs. Coast Guard reported that none of the commercial SSPs that responded could meet all 44 specific financial management system requirements and the extent to which they could meet them varied significantly. Based on these results, Coast Guard determined that there was a lack of maturity in the commercial SSP market for federal financial management. According to the report, this overall assessment was based on various considerations of information provided by commercial SSP respondents, including the wide variety of proposed configurations, solutions, prices, and implementation schedules, the lack of federal experience and service for agency-wide capabilities, and insufficient length of service to establish positive trends in audit performance; the lack of similar offerings that implied a lack of strong competition between comparable products that would exert downward pressure on cost; and the lack of like product offerings, which increases the likelihood of higher switching costs in the case of poor performance because of increased difficulty in moving from one “turnkey” service to another. In July 2013, the TRIO components and DHS selected the federal SSP alternative as their preferred choice and subsequently selected IBC as their federal SSP. DHS officials told us that IBC was selected based on (1) DHS’s reliance on OMB and Treasury’s designation of IBC as a federal SSP, (2) OMB guidance to consider the use of federal SSPs, and (3) a review of the availability of the four federal SSPs indicating that IBC was the only one available to meet the requirements and implementation schedule at that time. In August 2013, DHS notified OMB that the TRIO components had performed extensive market research and finalized their respective AAs and independently concluded that migrating to a federal SSP was in the best interests of the government. Also, in August 2013, FIT notified OMB regarding the TRIO components’ AA efforts and that the TRIO components would proceed to the discovery phase with IBC. According to FIT’s notification memorandum to OMB, the TRIO components’ AAs demonstrated that migrating to a federal SSP was the best value to the federal government and that the components identified IBC as a suitable partner based on the results of their market research into federal SSPs. Risk management best practices call for the identification of potential problems before they occur so that risk-handling activities can be planned throughout the life of the project to mitigate adverse impacts on achieving objectives. These best practices involve (1) preparing for risk management, (2) identifying and analyzing risks, and (3) mitigating identified risks. Preparing for risk management involves determining risk sources and categories and developing risk mitigation techniques. Identifying and analyzing risks includes determining those that are associated with cost, schedule, and performance and evaluating identified risks using defined risk parameters. Mitigating risks includes determining the levels and thresholds at which a risk becomes unacceptable and triggers the execution of a risk mitigation plan or contingency plan; determining the costs and benefits of implementing the risk mitigation plan for each risk; monitoring risk status; and providing a method for tracking open risk-handling action items to closure. Based on our evaluation, we found that DHS processes generally reflected three of seven specific risk management best practices and partially reflected the remaining four practices. Table 3 summarizes the extent to which DHS followed these seven best practices for managing TRIO project risks. Additional details on DHS and TRIO component efforts to address these practices are summarized following this table. Prepare for risk management. Key aspects of processes established by DHS and TRIO components related to the three best practices associated with preparing for risk management: Determine risk sources and categories. This practice calls for a basis for systematically examining circumstances that affect the ability of the project to meet its objective and a mechanism for collecting and organizing risks. DHS and the TRIO components established processes that met this best practice. For example, DHS reviewed the integrated master schedule that IBC prepared to identify sources of risk and defined risk categories in TRIO project policies. Define risk parameters. Risk parameters are used to provide common and consistent criteria for comparing risks to be managed. The best practice includes defining criteria for evaluating and quantifying risk likelihood and severity levels and defining thresholds for each risk category to determine whether risk is acceptable or unacceptable and to trigger management action. DHS partially met this best practice. DHS’s risk management program defined rating scales to provide consistent criteria for evaluating and quantifying risk likelihood and severity levels. However, DHS’s Risk Management Planning Handbook and related template for developing risk management plans for projects did not address the need for thresholds relevant to each category of risk to facilitate review of performance metrics in order to determine when risks become unacceptable or to invoke selected risk-handling options when monitored risks exceed defined thresholds. Establish a risk management strategy. A risk management strategy addresses specific actions and the management approach used to apply and control the risk management program, including identifying sources of risk, the scheme used to categorize risks, and parameters used to evaluate and control risks for effective handling. DHS met this best practice. DHS and IBC established risk management policies and plans for the TRIO project based on DHS acquisition guidance, which provided a framework for a risk management program. Collectively, these policies and plans constitute a risk management strategy. DHS and IBC have periodically updated these documents to maintain the scope of the risk management effort; the methods and tools to be used for risk identification, risk analysis, risk mitigation, risk monitoring, and communication; the prioritization of risks; and the allocation of resources for risk mitigation. Identify and analyze risks. Key aspects of processes established by DHS and the TRIO components related to the two best practices associated with identifying and analyzing risks: Identify risks. Risk identification should be an organized, thorough process to seek out probable or realistic risks to achieving objectives. This practice recognizes that risks should be identified and described understandably before they can be analyzed and managed properly. Using categories and parameters developed in the risk management strategy and identified sources of risk guides the identification of risks associated with cost, schedule, and performance. To identify risks, best practice elements include reviewing the work breakdown structure (WBS) and project plan to help ensure that all aspects of the work have been considered. Best practices for documenting risks include documenting the context, conditions, and potential consequences of each risk and identifying the relevant stakeholders associated with each risk. DHS partially met this best practice. DHS’s July 2016 risk register contained a wide range of risks associated with defined risk categories. It also reflected DHS’s review of the TRIO project’s integrated master schedule that IBC prepared based on the WBS and work plans that IBC also developed. The risk register documented the context, conditions, potential consequences, and relevant stakeholders associated with each risk. However, DHS’s documented risk management processes did not identify all significant risks or reflect its efforts to revisit risks that had previously been closed. For example, DHS officials told us that IBC was unable to provide sufficient, reliable cost and schedule information for project monitoring; however, a risk reflecting these concerns was not included on its July 2016 risk register. Further, the risk register included certain closed risks related to the need for a governance structure and strategy for ensuring that IBC met performance, cost, and schedule objectives. Although DHS had ongoing concerns about its ability to ensure that IBC met these objectives, the risk register did not reflect efforts to revisit these risks to determine whether their status needed revision or if other risks should be included on the risk register to address its accountability concerns. In addition, DHS did not always take timely action to document its consideration of risks identified by its independent verification and validation (IV&V) contractor for potential inclusion on its risk register. For example, the IV&V contractor identified a risk related to inefficiencies in DHS’s document review process in June 2015 that was not included on DHS’s risk register until February 2016. DHS officials indicated that a crosswalk between the DHS risk register and IV&V contractor risk management observations was performed weekly; however, results of these weekly reviews were not documented. Evaluate, categorize, and prioritize risks. Risk assessment uses defined categories and parameters to determine the priority of each risk to assist in determining when appropriate management attention is required. Best practices for analyzing risks include categorizing risks according to defined risk categories, evaluating identified risks using defined risk parameters, and prioritizing risks for mitigation. DHS’s processes met this practice. For example, the documented risk management program included application of defined risk categories and parameters for all identified risks, providing a means for reviewing risks and determining the likelihood and severity of risks being realized. The TRIO project’s Joint Risk Management Integrated Project Team provided consistency to the application of parameters by reviewing risk assessments when risks were first identified. By determining exposure ratings for each identified risk, DHS prioritized risks for monitoring and allocation of resources for risk mitigation. Mitigate risks. Key aspects of processes established by DHS and the TRIO components related to the two best practices associated with mitigating risks: Develop risk mitigation plans. Risk mitigation plans are developed in accordance with the risk management strategy and include a recommended course of action for each critical risk. The risk mitigation plan for a given risk includes techniques and methods used to avoid, reduce, and control the probability of risk occurrence; the extent of damage incurred should the risk occur; or both. Elements of this practice include determining the levels and thresholds that define when a risk becomes unacceptable and triggers the execution of a risk mitigation plan or contingency plan, identifying the person or group responsible for addressing each risk, determining the costs and benefits of implementing the risk mitigation plan for each risk, developing an overall risk mitigation plan for the work to orchestrate the implementation of individual risk mitigation plans, and developing contingency plans for selected critical risks in the event impacts associated with the risks are realized. DHS partially met this best practice. DHS’s risk management program documentation reflected the development of risk response plans for most risks, including all those determined to be of medium and high exposure level. DHS identified those responsible for addressing each risk. However, DHS and IBC did not always develop sufficiently detailed risk mitigation plans including specific risk-handling action items, determination of the costs and benefits of implementing the risk mitigation plan for each risk, and developing contingency plans for selected critical risks in the event that their impacts are realized. For example, a risk associated with IBC’s capacity and experience for migrating large agencies the size of Coast Guard and TSA was identified in July 2014. Although DHS developed plans to help mitigate this risk, a contingency plan was not developed prior to realizing the adverse impact of not implementing Coast Guard and TSA on IBC’s modernized solution. Rather, a contingency plan working group (CPWG) to address this and other concerns was established in January 2017, over 2 years after the risk was initially identified. Further, thresholds were not used within the risk management program to define when a risk becomes unacceptable, triggering the execution of a risk mitigation plan or contingency plan. Implement risk mitigation plans. Risk mitigation plans are implemented to facilitate a proactive program to regularly monitor risks and the status and results of risk-handling actions to effectively control and manage risks during the work effort. Best practice elements include revisiting and reevaluating risk status at regular intervals to support the discovery of new risks or new risk-handling options that can require reassessment of risks and re-planning of risk mitigation efforts. Elements also include providing a method for tracking open risk-handling action items to closure, establishing a schedule or period of performance for each risk-handling activity, invoking selected risk-handling options when monitored risks exceed defined thresholds, and providing a continued commitment of resources for each risk mitigation plan. DHS partially met this best practice. Risk monitoring of the TRIO project consisted of reviews performed by DHS and TRIO component officials responsible for risk management and oversight functions. These reviews considered significant risks, risks approaching realization events, and the effect of management intervention on the resolution of risks. These reviews also relied, in part, on data contained in DHS’s risk register, which represents the official repository of TRIO project risks and information on the status of risks and related risk mitigation efforts. However, other aspects of DHS’s efforts to implement risk mitigation plans did not fully adhere to certain elements associated with this best practice. For example, we identified certain issues that raised questions concerning the accuracy of data contained in the risk register, such as (1) the lack of clear markings indicating when the accuracy of data on each risk was last confirmed, including risk records that had not been modified in the previous 3 months, and (2) certain risks for which the estimated risk impact date had already occurred but its status risk according to DHS’s risk register did not reflect that it had been realized and become an issue. In addition, DHS officials stated that IBC did not provide sufficiently detailed, reliable cost and schedule information that could have been used to monitor TRIO project risks more effectively. DHS’s ability to monitor cost, schedule, and other performance metrics was also limited because of the lack of thresholds for management involvement, as noted above. DHS’s implementation of risk monitoring plans was further limited by other issues, including (1) a period of performance for each risk-handling activity, which includes a start date and anticipated completion date to control and monitor risk mitigation efforts, was not always established and (2) an inability to fully track open risk-handling action items to closure existed because of the lack of sufficient detail on specific risk-handling activities in the DHS risk register. According to DHS officials, DHS relied heavily on IBC to manage risks associated with the TRIO project and, in particular, those for which IBC was assigned as the risk owner. They also acknowledged DHS’s responsibility for overseeing IBC’s TRIO project risk management efforts and described various actions taken to address growing concerns regarding IBC’s efforts. For example, DHS created the Joint Risk Management Integrated Project Team, in part, to provide a forum in which IBC could obtain assistance in developing risk responses and discuss DHS’s risk mitigation concerns. Further, to help reduce exposure of underlying risks, DHS offered assistance to IBC’s project management functions, such as developing the integrated master schedule and performing quality control checks on project deliverables. Despite these efforts, DHS officials stated that challenges associated with the IAA structure and terms of the performance work statement with IBC on the TRIO project limited DHS’s visibility into IBC’s overall cost, schedule, and performance controls and ability to oversee IBC’s risk management efforts. For example, they stated that the performance work statement did not specify the level of reporting to be provided by IBC on cost, schedule, and performance in sufficient detail to effectively monitor progress on achieving key project objectives. Further, the limitations to managing risks related to the best practices we assessed as partially met were largely attributable to limitations in DHS and TRIO project guidance and policies. For example, DHS’s Risk Management Planning Handbook and related template for developing risk management plans for projects does not address the need to define thresholds to facilitate review of performance metrics to determine when risks become unacceptable. Also, TRIO project policies did not address the need to periodically revisit consideration of risk sources other than IMS-related milestones, specify periods of performance for specific risk- handling activities, or define an interval for updating and certifying risk statuses. In addition, DHS guidance and TRIO project policies did not describe the need to consider and document risks specifically related to the lack of sufficient, reliable cost and schedule information to properly manage and oversee the project or for timely disposition of risks that its IV&V contractor identified. Further, TRIO project risk management policies and management tools used to implement them address best practice elements such as determination of the costs and benefits of implementing risk mitigation plans, developing contingency plans, and developing specific risk-handling action items. However, these policies do not require, and the risk register was not designed to specifically capture, these elements in documented risk mitigation plans. By not adopting important elements of risk management best practices into project guidance, DHS and the TRIO components increase the risk that potential problems would not be identified before they occur and that activities to mitigate adverse impacts would not be effectively planned and initiated. Although DHS has taken various actions to manage the risks of using IBC for the TRIO project, including some that were consistent with best practices, the TRIO project has experienced challenges raising concerns regarding the extent to which its objectives will be achieved. In connection with these challenges, the TRIO components notified DHS during April 2016 through January 2017 that certain baseline cost and schedule objectives had not been, or were projected to not be, achieved as planned. According to these notifications and DHS officials we interviewed, several key factors and challenges significantly impacted DHS’s and IBC’s ability to achieve TRIO project objectives as intended. In addition, IBC, FIT, and USSM officials identified similar issues impacting the TRIO project. In connection with these challenges, DHS and IBC began contingency planning efforts in January 2017 to identify and assess viable options for improving program performance and addressing key TRIO project priorities. Plans for DHS’s path forward on the TRIO project, as of May 2017, involve significant changes, such as transitioning away from using IBC and a 2-year delay in completing Coast Guard and TSA’s migration to a modernized solution. We grouped the key factors and challenges impacting the TRIO project that DHS, IBC, FIT, and USSM officials and OMB staff identified into five broad categories: (1) project resources, (2) project schedule, (3) complex requirements, (4) project costs, and (5) project management and communications. The key factors and challenges related to each category are summarized below. Project resources: Concerns about IBC’s experience and its capacity to handle a modernization project involving agencies the size of Coast Guard and TSA were identified as significant risks in July 2014, resulting from discovery phase efforts completed prior to DHS and IBC’s entering the implementation phase in August 2014. According to DHS officials, status reports, and other documentation, key TRIO project challenges related to resources included concerns that (1) IBC encountered federal employee hiring challenges and was unable to ramp up and deploy the resources necessary to meet required deliverables, and (2) IBC experienced significant turnover of key stakeholders which adversely impacted its ability to achieve TRIO project objectives. In connection with DHS’s decision to use IBC for the TRIO project, DHS officials told us that DHS relied heavily on OMB and Treasury’s designation of IBC as a federal SSP and their related assessment of IBC’s capacity and experience. DHS officials also told us that DHS relied on FIT’s federal agency migration evaluation model during discovery phase efforts that focused on assessing the functionality of the software rather than assessing IBC’s (1) capacity, experience, and capability; (2) ability to address more complex software configurations and interfaces associated with large agencies; and (3) cost, schedule, and performance metrics. DHS officials stated that issues related to IBC’s capacity and experience represented the most significant challenge impacting the TRIO project. IBC officials acknowledged that IBC was unable to ramp up its resources until after the project had begun and that the IBC project team experienced significant turnover in key leadership and TRIO project positions over the course of the project. IBC officials also acknowledged that during its early efforts on the TRIO project, assigned IBC staff lacked the experience and expertise necessary for managing large-scale projects and, as a result, many of the risks initially identified were not effectively addressed. FIT and USSM officials and OMB staff also acknowledged that resource challenges significantly impacted the TRIO project. A FIT official acknowledged that assessing software functionality, rather than implementation, was emphasized during the discovery process. Although DHS relied on OMB and Treasury’s designation of IBC as a federal SSP, this FIT official also told us that because agencies’ specific needs can vary significantly, agencies are responsible for conducting sufficient due diligence to assess a federal SSP’s ability to meet their requirements. Project schedule: DHS, IBC, FIT, and USSM officials acknowledged that migrating the TRIO components to IBC within original time frames was a significant challenge given the overall magnitude and complexity of the TRIO project. According to DHS officials and TRIO project documentation, DHS identified delays in completing various tasks and milestones including providing design phase technical documentation and design processing proposed change requests; meeting proposed baseline schedules for implementing Coast Guard and TSA on the modernized IBC solution; and achieving initial operating capability requirements and stabilizing the production environment after DNDO’s migration to IBC because of various issues related to reporting, invoice payment processing, contract management processes, and resolving help desk tickets in a timely manner. DHS officials also stated that IBC did not consistently update the IMS to ensure that it accurately reflected all required tasks, the completion status, and the resources required to complete them. Concerns related to meeting milestones and updating the IMS were discussed during periodic status update meetings that included DHS, IBC, OMB, FIT, and USSM officials. IBC and DHS officials acknowledged that processes for communicating and resolving issues were not always efficient and contributed to schedule delays. In addition, in November 2016, USSM noted several concerns based on its review of a draft IMS supporting TSA’s re-planning efforts to go-live in October 2017. USSM’s concerns included an incomplete project scope and schedule and need for additional discovery to determine cost and level of effort, an extremely aggressive schedule with very limited contingencies for the lack of interim checkpoints or oversight on tasks exceeding 30 days, the need for a resource-loaded IMS that incorporates an appropriate level of detail, and the need for an expedited program governance strategy and escalation path that DHS and IBC leadership could use to make program decisions within the time allotted on the schedule. Complex requirements: DHS, IBC, FIT, and USSM officials acknowledged the overall complexity of the TRIO project and that the lack of a detailed understanding of the components’ requirements earlier in the project impacted IBC’s and DHS’s ability to satisfy the requirements as planned. For example, USSM and FIT officials told us that under the shared services model, the approach for onboarding new customers usually involves migrating to a proven configuration of a solution that is already being used by the provider’s existing customers. However, rather than taking this approach, DHS and IBC agreed to implement a more recent version of Oracle Federal Financial software (version 12.2) with integrated contract life cycle and project modules. Under this approach, IBC’s plans included migrating other existing customers to this upgraded environment. USSM officials told us that migrating TRIO components to a new solution that required configuring new software and related applications and developing related interfaces introduced additional complexities that contributed to issues on the TRIO project. According to a FIT official, the functionality of this more recent version of software is very different than that of the version IBC’s existing customers used. This official stated that IBC did not have the needed government personnel with knowledge and experience associated with this new software, a condition that likely contributed to the challenges experienced on the TRIO project. IBC officials acknowledged that IBC’s lack of familiarity with Oracle 12.2 increased the complexity of the TRIO project. In addition, DHS and IBC perspectives on the need for changes differed because of the lack of clarity regarding TRIO project requirements. DHS officials told us that many change requests on the TRIO project reflected the need for required functionality based on previously stated requirements. They also told us that they did not consider DNDO-related requirements to be overly complex when compared to those associated with IBC’s similarly sized customers. However, DHS officials stated that as of June 2017, IBC has not yet met DNDO’s needs to deliver a functioning travel system interface and other requirements. According to IBC officials, TRIO project change requests to address components’ requirements were extensive and included significant customizations to meet unique requirements that were not aligned with the federal shared service model. IBC officials noted additional challenges in addressing TRIO project requirements related to DHS’s efforts to address certain organizational change management and business process reengineering responsibilities. According to IBC officials, in some instances, the TRIO components provided conflicting requirements related to the same process that would have been more consistent had DHS completed more of its business process reengineering efforts prior to providing them to IBC. Project costs: According to the July 2014 discovery report, proposed implementation costs for the TRIO project totaled $89.9 million. However, according to DHS officials and TRIO project documentation, estimated costs significantly increased because of schedule delays, unanticipated complexities, and other challenges. In January 2017, DHS prepared a summary of estimated TRIO project implementation costs associated with its IAA with IBC. According to this summary, estimated IBC-related TRIO project implementation costs through fiscal year 2017 increased by approximately $42.8 million (54 percent) from the $79.2 million provided in the original August 2014 IAA with IBC as a result of modifications required, in part, to address challenges impacting the project. DHS officials also expressed concerns regarding increases in estimated operations and maintenance costs for the IBC solution. For example, according to a December 2016 memorandum to DHS on action items associated with failing to meet the baseline schedule date for initial operational capability, DNDO stated that IBC’s updated projected costs of operations and maintenance of its system were unaffordable. In connection with these costs, DHS officials also stated that IBC determined that separate, rather than shared, help desk resources were required to support the TRIO project because it was significantly different from the solution that IBC’s existing customers used. As a result, the officials indicated that these costs were more than originally expected. However, IBC officials told us that a portion of the increase in help desk- related costs was also due to DNDO employees not using the system properly because they were not sufficiently trained on it before it was implemented. In addition, challenges impacting the TRIO project have contributed to significant changes in the path forward on the project; as a result, the extent to which overall TRIO project modernization costs will be impacted going forward has not yet been determined. Project management and communication: According to DHS officials, various program management-related challenges impacted the TRIO project. For example, they expressed concerns regarding the effectiveness of IBC’s project management efforts including cost, schedule, and change management as well as IBC’s allocation of resources and slow decision-making process. They also stated that DHS provided significant time and resources to make up for fundamental project management activities that were under IBC’s control and not performed. In addition, DHS officials identified limitations associated with (1) poorly defined service level agreements and program performance metrics, (2) poor quality control plan, and (3) the lack of mechanisms for measuring delivery and addressing concerns regarding IBC’s performance. DHS officials told us that although various mechanisms can be used to hold commercial vendors accountable—such as cure notices, quality assurance surveillance plans, and incentives or disincentives to monitor performance—few mechanisms are available to hold federal agency service providers accountable for performance concerns. DHS officials also acknowledged challenges in their project management and communication efforts and identified lessons learned to help improve future efforts, including the need to establish a performance-based contract to determine objective and enforceable activity level metrics; be more prepared for organizational changes; improve vendor, project, and schedule management efforts; better understand SSP resource plans and monitor SSP efforts to help ensure that sufficient resources are secured timely; and centralize program management for financial system modernization functions, rather than continuing with the structure used on the TRIO project—for example, the TRIO project’s program management structure consisted of program management offices at the component level performing cost, schedule, and technical monitoring activities with DHS headquarters’ involvement focused on governance and oversight, resulting in duplicate efforts across components. IBC officials acknowledged challenges concerning IBC’s lack of sufficient resources and turnover, as described above. However, they told us that DHS’s approach to project management often resulted in duplicative meetings and a lengthy decision-making process involving several officials and multiple review and approval processes. According to USSM officials, the TRIO project team focused an unbalanced portion of its efforts on the delivery of technology at the expense of organizational change management, communication management, and other project management areas. For example, the failure to incorporate lessons learned from DNDO’s deployment adversely affected subsequent TRIO project implementation efforts, as change management activities did not address previously encountered risks. An OMB staff member concurred with the lessons learned that DHS identified, including those indicating the need for stronger project management. While the project is ongoing, the OMB staff member noted the importance of DHS having well-defined requirements for the project and better coordination to achieve the desired outcomes. In connection with TRIO project challenges, DHS officials told us that IBC notified DHS in April 2016 that it would not be able to meet the planned October 2016 implementation date for TSA. In response, DHS and IBC established the TSA Replan Tiger Team to perform a detailed assessment of potential courses of action. According to DHS officials, DHS and IBC subsequently took various actions to help address these and other challenges impacting the TRIO project, as summarized below. May 2016: IBC requested additional funding for fiscal year 2016 for 14 additional IBC and contractor personnel to strengthen program coordination and management support. According to DHS officials, DHS provided this requested funding along with additional funding to establish a business integration office to help strengthen cross organizational communication. DHS determined that plans for migrating TSA and Coast Guard to IBC during the first quarter of fiscal years 2017 and 2018, respectively, were not viable. As a result, their planned migrations were each extended an additional year. June 2016: DHS and IBC developed a comprehensive remediation plan to track progress on efforts to resolve numerous issues associated with DNDO’s production environment that continued to hamper its stability since going live in November 2015. According to DHS officials, these issues related to invoice payment and interest accruals, contract life cycle management, reporting, and other activities and have required numerous work-arounds to execute business processes. August to October 2016: DHS, Coast Guard, and IBC determined that a similar replanning effort was needed for Coast Guard’s successful migration to IBC. According to DHS officials, IBC indicated that it was unable to simultaneously provide DNDO production and TSA implementation support while also addressing the complexities related to Coast Guard. DHS officials told us that another Tiger Team established to address Coast Guard issues failed to complete the scope of its charter, and as a result, Coast Guard was forced to assume a minimum of a 2- year delay (rather than the 1-year delay previously determined in May 2016) and that this significantly increased program costs. They further stated that some of the team’s deliverables have not been initiated or remain outstanding as of June 2017. December 2016: IBC communicated to DHS that it cannot support the discovery phase with DHS’s CUBE modernization project. In addition, DHS approved the establishment of a Joint Program Management Office to serve as the overarching program management for DHS financial systems modernization projects. According to DHS officials, using a department-wide approach will enable DHS to more effectively leverage the resources and expertise across all modernization projects. January 2017: IBC communicated to DHS that it cannot support Coast Guard implementation in October 2018, and DHS and IBC established a joint CPWG to assess viable options for improving program performance and addressing stakeholder concerns and key TRIO project priorities. February 2017: DHS and IBC issued a joint memorandum to provide an update on contingency planning discussions. DHS and IBC shared commitments and determinations included (1) stabilizing the DNDO production environment and executing TSA implementation activities, (2) delivering the best value for the government and ensuring mutual success to the greatest extent possible, (3) preserving and protecting the current investment, and (4) making TSA implementation the first priority. In addition, DHS and IBC presented two options as representing the best opportunities for success in improving program performance and addressing stakeholder concerns: (1) continue with the status quo plan for Coast Guard implementation in October 2019, with significant improvements to program management and overall support capability and capacity, or (2) platform replacement. Platform replacement was presented as the preferred path toward meeting the needs of both DHS and IBC. Under this option, DHS and IBC would proceed with TSA implementation and work toward an orderly transition of TRIO components to an alternate service provider, hosting location, or both. March 2017: According to DHS officials, DHS, IBC, and USSM officials met to review certain critical success criteria for TSA’s implementation. Based on these discussions, it was determined that TSA would not go live with IBC in fiscal year 2018 given the high-risk schedule and critical criteria involved and the Coast Guard implementation would also be delayed accordingly. Further, TSA release 3.0 would be delivered in October 2017 or as soon as possible thereafter. In addition, the CPWG would continue working to identify an alternative path forward, and DHS and IBC would identify and evaluate critical transition activities and timelines. April 2017: The CPWG recommended moving away from IBC to a commercial service provider leveraging the cloud as the best course of action to complete TRIO project implementation and as the most fiscally responsible approach from a long-term sustainment and cost perspective. The CPWG’s recommendation was based on its analysis of six options and proposed a transition timeline, including key activities, as shown in figure 3. May 2017: During its May 3, 2017 briefing of the Financial Systems Modernization Executive Steering Committee, DHS indicated that two of the options that the CPWG considered were no longer viable, including the CPWG’s recommendation to transition to a commercial cloud service provider because the software was not yet cloud-ready. DHS ranked the remaining four options using 13 OMB risk factors as selection criteria and determined that migrating the solution to a DHS data center represented the best option going forward. In addition, DHS decided to move forward with discovery efforts related to this option. According to its briefing presentation and DHS officials, the notional timeline of planned key events for the TRIO project included various items, as shown in figure 4. DHS officials indicated that DHS expects to present the findings and recommendations resulting from discovery efforts associated with this new path forward to USSM and OMB for concurrence. As of August 2017, results of this effort were under review by DHS leadership. The TRIO project represents a key element of DHS’s efforts to address long-standing deficiencies in its financial management systems and further improve financial management. Following best practices to manage risks effectively can help provide increased assurance that large, complex projects—such as the TRIO project—will achieve planned objectives. DNDO’s AA process substantially met the four characteristics of a reliable, high-quality AOA process. However, Coast Guard’s and TSA’s AAs substantially met one and partially met three of these four characteristics. Further, DHS did not always follow best practices for managing the risks of using IBC for the TRIO project. As a result, TRIO components faced an increased risk that the solution they chose would not represent the best alternative for meeting their mission needs and that the risks impacting the TRIO project would not be effectively managed to mitigate adverse impacts. In addition, significant challenges have impacted the TRIO project, raising concerns about the extent to which objectives will be achieved as planned. Plans for DHS’s path forward on the TRIO project, as of May 2017, involve significant changes, such as transitioning away from IBC and a 2-year delay in completing Coast Guard’s and TSA’s migration to a modernized solution. Without greater adherence to best practices for analyzing alternatives and managing project risks, DHS continues to face increased risk that its financial management system modernization project will not provide reasonable assurance of achieving its mission objectives. We are making the following two recommendations to DHS: The DHS Under Secretary for Management should develop and implement effective processes and improve guidance to reasonably assure that future AAs fully follow AOA process best practices and reflect the four characteristics of a reliable, high-quality AOA process. (Recommendation 1) The DHS Under Secretary for Management should improve the Risk Management Planning Handbook and other relevant guidance for managing risks associated with financial management system modernization projects to fully incorporate risk management best practices, including defining thresholds to facilitate review of performance metrics to determine when risks become unacceptable; identifying and analyzing risks to include periodically reconsidering risk sources, documenting risks specifically related to the lack of sufficient, reliable cost and schedule information needed to help properly manage and oversee the project, and timely disposition of IV&V contractor-identified risks; developing risk mitigation plans with specific risk-handling activities, the costs and benefits of implementing them, and contingency plans for selected critical risks; and implementing risk mitigation plans to include establishing periods of performance for risk-handling activities and defining time intervals for updating and certifying the accuracy and completeness of information on risks in DHS’s risk register. (Recommendation 2) We provided a draft of this product to DHS and the Department of the Interior for comment. In its comments, reprinted in appendix IV, DHS concurred with our recommendations and provided details on its implementation of the recommendations as discussed below. In addition, DHS provided technical comments, which we incorporated as appropriate. The Department of the Interior only provided technical comments, which we incorporated as appropriate. DHS stated that it remains committed to its financial system modernization program. Specifically, regarding our first recommendation to develop and implement effective processes and improve guidance to reasonably assure that future AAs fully follow AOA process best practices and reflect the four characteristics of a reliable, high-quality AOA process, DHS stated that it agrees that effective processes and guidance are necessary to assure best practices. DHS also stated that it is important to note that the GAO-identified best practices were published more than 2 years after the TRIO components’ AAs were completed. While this is the case, as discussed in our report, these best practices are based on long- standing, fundamental tenets of sound decision making and economic analysis and were identified by compiling and reviewing commonly mentioned AOA policies and guidance that are known to and have been used by government and private sector entities. DHS also stated that it has already implemented this recommendation through its issuance of guidance and instructions in 2016 and that a copy of this additional guidance and instructions was provided to GAO. However, the documentation provided by DHS does not fully address our recommendation. As part of our recommendation follow-up process, we will coordinate with DHS to obtain additional information on its efforts to address our recommendation. With regard to our second recommendation to improve the Risk Management Planning Handbook and other relevant guidance, DHS stated that it concurred and agreed that the Risk Management Planning Handbook required updating to fully incorporate risk management best practices. In addition, DHS described actions it will take, and has taken, to revise and publish an updated handbook. We are sending copies of this report to the appropriate congressional committees, the Acting Secretary of Homeland Security, the DHS Under Secretary for Management, the Acting DHS Chief Financial Officer, the Secretary of the Interior, and the Director of the Interior Business Center. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staffs have any questions about this report, please contact me at (202) 512-9869 or khana@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V. To determine the extent to which the Department of Homeland Security (DHS) followed best practices in analyzing the alternatives used in choosing the preferred alternative for modernizing TRIO components’ financial management systems, we reviewed information that the TRIO components provided as part of their alternatives analysis (AA) process, referred to as the AA body of work, which includes the AA and other supporting documentation that is not specifically included in the AA. In addition, we discussed the DHS AA process with the TRIO components and DHS officials. We evaluated each TRIO component’s AA body of work and assessed this information against the GAO-identified 22 analysis of alternatives (AOA) process best practices. We then scored each AA against those best practices. In appendix II, these GAO- identified best practices are described in detail. Our evaluation comprised the following steps: (1) two GAO analysts separately examined the AA information received for each component, providing a score for each of 18 best practices; (2) a third GAO analyst resolved any differences between the two analysts’ initial scoring; and (3) a GAO specialist on AOA best practices, independent of the audit team, reviewed the team’s AA documentation, scores, and analyses for consistency. The GAO specialist also assessed the four best practices related to cost estimating. We used the average scores for each best practice to determine an overall score for four summary characteristics—well-documented, comprehensive, unbiased, and credible—of a reliable, high-quality AOA process at each TRIO component. Next, we shared our preliminary analysis with the TRIO components and DHS, and requested their technical comments and any additional information for our further consideration. For those characteristics of the AA process that received a score of partially met or below, we met with TRIO component and DHS officials to discuss potential reasons that an AA did not always conform to best practices. Finally, using the same methodology and scoring process explained above, we performed a final assessment based on our preliminary analysis and the comments and additional information received. The best practices were not used to determine whether DHS made the correct decision in selecting Department of the Interior’s Interior Business Center (IBC) to implement the financial management systems modernization solution or whether the TRIO project would have arrived at a different conclusion had it more fully conformed to these best practices. We also reviewed DHS guidance for conducting AOAs and AAs against the GAO-identified 22 AOA process best practices using the same methodology described above for reviewing the TRIO components’ AAs. In the course of applying these best practices to a TRIO component’s AA and to DHS guidance for the AA process, we assessed the reasonableness of the information we collected. We determined that the information from the DHS AA process was sufficiently reliable to use in assessing the TRIO components’ AAs and DHS guidance against these 22 best practices. To determine the key factors, metrics, and processes used by the TRIO components in developing and evaluating DHS’s alternative solutions and final choice for financial system modernization, we reviewed each component’s AA, including a description of (1) the alternatives considered, (2) the market research conducted, (3) the three alternatives evaluated, (4) the selection criteria used and how the criteria were weighted, (5) how each alternative scored against the selection criteria, and (6) the alternative that scored the best according to the component’s evaluation. To determine the extent to which DHS managed the risks of using IBC consistent with risk management best practices, we reviewed DHS’s and TRIO components’ risk management guidance and other documentation supporting their risk management efforts, including risk registers, mitigation plans, status reports, and risk management meeting minutes. We also met with officials to gain an understanding of the key processes and documents used for managing and reporting on TRIO project risks. We assessed the processes against best practices that the Software Engineering Institute (SEI) identified. The practices we selected are fundamental to effective risk management activities. These practices are identified in SEI’s Capability Maturity Model® Integration (CMMI®) for Acquisition, Version 1.3. In particular, the key best practices for preparing for risk management are determine risk sources and categories, define risk parameters, and establish a risk management strategy. The key best practices for identifying and analyzing risks are evaluate, categorize, and prioritize risks. The key best practices for mitigating identified risks are develop risk mitigation plans and implement risk mitigation plans. We applied the criteria from the CMMI risk management process area to determine the extent to which the expected practices were implemented, or future activities were planned for, by the program office. The rating system we used is as follows: (1) meets, or generally satisfies all elements of the specific practice; (2) partially meets, or generally satisfies a portion of specific practice elements; and (3) does not meet, or does not satisfy specific practice elements. In the context of the best practices methodology, we assessed the reliability of TRIO project risk data contained in DHS’s risk register. We interviewed officials on how the risk register was developed and maintained, including key control activities used to provide reasonable assurance of the accuracy of the information reported in the register. We reviewed DHS’s July 2016 risk register and minutes from risk management committee meetings (one meeting per quarter, randomly selected). Of 120 TRIO project risks on the July 2016 risk register, we found 13 risks with missing data. Of 47 active risks identified, 28 risk records had not been modified in the previous 3 months and the register did not indicate when their accuracy was last confirmed and 35 risks were beyond their indicated impact dates but had not been marked as issues. We concluded that the pervasiveness of these data reliability problems decreased the usefulness of the risk register in connection with managing TRIO project risks. To determine the key factors or challenges that have impacted the TRIO project and DHS’s plans for completing remaining key priorities, we met with DHS, IBC, Office of Financial Innovation and Transformation, and Unified Shared Services Management office officials and Office of Management and Budget staff to obtain their perspectives. In addition, we reviewed documentation provided by these officials, including TRIO project status reports and memorandums, leadership briefings, and other presentations. We conducted this performance audit from March 2016 to September 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Many guides describe an approach to an analysis of alternatives (AOA); however, there is no single set of practices for the AOA process that has been broadly recognized by both the government and private sector entities. GAO has previously identified 22 best practices for an AOA process by (1) compiling and reviewing commonly mentioned AOA policies and guidance used by different government and private sector entities and (2) incorporating experts’ comments on a draft set of practices to develop a final set of practices. These practices are based on longstanding, fundamental tenets of sound decision making and economic analysis. In addition, these practices can be applied to a wide range of activities in which an alternative must be selected from a set of possible options, as well as to a broad range of capability areas, projects, and programs. These practices can provide a framework to help ensure that entities consistently and reliably select the project alternative that best meets mission needs. The guidance below is an overview of the key principles that lead to a successful AOA process and not as a “how to” guide with detailed instructions for each best practice identified. The 22 best practices that GAO identified are grouped into the following five phases: 1. Initialize the AOA process: Includes best practices that are applied before starting the process of identifying, analyzing, and selecting alternatives. This includes determining the mission need and functional requirements, developing the study time frame, creating a study plan, and determining who conducts the analysis. 2. Identify alternatives: Includes best practices that help ensure that the alternatives to be analyzed are sufficient, diverse, and viable. 3. Analyze alternatives: Includes best practices that compare the alternatives to be analyzed. The best practices in this category help ensure that the team conducting the analysis uses a standard, quantitative process to assess the alternatives. 4. Document and review the AOA process: Includes best practices that would be applied throughout the AOA process, such as documenting all steps taken to initialize, identify, and analyze alternatives and to select a preferred alternative in a single document. 5. Select a preferred alternative: Includes a best practice that is applied by the decision maker to compare alternatives and to select a preferred alternative. The five phases address different themes of analysis necessary to complete the AOA process, and comprise the beginning of the AOA process (defining the mission needs and functional requirements) through the final step of the AOA process (selecting a preferred alternative). We also identified four characteristics that relate to a reliable, high-quality AOA process—that the AOA process is well-documented, comprehensive, unbiased, and credible. Table 4 shows the four characteristics and their relevant AOA best practices. Conforming to the 22 best practices helps ensure that the preferred alternative selected is the one that best meets the agency’s mission needs. Not conforming to the best practices may lead to an unreliable AOA process, and the agency will not have assurance that the preferred alternative best meets mission needs. The Department of Homeland Security’s TRIO components—the U.S. Coast Guard (Coast Guard), Transportation Security Administration (TSA), and Domestic Nuclear Detection Office (DNDO)—conducted alternatives analyses (AA) during 2012 and 2013 to determine the best alternative for transitioning to a modernized financial management system solution. We evaluated the TRIO components’ AA processes against analysis of alternatives (AOA) best practices GAO identified as necessary characteristics of a reliable, high-quality AOA process (described in app. II). GAO’s assessment of the extent to which Coast Guard’s, TSA’s, and DNDO’s AAs met each of the 22 best practices is detailed in tables 5, 6, and 7. In addition to the contact named above, James Kernen (Assistant Director), William Brown, Courtney Cox, Eric Essig, Valerie Freeman, Matthew Gardner, Jason Lee, Jennifer Leotta, and Madhav Panwar made key contributions to this report.	[ "To help address long-standing financial management system deficiencies, DHS initiated its TRIO project, which has focused on migrating three of its components to a modernized financial management system provided by IBC, an OMB-designated, federal SSP. House Report Number 3128 included a provision for GAO to assess the risks of DHS using IBC in connection with its modernization efforts. This report examines (1) the extent to which DHS and the TRIO components followed best practices in analyzing alternatives, and the key factors, metrics, and processes used in their choice of a modernized financial management system; (2) the extent to which DHS managed the risks of using IBC for its TRIO project consistent with risk management best practices; and (3) the key factors and challenges that have impacted the TRIO project and DHS's plans for completing remaining key priorities. GAO interviewed key officials, reviewed relevant documents, and determined whether DHS followed best practices identified by GAO as necessary characteristics of a reliable, high-quality AOA process and other risk management best practices. The Department of Homeland Security's (DHS) TRIO project represents a key effort to address long-standing financial management system deficiencies. During 2012 and 2013, the TRIO components—U.S. Coast Guard (Coast Guard), Transportation Security Administration (TSA), and Domestic Nuclear Detection Office (DNDO)—each completed an alternatives analysis (AA) to determine a preferred alternative for modernizing its financial management system. GAO found that DNDO's AA substantially met the four characteristics—well-documented, comprehensive, unbiased, and credible—that GAO previously identified for a reliable, high-quality analysis of alternatives (AOA) process. However, Coast Guard's and TSA's AAs did not fully or substantially meet three of these characteristics, and DHS guidance for conducting AAs did not substantially incorporate certain best practices, such as identifying significant risks and mitigation strategies and performing an independent review to help validate the AOA process. Based on these analyses and other factors, the TRIO components determined that migrating to a federal shared service provider (SSP) represented the best alternative, and in 2014, DHS selected the Department of the Interior's Interior Business Center (IBC) as the federal SSP for the project. However, because Coast Guard's and TSA's AAs did not fully or substantially reflect all of the characteristics noted above, they are at increased risk that the alternative selected may not achieve mission needs. DHS also did not fully follow best practices for managing project risks related to its use of IBC on the TRIO project. Specifically, DHS followed three of seven risk management best practices, such as determining risk sources and categories and establishing a risk management strategy. However, it did not fully follow four best practices for defining risk parameters, identifying risks, developing risk mitigation plans, and implementing these plans largely because its guidance did not sufficiently address these best practices. For example, although DHS created joint teams with IBC and provided additional resources to IBC to help address risk mitigation concerns, it did not always develop sufficiently detailed risk mitigation plans that also included contingency plans for selected critical risks. As a result, although IBC's capacity and experience for migrating large agencies the size of Coast Guard and TSA was identified as a risk in July 2014, a contingency plan working group to address this concern was not established until January 2017. By not fully following risk management best practices, DHS is at increased risk that potential problems may not be identified or properly mitigated. DHS, IBC, Office of Management and Budget (OMB), and other federal oversight agencies identified various challenges that have impacted the TRIO project and contributed to a 2-year delay in the implementation of Coast Guard's and TSA's modernized solutions. These challenges include the lack of sufficient resources, aggressive schedule, complex requirements, increased costs, and project management and communication concerns. To help address these challenges, DHS and IBC established review teams and have taken other steps to assess potential mitigating steps. In May 2017, DHS determined that migrating the solution from IBC to a DHS data center represented the best option and initiated discovery efforts to further assess this as its path forward for the TRIO project. GAO recommends that DHS more fully follow best practices for conducting an AOA process and managing risks. DHS concurred with GAO's recommendations and described actions it will take, or has taken, in response." ]	10,649	gov_report	en	null	75e7f2ffc9c09f0868bfe03fab087139f2c0c5da17f6887f
The United States has many international agreements that require treaty partners to provide certain information to IRS, which can help prevent the use of foreign bank accounts to facilitate tax evasion. FATCA goes much further, requiring FFIs to report more detailed information to IRS about their U.S. customers annually. These provisions are important developments in efforts to combat tax evasion by U.S. persons holding investments in offshore accounts. FATCA generally requires certain taxpayers to report foreign financial accounts and other specified foreign financial assets whose aggregate value exceeds specified thresholds to IRS on Form 8938. These taxpayers must report these assets and income generated from such assets to IRS with their tax return on Form 8938. These thresholds vary by filing status—such as single or married filing jointly—and by domestic or foreign residency. FATCA also promotes third-party reporting of foreign financial assets by requiring a withholding agent to withhold 30 percent on certain payments to an FFI unless the FFI or the jurisdiction in which the FFI is located has entered into an agreement with the United States to report certain account information of their U.S. customers. Under such an agreement, participating FFIs report detailed information to IRS annually about accounts held by their U.S. customers using an IRS Form 8966, FATCA Report (Form 8966). According to IRS, FATCA improves visibility into taxable income from foreign sources, and enhances the agency’s ability to identify and pursue taxpayer noncompliance. For example, FATCA allows IRS to compare information reported by FFIs on Forms 8966 to information reported by U.S. persons on Forms 8938. According to IRS, this comparison can be used to ensure taxpayers and FFIs are properly reporting foreign financial assets and income from international investments. This type of comparison is a common IRS enforcement technique. For example, IRS can directly compare information it receives from financial institutions’ IRS Form 1099-INT, Interest Income, against a tax return to determine if the taxpayer reported income generated from interest earned. To facilitate FATCA implementation for FFIs operating in jurisdictions with laws that would prohibit FFIs from complying with the terms of the FFI agreement, Treasury developed two alternative intergovernmental agreements (IGA)—Model 1 and Model 2—to facilitate the effective and efficient implementation of FATCA by removing partner jurisdictions’ legal impediments to comply with FATCA reporting requirements, and reducing burdens on FFIs located in partner jurisdictions. FFIs from countries with Model 1 IGAs report information on U.S. persons’ accounts to their respective host country tax authorities (HCTAs). The HCTAs, in turn, compile the information from FFIs and transmit it to IRS. In contrast, FFIs from countries with Model 2 IGAs, or countries treated as not having an IGA in effect, directly report information on U.S. persons’ accounts to IRS. Separate from the FATCA requirements, regulations implementing the Bank Secrecy Act of 1970 (BSA) also impose a separate self-reporting requirement for foreign accounts. Specifically, certain taxpayers and residents are required to file an FBAR with FinCEN annually if they have financial interest or signature or other authority over one or more foreign financial accounts with a total of more than $10,000, regardless of whether they reside within or outside the United States. Federal, state, and local law enforcement agencies can use information from these reports to combat financial crimes, including terrorist financing and tax evasion. Appendix IV provides a comparison of Form 8938 and FBAR reporting requirements. Figure 1 depicts the flow of foreign financial account information from U.S. persons and FFIs to IRS and FinCEN through the FATCA and FBAR reporting processes. As part of the FATCA reporting requirements, IRS collects information on financial accounts through forms and reports submitted by both taxpayers and FFIs. As part of this effort, IRS requires taxpayers to identify their TINs on Forms 8938 they submit. IRS also requires participating FFIs to report the TINs of each account holder who is a specified U.S. person on Forms 8966. IRS intends to use reported TINs to link Form 8938 data filed by taxpayers to Form 8966 data filed by the FFIs to ensure that taxpayers and FFIs are properly reporting foreign financial assets. However, IRS often could not link account information collected from FFIs to the account’s owner because of incorrect or missing TINs. In July 2018, the Treasury Inspector General for Tax Administration (TIGTA) found that almost half of new Forms 8966 filed by FFIs did not include a TIN or included an invalid TIN. A consulting firm working with FFIs to implement FATCA reporting requirements told us that FFIs encountered significant challenges obtaining accurate TINs from U.S. persons as part of the self-certification process. For instance, FFIs encountered situations where U.S. persons provided incomplete or inaccurate TINs—such as Social Security Numbers (SSN) with less than nine digits—on forms used to self-certify their status as U.S. persons. FFIs also encountered situations where U.S. persons may not have obtained TINs or were unwilling to provide them to FFIs. Additionally, banking associations told us that it has taken time, effort, and expense for FFIs to report TINs, as they had to upgrade computer systems to collect and record TINs from U.S. customers. Finally, Treasury told us that jurisdictions that have an IGA with the United States but no legal requirement to collect TINs are not in compliance with the requirements of the IGA. Treasury and IRS determined that some FFIs reporting from countries with Model 1 IGAs needed additional time to implement procedures to obtain and report required U.S. TINs for preexisting accounts that are U.S. reportable accounts. Consequently, IRS provided a transition period, through the end of 2019, for compliance with the TIN requirements for FFIs under Model 1 IGAs. Specifically, in September 2017, IRS issued a notice modifying procedures for FFIs reporting from countries with Model 1 IGAs to become compliant with TIN reporting requirements for preexisting accounts. For calendar years 2017-2019, IRS will not determine that certain FFIs in countries with Model 1 IGAs are significantly noncompliant with their obligations under the IGA solely as a result of a failure to report U.S. TINs associated with the FFI’s U.S. reportable accounts, providing they (1) obtain and report the date of birth of each account holder and controlling person whose TIN is not reported, (2) make annual requests for missing TINs from each account holder, and (3) search electronically searchable data maintained by such FFIs for missing required U.S. TINs before reporting information that relates to calendar year 2017 to a partner jurisdiction. As a result, even without any further extensions, calendar year 2020 is the earliest IRS will be enforcing requirements for FFIs from countries with Model 1 IGAs to provide accurate and complete information on U.S. account holders’ TINs to IRS. Without valid TINs on Forms 8966 submitted by FFIs, according to IRS officials, IRS faces significant hurdles in matching accounts reported by FFIs to those reported by individual tax filers on their Forms 8938. As a result, IRS must rely on information such as names, dates of birth, and addresses that the filers and/or FFIs may not consistently report. Without data that can be reliably matched between Forms 8938 and 8966, IRS’s ability to identify taxpayers not reporting accurate or complete information on specified foreign financial assets is hindered, interfering with its ability to enforce compliance with FATCA reporting requirements, and ensure taxpayers are paying taxes on income generated from such assets. In July 2018, TIGTA reported that IRS lacked success in matching FFI and individual taxpayer data because reports FFIs filed did not include or included invalid TINs. This, in turn, affected IRS’s ability to identify and enforce requirements for individual taxpayers. TIGTA recommended, among other things, that IRS initiate compliance efforts to address and correct missing or invalid TINs on Form 8966 filings from FFIs from countries with Model 2 IGAs or without any IGAs with the United States. IRS management said it disagreed with this recommendation because a system to ensure validation of every TIN upon submission of a Form 8966 would be cost prohibitive. However, IRS management said that IRS would address invalid TINs as they are uncovered on other compliance efforts, such as initiating development of a data product to automate risk assessments across the FATCA filing population. IRS also said it continues efforts to systematically match Form 8966 and Form 8938 data to identify nonfilers and underreporting related to U.S. holders of foreign accounts. However, IRS management told us they are waiting until they have a full set of data, including TINs, before doing analysis to develop a compliance strategy. According to TIGTA, IRS management believed that having the FFI’s Global Intermediary Identification Number (GIIN) on Form 8938, which is filed by the taxpayer, would help with matching records. However, Form 8938 instructions identify that the field is optional for taxpayers to complete. TIGTA recommended that to reduce taxpayer burden in obtaining GIINs from FFIs, IRS add guidance to Form 8938 instructions to inform taxpayers on how to use the FFI List Search and Download Tool on the IRS’s website to obtain an FFI’s GIIN. IRS agreed with this recommendation. However, even if an individual taxpayer provided GIINs, IRS may continue to have difficulty matching accounts with U.S. taxpayers if the TIN and name of the account holder reported on the Form 8966 do not match the TIN and name of the taxpayer on the Form 8938. IRS officials said they are aware of these difficulties and have attempted to match Forms 8938 and 8966 based on other criteria such as dates of birth. In its response to our draft report, IRS said that all financial institutions and foreign tax authorities that file required account information receive a notification listing administrative and other minor errors contained in their reporting. According to IRS, its Large Business and International division follows up with foreign tax authorities regarding these errors to ensure the tax authorities are working with financial institutions to correct these errors in compliance with the countries’ IGAs. IRS added it has initiated a campaign addressing FFIs that do not meet their compliance responsibilities with respect to account opening requirements. Additionally, IRS drafted a risk acceptance form and tool addressing risks in implementing FATCA compliance and business process capabilities. This risk assessment focused on the limitations IRS faces due to budget constraints, but did not address the specific risks it faces from not receiving complete and valid TINs on U.S. account holders. We previously reported that risk management could help stakeholders make decisions about assessing risk, allocating resources, and taking actions under conditions of uncertainty. Key management practices for risk management we identified from our prior work include identifying, analyzing, and prioritizing risks; developing a mitigation plan to address identified risks; implementing the plan; and monitoring, reporting, and controlling risks. Without developing a risk mitigation plan to address risks IRS faces from not receiving complete and valid TINs moving forward, IRS may lose opportunities to adjust its compliance programs to better identify U.S. persons who are not fully reporting specified foreign financial assets as required under FATCA. Several IRS databases store data collected from individuals’ electronic and paper filings of Form 8938 and/or elements of parent individual tax returns to which the Form 8938 is attached—the filer’s country of residence and filing status—used to determine specified reporting thresholds for Form 8938 filers. Additionally, data from these databases and other sources are transferred downstream to IRS’s Compliance Data Warehouse (CDW)—a database used for research and analytical purposes. We extracted data from copies of Individual Return Transaction File (IRTF) and Modernized Tax Return Database (MTRDB) data copied into CDW to obtain information reported on Forms 8938 and relevant information from parent tax returns, such as filing status and filers’ country of residence. We found that IRTF and MTRDB had inconsistent and incomplete data. For example, neither database had consistent and complete information on foreign financial account and other asset information submitted by Form 8938 filers. While IRS officials told us that IRTF is the authoritative source for filers of Form 8938, it does not store account and other asset information submitted on Forms 8938. Additionally, IRS officials said MTRDB is not designed to store information submitted on paper filings of Forms 8938 and parent tax returns. Officials from IRS’s Research, Applied Analytics and Statistics (RAAS) division also noted that CDW did not have reliable information from Form 8938 paper filings. Because of the lack of foreign financial asset information from such filings, we could not report complete information on assets reported by Form 8938 filers. Further, IRS does not provide instructions to CDW users on how to extract appropriate data from CDW—such as data copied from IRTF and MTRDB—leading to confusion on which databases to use for extracting Form 8938 and relevant parent tax return data. For example, five distinct tables within CDW are required to identify the TIN, parent form, filing status, country of residence, and amount of foreign assets accurately. Without clear explanations of how data in each of these tables relate to each other and to the underlying filings, errors could be introduced into CDW users’ analyses of foreign asset information. Standards for Internal Control in the Federal Government notes that management should use quality information to achieve the entity’s objectives. One attribute of this principle includes processing data into quality information that is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Additionally, the Internal Revenue Manual states that IRS needs to measure taxpayer compliance so that customer-focused programs and services can be enhanced or developed so that compliance information and tools can be improved. According to IRS officials, IRS researchers have been taking additional steps to obtain and review Form 8938 and parent tax return data stored in the Integrated Production Model (IPM) database. They said IPM is the only database that contains complete data from individuals’ electronic and paper filings of Forms 8938 and relevant elements of parent tax returns. IRS officials said that RAAS has been working with IRS’s information technology (IT) division to obtain read-only access to IPM, and import Forms 8938 and 8966 data from IPM into CDW for analysis. However, as of February 2019, this effort has been delayed due to budget constraints. In its response to our draft report, IRS said that obtaining read-only access would require a new technical process and plans to continue working with IT on the feasibility and timeframe for enabling this access. Enabling access to consistent and complete Form 8938 and parent tax return data for compliance staff and researchers from RAAS and other IRS business units would help IRS strengthen its efforts to enforce compliance with FATCA reporting requirements and conduct research to bolster enforcement efforts. However, such efforts may be hampered until IRS can ensure readily available access to such data. We previously recommended that IRS develop a broad strategy, including a timeline and performance measures, for how IRS intends to use FATCA information to improve tax compliance. IRS agreed with this recommendation and developed a strategy for FATCA in July 2013. IRS updated the strategy in 2016 by creating the FATCA Compliance Roadmap as a comprehensive plan to articulate IRS’s priorities to facilitate compliance with FATCA reporting requirements. The roadmap also provided an overview of compliance activities used solely for enforcing FATCA reporting requirements or enhancing existing compliance efforts. However, in July 2018, TIGTA reported that IRS had not updated the FATCA Compliance Roadmap since 2016, and had taken limited or no action on a majority of the planned activities outlined in it. We also found that IRS had not yet evaluated the effects of FATCA, including the effects on voluntary tax compliance. IRS documentation states that only 7 of 31 capabilities outlined in the FATCA Compliance Roadmap were delivered due to funding constraints. As of October 2018, IRS has stopped using the FATCA Compliance Roadmap and has not developed a revised comprehensive plan to manage efforts to leverage FATCA data to improve taxpayer compliance. According to IRS officials, IRS moved away from updating broad strategy documents, such as the FATCA Compliance Roadmap, to focus on individual compliance campaigns. These include a campaign to match individual tax filers to the reports from FFIs, and another campaign to identify FFIs with FATCA reporting requirements who are not meeting all of their obligations. According to what IRS told us, with the passage of time and as FATCA is becoming more integrated into agency operations, it has moved from updating the broad strategy documents focused on FATCA to working on compliance campaigns that incorporate FATCA into overall tax administration. Additionally, IRS and outside researchers plan to study the role of enforcement in driving overall patterns in reporting offshore assets and income generated from such assets. Though IRS maintains that FATCA is more integrated into its operations, TIGTA’s 2018 report concluded that IRS was still unprepared to enforce compliance with FATCA in part because it took limited or no action on the majority of planned activities outlined in the FATCA Compliance Roadmap. Documenting a framework for using FATCA reporting requirements to improve taxpayer compliance and measure their effect is consistent with three steps we found leading public sector organizations take to increase the accountability of their initiatives: (1) define clear missions and desired outcomes; (2) measure performance to gauge progress; and (3) use performance information as a basis for decision-making. We also previously reported that it is important for IRS to use a documented framework that defines a clear strategy, timeline, and plans for assessment. Having such a framework in place can help IRS better allocate resources and avoid unnecessary costs resulting from not having the necessary or appropriate data available to execute its objectives. In light of the challenges IRS faces to collect, manage, and use FATCA data to improve compliance in a resource-constrained environment, employing a comprehensive plan would help IRS maximize the use of collected data and better leverage individual campaigns to increase taxpayer compliance. Without such a plan, IRS’s ability to collect and leverage data collected under FATCA for compliance enforcement and other purposes is constrained. We could not report on total values of foreign financial assets on Forms 8938 in tax years 2015 and 2016. However, we could provide a range of total maximum account values reported on FBARs during the same period. Specifically, we determined that more than 900,000 individuals filed FBARs in calendar years 2015 and 2016, and declared total maximum values of accounts ranging from about $1.5 trillion to more than $2 trillion each year. A little more than one in five—or about 21.7 percent—of the approximately 404,800 Forms 8938 filed with IRS in tax year 2016 were done so from U.S. persons living abroad, with the other 78.3 percent living in the United States. Table 1 shows that a higher proportion of Form 8938 filings from U.S. persons living abroad for tax year 2016 were filed on paper (43.3 percent) than Form 8938 filings from U.S. persons living in the United States during the same period (14.7 percent). We extracted these data from IRTF, which IRS officials said is the authoritative source for filers of Form 8938. However, we could not report complete information on foreign financial assets reported by Form 8938 filers because such data are incomplete; as noted above, IRS databases we used to extract Form 8938 data—IRTF and MTRDB—do not include asset information reported on paper filings of Forms 8938. Of the approximately 404,800 Forms 8938 filed by individuals for tax year 2016—the most recent data available—we could access information on residency of filers and reported foreign financial assets from about 277,600 Forms 8938 that did not indicate that foreign financial assets and values were declared on other forms besides the Form 8938. Of the subset of these Forms 8938, more than one quarter—or about 73,500— reported foreign financial assets in amounts that indicate the Form 8938 may have been filed unnecessarily, since they reported specified foreign financial assets with aggregate values at or below reporting thresholds as of the last day of the tax year. Based on available Form 8938 data from tax year 2016, table 2 shows that about 61,900 filings from U.S. persons living in the United States and about 11,600 filings from U.S. persons living abroad during the same tax year reported specified foreign financial assets with aggregate values at or below end of tax year thresholds. These totals likely understate the total number of Forms 8938 that U.S. persons may have filed unnecessarily in tax year 2016; due to data limitations, these totals exclude Forms 8938 without asset information stored in IRS’s databases, including most Forms 8938 filed on paper and Forms 8938 where filers identified that they declared foreign financial assets on other forms besides the Form 8938. There is no clear explanation as to why some U.S. persons may have filed Forms 8938 unnecessarily. However, we identified a number of potential reasons from focus groups and other interviews with stakeholder groups. In focus groups we conducted, participants expressed confusion about IRS’s instructions for completing the Form 8938 and information provided on IRS’s website. In the instructions for completing Form 8938, IRS described the specific types of foreign financial assets that are to be reported on Form 8938, and the asset value thresholds that must be met for required reporting, depending on the location of residence and filing status of the taxpayer. IRS also posted responses to frequently asked questions on meeting FATCA reporting requirements on its website, and established a separate page on its website comparing foreign financial assets that must be reported on Form 8938 and/or FBAR. Nonetheless, focus group participants reported confusion on whether and how to report investment and retirement accounts and compulsory savings plans managed by their country of residence. In a meeting we convened with an organization representing tax attorneys, they told us taxpayers are unsure about what account values to report on the Form 8938. Tax practitioners participating in another focus group added that they filed Forms 8938 regardless of the aggregate value of the assets because it was too cumbersome for them to identify whether the assets exceeded reporting thresholds as of the end of the year or at any time during the year. IRS officials also cited a number of possible reasons why U.S. persons may be filing Forms 8938 unnecessarily. For example, it may be easier for U.S. persons to report all specified foreign financial assets they hold on the Form 8938, rather than determine whether the value of such assets met applicable thresholds. IRS officials also said that U.S. persons might complete a Form 8938 for reasons besides meeting tax-filing requirements, such as providing evidence of assets for a loan application. IRS’s Taxpayer Bill of Rights states that taxpayers are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. Furthermore, one of IRS’s strategic goals is to empower taxpayers by making it easier for them to understand and meet their filing, reporting, and payment obligations. IRS officials said they hosted sessions for tax practitioners at IRS Nationwide Tax Forums to address FATCA reporting requirements. However, they said IRS has not taken direct steps to identify or implement actions to further clarify instructions and related guidance on IRS’s website for completing Form 8938, such as information on which foreign financial assets to report, how to calculate asset values, and determine whether such values exceed required reporting thresholds. Additionally, IRS officials said they have not conducted additional outreach to educate taxpayers on required reporting thresholds under FATCA, or notify Form 8938 filers of instances where aggregate values of specified foreign financial assets reported on Forms 8938 were below reporting thresholds. IRS officials said they have not made efforts to determine whether there is a pattern of unnecessary Form 8938 filings that they could address. Rather, they said they believed resources should be devoted to FATCA implementation in general. However, as shown above, we have identified many tens of thousands of instances where U.S. persons may have filed Forms 8938 unnecessarily. Without assessing factors contributing to unnecessary Form 8938 reporting—and identifying or implementing actions to further clarify and educate taxpayers on FATCA reporting requirements—IRS is missing opportunities to help taxpayers understand their filing and reporting obligations and minimize their compliance burdens while properly meeting their tax obligations. Additionally, IRS may be missing opportunities to reduce costs in processing forms that taxpayers did not need to file. Because of overlapping statutory reporting requirements, IRS and FinCEN—both bureaus within Treasury—collect duplicative foreign financial asset data using two different forms (Form 8938 and FBAR). Our evaluation and management guide for fragmentation, overlap, and duplication states that overlap occurs when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries. Table 3 shows that individuals required to report foreign financial assets on Form 8938, in many cases, also must meet FBAR reporting requirements. For example, specified individuals with foreign financial accounts exceeding $50,000 in aggregate value on the last day of the tax year must file both Form 8938 and FBAR if such values exceed the minimum Form 8938 thresholds; these thresholds depend on the filing status and address of specified individuals. Table 3 also shows that, in many cases, specified interests in foreign financial assets as defined in Form 8938 instructions are the same as the financial interest in such assets under FBAR. Further, as noted in table 3, the overlapping requirements lead to IRS and FinCEN collecting the same information on certain types of foreign financial assets. For example, both Form 8938 and FBAR collect information on foreign financial accounts for which a person has signature authority and a financial interest in the account. Form 8938 and FBAR also both collect duplicative information on several other types of foreign financial assets, such as foreign mutual funds and accounts at a foreign financial institution that include foreign stock or securities. Overlapping reporting requirements result in most Form 8938 filers also filing an FBAR during the same reporting year. Table 4 shows that close to 75 percent of Form 8938 filers in tax years 2015 and 2016 percent also filed an FBAR for the same year using the same TIN. Overlapping requirements to file both Form 8938 and FBAR increases the compliance burden on U.S. persons and adds complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Focus group participants in all five countries included in our study affirmed that U.S. persons experienced confusion and frustration with having to report duplicative foreign financial asset information on both forms. Focus group participants and others we interviewed also noted that U.S. persons incurred additional financial costs to complete and file both Form 8938 and FBAR. For instance, one tax practitioner in Canada said the charge was about $190 to report four-to-five accounts on an FBAR in addition to charging about $540 for basic tax return packages. An accounting firm based in Japan typically charged between $300 and $800 to complete a Form 8938 and between $150 and $500 to complete an FBAR, depending on the number of accounts reported on the forms. Proposed revisions to regulations implementing BSA proposed by FinCEN may also increase the number of duplicative foreign financial accounts reported on Form 8938 and FBAR. Currently, U.S. persons must report detailed information on all foreign financial accounts on Form 8938 if the value of such accounts and other specified foreign financial assets reaches applicable reporting thresholds. In contrast, U.S. persons are generally exempted from reporting detailed account information on FBARs if they report having signature or other authority over 25 or more foreign financial accounts. FinCEN’s proposed revisions to BSA regulations would eliminate the exemption, requiring U.S. persons to report detailed information on all foreign financial accounts in which he or she has a financial interest if the value of such accounts exceed FBAR’s $10,000 reporting threshold. FinCEN estimated that it will receive account information for the first time on about 5.4 million foreign financial accounts if it finalizes the proposed revisions. In turn, these revisions may lead to increased filings of duplicative asset data on both Form 8938 and FBAR, as U.S. persons may have to report detailed information on all foreign financial accounts using both forms. U.S. persons also face exposure to two different penalty regimes for any failures in accurately and completely reporting foreign financial asset information to two bureaus within Treasury—IRS and FinCEN. Officials from one organization representing U.S. persons living abroad said penalties due to failure to report certain accounts on one or both forms can be significant, even if little or no taxes are owed on those accounts. The duplicative reporting of foreign financial asset data on two different forms also creates additional costs to the government to process and store the same or similar information twice, and enforce reporting compliance with both requirements. In 2012, we recommended that Treasury direct the Office of Tax Policy, IRS, and FinCEN to determine whether the benefits of implementing a less duplicative reporting process exceed the costs and, if so, implement that process. Treasury did not implement our recommendation. While we continue to believe that the agencies should have considered whether less duplicative reporting could have been implemented, we do recognize that FATCA and FBAR were enacted under two different statutes to serve different purposes. As mentioned above, according to IRS, FATCA improves visibility into taxable income from foreign sources and enhances the agency’s ability to identify and pursue taxpayer noncompliance. In contrast, the information reported on the FBAR is collected to identify money laundering and other financial crimes; law enforcement agencies can use BSA information—including information collected from FBARs— to aid regulatory and criminal investigations. Additionally, data collected from Form 8938 and FBAR are used in different systems for use by different bureaus within Treasury. Fully addressing issues stemming from overlapping reporting requirements and the resulting collection of duplicative information—while at the same time ensuring that such information can be used for tax compliance and law enforcement purposes—can only be done by modifying the statutes governing the requirements. Further, IRS and FinCEN have varying degrees of access to foreign financial asset information collected from Form 8938 and FBAR to enforce tax compliance and financial crime laws. FATCA was enacted, in part, to improve visibility into taxable income from foreign sources. However, information provided on Forms 8938 is taxpayer return information protected by section 6103 of the Internal Revenue Code (IRC), which generally prohibits IRS from disclosing information provided on Forms 8938. IRS can share return information with other government agencies and others when it is allowed by statute. For example, under section 6103, IRS may disclose return information related to taxes imposed under the IRC—such as self-employment income tax, Social Security and Medicare tax and income tax withholding—to the Social Security Administration (SSA) as needed to carry out its responsibilities under the Social Security Act. However, according to FinCEN officials, FinCEN, law enforcement, and regulators often cannot access information submitted on Forms 8938. While section 6103 provides other exceptions to disclosure prohibitions—such as allowing IRS to share return information with law enforcement agencies for investigation and prosecution of nontax criminal laws—such information is generally only accessible pursuant to a court order. As noted above, information reported on the FBAR can be used by law enforcement agencies to aid regulatory and criminal investigations. This includes IRS, which has been delegated responsibility from FinCEN to enforce compliance with FBAR reporting requirements. IRS has used FBAR information in addressing taxpayer noncompliance with reporting and paying taxes on foreign assets and income. For example, taxpayers accepted into one of IRS’s offshore voluntary disclosure programs must have filed amended or late FBARs as part of their program applications. Investigators from IRS’s Criminal Investigation division generally reviewed applications to determine if the taxpayer has made a complete and truthful disclosure. IRS examiners can also use information from case files of program participants—such as information disclosed on FBARs— to identify new groups of taxpayers suspected of hiding income offshore. IRS can then choose to continue offering offshore programs and encourage these newly identified groups of taxpayers, as well as all taxpayers with unreported offshore accounts, to disclose their accounts voluntarily. In addition to eliminating overlapping reporting requirements, harmonizing statutes governing foreign financial asset reporting and use of information collected on such assets to make such statutes fully consistent could yield additional benefits to both IRS and the law enforcement community. Specifically, and as shown in appendix IV, there are specified foreign financial assets reported on Form 8938—such as foreign hedge funds and foreign private equity funds—that are not required to be reported on an FBAR. In contrast, there are other specified foreign financial assets reported on an FBAR—such as indirect interests in foreign financial assets through an entity—that are not required to be reported on Form 8938. Without congressional action to address overlap in foreign financial asset reporting requirements, IRS and FinCEN will neither be able to coordinate efforts to collect and use foreign financial asset information, nor reduce unnecessary burdens faced by U.S. persons in reporting duplicative foreign financial asset information. Two reporting systems for sharing foreign account information from foreign financial institutions are in operation globally—FATCA and the Common Reporting Standard (CRS). According to officials from banking associations and a consulting firm, FFIs in the countries where we examined FATCA implementation encountered challenges implementing and now maintaining two overlapping reporting systems for collecting and transmitting account information to other countries for a seemingly similar purpose, and collecting sufficient information from customers to ensure they meet the requirements of both systems. As noted above, we previously identified overlap as occurring when multiple agencies or programs have similar goals, engage in similar activities or strategies to achieve them, or target similar beneficiaries. According to an IRS official, collecting account information under FATCA ushered in an era of greater transparency; as noted above, FATCA’s passage sought to reduce tax evasion by creating greater transparency and accountability with respect to offshore accounts and other assets held by U.S. taxpayers. When FATCA was first introduced, there was no international platform to share account information between countries. The United States and other countries worked together to reach an agreement on the electronic formatting that would be used to share the information. Other countries tax authorities’ became more interested in understanding the financial assets held abroad by their residents through an exchange of account information among themselves. In response, the Organisation for Economic Co-operation and Development (OECD) established the CRS reporting system for automatic exchange of information among member countries. According to the OECD, CRS was developed with a view to maximize efficiency and reduce cost for financial institutions. Thus, CRS drew extensively on the intergovernmental approach used to implement FATCA reporting requirements for FFIs. Countries participating in CRS exchange account information with each other using OECD’s Common Transmission System, which was modeled on FATCA’s International Data Exchange System. Figure 2 depicts the flow of account information between countries under FATCA and CRS. CRS reporting requirements are in many ways similar to FATCA, including required reporting of the account holders’ name and address, taxpayer identification number, account number, account balance, and income and sales proceeds. However, the requirements differ in significant ways. The biggest differences in requirements are driven by the nature of the U.S. tax system. The United States, like many countries, generally taxes citizens and resident aliens on their worldwide income regardless of where that income is earned. However, the United States differs from other countries because it generally subjects U.S. citizens who reside abroad to U.S. taxation in the same manner as U.S. residents. In contrast to U.S. policy, most other countries do not tax their citizens if they reside in a country other than their country of citizenship. Further, IGAs implementing FATCA require FFIs to report the foreign-held accounts of U.S. citizens and residents—including resident aliens—while CRS requires financial institutions in jurisdictions participating in CRS to report on almost all accounts held by nonresidents of the reporting country. Appendix V provides more detailed information on differences in reporting requirements, due diligence requirements, and definitions under FATCA and CRS. These differences in tax systems drive variations in due diligence procedures between FATCA and CRS. For example, FATCA aims to identify whether an account holder at a foreign institution is a U.S. person based on citizenship and tax residency information. In contrast, CRS aims to identify the tax residency of all account holders of a financial institution, and does not consider citizenship. Due to the multilateral nature of CRS, if an account holder is determined on the basis of the due diligence procedures to have residency in two or more countries, information would be exchanged with all jurisdictions in which the account holder is determined a resident for tax purposes. Under CRS rules, information about foreign accounts held by a U.S. citizen with a tax residence abroad would not be reported to IRS, but rather to the jurisdiction in which they were a resident for tax purposes. Because the United States taxes the worldwide income of U.S. citizens, CRS rules would need to require identification of account holders’ citizenship in member countries where they are residents if FATCA were to be aligned with CRS. Table 5 shows a comparison of individuals reported to IRS under FATCA and hypothetically under CRS. Treasury and IRS, as part of its 2017-2018 Priority Guidance Plan, are considering modifying certain elements of the existing FATCA regulations. For instance, Treasury and IRS are considering coordinating certain documentation requirements for participating FFIs with the requirements under IGAs. In December 2018, Treasury and IRS also proposed regulations intended, in part, to reduce the burdens of FATCA. The proposed regulations included a clarification of the definition of an investment entity that is similar to the guidance published by OECD interpreting the definition of a “managed by” investment entity under CRS. If the United States wanted to adopt CRS, some of the key differences between FATCA and CRS—as outlined above and in appendix V—could be aligned through regulation while others would require legislation. According to Treasury officials, to align FATCA and CRS, Congress would need to revise statutes to: provide for the collection of information for accounts that residents of partner jurisdictions maintain at U.S. financial institutions; require certain U.S. financial institutions to report the account balance (including, in the case of a cash value insurance contract or annuity contract, the cash value or surrender value) for all financial accounts maintained at a U.S. office and held by foreign residents; expand the current reporting required with respect to U.S. source income paid to accounts held by foreign residents to include similar non-U.S. source payments; require financial institutions to report the gross proceeds from the sale or redemption of property held in, or with respect to, a financial account; and require financial institutions to report information with respect to financial accounts held by certain passive entities with substantial foreign owners. While better aligning FATCA and CRS to some extent is possible, anything short of the United States fully adopting CRS would not fully eliminate the burdens of overlapping requirements that FFIs must currently meet under the two different systems. While having the United States adopt the CRS reporting system in lieu of FATCA could benefit FFIs that may otherwise have to operate two overlapping reporting systems, it would result in no additional benefit to IRS in terms of obtaining information on U.S. accounts. Additionally, it could generate additional costs and reporting burdens to U.S. financial institutions that would need to implement systems to meet CRS requirements. The extent of these costs is unknown. Further, adoption of CRS would create the circumstance where foreign accounts held by U.S. citizens with a tax residence in partner jurisdiction—including U.S. citizens who have a U.S. tax obligation—would not be reported to IRS. Tax practitioners and others we interviewed said that U.S. persons living abroad—whether or not they are required to complete a Form 8938—risk being denied access to foreign financial services. U.S. persons and tax practitioners located in four of the five countries where we conducted focus groups and interviews reported that some U.S. persons and U.S.- owned businesses encountered difficulties opening bank accounts with FFIs after FATCA was enacted, with some FFIs closing U.S. persons’ existing accounts or denying them opportunities to open new accounts. One focus group participant, for example, said that the financial institution closed down all accounts including business checking, savings, and money market accounts after FATCA was implemented, requiring this individual to find a local resident who could co-sign on a new account. Costs FFIs would incur from implementing FATCA were cited as a significant factor in increasing barriers faced by U.S. persons in accessing foreign financial services. Officials from one organization representing tax attorneys said that as a result of costs associated with FATCA implementation, FFIs have found it less burdensome to close accounts of U.S. persons or require the accounts to be moved to a Securities and Exchange Commission registered affiliate than comply with FATCA. Tax practitioners and an official from a bankers association added that because FFIs may gain only small margins of profit from U.S. persons, FFIs may believe it is too troublesome to do business with them. Additionally, officials from a foreign government agency told us that because FATCA is expensive for FFIs to continue implementing, banks in their country might charge U.S. persons seeking access to financial services additional fees to account for FATCA implementation costs. Tax practitioners, consultants working with FFIs to implement FATCA reporting requirements, and the National Taxpayer Advocate told us that FFIs with smaller asset sizes such as smaller trust companies were more prone to decline business with U.S persons. Officials from an advocacy group representing U.S. persons living abroad told the National Taxpayer Advocate that some smaller banks declined U.S. persons as customers as a business decision, believing it would cost more for them to comply with FATCA reporting requirements than maintain U.S. expatriates’ accounts. Banking associations we interviewed said that decisions made by FFIs on whether to accept U.S. persons as customers also depends on the overall risks and benefits of taking on individual U.S. persons, shaped in part from risks in not meeting FATCA reporting requirements. Representatives of a banking association and an advocacy group told us that some FFIs decided to avoid doing business with U.S. persons after they became concerned about potential penalties for failure to comply—either willfully or in error—with FATCA reporting requirements. One banking association added that such errors could affect other aspects of FFIs’ relationships with the U.S. government, such as nonprosecution agreements made with the U.S. Department of Justice. Officials from one consulting firm that helped FFIs meet FATCA reporting requirements added that FFIs’ determination of risk depends on many layers, such as the value of clients’ assets or the country in which clients reside or possess citizenship. After FATCA’s implementation, according to officials from the consulting firm, FFIs decided to turn away U.S. persons in some cases because the benefits of doing business with U.S. persons were less than the potential risks. For example, if a U.S. person only maintained a payroll account, the FFI may determine it would not make enough money to account for risks in incorrectly identifying the status of the customer as a U.S. or non-U.S. person. However, focus group participants from two countries said that FFIs may agree to accept U.S persons as customers if they have higher account balances that offset risks from FATCA reporting requirements. One focus group participant, for instance, said banks in his country will do business with a U.S. person if he or she has more than $500,000 in assets. Additionally, U.S. persons and tax practitioners we interviewed said that other factors such as language barriers and U.S. regulations designed to prevent money laundering may also inhibit U.S. persons’ access to brokerage accounts while overseas. Focus group participants and others we interviewed said that Form 8938 reporting requirements contributed to denials of employment and promotion opportunities for U.S. persons living abroad. Treasury officials noted that requirements imposed by FATCA do not directly hinder U.S. persons from gaining employment or promotion opportunities overseas. However, focus group participants, a consulting firm, and a foreign government agency noted that foreign-owned companies and nonprofit organizations such as churches did not want to hire or promote U.S. persons because they wanted to avoid exposing information to the U.S. government on their organizations’ accounts and client trust accounts where the U.S. person would have signature authority. As noted above, a U.S. person is generally required to report on the Form 8938 foreign financial accounts for which the person has signature authority if he or she has a financial interest in the account. Focus group participants and others noted that such requirements have adversely affected the ability of U.S. persons to serve on a corporate board or in a nonprofit organization, or maintain business relationships. Treasury and Department of Commerce officials stationed in one country included in our review added that FATCA implementation has played a role in dissuading foreign-owned corporations in some Asian countries from considering U.S. persons for corporate leadership positions such as directorships. This is in part because FATCA has triggered additional paperwork burden and operating costs for onboarding U.S. employees since they have had to help them meet Form 8938 reporting requirements. Two advocacy groups representing U.S. persons living abroad added that it is also harder for U.S.-based companies to justify relocating U.S. persons overseas and paying for such relocations since they also have had to help their U.S. employees meet Form 8938 reporting requirements in addition to meeting other tax filing requirements. U.S. embassy documents indicate there was increased demand for Social Security Numbers (SSN) since FATCA’s passage in 2010, driven in part by U.S. citizens applying for an SSN to gain access to foreign financial services or resolve outstanding U.S. tax obligations before completing renunciation. However, officials from two organizations representing Americans living abroad cited significant challenges faced by some U.S. persons living abroad in obtaining SSNs required to meet their U.S. tax obligations or obtain financial services. U.S. persons living abroad might not possess an SSN because their parents did not obtain one for them as a minor. Often, this may have been due to the parents leaving the United States when the child was young. State officials also said that U.S. citizens applying for U.S. passports while overseas frequently forget their SSNs or do not know if their parents ever applied for an SSN on their behalf. Officials from organizations representing U.S. persons living abroad added that without an SSN, these persons are unable to claim refunds or other tax benefits when filing their tax returns, or participate in IRS programs to voluntarily disclose previously unreported tax liabilities and assets. Additionally, some might be unable to gain or maintain access to financial accounts or other assets in their countries of residence without an SSN. According to these officials and tax practitioners we interviewed, U.S. persons living abroad face greater challenges in obtaining SSNs than those living in the United States. For instance, they faced difficulties obtaining documentation from the United States that the Social Security Administration (SSA) requires with SSN applications; traveling to Social Security offices and U.S. embassies or consulates to certify documents or submit applications in person; and receiving valid SSNs from SSA in a timely manner to file tax returns or participate in offshore disclosure programs. SSA officials also identified several challenges U.S. persons experience when applying for an SSN from abroad. For instance, SSA officials said that efforts to authenticate documents submitted with SSN applications can cause delays for U.S. persons living abroad in obtaining an SSN. Additionally, SSN applicants living abroad face significantly longer wait times than applicants living in the United States once their applications are processed. According to SSA officials, after an application is processed, it can take 3 to 6 months–-depending on the country’s mail service–-for an individual to receive a Social Security Card. This is significantly longer than the 2-week period it takes SSN applicants to receive a card after mailing in their applications from within the United States. According to Department of State (State) data, the annual number of approvals of requests for renunciations of U.S. citizenships increased nearly 178 percent during a 6-year period, from 1,601 in 2011—the year after FATCA was enacted—to 4,449 in 2016, the most recent year to which full data on renunciations were available. According to U.S. embassy documents and information provided by focus group participants and interviewees across all the countries we examined, FATCA was the reason or a contributing factor in some of these decisions and the resulting increase in total renunciations. Specific effects of FATCA implementation contributing to decisions to renounce U.S. citizenship included reduced access to foreign financial services and employment or promotion opportunities in a foreign-owned company—as identified above from our document reviews, focus groups, and interviews—and burdens in meeting FATCA reporting requirements. However, the extent to which FATCA implementation contributed to increased renunciations is unclear. State officials said that data are unavailable to determine the extent to which these renunciation decisions were the direct result of FATCA because State has no legal obligation to collect information on the motivation behind renunciation of citizenship. In response to concerns about the availability of foreign financial services, Treasury implemented regulations that allow certain low-risk local FFIs to be deemed compliant with FATCA, but only if the FFIs do not implement policies or practices that discriminate against opening or maintaining accounts for specified U.S. persons. Treasury and State also previously established joint strategies to address these challenges. For instance, Treasury and State developed guidance on FATCA that was posted on embassy websites to educate U.S. persons and others. Additionally, Treasury and State officials conducted outreach events and workshops through U.S. embassies and American chambers of commerce worldwide to provide information on FATCA and other tax filing requirements, According to State officials, the U.S. embassies in at least two countries—Switzerland and France—also worked with foreign officials and/or FFIs to increase access to financial services for U.S. citizens residing in those countries. For instance, Treasury and State officials reached agreements with FFIs in Switzerland to provide a wider range of financial services to U.S. persons. Similarly, in 2017, SSA and State implemented an interagency agreement to streamline processes for providing SSNs to U.S. persons living abroad after FATCA’s implementation in 2010. SSA officials said they are also in discussions with State on improving SSA’s website to include more transparent, specific information for SSN overseas applicants about SSA documentation requirements. Tax practitioners, advocacy groups, and Treasury officials we interviewed said FFIs have become more willing to accept U.S. persons as customers compared to when FATCA was enacted in 2010. However, U.S. persons living abroad continue to face issues gaining access to foreign financial services. For example, in a September 2018 letter sent by the Chair of the Finance Committee of the Netherlands House of Representatives to a member of Congress, U.S. citizens born outside the United States and who have never lived, studied, or worked in the United States are effectively being denied access to financial services in the Netherlands. Focus group participants added that some banks will reject U.S. clients or charge heavy fees for them to open an account. Agencies have ongoing efforts to address FATCA-related issues, as listed below, but some are ad hoc, fragmented, or otherwise not part of a broader effort between Treasury and other agencies such as State or SSA to use ongoing collaborative mechanisms to monitor and share information on such issues, and jointly develop and implement steps to address them: Treasury officials said they are participating in discussions with FFIs to address residual issues with access to foreign financial services. However, they said they have not involved other agencies in these discussions. IRS officials, in response to concerns from the French government, said they are developing a program to help streamline foreign asset- related tax compliance requirements for a small group of U.S. born citizens that have been French residents most of their lives without an SSN, and—according to State officials—did not wish to take the necessary steps to renounce their citizenship. However, no effort has been made to address these issues more broadly. State encouraged U.S. citizens to alert the nearest U.S. embassy of any practices they encounter with regard to the provision of financial services. State documents noted that some Americans have been turned away by banks or required to meet a higher deposit threshold in part because of FATCA reporting requirements. State documentation also noted that there have been cases of U.S. citizens with existing bank accounts who have been asked to close them. However, State documentation we reviewed does not highlight collaborative efforts currently underway with Treasury or other agencies to address banking access issues U.S. persons living abroad are presently encountering worldwide. As described above, SSA and State streamlined processes and policies for U.S. persons abroad seeking to obtain SSNs. However, SSA officials said they have not been involved in any ongoing efforts involving Treasury to identify systemic issues and related solutions involving SSNs for the purposes of tax compliance and citizenship renunciations. Treasury officials said they spoke with SSA officials about problems U.S. persons living abroad face in obtaining SSNs, but SSA believed that cycle times for processing SSN applications submitted by U.S. persons living abroad were not significantly greater than for applications submitted by U.S. persons living in the United States, although mailing times could vary significantly and take up to 3 to 6 months. We have previously identified key practices to enhance and sustain interagency collaboration, including defining and articulating a common outcome, establishing mutually reinforcing or joint strategies, and developing mechanisms to monitor, evaluate, and report on results. One goal in IRS’s strategic plan is to collaborate with external partners proactively to improve tax administration, while objectives in SSA’s strategic plan include improving service delivery and expanding service delivery options. Additionally, according to State’s Bureau of Consular Affairs website, one of State’s key priorities is to protect the interests of U.S. citizens overseas, such as through ensuring responsive and efficient provision of consular services overseas. As noted above, there are a host of ongoing issues and challenges for U.S. persons living abroad from implementation of FATCA, such as loss of access to foreign financial services, denial of employment and promotion opportunities overseas, and difficulty obtaining SSNs from abroad. However, Treasury currently lacks a collaborative mechanism to coordinate efforts with other agencies to address these issues, and Treasury officials said they do not plan to establish them. Without effective collaborative mechanisms to monitor and share information and implement cross-agency solutions, future efforts to address such issues will continue to be fragmented and less effective than they otherwise could be. In enacting FATCA, Congress sought to reduce tax evasion by creating greater transparency and accountability over offshore assets held by U.S. taxpayers. Because of FATCA, IRS receives information on foreign financial assets from hundreds of thousands of filers annually. IRS could use this information to help ensure taxpayers holding offshore assets report and pay taxes owed on income generated from such assets. However, to take full advantage of the information, IRS must address key challenges. Specifically, Taxpayer Identification Numbers (TIN) reported by FFIs are often inaccurate or incomplete, which makes it difficult for IRS to match information reported by FFIs to individual taxpayers. As such, IRS must develop a plan to mitigate the risks that these data issues pose to agency efforts to identify and combat taxpayer noncompliance. Lack of consistent, complete, and readily available Form 8938 and related parent individual tax return data also affects IRS’s compliance activities, making it more difficult for IRS business units to extract and analyze FATCA data to improve tax compliance efforts and reduce tax revenue loss from income generated from offshore assets. At the same time, IRS has stopped following its FATCA Compliance Roadmap it developed in 2016 because, according to IRS officials, IRS moved away from updating broad strategy documents to focus on individual compliance campaigns. However, in light of the challenges IRS continues to face in fully integrating FATCA information into its compliance programs, it will not maximize use of such information and effectively leverage individual compliance campaigns unless it employs a comprehensive plan that enables IRS to better leverage such campaigns to improve taxpayer compliance. Our analysis of available data indicates that many of the Forms 8938 filed in tax year 2016 may have been filed unnecessarily. Factors that are contributing to this unnecessary reporting are unclear. While IRS has provided instructions and guidance on its website for completing Form 8938, focus group participants and tax practitioners reported confusion on whether and how to report investments in foreign accounts. Taking steps to identify and address factors contributing to unnecessary Form 8938 reporting would help reduce taxpayer burden and reduce processing costs for IRS. Reporting requirements for foreign financial assets under FATCA overlap with reporting requirements under FBAR. These overlapping requirements—implemented under two different statutes—have resulted in most taxpayers filing Forms 8938 also filing FBARs with FinCEN. Duplicative filings on foreign financial assets cause confusion, frustration, and compliance burdens for taxpayers. Duplicative filings also increased costs to the government to process and store the same or similar information. Modifying the statutes governing the requirements can fully address the issues outlined above, and can allow for the use of FATCA information for prevention and detection of financial crimes. This is similar to other statutory allowances for IRS to disclose return information for other purposes, such as for determining Social Security income tax withholding. Lastly, FATCA has created challenges for some U.S. persons living abroad that go beyond increasing their tax compliance burdens. Some U.S. persons living abroad are still facing issues accessing financial services and employment and obtaining SSNs. Treasury, State, and SSA have taken some steps to address these issues both separately and in coordination with each other. However, Treasury, as the agency ultimately responsible for effective administration of FATCA, currently lacks a collaborative mechanism with State and SSA to address ongoing issues. Establishing a formal means to collaboratively address burdens faced by Americans abroad from FATCA can help agencies develop effective solutions to mitigate such burdens. We are making the following matter for congressional consideration: Congress should consider amending the Internal Revenue Code, Bank Secrecy Act of 1970, and other statutes, as needed, to address overlap in foreign financial asset reporting requirements for the purposes of tax compliance and detection, and prevention of financial crimes, such as by aligning the types of assets to be reported and asset reporting thresholds, and ensuring appropriate access to the reported information. We are making the following four recommendations to IRS: The Commissioner of Internal Revenue should develop a plan to mitigate risks with compliance activities due to the lack of accurate and complete TINs of U.S. account holders collected from FFIs. (Recommendation 1) The Commissioner of Internal Revenue should ensure that appropriate business units conducting compliance enforcement and research have access to consistent and complete data collected from individuals’ electronic and paper filings of Form 8938 and elements of parent individual tax returns. As part of this effort, the Commissioner should ensure that IRS provides clear guidance to the business units for accessing such data in IRS’s Compliance Data Warehouse. (Recommendation 2) The Commissioner of Internal Revenue should employ a comprehensive plan for managing efforts to leverage FATCA data in agency compliance efforts. The plan should document and track activities over time to ensure individuals and FFIs comply with FATCA reporting assess and mitigate data quality risks from FFIs; improve the quality, management, and accessibility of FATCA data for compliance, research, and other purposes; and establish, monitor, and evaluate compliance efforts involving FATCA data intended to improve voluntary compliance and address noncompliance with FATCA reporting requirements. (Recommendation 3) The Commissioner of Internal Revenue should assess factors contributing to unnecessary Form 8938 reporting and take steps, as appropriate, to address the issue. Depending on the results of the assessment, potential options may include: identifying and implementing steps to further clarify IRS Form 8938 instructions and related guidance on IRS’s website on determining what foreign financial assets to report, and how to calculate and report asset values subject to reporting thresholds; and conducting additional outreach to educate taxpayers on required reporting thresholds, including notifying taxpayers that may have unnecessarily filed an IRS Form 8938 to reduce such filings. (Recommendation 4) We are also making the following recommendation to Treasury: The Secretary of the Treasury should lead efforts, in coordination with the Secretary of State and Commissioner of Social Security, to establish a formal means to collaboratively address ongoing issues— including issues accessing financial services and employment and obtaining SSNs—that U.S. persons living abroad encounter from implementation of FATCA reporting requirements. (Recommendation 5) We are also making the following recommendation to State: The Secretary of State, in coordination with the Secretary of the Treasury and Commissioner of Social Security, should establish a formal means to collaboratively address ongoing issues—including issues accessing financial services and employment and obtaining SSNs—that U.S. persons living abroad encounter from implementation of FATCA reporting requirements. (Recommendation 6) We are also making the following recommendation to SSA: The Commissioner of Social Security, in coordination with the Secretaries of State and Treasury, should establish a formal means to collaboratively address ongoing issues—including issues accessing financial services and employment and obtaining SSNs—that U.S. persons living abroad encounter from implementation of FATCA reporting requirements. (Recommendation 7) We provided a draft of this report to the Secretaries of State and the Treasury, Commissioner of Internal Revenue, and Acting Commissioner of Social Security. IRS provided written comments that are summarized below and reprinted in appendix VI. IRS did not state whether it agreed or disagreed with our four recommendations but otherwise provided responses. Regarding our recommendation to develop a plan to mitigate risks with compliance activities due to the lack of accurate and complete TINs of U.S. account holders collected from FFIs (recommendation 1), IRS reiterated that it provided a transition period, through the end of 2019, for compliance with the TIN requirements for FFIs in countries with Model 1 IGAs with the United States. IRS also said that it continued to make progress on improving FATCA filing compliance, citing efforts such as initiating a campaign addressing FFIs that do not meet their compliance responsibilities. While these efforts may help IRS obtain more accurate and complete information from financial accounts, IRS did not specify how it will mitigate the ongoing hurdles it faces in matching accounts reported by FFIs without valid TINs to accounts reported by individual tax filers and ensure compliance. Regarding our recommendation that appropriate business units have access to consistent and complete data collected from Forms 8938 and tax returns filed by individuals (recommendation 2), IRS reiterated that RAAS has been working to obtain read-only access to the IPM database but that limited budgetary resources are delaying implementation. Enabling access to consistent and complete Form 8938 and tax return data would help IRS better target compliance initiatives and leverage limited available enforcement resources. While IRS continues to work on enabling access to IPM, it could still provide clear guidance to its business units for accessing Form 8938 and tax return data in IRS’s Compliance Data Warehouse, as we recommended. Regarding our recommendation to employ a comprehensive plan for managing efforts to leverage FATCA data in agency compliance efforts (recommendation 3), IRS said the resources that would be required to develop a comprehensive plan would be better spent on enforcement activities. While implementing enforcement activities could increase compliance with FATCA reporting requirements, it risks not maximizing the value of such efforts without a comprehensive plan to manage and address the myriad of challenges discussed in this report. Further, it is our belief that IRS’s failure to execute the FATCA roadmap is not justification for abandoning a strategic approach going forward. Regarding our recommendation to assess factors contributing to unnecessary Form 8938 reporting and take appropriate steps to address the issue (recommendation 4), IRS said it will continue to observe filings of Form 8938 and, to the extent that there are unnecessary filings, assess options to inform account holders to reduce reporting and filing burdens followed by appropriate steps to implement any selected options. Our analysis of available data indicates that many Forms 8938 may have been filed unnecessarily. Implementing our recommendation reduces the risk that taxpayers file—and IRS processes—forms unnecessarily. Treasury provided written comments but did not state whether it agreed or disagreed with our recommendation that it lead efforts, in coordination with State and SSA, to establish a formal means to collaboratively address ongoing issues that U.S. persons living abroad encounter from implementation of FATCA reporting requirements (recommendation 5). Treasury said it will work collaboratively with State and SSA to answer questions that Americans abroad have regarding their tax obligations and, where appropriate, to direct U.S. citizens to resources that will help them understand the procedures applied by SSA to apply for an SSN. However, Treasury said it is not the appropriate agency to lead coordination efforts involving foreign employment issues and issues regarding access to foreign financial services and obtaining SSNs. As we noted above, Treasury is ultimately responsible for effective administration of FATCA. As such, it is in a better position than State or SSA to adjust regulations and guidance implementing FATCA to address burdens FFIs and foreign employers face from FATCA implementation while ensuring tax compliance. Additionally, Treasury has an interest in helping U.S. persons receive valid SSNs from SSA in a timely manner to meet their tax obligations. Treasury’s written response is reprinted in appendix VII. State and SSA also provided written comments in which they concurred with our recommendations to establish a formal means to address collaboratively together with Treasury ongoing issues that U.S. persons living abroad encounter with FATCA (recommendations 6 and 7). State and SSA’s written comments are reprinted in appendices VIII and IX, respectively. Treasury, State, and SSA provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretaries of State and the Treasury, Commissioner of Internal Revenue, Acting Commissioner of Social Security, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who contributed to this report are listed in appendix X. The objectives of this report are to (1) assess the Internal Revenue Service’s (IRS) efforts to use information collected under the Foreign Account Tax Compliance Act (FATCA) to improve taxpayer compliance; (2) examine available foreign financial asset reports submitted by U.S. persons, including submissions that were below required filing thresholds; (3) examine the extent to which the Department of the Treasury (Treasury) administers overlapping reporting requirements on foreign financial assets; (4) describe similarities and differences between FATCA and Common Reporting Standard (CRS) reporting requirements; and (5) examine the effects of FATCA implementation that are unique to U.S. persons living abroad. For our first objective, we reviewed Treasury Inspector General for Tax Administration reports and collected information from Treasury and IRS to summarize efforts to collect complete and valid Taxpayer Identification Numbers (TIN) from foreign financial institutions (FFI). We identified criteria from our prior work identifying key practices for risk management. The key practices are derived from the Software Engineering Institute’s Capability Maturity Model® Integration for Development and Office of Management and Budget guidance. We applied these criteria to assess steps IRS has taken to manage risks in not receiving complete and valid TIN information from FFIs. We also applied criteria from our prior work on use of documented frameworks to IRS documentation on FATCA compliance activities to determine the extent to which IRS implemented a comprehensive plan to maximize use of collected data to enforce compliance with FATCA. For our second objective, we identified total maximum account values reported by individual filers of Financial Crimes Enforcement Network (FinCEN) Form 114s (commonly known as the Report of Foreign Bank and Financial Accounts, or FBAR) in calendar years 2015 and 2016. See appendix III for more details on our methodology to evaluate these data. We also summarized the numbers of IRS Forms 8938, Statement of Specified Foreign Financial Assets (Form 8938) filed in tax year 2016, accounting for the data limitations described below. We also identified Forms 8938 filed in tax year 2016—the most recent year for which data were available—with available residency and asset information that reported specified foreign financial assets with aggregate values at or below end-of-year tax thresholds, which vary depending on the location of residence and filing status of such filers. For our third objective, we reviewed IRS and FinCEN documentation, and applied criteria from Fragmentation, Overlap, and Duplication: An Evaluation and Management Guide to identify the extent to which IRS and FinCEN were engaged in overlapping activities, and collecting duplicative information on foreign financial assets held by U.S. persons. We assessed the extent to which individual filers who submitted a Form 8938 in 2015 and 2016 also submitted an FBAR for the same year by determining the number and percentage of Forms 8938 with TINs that also match the TIN listed on the corresponding FBAR for the same year. For the three objectives described above, we assessed the reliability of data submitted on Forms 8938 filed by individuals for tax years 2015 and 2016, the most recent data available. These data were extracted from IRS’s Individual Return Transaction File (IRTF) and Modernized Tax Return Database (MTRDB) through IRS’s Compliance Data Warehouse (CDW). We also assessed the reliability of data from FBARs for calendar years 2015 and 2016 by (1) reviewing documentation about the data and the systems that produced them; (2) conducting electronic tests, such as identifying data with significant numbers of missing Form 8938 or FBAR records, or values of foreign financial assets reported outside an expected range; (3) tracing selections or random samples of data to source documents; and (4) interviewing IRS and FinCEN officials knowledgeable about the data. We also reviewed Form 8938 and relevant parent tax return data stored in IRS databases to determine whether IRS management is using quality information collected from Forms 8938 to achieve its objectives, as defined in our Standards for Internal Control in the Federal Government. We determined that data extracted from IRTF on characteristics of Form 8938 filers and from FBAR filings was sufficiently reliable for our purposes, subject to caveats identified in this report. However, we determined we could not obtain complete data on foreign financial assets reported on Forms 8938 filed on paper. For our fourth objective, we reviewed model international agreements and other documentation, and interviewed officials from Treasury, IRS, and the Organisation for Economic Co-operation and Development to compare and contrast FATCA and CRS reporting requirements. We also used the collected information to identify what changes, if any, the United States and other countries could implement to align FATCA and CRS reporting requirements. For our fifth objective, we collected documentation and conducted focus groups and semi-structured interviews with 21 U.S. persons living abroad that were subject to FATCA reporting requirements. We also conducted focus groups and interviews with tax practitioners, banking and CPA organizations, government agencies, advocacy groups representing Americans living abroad, and other organizations from the United States and five other countries (Canada, Japan, Singapore, Switzerland, and the United Kingdom). We selected these countries based on geography, relatively high numbers of U.S. expatriates and Form 8938 filers, tax information sharing agreements, and other tax treaties with the United States. The findings from the focus groups and interviews are not generalizable to other U.S. persons, tax practitioners or organizations, but were selected to represent the viewpoints of U.S. persons, FFIs, and host country tax authorities required to transmit information on foreign accounts and other specified foreign financial assets to IRS. We conducted a thematic analysis of the focus groups and interviews, and reviewed cables from U.S. embassies to identify the unique effects of FATCA implementation on U.S. persons living abroad. We collected documentation from and interviewed Treasury, IRS, Department of State, and Social Security Administration officials on steps to monitor and mitigate such effects. We also identified criteria from our prior work on key practices to enhance and sustain interagency collaboration and mechanisms to facilitate coordination. We applied the criteria to agencies’ collaborative efforts addressing issues U.S. persons living abroad faced from FATCA’s implementation, and identified the extent to which agencies established effective collaborative mechanisms to identify, assess, and implement cross-agency solutions to such issues. We conducted this performance audit from August 2017 to April 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The following IRS databases store data collected from individuals’ electronic and paper filings of Forms 8938 and/or elements of individual parent tax returns—the filer’s address and filing status—used to determine specified reporting thresholds for Form 8938 filers: Individual Master File (IMF), which serves as IRS’s system for processing individual taxpayer account data. Using this system, accounts are updated, taxes are assessed, and refunds are generated as required during each tax-filing period. Individual Returns Transaction File (IRTF), which stores edited, transcribed, and error-corrected data from the Form 1040 series and related forms for the current processing year and two prior years. Modernized Tax Return Database (MTRDB), which serves as the official repository of all electronic returns processed through IRS’s Modernized e-File system. Tax return data is stored immediately after returns are processed. International Compliance Management Model (ICMM)-FATCA International Returns (ICMM-FIR), which collects, parses, and stores data from incoming form reports–such as Forms 8938 and 8966–into the FATCA Database (FDB), which serves as the repository where ICMM-FIR stores data and from which downstream applications can pull data. Integrated Production Model (IPM), which is a downstream data repository that houses IMF data, information returns, and other data. According to IRS officials, data from IPM are consolidated and made available to a variety of downstream, security certified, systems for use in conducive analysis, case selection, and report preparation. Additionally, data from these and other IRS databases are copied to IRS’s Compliance Data Warehouse (CDW) periodically, which captures data from multiple production systems and organizes the data in a way that is conductive to analysis. Table 6 highlights several problems with the consistency and completeness of Form 8938 and relevant parent tax return data stored across the listed databases. Inconsistent and incomplete data on address and filing status of Form 8938 filers: As noted above, elements of parent tax returns— specifically the filer’s country of residence and filing status—are used to determine specified reporting thresholds for Form 8938 filers. However, IRTF and MTRDB have inconsistent and incomplete data on addresses linked to Form 8938 filers, and report inconsistent numbers of Forms 8938 filed from a U.S. residence. For example, the variable identified as containing data on foreign countries of residence in IRTF shows approximately 8,100 foreign filers in tax years 2015 and 2016, whereas a similar variable in MTRDB shows approximately 89,000 foreign filers for those same years. Additionally, FDB does not contain country codes from paper filings of Form 8938. ICCM-FIR stores information from some elements from parent tax returns—such as TINs and document locator numbers. According to IRS officials, however, ICMM-FIR lacks data on country codes and filing status of Form 8938 filers. IRS officials said that ICMM-FIR was not designed or intended to store data on Form 8938 filers; rather, it was designed to be a database for use in comparing Form 8938 and 8966 data. In general, IRS officials indicated that they would like to adjust the way ICMM-FIR stores data, but that would require modifying the way the database was established. Incomplete data on assets reported on Forms 8938: MTRDB contains detailed information on specified foreign financial assets submitted on electronic filings of Form 8938 and the country code from which the Form 8938 was filed. IRS officials said it is not designed to store information submitted on paper filings of Forms 8938 and parent tax returns. IRS officials said that while IMF processes information transcribed from individual income tax returns, there is no requirement to cross-reference information from the tax return with information submitted with an accompanying Form 8938. Additionally, while IRS officials told us that IRTF is the authoritative source for filers of Form 8938, it does not store account and other asset information submitted from Forms 8938. When asked whether there is any move to store account and other asset information collected from Forms 8938 into IRTF, IRS officials said that the decision on what returns or portions of returns are transcribed are subject to resource constraints and are prioritized from year to year. Table 7 shows that more than 900,000 individuals filed Financial Crimes Enforcement Network (FinCEN) Form 114s (commonly known as the Report of Foreign Bank and Financial Accounts, or FBAR) in calendar years 2015 and 2016, and declared total maximum values of accounts ranging from about $1.5 trillion to more than $2 trillion each year. We are providing a range of estimates because we found a large number of filings made potentially in error. In some cases, for instance, FBAR filers reported more than $100 trillion in foreign financial accounts. We assume many of these filings are likely made in error, but have only limited means to determine which filings have errors, and which filings have accurate information. Because we cannot independently verify the accuracy of all self-reported FBAR data, we decided to present a range of data with (1) a lower bound discarding all FBAR filings reporting total values of reported foreign financial accounts at or above $1 billion; and (2) an upper bound discarding all filings reporting total values of such accounts at or above $5 billion. Table 2 excludes amended and duplicated FBAR filings. This table also excludes FBAR filings that reported a financial interest in 25 or more financial accounts, but reported total maximum account values of $0 from parts II and III of the FBAR. Although we identified problems with the data, we determined they were reliable enough to provide an estimated range of asset values to report the scale of foreign financial accounts held by U.S. persons. Table 8 shows a detailed breakdown of 2015 and 2016 FBAR filings by residence and categories of total maximum account values reported on the FBARs. Appendix IV: Detailed Comparison of Individual Foreign Financial Asset Reporting Requirements 26 U.S.C. § 6038D; 26 C.F.R. §§ 1.6038D-1 to 1.6038D-8. 26 C.F.R. § 1.6038D-2. Filers in this category include those who identify as single, married filing separately, “head of household,” or “qualifying widow(er).” Includes maximum value of specified foreign financial assets (Form 8938) or maximum value of financial accounts maintained by a financial institution physically located in a foreign country (FBAR). Under FATCA, any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account are or would be required to be reported, included, or otherwise reflected on a person’s income tax return. Under FBAR reporting requirements, a person has signature or other authority if he or she has the authority (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained. The account itself is subject to reporting, but the contents of the account do not have to be separately reported. In addition to the contact named above, Brian James (Assistant Director), Mark Ryan (Analyst-in-Charge), Ariana Graham, George Guttman, Krista Loose, Daniel Mahoney, Cynthia Saunders, A.J. Stephens, and Elwood White made key contributions to this report. Michael John Bechetti, Ted Burik, and Jacqueline Chapin also provided assistance.	[ "Concerns over efforts by U.S. taxpayers to use offshore accounts to hide income or evade taxes contributed to the passage of FATCA in 2010, which sought to create greater transparency and accountability over offshore assets held by U.S. taxpayers. House Report 114-624 included a provision for GAO to evaluate FATCA implementation and determine the effects of FATCA on U.S. citizens living abroad. GAO—among other things—(1) assessed IRS's efforts to use FATCA-related information to improve taxpayer compliance; (2) examined the extent to which Treasury administers overlapping reporting requirements on financial assets held overseas; and (3) examined the effects of FATCA implementation unique to U.S. persons living abroad. GAO reviewed applicable documentation; analyzed tax data; and interviewed officials from IRS, other federal agencies and organizations, selected tax practitioners, and more than 20 U.S. persons living overseas. Data quality and management issues have limited the effectiveness of the Internal Revenue Service's (IRS) efforts to improve taxpayer compliance using foreign financial asset data collected under the Foreign Account Tax Compliance Act (FATCA). Specifically, IRS has had difficulties matching the information reported by foreign financial institutions (FFI) with U.S. taxpayers' tax filings due to missing or inaccurate Taxpayer Identification Numbers provided by FFIs. Further, IRS lacks access to consistent and complete data on foreign financial assets and other data reported in tax filings by U.S. persons, in part, because some IRS databases do not store foreign asset data reported from paper filings. IRS has also stopped pursuing a comprehensive plan to leverage FATCA data to improve taxpayer compliance because, according to IRS officials, IRS moved away from updating broad strategy documents to focus on individual compliance campaigns. Ensuring access to consistent and complete data collected from U.S. persons—and employing a plan to leverage such data—would help IRS better leverage such campaigns and increase taxpayer compliance. Due to overlapping statutory reporting requirements, IRS and the Financial Crimes Enforcement Network (FinCEN)—both within the Department of the Treasury (Treasury)—collect duplicative foreign financial account and other asset information from U.S. persons. Consequently, in tax years 2015 and 2016, close to 75 percent of U.S. persons who reported information on foreign accounts and other assets on their tax returns also filed a separate form with FinCEN. The overlapping requirements increase the compliance burden on U.S. persons and add complexity that can create confusion, potentially resulting in inaccurate or unnecessary reporting. Modifying the statutes governing the requirements to allow for the sharing of FATCA information for the prevention and detection of financial crimes would eliminate the need for duplicative reporting. This is similar to other statutory allowances for IRS to disclose return information for other purposes, such as for determining Social Security income tax withholding. According to documents GAO reviewed, and focus groups and interviews GAO conducted, FFIs closed some U.S. persons' existing accounts or denied them opportunities to open new accounts after FATCA was enacted due to increased costs, and risks they pose under FATCA reporting requirements. According to Department of State (State) data, annual approvals of renunciations of U.S. citizenship increased from 1,601 to 4,449—or nearly 178 percent—from 2011 through 2016, attributable in part to the difficulties cited above. Treasury previously established joint strategies with State to address challenges U.S. persons faced in accessing foreign financial services. However, it lacks a collaborative mechanism to coordinate efforts with other agencies to address ongoing challenges in accessing such services or obtaining Social Security Numbers. Implementation of a formal means to collaboratively address burdens faced by Americans abroad from FATCA can help federal agencies develop more effective solutions to mitigate such burdens by monitoring and sharing information on such issues, and jointly developing and implementing steps to address them. GAO is making one matter for congressional consideration to address overlap in foreign asset reporting requirements. GAO is making seven recommendations to IRS and other agencies to enhance IRS's ability to leverage FATCA data to enforce compliance, address unnecessary reporting, and better collaborate to mitigate burdens on U.S. persons living abroad. State and Social Security Administration agreed with GAO's recommendations. Treasury and IRS neither agreed nor disagreed with GAO's recommendations." ]	13,388	gov_report	en	null	21a88b8ac5c42a6f566eadadaeaf2f727d9d01024b2dcd3b
This report provides background information and potential oversight issues for Congress on war-related and other international emergency or contingency-designated funding since FY2001. Since the terrorist attacks of September 11, 2001, Congress has appropriated approximately $2 trillion in discretionary budget authority designated for emergencies or OCO/GWOT in support of the broad U.S. government response to the 9/11 attacks and for other related international affairs activities. This figure includes $1.8 trillion for the Department of Defense (DOD), $154 billion for the Department of State and U.S. Agency for International Development (USAID), and $3 billion for the Department of Homeland Security (DHS) and Coast Guard (see Figure 1 ). This CRS report is meant to serve as a reference on certain funding designated as emergency requirement s or for Overseas Contingency Ope rations/Global War on Terrorism (OCO/GWOT), as well as related budgetary and policy issues. It does not provide an estimate of war costs within the OCO/GWOT account (all of which may not be for activities associated with war or defense) or such costs in the DOD base budget or other agency funding (which may be related to war activities, such as the cost of health care for combat veterans). For additional information on the FY2019 budget and related issues, see CRS Report R45202, The Federal Budget: Overview and Issues for FY2019 and Beyond , by [author name scrubbed]; CRS In Focus IF10942, FY2019 National Defense Authorization Act: An Overview of H.R. 5515 , by [author name scrubbed] and [author name scrubbed]; and CRS Report R45168, Department of State, Foreign Operations and Related Programs: FY2019 Budget and Appropriations , by [author name scrubbed], [author name scrubbed], and [author name scrubbed]. For additional information on the Budget Control Act as amended, see CRS Report R44874, The Budget Control Act: Frequently Asked Questions , by [author name scrubbed] and [author name scrubbed], and CRS Report R44039, The Defense Budget and the Budget Control Act: Frequently Asked Questions , by [author name scrubbed]. For additional information on U.S. policy in Afghanistan and the Middle East, see CRS Report R45122, Afghanistan: Background and U.S. Policy , by [author name scrubbed], CRS Report R45096, Iraq: Issues in the 115th Congress , by [author name scrubbed], and CRS Report RL33487, Armed Conflict in Syria: Overview and U.S. Response , coordinated by [author name scrubbed]. Congress may consider one or more supplemental appropriations bills (colloquially called supplementals) for a fiscal year to provide funding for unforeseen needs (such as a response to a national security threat or a natural disaster), or to increase appropriations for other activities that have already been funded. Supplemental appropriations measures generally provide additional funding for selected activities over and above the amount provided through annual or continuing appropriations. Throughout the 20 th century, Congress relied on supplemental appropriations to fund war-related activities, particularly in the period immediately following the start of hostilities. For example, in 1951, a year after the start of the Korean War, Congress approved DOD supplemental appropriations totaling $32.8 billion ($268 billion in constant FY2019 dollars). In 1952, DOD supplemental appropriations totaled just $1.4 billion ($11 billion in constant FY2019), as the base budget incorporated costs related to the war effort. A similar pattern occurred, to varying degrees, during the Vietnam War and 1990-1991 Gulf War. During the post-9/11 conflicts, primarily conducted in Afghanistan and Iraq but also in other countries, Congress has, for an extended period and to a much greater degree than in previous conflicts in the 20 th century, appropriated supplemental and specially designated funding over and above the base DOD budget—that is, funding for planned or regularly occurring costs to man, train, and equip the military force. Since FY2001, DOD funding designated for OCO/GWOT has averaged 17% of the department's total budget authority (see Figure 2 ). By comparison, during the conflict in Vietnam—the only other to last more than a decade—DOD funding designated for non-base activities averaged 6% of the department's total budget authority. Supplemental appropriations can provide flexibility for policymakers to address demands that arise after funding has been appropriated. However, that flexibility has caused some to question whether supplementals should only be used to respond to unforeseen events, or whether they should also provide funding for activities that could reasonably be covered in regular appropriations acts. Congress used supplemental appropriations to provide funds for defense and foreign affairs activities related to operations in Afghanistan and Iraq following 9/11, and each subsequent fiscal year through FY2010. Initially understood as reflecting needs that were not anticipated during the regular appropriations cycle, supplemental appropriations were generally enacted as requested, and almost always designated as emergency requirements. Beginning in FY2004, DOD received some of its war-related funding in its regular annual appropriations; these funds were designated as emergency. When funding needs for war and non-war-related activities were higher than anticipated, the Bush Administration submitted supplemental requests. In the FY2011 appropriations cycle, the Obama Administration moved away from submitting supplemental appropriations requests to Congress for war-related activities and used the regular budget and appropriation process to fund operations. This approach implied that while the funds might be war-related, they largely supported predictable ongoing activities rather than unanticipated needs. In concert with this change in budgetary approach, the Obama Administration began formally using the term Overseas Contingency Op erations in place of the Bush Administration's term Global War on Terror . Both the Obama and Trump Administrations requested that OCO funding be designated in a manner that would effectively exempt such funding from the BCA limits on discretionary defense spending. Currently, there is no overall procedural or statutory limit on the amount of emergency or OCO/GWOT-designated spending that may be appropriated on an annual basis. Both Congress and the President have roles in determining how much emergency or OCO/GWOT spending is provided to federal agencies each fiscal year. Such spending must be designated as such within the President's budget request for congressional consideration. The President must separately designate the spending after Congress enacts appropriations for it to be available for expenditure. The emergency funding designation predated the OCO/GWOT designation. Through definitions statutorily established by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177 ), spending designated as emergency requirements is for "unanticipated" purposes, such as those that are "sudden ... urgent ... unforeseen ... and temporary." The BBEDCA does not further specify the types of activities that are eligible for that designation. Thus, any discretionary funding designated by Congress and the President as being for an emergency is effectively exempted from certain statutory and procedural budget enforcement mechanisms, such as the BCA limits on discretionary spending. Debate of what should constitute OCO/GWOT or emergency activities and expenses has shifted over time, reflecting differing viewpoints about the extent, nature, and duration of U.S. military operations in Afghanistan, Iraq, Syria, and elsewhere. Over the years, both Congress and the President have at times adopted more, and at times less, expansive definitions of such designations to accommodate the strategic, budgetary, and political needs of the moment. Prior to February 2009, U.S. operations in response to the 9/11 attacks were collectively referred to as the Global War on Terror , or GWOT. Between September 2001 and February 2009, there was no separate budgetary designation for GWOT funds—instead, funding associated with those operations was designated as an emergency requirement. The term OCO was not applied to the post-9/11 military operations in Iraq and Afghanistan until 2009. In February 2009, the Obama Administration released A New Era of Responsibili ty: Renewing America's Promise , a presidential fiscal policy document. That document did not mention or reference GWOT; instead, it used the term OCO in reference to ongoing military operations in Iraq and Afghanistan. The first request for emergency funding for OCO—not GWOT—was delivered to Congress in April 2009. Since the FY2010 budget cycle, DOD has requested both base budget and OCO funding as part of its annual budget submission to Congress. Beginning with the National Defense Authorization Act for Fiscal Year 2010 (NDAA; P.L. 111-84 ), the annual defense authorization bills have referenced the authorization of additional appropriations for OCO rather than the names of U.S. military operations conducted primarily in Afghanistan and Iraq. In 2011, the BCA ( P.L. 112-125 ) amended the BBEDCA to create the Overseas Contingency Ope rations/Global War on Terrorism designation, which provided Congress and the President with an alternate way to exempt funding from the BCA caps without using the emergency designation. Beginning with the Consolidated Appropriations Act, 2012 ( P.L. 112-74 ), annual appropriations bills have referenced the OCO/GWOT designation. The foreign affairs agencies began formally requesting OCO/GWOT funding in FY2012, distinguishing between what is referred to as enduring, ongoing or base costs versus any extraordinary, temporary costs of the State Department and USAID in supporting ongoing U.S. operations and policies in Iraq, Afghanistan, and Pakistan. Congress, having used OCO/GWOT exemption for DOD, adopted this approach for foreign affairs, though its uses for State, Foreign Operations, and Related Programs (SFOPS) activities have never been permanently defined in statute. For the first foreign affairs OCO/GWOT appropriation, in FY2012, funds were provided for a wide range of recipient countries beyond the countries in the President's request, including Yemen, Somalia, Kenya, and the Philippines. In addition to country-specific uses, OCO/GWOT-designated funds were also appropriated for the Global Security Contingency Fund. All budgetary legislation is subject to a set of enforcement procedures associated with the Congressional Budget Act of 1974 ( P.L. 93-344 ), as well as other rules, such as those imposed by the Budget Control Act of 2011 ( P.L. 112-125 ) as amended. Those rules provide mechanisms to enforce both procedural and statutory limits on discretionary spending. Enacted on August 2, 2011, the BCA as amended sets limits on defense and nondefense spending. As part of an agreement to increase the statutory limit on public debt, the BCA aimed to reduce annual federal budget deficits by a total of at least $2.1 trillion from FY2012 through FY2021, with approximately half of the savings to come from defense. The spending limits (or caps ) apply separately to defense and nondefense discretionary budget authority. The caps are enforced by a mechanism called sequestration . Sequestration automatically cancels previously enacted appropriations (a form of budget authority) by an amount necessary to reach prespecified levels. The BCA effectively exempted certain types of discretionary spending from the statutory limits, including funding designated for OCO/GWOT. As a result, Congress and the President have designated funding for OCO to support activities that, in previous times, had been funded within the base budget. This was done, in part, as a response to the discretionary spending limits enacted by the BCA. By designating funding for OCO for certain activities not directly related to contingency operations, Congress and the President can effectively continue to increase topline defense, foreign affairs, and other related discretionary spending without triggering sequestration. Congress has repeatedly amended the legislation to raise the spending limits (thus lowering its deficit-reduction effect by corresponding amounts). Congress has passed four bills that revised the automatic spending caps initially established by the BCA, including the following: American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 ); Bipartisan Budget Act of 2013 (BBA 2013; P.L. 113-67 ); Bipartisan Budget Act of 2015 (BBA 2015; P.L. 114-74 ); and Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ). On February 9, 2018, three days before President Donald Trump submitted his FY2019 budget request, Congress passed the Bipartisan Budget Act of 2018 (BBA 2018, P.L. 115-123 ). The act raised the discretionary spending limits set by the BCA from $1.069 trillion for FY2017 to $1.208 trillion for FY2018 and to $1.244 trillion for FY2019. The BBA 2018 increased FY2019 discretionary defense funding levels (excluding OCO) by the largest amounts to date—$85 billion, from $562 billion to $647 billion, and nondefense funding (including SFOPS) by $68 billion, from $529 billion to $597 billion. It did not change discretionary spending limits for FY2020 and FY2021. DOD documents indicate the department in recent years has used OCO funding for activities viewed as unrelated to war. For example, the department's FY2019 budget request estimates $358 billion in OCO funding from FY2015 through FY2019. Of that amount, DOD categorizes $68 billion (19%) for activities unrelated to operations in Afghanistan, Iraq, and Syria. These activities are described as "EDI/Non-War," referring in part to the European Deterrence Initiative, and "Base-to-OCO," referring to OCO funding used for base-budget requirements. Similarly, a DOD Cost of War report from June 2018 shows $1.8 trillion in war-related appropriations from FY2001 through FY2018 for operations primarily conducted in Afghanistan, Iraq, and Syria. Of that total, DOD categorizes $219 billion (12%) as other than "war funds." These funds are described as "Classified," "Modularity," "Fuel (non-war)," "Noble Eagle (Base)," and "Non-War." International affairs agencies also began increasing the share of their budgets designated for OCO, and applying the designation to an increasing range of activities apparently unrelated to conflicts. OCO as a share of the international affairs budget grew from about 21% in FY2012 to nearly 35% in FY2017. Unlike DOD, however, the State Department and USAID have not specified whether any OCO-designated funds are considered part of the agencies' base budgets. According to a DOD budget document from FY2016, the Obama Administration planned to "transition all enduring costs currently funded in the OCO budget to the base budget beginning in 2017 and ending by 2020." The plan was to describe "which OCO costs should endure as the United States shifts from major combat operations, how the Administration will budget for the uncertainty surrounding unforeseen future crises, and the implications for the base budgets of DOD, the Intelligence Community, and State/OIP. This transition will not be possible if the sequester-level discretionary spending caps remain in place." The BCA remained in effect and OCO funding was used for base-budget requirements. Some defense officials and policymakers say OCO funding enables a flexible and timely response to an emergency or contingency and provides a political and fiscal safety valve to the BCA caps and threat of sequestration. They say if OCO funding were not used in such a manner and discretionary spending limits remained in place, DOD and other federal agencies would be forced to cut base budgets and revise strategic priorities. For example, former Defense Secretary Jim Mattis has said if Congress allows the FY2020 and FY2021 defense spending caps to take effect, the 2018 National Defense Strategy, which calls for the United States to bolster its military advantage against potential competitors such as Russia and China, "is not sustainable." Critics, including Acting White House Chief of Staff Mick Mulvaney, have described the OCO account as a "slush fund" for military and foreign affairs spending unrelated to contingency operations. Mulvaney, former director of the White House Office of Management and Budget (OMB), has described the use of OCO funding for base budget requirements as "budget gimmicks." Critics argue what was once generally restricted to a fund for replacing combat losses of equipment, resupplying expended munitions, transporting troops to and through war zones, and distributing foreign aid to frontline states has "ballooned into an ambiguous part of the budget to which government financiers increasingly turn to pay for other, at times unrelated, costs." OMB criteria for OCO funding include the combat losses of ground vehicles, aircraft, and other equipment; replenishment of munitions expended in combat operations; facilities and infrastructure in the theater of operations; transport of personnel, equipment, and supplies to and from the theater; among other items and activities. Determining which activities are directly related, tangentially related, or unrelated to war operations is often a point of debate. Some have questioned the use of OCO funding to purchase F-35 fighter jets: "It is jumping the shark.... There's no pretense that it has anything to do with the region." Others have argued it makes sense for the military to use OCO funding to purchase new aircraft to replace planes used in current conflicts and no longer in production: "What are the conditions that are making the combatant commanders and those with train/equip authority to say, 'We need more of this?'" Congress has appropriated approximately $2 trillion in discretionary budget authority for war-related and other international emergency or contingency-designated activities since 9/11. This figure is a CRS estimate of funding designated for emergencies or OCO/GWOT in support of the broad U.S. government response to the 9/11 attacks, as well as other foreign affairs activities, from FY2001 through FY2019. This includes $1.8 trillion for DOD, $154 billion for the Department of State and USAID, and $3 billion for DHS and the Coast Guard (see Table 1 ). These figures do not include emergency-designated funding appropriated in this period for domestic programs, such as disaster response. From FY2001 through FY2009, DOD received $1.8 trillion in appropriations for OCO/GWOT, or approximately 17% of the department's total discretionary budget authority of $10.8 trillion during the period. The department's OCO/GWOT funding peaked in FY2008 both in terms of nominal dollars, at $186.9 billion, and as a share of its discretionary budget, at 28.1% (see Figure 3 ), after the Bush Administration surged additional U.S. military personnel to Iraq. The department's OCO funding also increased as a share of its discretionary spending from FY2009 to FY2010 following the Obama Administration's deployment of more U.S. military personnel to Afghanistan, and again in FY2017 following enactment of legislation in response to the Trump Administration's request for additional appropriations. In FY2019, the department's OCO/GWOT funding totaled $68.8 billion, or 10% of its discretionary spending. In terms of appropriations titles, more than two-thirds of OCO/GWOT funding since FY2001 has been for Operation and Maintenance (O&M)—nearly double the percentage of base budget funding for O&M over the same period (see Figure 4 ). O&M funds pay for the operating costs of the military such as fuel, maintenance to repair facilities and equipment, and the mobilization of forces. DOD describes "war-related operational costs" as operations, training, overseas facilities and base support, equipment maintenance, communications, and replacement of combat losses and enhancements. In terms of the military services, more than half (55%) of OCO/GWOT funding since FY2001 has gone to the Army—more than double the percentage of base budget funding for the service during this period (see Figure 5 ). Emergency appropriations were initially provided as general "defense-wide" appropriations. Beginning in FY2003, as operations evolved and planning developed, allocations increased and were specifically provided for the services. OCO funding for DOD has not decreased at the same rate as the number of U.S. troops in Afghanistan, Iraq, and Syria has decreased. For example, the number of U.S. military personnel in Afghanistan, Iraq, and Syria decreased from a peak of 187,000 personnel in FY2008 (including 148,000 in Iraq and 39,000 in Afghanistan) to an assumed level of nearly 18,000 personnel in FY2019 (including 11,958 personnel in Afghanistan and 5,765 personnel in Iraq and Syria)—a decline of approximately 169,000 personnel (90%). Meanwhile, OCO funding decreased from a peak of $187 billion in FY2008 to $69 billion in FY2019—a decline of approximately $118 billion (63%). While the number of U.S. forces in Afghanistan, Iraq, and Syria has decreased since FY2009, the number of U.S. troops deployed or stationed elsewhere to support those personnel has fallen by a lesser degree and, in recent years, remained relatively steady. For example, the number of support forces—that is, personnel from units and forces operating outside of Afghanistan, Iraq, Syria, and other countries (including those stationed in the continental United States or otherwise mobilized) decreased from 112,000 personnel in FY2009 to an assumed level of 76,073 personnel in FY2019—a decline of 35,927 personnel (32%). In addition, when these support forces are combined with in-country force levels, the total force level decreases by a percentage more similar to the OCO budget, from 297,000 personnel in FY2009 to an assumed level of 93,796 personnel in FY2019—a decline of 203,204 personnel (68%) (see Figure 6 ). Some of these support forces serve in U.S. Central Command's area of responsibility, which includes 20 countries in West Asia, North Africa, and Central Asia, and whose forward headquarters is based in Al Udeid Air Base in Qatar. According to DOD, the reason OCO funding has not fallen in proportion to the number of U.S. troops in Afghanistan, Iraq, and Syria is "due to the fixed, and often inelastic, costs of infrastructure, support requirements, and in-theater presence to support contingency operations." For example, in FY2019, the department requested $20 billion in OCO funding for "in-theater support"—nearly 30% of the OCO request and more than any other functional category. However, some analysts have noted the U.S. military's fixed costs in Afghanistan remained relatively stable at roughly $7 billion a year from FY2005 through FY2013 until after the BCA went into effect—and have since increased to roughly $32 billion a year, suggesting "that roughly $25 billion in 'enduring' or base budget costs migrated into the Afghanistan budget, effectively circumventing the budget caps. The actual funding needed for operations in Afghanistan is roughly $20 billion in FY2019." Title 10, Section 101, of the United States Code, defines a contingency operation as any Secretary of Defense-designated military operation "in which members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy of the United States or against an opposing military force." Since the 1990s NATO intervention in the Balkans, DOD Financial Management Regulations (FMR) have defined contingency operations costs as those expenses necessary to cover incremental costs "that would not have been incurred had the contingency operation not been supported." Such incremental costs would not include, for example, base pay for troops or planned equipment modernization, as those expenditures are normal peacetime needs of the DOD. In September 2010, the Office of Management and Budget (OMB), in collaboration with DOD, issued criteria for the department to use in making war/overseas contingency operations funding requests (see Appendix A ). In January 2017, the Government Accountability Office (GAO) concluded the criteria for deciding whether items belong in the base budget or OCO funding "are outdated and do not address the full scope of activities" in the budget request. "For example, they do not address geographic areas such as Syria and Libya, where DOD has begun military operations; DOD's deterrence and counterterrorism initiatives; or requests for OCO funding to support requirements not related to ongoing contingency operations" it states. Section 1524 of the National Defense Authorization Act for Fiscal Year 2018 ( P.L. 115-91 ), directed the Secretary of Defense to "update the guidelines regarding the budget items that may be covered by overseas contingency operations accounts." Congress has enacted legislation directing DOD to compile reports on the costs of certain contingency operations. Section 1266 of the National Defense Authorization Act for Fiscal Year 2018 ( P.L. 115-91 ) directs the Secretary of Defense to submit the Department of Defense Supplemental and Cost of War Execution report, known as the Cost of War report, on a quarterly basis to the congressional defense committees and the GAO: "Not later than 45 days after the end of each fiscal year quarter, the Secretary of Defense shall submit to the congressional defense committees and the Comptroller General of the United States the Department of Defense Supplemental and Cost of War Execution report for such fiscal year quarter." The conference report accompanying the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019 ( P.L. 115-245 ) requires DOD to report incremental costs for operations in Afghanistan, Iraq, and other countries in the U.S. Central Command area of responsibility and directs: the Secretary of Defense to continue to report incremental costs for all named operations in the Central Command Area of Responsibility on a quarterly basis and to submit, also on a quarterly basis, commitment, obligation, and expenditure data for the Afghanistan Security Forces Fund, the Counter-Islamic State of Iraq and Syria Train and Equip Fund, and for all security cooperation programs funded under the Defense Security Cooperation Agency in the Operation and Maintenance, Defense-Wide Account. DOD's June 2018 Cost of War report to Congress details $1.5 trillion in obligations associated with certain contingency operations from FY2001 through FY2018. That figure includes $757.1 billion for those conducted primarily in Iraq—Operation Iraqi Freedom (OIF), Operation New Dawn (OND), and Operation Inherent Resolve (OIR); $727.7 billion for those conducted primarily in Afghanistan—Operation Enduring Freedom (OEF) and Operation Freedom's Sentinel (OFS); and $27.8 billion for those conducted primarily in the United States (see Table 2 and Figure 7 ). DOD's quarterly Cost of War reports are intended to provide Congress, GAO, and other stakeholders insight into the how the department obligates war-related appropriations. The reports include base and OCO obligations related to war activities, as well as obligation data broken down by certain major operations, service, component, agency, and appropriation. However, as GAO has noted, "the proportion of OCO appropriations not associated with specific operations identified in the statutory Cost of War reporting requirement has trended upward" in part because the criteria DOD uses for making OCO funding requests is outdated and not always used. More recently, the June 2018 Cost of War report does not appear to reference three recently classified overseas contingency operations targeting militants affiliated with al-Qaeda and the Islamic State of Iraq and Syria (ISIS): Operation Yukon Journey in the Middle East, Northwest Africa Counterterrorism, and East Africa Counterterrorism. Some observers have noted other limitations to Cost of War reports, such as incomplete accounting of costs, limited distribution of the documents and underlying data, and formatting that makes it difficult to reconcile the data with information contained in budget justification documents. Between FY2001 and FY2018, Congress appropriated a total of $154 billion in OCO funds for State Department and USAID. For FY2018 (the most recent full-year appropriations for foreign affairs agencies), OCO funding amounted to 22% of the total appropriations for State Department, Foreign Operations and Related Programs appropriation. The Obama Administration's FY2012 International Affairs budget request was the first to include a request for OCO funds for "extraordinary and temporary costs of operations in Iraq, Afghanistan, and Pakistan." At the time, the Administration indicated that the use of this designation was intended to provide a transparent, whole-of-government approach to the exceptional war-related costs incurred in those three countries, thus better aligning the associated military and civilian costs. This first foreign affairs OCO request identified the significant resource demands placed on the State Department as a result of the transitions from military-led to civilian-led missions in Iraq and Afghanistan, as well as the importance of a stable Pakistan for the U.S. effort in Afghanistan. The FY2012 foreign affairs OCO request included: for Iraq, funding for the U.S. Embassy in Baghdad, consulates throughout Iraq, security costs in light of the then-planned U.S. military withdrawal, a then-planned civilian-led Police Development and Criminal Justice Program, military and development assistance in Iraq, and oversight of U.S. foreign assistance through the Special Inspector General for Iraq Reconstruction; for Afghanistan, funding to strengthen the Afghan government and build institutional capacity, support State/USAID and other U.S. government agency civilians deployed in Afghanistan, provide short-term economic assistance to address counterinsurgency and stabilization efforts, and provide oversight of U.S. foreign assistance programs in Afghanistan through the Office of the Special Inspector General for Afghanistan Reconstruction; and for Pakistan, funding to support U.S. diplomatic presence and diplomatic security in Pakistan, provide Pakistan Counterinsurgency Capability Funds (PCCF) to train and equip Pakistani forces to eliminate insurgent sanctuaries and promote stability and security in neighboring Afghanistan and the region. In subsequent years, the Administration designated certain State Department activities in Syria and other peacekeeping activities as OCO, and Congress accepted and broadened this expanded use of OCO in annual appropriations. In the FY2017 budget request, the Administration further broadened its use of State OCO funds, applying the designation to funds for countering Russian aggression, counterterrorism, humanitarian assistance, and aid to Africa. In addition to OCO funds requested through the normal appropriations process, the Administration in recent years requested emergency supplemental funding (designated as OCO) to support State/USAID efforts in countering the Islamic State and to respond to global health threats such as the Ebola and Zika viruses. For FY2019, the Trump Administration requested no OCO/GWOT funding for the Department of State and USAID, although the FY2019 House and Senate SFOPS bills ( H.R. 6385 and S. 3108 , 115 th Congress) would have appropriated approximately $8 billion in OCO-designated funding for various priorities. The estimated $154.1 billion in emergency and OCO/GWOT appropriations enacted to date for State/USAID includes major non-war-related programs, such as aid for the 2004 tsunami along Indian Ocean coasts, 2010 earthquake in Haiti, 2013 Ebola outbreak in West Africa, and 2015 worldwide outbreak of the Zika virus; as well as diplomatic operations (e.g., paying staff, providing security, and building and maintaining embassies). OCO/GWOT has also funded a variety of foreign aid programs, ranging from the Economic Support Fund to counter-narcotics in Afghanistan, Pakistan, and Iraq, among other activities in other countries. Figure 8 depicts the emergency or OCO appropriations for foreign affairs activities. Since 2012, when the OCO designation was first used for foreign affairs, more OCO funds have been appropriated than were requested each year, and those have also been authorized to be used in additional countries. Since January 2002, approximately $3 billion of post-9/11 emergency and OCO-designated funding has been provided to the U.S. Coast Guard (USCG) for its traditional homeland security missions and for USCG operations in support of U.S. Navy activities. This funding has been provided at various times as either an appropriation to the Coast Guard's operating expenses accounts, or as a transfer from Navy accounts to the Coast Guard. Open-source information on the use of those funds has varied. One FY2009 supplemental appropriations request included funding as a transfer, with the intent of funding "Coast Guard operations in support of OIF and OEF, as well as other classified activities." The FY2017 OCO request for annual appropriations for Navy Operations and Maintenance included $163 million for Coast Guard operational support for the deployment of patrol boats to the Northern Arabian Gulf and a port security unit to Guantanamo Bay, among other pay and equipment expenses. The Trump Administration initially requested a total of $89 billion in OCO funding for FY2019. All the funding was requested by DOD. In an amendment to the budget after Congress raised the BCA spending caps as part of the Bipartisan Budget Act of 2018 (BBA 2018; P.L. 115-123 ), the Administration removed the OCO designation from $20 billion of the funding, in effect, shifting that amount into the DOD base budget request. In a statement on the budget amendment, Mulvaney said the request fixes "long-time budget gimmicks" in which OCO funding has been used for base budget requirements. Beginning in FY2020, "the Administration proposes returning to OCO's original purpose by shifting certain costs funded in OCO to the base budget where they belong," he wrote. Of the revised amount of $69 billion requested for DOD OCO funding in FY2019: $46.3 billion (67%) was for Operation Freedom's Sentinel (OFS) in Afghanistan and related missions; $13 billion (22%) for Operation Inherent Resolve (OIR) in Iraq and Syria and related missions; $4.8 billion (9%) for the European Deterrence Initiative (EDI) to boost the U.S. military presence in eastern Europe to deter Russian military aggression; and $0.9 billion (1%) for security cooperation (see Figure 9 ). The FY2019 OCO budget assumes a total force level (average annual troop strength) of 93,796 personnel. That figure includes: 11,958 primarily in Afghanistan (OFS); 5,765 primarily in Iraq and Syria (OIR); 59,463 for in-theater support; and 16,610 primarily in the continental United States (CONUS) or otherwise mobilized (see Figure 10 ). The number of personnel actually in-country or in-theater at any given time may exceed or fall below those assumed levels. The FY2019 force level assumes an increase of 3,153 personnel (3.5%) from the FY2018 assumed level, all of which is assumed for in-theater support. (For analysis of troop level and budget trends, see the section, " Trends in OCO Funding and Troop Levels ," earlier in this report.) As previously discussed, DOD acknowledges "OCO funding has not declined at the same rate as the in-country troop strength … due to the fixed, and often inelastic, costs of infrastructure, support requirements, and in-theater presence to support contingency operations." The departments lists the following as OCO cost drivers: In-theater support, including infrastructure costs like command, control, communications, computers, and intelligence (C4I) and base operations for U.S. Central Command (CENTCOM) locations; Persistent demand for combat support such as intelligence, surveillance, and reconnaissance (ISR) assets used to enhance force protection; Equipment reset, which lags troop level changes and procurement of contingency-focused assets like munitions, unmanned aerial vehicles and force protection capabilities that may not be linked directly to in-country operations; and International programs and deterrence activities, which are linked to U.S. engagement in contingency operations and support U.S. interests but are not directly proportional to U.S. troop presence. DOD also breaks down the FY2019 OCO budget request by functional category (see Table 3 ). By this measure, the largest portion of OCO funding was $20 billion for in-theater support, followed by operations and force protection (including the incremental cost of military operations in Afghanistan, Iraq, Syria, and other countries), at $14.7 billion; and unspecified classified programs, at $9.9 billion. According to the Congressional Budget Office (CBO), approximately $47 billion (68%) of the FY2019 OCO budget request consists of enduring activities—that is, "those that would probably continue in the absence of overseas conflicts"—that could be funded in the DOD base budget. CBO associates enduring activities with the following DOD functional categories: in-theater support, classified programs, equipment reset and readiness, European Deterrence Initiative, security cooperation, and joint improvised-threat defeat. Executive Branch budget documents for FY2019 show differing projections for how much OCO would be apportioned over the Future Years Defense Program (also known as the FYDP, pronounced "fiddip," the five-year period from FY2019 through FY2023). For example, Table 1-11 in DOD's National Defense Budget Estimates for FY2019, citing OMB data, projects five-year OCO funding at $359 billion. However, Table 1-9 of the same document puts the figure at $149 billion after assuming a higher amount of OCO funding shifting into the base budget. According to OMB, the President's initial FY2019 budget request projected increasing caps on defense discretionary base budget authority by $84 billion (15%) to $660 billion in FY2020 and by $87 billion (15%) to $677 billion in FY2021. It also projected defense funding for Overseas Contingency Operations (OCO) totaling $73 billion in FY2020 and $66 billion in FY2021. Thus, projected defense discretionary funding would total $733 billion in FY2020 and $743 billion in FY2021. FY2019 DOD budget documents show the same defense discretionary topline for FY2020 and FY2021. But they list an "Outyears Placeholder for OCO" of $20 billion in fiscal years FY2020-FY2023, and an "OCO to Base" amount of $53 billion in FY2020 and $45.8 billion in each year from FY2021-FY2023. The documents do not break down what accounts or activities are included in these amounts. The emergence of any new contingencies or conflicts would likely change DOD assumptions about OCO needs. Congress has appropriated a total of $68.8 billion for DOD OCO funding in FY2019, including the following amounts: $67.9 billion in defense funds provided in the Department of Defense and Labor, Health and Human Services, and Education Appropriations Act, 2019 and Continuing Appropriations Act, 2019 ( P.L. 115-245 ), which Congress passed on September 26, 2018; and $921 million in defense funds provided in the Energy and Water, Legislative Branch, and Military Construction and Veterans Affairs Appropriations Act, 2019 ( P.L. 115-244 ), which Congress passed on September, 21, 2018. For the Department of State and USAID, as well as the Department of Homeland Security and U.S. Coast Guard, FY2019 OCO levels have not yet been determined. They remain at prorated FY2018 levels because of continuing resolutions (CR) to fund certain agencies through December 21, 2018. The FY2019 House and Senate SFOPS bills ( H.R. 6385 and S. 3108 , 115 th Congress) would have appropriated approximately $8 billion in OCO-designated funding for various priorities. The House committee-reported version of the Homeland Security appropriations bill ( H.R. 6776 , 115 th Congress) would not have appropriated any OCO/GWOT funding for the Coast Guard, while the Senate committee-reported version of the bill ( S. 3109 , 115 th Congress) would have appropriated $165 million for OCO/GWOT funding for the Coast Guard. Any decision by the 116 th Congress to change discretionary defense and nondefense spending limits that remain in effect for FY2020 and FY2021 under the Budget Control Act (BCA; P.L. 112-25 ) could impact future OCO funding levels. Lawmakers may consider the following questions: Will Congress keep the BCA as is and rely on OCO funding that is not subject to the caps to meet agency requirements? Will Congress repeal the BCA and use less OCO funding? Will Congress amend the BCA limits for future years and continue to use OCO funding, as it has in the past? Will Congress significantly reduce DOD and international affairs funding to stay within the BCA caps and not use OCO funding? In a November 2018 report, the National Defense Strategy Commission, a bipartisan panel created by Congress, issued recommendations related to OCO and the BCA. Recommendation No. 24 states, "Congress should eliminate the final two years of caps under the BCA." Recommendation 29 states, "To better prepare for major-power competition, Congress should gradually integrate OCO spending back into the base Pentagon budget. This also requires a dollar-for-dollar increase in the BCA spending caps, should they remain in force, so that this transfer does not result in an overall spending cut." Both House and Senate FY2019 committee-reported appropriations bills from the 115 th Congress included about $8 billion in OCO funding for State/USAID. It remains to be seen if the 116 th Congress will pass this OCO level as requested or extend the continuing resolution. Congress could enact legislation to authorize and appropriate a level of base and OCO spending to meet current or revised discretionary defense spending caps in any number of ways. In FY2019 budget documents from OMB and DOD, the Trump Administration projected increasing defense spending in FY2020 and FY2021 beyond the statutory limits of the Budget Control Act of 2011 ( P.L. 112-25 ), but by differing amounts based on differing OCO projections. These figures serve as possible scenarios or options for Congress to consider. According to OMB budget documents, the President's initial FY2019 budget request projected $733 billion in defense discretionary spending in FY2020, including a base budget of $660 billion (which assumes an $84 billion, or 15%, increase in the BCA defense cap—or repeal of the legislation altogether) and an OCO defense budget of $73 billion (see Figure 11 ). According to DOD budget documents, the President's revised FY2019 budget request projected $733 billion in defense discretionary spending in FY2020, including a base budget of $713 billion (which assumes a $137 billion, or 24%, increase in the BCA defense cap—what would be the largest increase to the BCA defense caps yet—or repeal of the legislation altogether) and an OCO budget of $20 billion. Alternatively, assuming no change in the cap and congressional support for the Administration's projected $733 billion topline in FY2020, Congress could keep the BCA defense cap unchanged at $576 billion and designate an additional $157 billion for OCO. According to OMB budget documents, the President's initial FY2019 budget request projected $743 billion in defense discretionary spending in FY2021, including a base budget of $677 billion (which assumes an $87 billion, or 15%, increase in the BCA defense cap—or repeal of the legislation altogether) and an OCO budget of $66 billion (see Figure 11 ). According to DOD budget documents, the President's revised FY2019 budget request projected $743 billion in defense discretionary spending in FY2021, including a base budget of $723 billion (which assumes a $133 billion, or 23%, increase in the BCA defense cap—or repeal of the legislation altogether) and an OCO budget of $20 billion. Alternatively, assuming no change in the cap and congressional support for the Administration's projected $743 billion topline in FY2020, Congress could keep the BCA defense cap unchanged at $590 billion and designate an additional $153 billion for OCO. As previously discussed, these figures would change with different toplines for the national defense budget function (050). Former Defense Secretary Jim Mattis and the National Defense Strategy Commission have recommended that Congress increase the defense budget between 3% and 5% a year above inflation ("real growth") to meet U.S. strategic goals. President Donald Trump has said the discretionary defense spending request would total $700 billion in FY2020, a decrease of 2% in nominal terms from FY2019. Trump said, "We know what the budget—the new budget is for the Defense Department. It will probably be $700 billion." However, some media outlets have since reported that the President intends to request a discretionary defense budget of $750 billion in FY2020. Senator James Inhofe, chairman of the Senate Armed Services Committee, and Representative Mac Thornberry, ranking member of the House Armed Services Committees in the 116 th Congress, have argued, "Any cut in the defense budget would be a senseless step backward." Thornberry has also said transferring recurring OCO costs into the regular budget "makes sense … it makes for more predictable budgeting, but it's all about what happens on the topline." Representative Adam Smith, chairman of the House Armed Services Committee in the 116 th Congress, has said of the defense budget: "I think the number is too high, and it's certainly not going to be there in the future … We've got a debt, we've got a deficit, we've got infrastructure problems, we've got healthcare, education—there's a whole lot that is necessary to make our country safe, secure, and prosperous." Acting Defense Secretary Patrick Shanahan has talked about a flat topline for national defense: "When you look at the $700 billion, it's not just for one year drop down, [or] a phase, it's a drop and then held constant" over the FYDP. Under Secretary of Defense (Comptroller)/Chief Financial Officer David Norquist, who is also performing the duties of the Deputy Secretary of Defense, at one time was reportedly preparing two budgets for FY2020—one assuming $733 billion for national defense and another assuming $700 billion. An analyst has noted "returning enduring OCO costs to the base budget, particularly a vast majority of those enduring costs over a short period as DOD has outlined, could significantly complicate an agreement between congressional Democrats and Republicans to increase both the defense and nondefense BCA budget caps for FY2020 and FY2021." As analyst noted, "OCO has become an even less-defined pot of money … Congress needs to properly question the DOD budget planners on the future of OCO." In a January 2017 report, GAO concluded, "Without a reliable estimate of DOD's enduring OCO costs, decision makers will not have a complete picture of the department's future funding needs or be able to make informed choices and trade-offs in budget formulation and decision making." The department states it has not fully estimated those costs in part because of the BCA. In a response to GAO, DOD wrote, "Developing reliable estimates of enduring OCO costs is an important first step to any future effort to transition enduring OCO costs to the base budget. In the context of such an effort, the Department would consider developing and reporting formal estimates of those costs. However, until there is sufficient relief from the budgetary caps established in the Budget Control Act of 2011, the Department will need OCO to finance counterterrorism operations, in particular [OFS] and [OIR]." In an October 2018 report, the Congressional Budget Office estimated OCO funding for DOD enduring activities—that is, those that would probably continue in the absence of overseas conflicts—totaled more than $50 billion a year (in 2019 dollars) from 2006 to 2018—and are projected to total about $47 billion a year starting in FY2020. This figure appears to be consistent with projections published by DOD. According to the department's FY2019 budget documents, DOD projected $53 billion for "OCO to Base" in FY2020 and $45.8 billion for "OCO to Base" for FY2021 through FY2023. Some analysts have concluded: Uncertainty created by current reliance on OCO, particularly to fund base budget needs, could be detrimental to national security on three levels: (a) by undermining budget controls and contributing thereby to larger deficits, (b) by generating insecurity in the defense workforce and in defense suppliers, and (c) by creating long-term uncertainty in defense planning. The alternative, transitioning longer-term OCO expenses to the base budget, could be achieved through a combination of increased budget caps, targeted cuts in inefficient Defense programs, and increased revenues. For example, a potential enduring activity in the OCO budget is the European Deterrence Initiative (EDI). It was previously known as the European Reassurance Initiative (ERI), an effort that began in June 2014 to increase the number of U.S. military personnel and prepositioned equipment in Central and Eastern Europe intended in part to reassure NATO allies after Russia's military seized Crimea. As some analysts have noted, "Because it is in the OCO part of the budget request, EDI funding does not include a projection for how much funding will be allocated in future years, which can create uncertainty in the minds of allies and adversaries alike about the U.S. military's commitment to the program." On the other hand, some contend that it is precisely EDI's flexibility that allows the commander of European Command to quickly respond to changing security and posture needs in Europe, and ensure that monies intended for European deterrence will not be redirected to other DOD priorities. In its November 2018 report, the National Defense Strategy Commission quoted the late military strategist Bernard Brodie, who wrote "strategy wears a dollar sign." The panel concluded that relying on OCO funding to increase the defense budget "is not the way to provide adequate and stable resources" for the type of great power competition outlined in the Secretary of Defense's 2018 National Defense Strategy (NDS), which calls for the United States to bolster its competitive military advantage relative to threats posed by China and Russia: Because of budgetary constraints imposed by the BCA, lawmakers and the Department of Defense have increasingly relied upon the overseas contingency operations (OCO) fund to pay for warfighting operations in the greater Middle East, as well as other activities and initiatives. Yet this approach to resourcing has produced problems and distortions of its own. For one thing, the amount of money devoted to OCO since the BCA was enacted no longer corresponds to warfighting operations in the greater Middle East. Furthermore, such operations are no longer a top priority as articulated in the NDS. Finally, reorienting the military toward high-end competition and conflict will require new capabilities beyond the current program of record. OCO is not the way to provide adequate and stable resources for such a long-term endeavor, given its lack of predictability and the limitations on what OCO funds can be used to buy." Appendix A. Statutes, Guidance, and Regulations The designation of funding as emergency requirements or for Overseas Contingency Operations/Global War on Terrorism (OCO/GWOT) is governed by several statues as well as Office of Management and Budget (OMB) guidance and the Department of Defense (DOD) Financial Management Regulation (FMR). The Balanced Budget and Emergency Deficit Control Act (BBEDCA) of 1985 BBEDCA, as amended, includes the statutory definitions of emergency and unanticipated as they relate to budget enforcement through sequestration. The act also allows for appropriations to be designated by Congress and the President as emergency requirements or for Overseas Contingency Operations/Global War on Terrorism . Such appropriations are effectively exempt from the statutory discretionary spending limits. Title 10, United States Code—Armed Forces 10 U.S.C. 101—Definitions Section 101 provides definitions of terms applicable to Title 10. While it does not define overseas contingency operations, it does include a definition of a contingency operations . Administration and Internal Guidance In addition to statutory requirements, the DOD and the Department of State are subject to guidance on OCO spending from the Administration. In October 2006 , under the Bush Administration, then-Deputy Secretary of Defense Gordon England directed the services to break with long-standing DOD regulatory policies and expand their request for supplemental funding to reflect incremental costs related to the "longer war on terror." There was no specific definition for the "longer war on terror," now one of the core missions of the DOD. In February 2009, at the beginning of the Obama Administration, the Office of Management and Budget (OMB) issued updated budget guidance that required DOD to move some OCO costs back into the base budget. However, within six months of issuing the new criteria, officials waived restrictions related to pay and that would have prohibited end-strength growth. In a letter from OMB to the then-Under Secretary of Defense (Comptroller) Robert Hale, the agency characterized its 2009 criteria as "very successful" for delineating base and OCO spending but stated, "This update clarifies language, eliminates areas of confusion and provides guidance for areas previously unanticipated." GAO subsequently reported that the revised guidance significantly changed the criteria used to build the fiscal year 2010 OCO funding request by: specifying stricter definitions for repair and procurement of equipment; limiting applicability of OCO funds for RDT&E; excluding pay and allowances for end-strength above the level requested in the budget; excluding enduring family support initiatives; and excluding base realignment and closures (BRAC) amounts. OMB again revised its guidance in September 2010 following a number of GAO reports that had concluded DOD reporting on OCO costs was of "questionable reliability," due in part to imprecisely defined financial management regulations related to OCO spending. (as of September 9, 2010) Source: Letter from Steven M. Kosiak, Associate Director for Defense and Foreign Affairs, OMB, to Robert Hale, Under Secretary of Defense, Comptroller, "Revised War Funding Criteria," September 9, 2010. DOD Financial Management Regulations DOD incorporated the September 2010 OMB criteria for war costs into the Financial Management Regulation. Table 1 includes the general cost categories DOD uses in accounting for costs of contingency operations. Appendix B. Transfer Authorities, Special Purpose Accounts In addition to the supplemental appropriations and emergency or OCO/GWOT designation, the Department of Defense and the Department of State also have the authority to shift funds from one budget account to another in response to operational needs. For DOD, these transfers (sometimes called reprogramings ) are statutorily authorized by 10 U.S.C. 2214—Transfer of funds: procedures and limitations. This authority allows the Secretary of Defense to reallocate funds for higher priority items, based on unforeseen military requirements, after receiving written approval from the four congressional defense committees. DOD may also reprogram funds within an account from one activity to another, as long as the general purpose for the use of those funds remains unchanged. Specific limits to transfer or reprogramming authorities have also been added to these general authorities through provisions in annual defense authorization and appropriation acts. The FY2019 defense appropriations bill sets the base budget transfer cap at $4 billion and the OCO transfer cap at $2 billion. The Department of State's OCO transfer authority has been provided in appropriations acts and has specifically authorized the Administration to transfer OCO funds only to other OCO funds within Title VIII SFOPS appropriations, not between OCO and base accounts. The transfer authority is capped, specified by account, and requires regular congressional notification procedures. Overseas Contingency Operations Transfer Fund (OCOTF) The OCOTF was established for DOD in FY1997 as a no year transfer account (meaning amounts are available until expended) in order to provide additional flexibility to meet operational requirements. Transfers from the OCOTF are processed using existing reprogramming procedures. A quarterly report is submitted to the congressional oversight committees, documenting all transfers from the OCOTF to DOD components base budget accounts. Beginning in FY2002, funds to support Southwest Asia, Kosovo, and Bosnia contingency requirements were appropriated directly to DOD components' Operation and Maintenance (O&M) and Military Personnel accounts rather than to the OCOTF for later disbursement. FY2014 was the last year the Administration requested a direct appropriation to the OCOTF. Contingency Operations Funded in the DOD Base Budget As first mandated by section 8091 of the Department of Defense Appropriations Act, 2008 ( P.L. 110-116 ), Congress has required DOD to provide separate annual budget justification documents detailing the costs of U.S. armed forces' participation in all named contingency operations where the total cost of the operation exceeds $100 million or is staffed by more than 1,000 U.S. military personnel. Funding for certain DOD contingency operations has been moved to the base budget request, and is no longer designated as emergency or OCO/GWOT requirements. This movement of funding from the OCO request to the base budget request typically occurs as the operational activities of an enduring contingency operation evolve over time and DOD determines that certain elements of the associated military operations have become stable enough to be planned, financed, and executed within the base budget. For example, funding for Operation Noble Eagle, which provides fighter aircraft on 24/7 alert at several U.S. military bases, was moved from the GWOT request to the base budget request in 2005. Contingency operations and other activities funded wholly or in part through DOD's base budget have included: NATO Operations in the Balkans . The U.S. Army and U.S. Air Force provide support to the North Atlantic Treaty Organization-led operations in the Balkans region. Most U.S. forces are deployed to Kosovo in support of the NATO-led Kosovo Force (KFOR). A small number of U.S. personnel are deployed to the NATO headquarters in Sarajevo in Bosnia and Herzegovina; Joint Task Force - Bravo . U.S. forces support this task force, which operates from Soto Cano Air Base in Honduras and supports joint, combined, and interagency exercises and operations in Central America to counter the influence of transnational organized crime; carry out humanitarian assistance and disaster relief; and build military capacity with regional partners and allied nations to promote regional cooperation and security; Operation Juniper Shield. Previously known as Operation Enduring Freedom-Trans Sahara (OEF-TS), this operation supports efforts to defeat violent extremist organizations in East Africa. This operation also provides military-to-military engagement with partner African countries, as well as readiness for crisis response and evacuation of U.S. military, diplomatic, and civilian personnel; Operation Noble Eagle . This operation funds the continuing efforts to defend the United States from airborne attacks, maintain the sovereignty of the United States airspace, and defend critical U.S. facilities from potentially hostile threats or unconventional attacks; Operation Enduring Freedom- Horn of Africa . This operation was established to support efforts to defeat violent extremist organizations in East Africa; provide military-to-military engagement with partner African countries, as well as readiness for crisis response and evacuation of U.S. military, diplomatic, and civilian personnel throughout East Africa; Operation Enduring Freedom- Caribbean and Central America . A U.S. regional military operation initiated in 2008, under the operational control of Special Operations Command-South, this operation was established to focus on counterterrorism to support DOD's overall military objectives and the larger fight against terrorism. Operation Observant Compass . This operation was established to support the deployment of approximately 100 U.S. military personnel assisting the Ugandan People's Defense Force and neighboring partner African countries in countering the Lord's Resistance Army operations. Operation Spartan Shield. This operation was established to support ongoing U.S. Central Command missions. Other Congressionally Authorized Funds or Programs Through the OCO authorization and appropriation process, Congress has created numerous funds and programs that are designed to finance specific overseas contingency operations-related activities that do not fit into traditional budgetary accounts. Many of these funds and programs are supplied with amounts that are available until expended—however, authorization for the specified fund or program has an expiration date, thereby requiring further congressional action for reauthorization of affected funds or programs. Congress has also provided increased transfer authority to provide greater flexibility for U.S. government activities in situations that are typically unpredictable. Examples of these types of congressionally authorized OCO programs or funds have included: Afghan istan Security Forces Fund (ASFF) and Counter-ISIS Train and Equip Fund (CTEF) . These funds were established to provide funding and support for the training, equipping, and expansion of selected military and security forces in support of U.S. objectives; Counterterrorism Partnership s Fund . This fund was established to provide funding and support to partner nations engaged in counterterrorism and crisis response activities; Command er's Emergency Response Program. This program was established to support infrastructure improvements, such as road repair and construction and enable military commanders on the ground to respond to urgent humanitarian relief and reconstruction needs by undertaking activities that will immediately aid local populations and assist U.S. forces in maintaining security gains; Joint Improvised Explosive Device (IEDs) Defeat Fund . This fund was established to coordinate and focus all counter-IED efforts, including ongoing research and development, throughout DOD. Due to the enduring nature of the threat, DOD began moving associated funding to the base budget in FY2010; Mine Resistant Ambush Protected Vehicle (MRAP) Fund . This fund was intended to expedite the procurement and deployment of MRAPs to Iraq and Afghanistan; European Deterrence Initiative (EDI) . Initially the European Reassurance Initiative (ERI), this effort was established to provide funding and support to NATO allies and partners to "reassure allies of the U.S. commitment to their security and territorial integrity as members of the NATO Alliance, provide near-term flexibility and responsiveness to the evolving concerns of our allies and partners in Europe, especially Central and Eastern Europe, and help increase the capability and readiness of U.S. allies and partners;" Global Security Contingency Fund . This fund was established to provide funding for the Department of State and the Department of Defense "to facilitate an interagency approach to confronting security challenges;" Complex Crise s Fund . This fund was established to provide funding through the State Department and USAID "to help prevent crises and promote recovery in post-conflict situations during unforeseen political, social, or economic challenges that threaten regional security;" Migration and Refugee Assistance Fund . This fund was established to provide funding to respond to refugee crises in Africa, the Near East, South and Central Asia, and Europe and Eurasia; and Ukraine Security Assistance Initiative . This initiative was established to provide assistance, including training, equipment, lethal weapons, of a defensive nature; logistics support; supplies and services; sustainment; and intelligence support to the military and national security forces of Ukraine. This is an update to a report originally co-authored by [author name scrubbed], former CRS Specialist in Defense Readiness and Infrastructure. It references research previously compiled by [author name scrubbed], former CRS Specialist in U.S. Defense Policy and Budget; Christopher Mann, Analyst in Defense Policy and Trade; [author name scrubbed], Analyst in U.S. Defense Acquisition Policy; [author name scrubbed], CRS Specialist on Congress and the Legislative Process; and [author name scrubbed], CRS Analyst in Public Finance. [author name scrubbed], Research Assistant, helped compile the graphics.	[ "Congressional interest in Overseas Contingency Operation (OCO) funding has continued as Members debate ways of funding priorities without breaching discretionary spending limits set in law. Since the terrorist attacks of September 11, 2001, Congress has appropriated approximately $2 trillion in discretionary budget authority designated as emergency requirements or for Overseas Contingency Operations/Global War on Terrorism (OCO/GWOT) in support of the broad U.S. government response to the 9/11 attacks and for other related international affairs activities. This figure amounts to approximately 9.4% of total discretionary spending during this period. Congress has used supplemental appropriation acts or designated funding for emergency requirements or OCO/GWOT—or both—in statute. These funds are not subject to limits on discretionary spending in congressional budget resolutions or to the statutory discretionary spending limits established by the Budget Control Act of 2011 (BCA; P.L. 112-125). The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177) allows emergency funding to be excluded from budget control limits. The BCA added the OCO/GWOT designation to the BBEDCA exemption, thereby providing Congress and the President with an alternate way to exclude funding from the BCA spending limits. While there is no overall statutory limit on the amount of emergency or OCO/GWOT spending, both Congress and the President have fundamental roles in determining how much of the spending to provide each fiscal year. Congress must designate any such funding in statute on an account-by-account basis. The President is also required to designate it as such after it is appropriated to be available for expenditure. Debate over what should constitute OCO/GWOT or emergency activities and expenses has shifted over time, reflecting differing viewpoints about the extent, nature, and duration of U.S. military operations in Afghanistan, Iraq, Syria, and elsewhere. Funding designated for OCO/GWOT has also been used to fund base-budget requirements of the DOD and State Department and to prevent or respond to crises abroad, including armed conflict, as well as human-caused and natural disasters. Some defense officials and policymakers argue OCO funding allows for flexible response to contingencies, and provides a \"safety valve\" to the spending caps and threat of sequestration—the automatic cancellation of budget authority largely through across-the-board reductions of nonexempt programs and activities—under the BCA. Critics, however, have described OCO/GWOT as a loophole or \"gimmick\"—morphing from an account for replacing combat losses of equipment, resupplying expended munitions, and transporting troops through war zones, to a \"slush fund\" for activities unrelated to contingency operations. Congress appropriated approximately $103 billion for OCO in FY2017 (8.5% of all discretionary appropriations), $78 billion for OCO in FY2018 (5.5% of all discretionary appropriations), and $68.8 billion for OCO so far in FY2019. Discretionary appropriations for FY2019 are not yet final; a continuing resolution expired December 21, 2018. Following passage of the Bipartisan Budget Act of 2018 (P.L. 115-123), which raised discretionary budget caps for defense and foreign affairs agencies in FY2018 and FY2019, the Administration proposed shifting some OCO funding into the base, or regular, budget. Although Congress has generally not followed Administration requests for reduced funding for foreign affairs and domestic activities and has increased funding for defense, the President has asked cabinet secretaries to propose spending cuts of 5% in FY2020. Such proposals, if requested in a budget submission, may create difficult choices for Congress in FY2020 and FY2021—the final two years of the BCA discretionary spending limits. Congress's decisions on OCO/GWOT designations will affect how much agency funding is available for military operations and foreign affairs activities overseas, how much is subject to the BCA caps, and how much is incorporated into regular budgets and long-term budget projections." ]	9,854	gov_report	en	null	8be9961b3148717dd324148abf0ab947fb11adb0b9ca3fc6
The DRC is a vast, mineral-rich nation with an estimated population of about 83 million people and an area that is roughly one-quarter the size of the United States, according to the United Nations. Figure 1 shows the DRC’s provinces and adjoining countries. Since gaining its independence from Belgium in 1960, the DRC has undergone political upheaval and armed conflict. From 1998 to 2003, the DRC and eight other African countries were involved in what has become known as “Africa’s World War,” which resulted in a death toll of an estimated 5 million people in the DRC, according to the U.S. Department of State (State). The eastern DRC has continued to be plagued by violence, often perpetrated against civilians by illegal armed groups and some members of the Congolese national military. Notably, in 2012, an illegal armed group occupied the city of Goma and other cities in the eastern DRC and clashed with the Congolese national army. During this time, the United Nations reported numerous cases of sexual violence against civilians, including women and children, which were perpetrated by armed groups and some members of the Congolese national military. In 2017, the United Nations reported that serious violations of human rights remain widespread in the DRC, including continued acts of sexual violence by government security forces as well as nonstate armed groups. Various industries, particularly manufacturing industries, use the four conflict minerals specifically named in the Dodd-Frank Act—tin, tungsten, tantalum, and gold—in a wide variety of products. For example, tin is used to solder metal pieces and is also found in food packaging, steel coatings on automobile parts, and some plastics. Tungsten is used in automobile manufacturing, drill bits and cutting tools, and other industrial manufacturing tools and is the primary component of filaments in incandescent light bulbs. Most tantalum is used to manufacture capacitors that enable energy storage in electronic products such as cell phones and computers or to produce alloy additives used in turbines in jet engines. Gold is held as bullion by central bank reserves and used in making jewelry and also in the electronics industry, for example, to manufacture cell phones and laptops. In August 2012, SEC adopted its conflict minerals disclosure rule in response to Section 1502(b) of the Dodd-Frank Act. The act required that SEC promulgate disclosure and reporting regulations regarding the use of conflict minerals originating from the DRC and covered countries. In the summary section of the adopting release for the rule, SEC noted that to accomplish the goal of helping to end the human rights abuses in the DRC caused by the conflict, Congress chose to use the Dodd-Frank Act’s disclosure requirements to bring greater public awareness of the sources of companies’ conflict minerals and to promote the exercise of due diligence on conflict mineral supply chains. The SEC disclosure rule addresses the four conflict minerals named in the Dodd-Frank Act from the DRC and covered countries. The rule outlines a process for companies to follow, as applicable, to comply with the rule (see app. II). The process broadly requires a company to 1. determine whether it manufactures, or contracts to be manufactured, products with “necessary” conflict minerals; 2. conduct a reasonable country-of-origin inquiry (RCOI) concerning the origin of those conflict minerals; and 3. exercise due diligence, if appropriate, to determine the source and chain of custody of those conflict minerals, adhering to a nationally or internationally recognized due diligence framework, if such a framework is available for these necessary conflict minerals. If companies choose to disclose that their products are “DRC conflict free,” the SEC disclosure rule requires companies to obtain an independent private-sector audit (IPSA). Our review of companies’ conflict minerals disclosures filed with the SEC in 2017 found that, in general, they were similar to disclosures filed in the prior 2 years. In 2017, a similar number of companies filed conflict minerals disclosures as in 2015 and 2016. Based on our review of a generalizable sample, we found that almost all companies that filed conflict minerals disclosures in 2017 reported performing inquiries about their conflict minerals’ country of origin, similar to the results we previously reported for 2016 and 2015. In their 2017 disclosure reports, many companies described actions they took to improve data collection processes, and most companies indicated challenges in determining the country of origin. Our review of company filings found that almost all companies required to conduct due diligence, as a result of their country- of-origin inquires, reported performing it. SEC issued revised guidance in April 2017, indicating that the SEC’s Division of Corporation Finance would not recommend enforcement action if companies did not report on specified due diligence disclosure requirements. In 2017, 1,165 companies filed conflict minerals disclosures—almost as many companies as filed in 2016 and 2015 (1,230 and 1,281 respectively). Our analysis of a generalizable sample of filings found that an estimated 90 percent of the companies that filed in 2017 were domestic and an estimated 10 percent were foreign companies, similar to the domestic-to-foreign ratio we found in 2016 and 2015. While not all companies reported the minerals used, of those that disclosed this information, an estimated 69 percent reported using tin, 54 percent reported using tantalum, 59 percent reported using tungsten, and 63 percent reported using gold, figures that are similar to the percentages reported in 2016. Our analysis of a generalizable sample of 2017 filings found that, as in 2016 and 2015, almost all companies that filed conflict minerals disclosures indicated that they performed country-of-origin inquiries. Specifically, an estimated 100 percent of the companies reported that they performed such an inquiry, similar to the percentages that we estimated reported doing so in 2016 and 2015. As a result of the inquiries they conducted, an estimated 53 percent of companies reported in 2017 whether the conflict minerals in their products came from covered countries—similar to the estimate of 49 percent in 2016 and in 2015 but significantly higher than the estimate of 30 percent in 2014 (see fig. 2). In the filings we reviewed, many companies indicated they had taken actions to improve their data collection processes, such as gathering missing information about their supply chains and working with suppliers to encourage conflict-free sourcing. In interviews, representatives of selected companies that filed conflict minerals disclosures in 2017 and other industry participants noted that (1) awareness among suppliers about the use of conflict minerals had continued to increase and (2) the process for collecting data on supply chains had become more routine and standardized. However, as in prior years, our review of filings found that most companies reported challenges in determining the country of origin of conflict minerals, in part due to lack of access to suppliers and complex supply chains involving many suppliers and processing facilities. Our review of company filings found that almost all companies that were required, as a result of their country-of-origin inquires, to conduct due diligence on the source and chain of custody of the conflict minerals in their products reported doing so. In 2017, an estimated 96 percent reported conducting due diligence, compared with 96 and 97 percent in 2016 and 2015 respectively. An estimated 87 percent of companies in 2017 reported using a due diligence framework prescribed by the Organization for Economic Co-operation and Development (OECD) guidance for conducting due diligence on the source and chain of custody of the conflict minerals in their products. That result is comparable to an estimated 92 percent that we reported in 2016 and an estimated 95 percent that we reported in 2015. The remaining 13 percent of the companies that reported conducting due diligence in 2017 did not specify a framework for their due diligence activities. After conducting due diligence, an estimated 37 percent of the companies reported in 2017 that they were able to determine that their conflict minerals came from covered countries or from scrap or recycled sources, compared with an estimated 39 and 23 percent in 2016 and 2015, respectively. An estimated 47 percent of the companies in 2017 reported that they could not definitively confirm the source of the conflict minerals in their products, compared with an estimated 55 and 67 percent in 2016 and 2015, respectively. However, as in previous years, almost all of the companies that reported conducting due diligence in 2017 reported that they could not determine whether the conflict minerals financed or benefited armed groups. Four companies in our sample reported determining that the minerals in their products did not finance or benefit armed groups in covered countries, and declared some products “DRC- conflict free.” Three of these companies included the required independent private-sector audit (IPSA) report, and one company did not include an IPSA report. Overall, a total of 16 companies filed an IPSA report in 2017, compared with 19 in 2016. In April 2017, the SEC’s Division of Corporation Finance issued revised guidance indicating that it would not recommend enforcement action to the Commission if companies did not report on specified due diligence disclosure requirements. The SEC disclosure rule requires companies, if applicable, to report on their due diligence in a conflict minerals report (see app. II for additional detail on the disclosure requirements). SEC’s Division of Corporation Finance staff told us that they received inquiries from a small number of companies about the filing process for 2017. In response to these inquiries, these staff noted that they advised companies that the companies had the flexibility to determine whether or not to report on their due diligence and to report their country-of-origin inquiry findings in either the Form SD or in a conflict minerals report. However, the Division of Corporation Finance staff also told us that, regardless of the division’s revised guidance, the SEC could still initiate enforcement action if companies do not report on their due diligence, as required by the SEC disclosure rule. In our sample, three companies cited the updated guidance and other statements issued by the SEC in their filings as a rationale for not reporting on due diligence activities. In interviews, representatives of some companies and other industry participants told us that even though the revised guidance and other statements made by the SEC raised some uncertainty about the filing process, generally, companies plan to continue to report similar conflict minerals disclosure information. We identified two new population-based surveys since our last report related to sexual violence in Burundi and Uganda published in 2018; the most recent information for eastern DRC and Rwanda is from 2016. We also identified some new case-file data on sexual violence in the DRC; however, as we reported previously, case-file data on sexual violence are not suitable for estimating an overall rate of sexual violence. We identified two new population-based surveys related to sexual violence that were conducted in Uganda and Burundi in 2016 and 2017, respectively, and whose results were published in 2018. The Uganda Demographic and Health Survey was conducted from June to December 2016 by the Uganda Bureau of Statistics with technical assistance from ICF International. The survey estimated that 12.7 percent of women nationwide, ages 15-49, reported they had experienced sexual violence in the 12-month period preceding the survey, while 21.9 percent reported they had experienced sexual violence at some point in their lifetime. In addition, 4 percent of men nationwide, ages 15-49, reported they had experienced sexual violence in the 12-month period preceding the survey, while 8.3 percent reported they had experienced sexual violence at some point in their lifetime. The Burundi Demographic and Health Survey was conducted from October of 2016 to March of 2017 by the Burundi Institute of Statistics and Economic Studies with technical assistance from ICF International. The survey estimated that 12.7 percent of women nationwide, ages 15- 49, reported they had experienced sexual violence in the 12-month period preceding the survey, while 23.1 percent reported they had experienced sexual violence at some point in their lifetime. In addition, 1.9 percent of men nationwide, ages 15-49, reported they had experienced sexual violence in the 12-month period preceding the survey, while 6.1 percent reported they had experienced sexual violence at some point in their lifetime. The most recent information on the rate of sexual violence for eastern DRC and Rwanda is from 2016 and is discussed in our previous reports. Figure 3 shows the publication dates for the population-based surveys with data on rates of sexual violence in the eastern DRC, Rwanda, Uganda, and Burundi that have been published since 2007. State and United Nations entities have provided additional case-file information about instances of sexual violence in the DRC and adjoining countries. State’s annual country reports on human rights practices provided the following case-file data pertaining to sexual violence in the DRC and Burundi: DRC. In 2017, the UN documented 267 adult victims and 171 child victims, including two boys, of sexual violence in conflict. This violence was perpetrated by illegal armed groups as well as state security forces and civilians and was concentrated in North Kivu Province and in the Kasai region, according to State. Burundi. One government organization—Humara Center— responsible for investigating cases of sexual violence and rape received 197 cases of sexual and gender-based violence through early December 2017, according to State. Observers stated many women were reluctant to report rape, in part due to fear of reprisal, according to State. In addition, UN entities reported the following case-file data about sexual violence in the DRC: DRC. In 2017, the United Nations Organization Stabilization Mission in the DRC verified 195 cases of conflict-related sexual violence, with illegal armed groups responsible for 80 percent of the cases and DRC security forces responsible for the remaining 20 percent. United Nations officials we interviewed raised concerns about a resurgence of sexual violence in certain regions in the DRC due to a variety of factors, including political instability arising from the government’s postponement of the presidential election originally scheduled to take place in November 2016. We provided a draft of this report to the SEC, State, and the U.S. Agency for International Development for comment. SEC provided technical comments, which we incorporated as appropriate. State and USAID did not provide comments. We are sending copies of this report to appropriate congressional committees and to the Chairman of the Securities and Exchange Commission, the Secretary of State, and the Administrator of the U.S. Agency for International Development. The report is also available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. In this report, we provide information about (1) companies’ disclosures filed with the U.S. Securities and Exchange Commission (SEC) in 2017 compared with disclosures filed in the prior 2 years and (2) the rate of sexual violence in the eastern Democratic Republic of the Congo and neighboring countries published in 2017 and early 2018. To examine the fourth annual company disclosures filed with the SEC in 2017 in response to the SEC disclosure rule, we downloaded the specialized disclosure reports (Form SD) and conflict minerals reports (CMR) from SEC’s publically available Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database in September 2017. We downloaded 1,165 filings identified as Form SDs and the CMRs included in EDGAR. To review the completeness and accuracy of the EDGAR database, we reviewed relevant documentation, interviewed knowledgeable SEC officials, and reviewed prior GAO reports on internal controls related to SEC’s financial systems. We determined that the EDGAR database was sufficiently reliable for identifying the universe of SD filings. We reviewed the conflict minerals section of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and the requirements of the SEC disclosure rule to develop a data collection instrument (DCI) that guided our analysis of Form SDs and CMRs that contain the information disclosed by the filing companies. Our DCI was not a compliance review of the Form SDs and CMRs. The questions were written in both yes-no and multiple-choice formats. An analyst reviewed the Form SDs and CMRs and recorded responses to the DCI for all of the companies in the sample. A second analyst also reviewed the Form SDs and CMRs and verified the responses recorded by the first analyst. Analysts met to discuss and resolve any discrepancies. We randomly sampled 100 Form SDs from a population of 1,165 to create estimates generalizable to the population of all companies that filed. All estimates based on our sample have a margin of error of plus or minus 10 percentage points or less at the 95-percent confidence level. Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95-percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. We also attended an industry conference on conflict minerals and spoke with company representatives to provide additional perspective. To address our second objective, we identified and assessed any information on sexual violence in the eastern DRC and the three adjoining countries—Rwanda, Uganda, and Burundi—that had been published or otherwise had become available in 2017 and early 2018. We discussed the collection of sexual violence–related data in the DRC and adjoining countries, including population-based survey data and case-file data, during interviews with U.S. Department of State and U.S. Agency for International Development officials and with representatives of nongovernmental organizations and researchers whom we interviewed for our prior review of sexual violence rates in the eastern DRC and adjoining countries. We also interviewed officials from the United Nations Population Fund and the United Nations Special Representative of the Secretary-General in New York on Sexual Violence in Conflict. In addition, we conducted Internet searches to identify new academic articles containing any additional information on sexual violence published in 2017 and early 2018. We conducted this performance audit from September 2017 to June 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The U.S. Securities and Exchange Commission (SEC) conflict minerals disclosure rule requires certain companies to file a specialized disclosure report, known as the Form SD, if the company manufactures, or contracts to have manufactured, a product or products containing conflict minerals that are necessary to the functionality or the production of those products. The rule also requires each company, as applicable, to provide a description of the measures the company took to exercise due diligence in determining the source and chain of custody of the conflict minerals, the facilities used to process them, their country of origin, and the efforts made to determine the mine or location of origin with the greatest possible specificity. Form SD provides general instructions for filing conflict minerals disclosures and specifies the information that companies must provide. Companies were required to file under the rule for the first time by June 2, 2014, and annually thereafter on May 31. Figure 4 shows the SEC’s flowchart summarizing the conflict minerals disclosure rule. In addition to the individual named above, Godwin Agbara (Assistant Director), Farahnaaz Khakoo-Mausel (Analyst-in-Charge), Diana Blumenfeld, Andrew Kurtzman, Justin Fisher, Grace Lui, David Dayton, Christopher Keblitis, and Michael McAtee made key contributions to this report. Conflict Minerals: Information on Artisanal Mined Gold and Efforts to Encourage Responsible Sourcing in the Democratic Republic of the Congo. GAO-17-733. Washington, D.C.: August 23, 2017. SEC Conflict Minerals Rule: 2017 Review of Company Disclosures in Response to the U.S. Securities and Exchange Commission Rule. GAO-17-517R. Washington, D.C.: April 26, 2017. Conflict Minerals: Insights from Company Disclosures and Agency Actions. GAO-17-544T. Washington, D.C.: April 5, 2017. SEC Conflict Minerals Rule: Companies Face Continuing Challenges in Determining Whether Their Conflict Minerals Benefit Armed Groups. GAO-16-805. Washington, D.C.: August 25, 2016. SEC Conflict Minerals Rule: Insights from Companies’ Initial Disclosures and State and USAID Actions in the Democratic Republic of the Congo Region. GAO-16-200T. Washington, D.C.: November 17, 2015. SEC Conflict Minerals Rule: Initial Disclosures Indicate Most Companies Were Unable to Determine the Source of Their Conflict Minerals. GAO-15-561. Washington, D.C.: August 18, 2015. Conflict Minerals: Stakeholder Options for Responsible Sourcing Are Expanding, but More Information on Smelters Is Needed. GAO-14-575. Washington, D.C.: June 26, 2014. SEC Conflict Minerals Rule: Information on Responsible Sourcing and Companies Affected. GAO-13-689. Washington D.C.: July 18, 2013. Conflict Minerals Disclosure Rule: SEC’s Actions and Stakeholder- Developed Initiatives. GAO-12-763. Washington, D.C.: July 16, 2012. The Democratic Republic of Congo: Information on the Rate of Sexual Violence in War-Torn Eastern DRC and Adjoining Countries. GAO-11-702. Washington, D.C.: July 13, 2011. The Democratic Republic of the Congo: U.S. Agencies Should Take Further Actions to Contribute to the Effective Regulation and Control of the Minerals Trade in Eastern Democratic Republic of the Congo. GAO-10-1030. Washington, D.C.: September 30, 2010.	[ "Over the past decade, the United States and the international community have sought to improve security in the DRC. In the eastern DRC, armed groups have committed severe human rights abuses, including sexual violence, and reportedly profit from the exploitation of “conflict minerals”— in particular, tin, tungsten, tantalum, and gold, according to the United Nations. Congress included a provision in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that, among other things, required the SEC to promulgate regulations regarding the use of conflict minerals from the DRC and adjoining countries. The SEC adopted these regulations in 2012. The act also included a provision for GAO to annually assess the SEC regulations' effectiveness in promoting peace and security and report on the rate of sexual violence in the DRC and adjoining countries. In this report, GAO provides information about (1) companies' conflict minerals disclosures filed with the SEC in 2017 compared with disclosures filed in the prior 2 years and (2) the rate of sexual violence in the eastern DRC and adjoining countries published in 2017 and early 2018. GAO analyzed a generalizable random sample of SEC filings and interviewed relevant officials. GAO reviewed U.S., United Nations, and international organizations' reports; interviewed DRC officials, and other stakeholders; and conducted fieldwork in New York at the United Nations headquarters. GAO is not making any recommendations. GAO's review of companies' conflict minerals disclosures filed with the U.S. Securities and Exchange Commission (SEC) in 2017 found that, in general, they were similar to disclosures filed in the prior 2 years. In 2017, 1,165 companies filed conflict minerals disclosures—about the same as in 2016 and 2015. Percentages of companies reporting country-of-origin inquiries in 2017 were also similar to the percentages from those 2 prior years. As a result of the inquiries they conducted, an estimated 53 percent of companies reported in 2017 whether the conflict minerals in their products came from the Democratic Republic of the Congo (DRC) and adjoining countries—similar to the estimated 49 percent in 2016 and 2015 but significantly higher than the estimate of 30 percent in 2014 (see figure). In their 2017 disclosure reports, many companies described actions they took to improve data collection processes, and most companies indicated some challenges in determining the country of origin. Similar to the prior 2 years, almost all companies required to conduct due diligence, as a result of their country-of-origin inquiries, reported doing so. After conducting due diligence to determine the source and chain of custody of any conflict minerals used, an estimated 37 percent of these companies reported in 2017 that they were able to determine that their conflict minerals came from covered countries or from scrap or recycled sources, compared with 39 and 23 percent in 2016 and 2015, respectively. Four companies in GAO's sample declared their products “DRC conflict-free,” and of those, three included the required Independent Private Sector Audit report (IPSA), and one did not. In 2017, 16 companies filed an IPSA; 19 did so in 2016. GAO found information on the rate of sexual violence in the 2017 Uganda and Burundi Demographic and Health Surveys. For Uganda, 22 percent of women and 9 percent of men reported they had experienced sexual violence at least once in their lifetime. For Burundi, 23 percent of women and 6 percent of men reported they had experienced sexual violence at least once in their lifetime. The most recent information on the rate of sexual violence for eastern DRC and Rwanda is from 2016 and is discussed in our previous GAO reports." ]	3,558	gov_report	en	null	0867ce8275f7a6d527058c76ff165eb872f89416e4acdf0c
Several U.S. agencies have roles and responsibilities related to the screening and vetting of NIV applicants, as shown in table 1. Key Visa Adjudication Process Terms Validity period: The length of time during which a nonimmigrant visa (NIV) is valid for use by a foreign national seeking to travel to a U.S. port of entry and apply for admission into the United States. Entries: The number of applications for admission into the country permitted under a single NIV. Reciprocity arrangements: An understanding or arrangement between the U.S. government and another country on the length of time visas issued by either or both nations are valid for admission. There are many NIVs, and for the purposes of this report, we have placed the majority of NIVs into one of seven groups, as shown in table 2. The validity period and number of entries varies depending on (1) the particular NIV and (2) reciprocity arrangement with an individual’s country of nationality, among other factors. For example, a foreign national of one country may be issued a tourist visa valid for 1 year that allows for a single U.S. entry, while a foreign national of another country may be issued a tourist visa valid for 5 years and that permits multiple entries. However, the authorized period of stay—that is, the amount of time that the nonimmigrant is permitted to remain in the United States after being admitted—has no relation to the validity period. For more information on the various NIVs, see appendix I. State is generally responsible for the adjudication of NIV applications, and manages the NIV application process, including the consular officer corps and its functions at more than 220 visa-issuing posts overseas. Depending on various factors, such as the particular NIV sought, the applicant’s background, and visa demand, State officials noted that the length of the visa adjudication process can vary from a single day to months. This screening and vetting process for determining who will be issued or refused a visa contains several steps, as shown in figure 1: Petitions. Prior to State’s adjudication process, some NIVs require applicants to first obtain an approved petition from U.S. Citizenship and Immigration Services (USCIS), as shown in table 3. For example, applicants seeking an employment-based NIV or a U.S. citizen’s foreign national fiancé(e) seeking U.S. entry to conclude a valid marriage, must obtain an approved petition from USCIS prior to applying for their NIV. The petitioner (i.e., a U.S. citizen, organization or business entity) completes the petition on behalf of the applicant (i.e., the beneficiary), and the petition would be submitted to a U.S.-based USCIS service center for adjudication. USCIS Background Checks. As part of the adjudication process for visas requiring a USCIS-approved petition before the NIV application is submitted to State, USCIS conducts background checks on U.S.- based petitioners and foreign beneficiaries. For example, petitioner and beneficiary information is screened against TECS—DHS’s principal law enforcement and antiterrorism database that includes enforcement, inspection, and operational records. Further, for U.S. citizens petitioning for a K-1 visa on behalf of their fiancé(e), an FBI fingerprint check may also be required of the U.S. citizen petitioner. If the background checks identify a potential match to derogatory information, the background check unit at the USCIS service center that received the petition is to conduct further research to confirm the match, such as running checks against other government systems and collaborating with other government agencies. If all background check hits have been resolved and documented, and there is no reason not to proceed, USCIS will adjudicate the petition. In fiscal year 2017, USCIS reported that it received about 640,000 petitions for NIVs, and approved over 550,000. NIV Application. After having obtained USCIS approval of the NIV petition, as applicable, the foreign national begins the consular process by completing an online NIV application, known as a DS-160. Upon submitting an application, the applicant can schedule an interview at a post overseas and pays the processing fee. Key Visa Adjudication Process Terms Inadmissible: Individuals are inadmissible to the United States if they fall within the classes of foreign nationals defined as such under the Immigration and Nationality Act (INA), as amended, Pub. L. No. 82-414, tit. II, ch. 2, § 212(a), 66 Stat. 163, 182-87 (1952) (classified, as amended, at 8 U.S.C. § 1182(a)), such as foreign nationals who have engaged in terrorist or criminal activities or previously violated U.S. immigration law. If a visa applicant is found inadmissible, and has not obtained a waiver from the Department of Homeland Security, the applicant would be statutorily ineligible for a visa. Ineligible: An individual is ineligible for a visa if it appears to the Department of State consular officer, based on the application or supporting documentation, that the applicant is not qualified to receive a visa under any provision of law. If the consular officer decides that an applicant is ineligible for visa issuance, the refusal may be based on statutory grounds of inadmissibility under INA § 212(a), or may be due to the individual’s failure to otherwise satisfy the applicable eligibility requirements for the particular visa, as defined in the INA. For example, a consular officer may refuse a J-1 exchange visitor visa to an applicant coming to the United States to perform services as a member of the medical profession if the applicant does not either demonstrate competency in oral and written English or hold a degree from an accredited school of medicine, as required of such visa applicants under INA § 212(j). eligibility concerns related to visa applicants. Prior to adjudicating the visa application, consular officers must review all such security check results. Some applicants are not subjected to all of the security checks depending on certain characteristics, such as age and visa category. For example, State does not generally require that fingerprints be collected for applicants who are either under 14 years old or over 79 years old, or for foreign government officials seeking certain visas. As needed, some applicants undergo an interagency review process called a security advisory opinion (SAO), which is a multi-agency, U.S-based review process for certain NIV applicants. For example, SAOs are mandatory in cases of certain security check hits, a foreign national’s background, or a foreign national’s intention while in the United States. In addition, consular officers have the discretion to request an SAO for any visa applicant. Through the SAO process, consular officers send additional information on applicants to U.S.- based agencies, who review that information against their holdings. Department of State data indicate that consular officers made over 180,000 requests for SAOs for NIV applicants in fiscal year 2017. Adjudication. If the consular officer determines that the applicant is eligible for the visa on the basis of the application, supporting documentation, and other relevant information such as statements made in an interview, he or she will take the applicant’s passport for final processing, but the visa cannot be printed until all security checks have been returned and reviewed. If the consular officer determines that the applicant is inadmissible to the United States or otherwise ineligible under the applicable visa eligibility criteria, he or she informs the applicant that the visa has been refused, and identifies the provision(s) of law under which the visa was refused. Recurrent vetting. In March 2010, shortly after the December 2009 attempted bombing by a foreign national traveling to the United States on a valid visa, CBP began vetting individuals with NIVs on a recurrent basis. This program has led State to revoke visas after they have been issued when information was later discovered that rendered the individual inadmissible to the United States or otherwise ineligible for the visa. In addition, CBP analysts may take other actions as needed after identifying new derogatory information, such as recommending that the airline deny boarding to the traveler because the traveler is likely to be deemed inadmissible upon arrival in the United States (known as a no-board recommendation) or making a referral to ICE, which may seek to remove the individual if already within the United States. According to NCTC, KFE also conducts recurrent vetting of NIV holders against emerging threat information. The total number of NIV applications that consular officers adjudicated annually (or, NIV adjudications) peaked at about 13.4 million in fiscal year 2016, which was an increase of approximately 30 percent since fiscal year 2012. In fiscal year 2017, NIV adjudications decreased by about 880,000 adjudications, or about 7 percent. Figure 2 shows the number of applications adjudicated each year from fiscal year 2012 through 2017. Appendix II includes additional data on NIV adjudications related to this and the other figures in this report. Annual Monthly Trends. State data from fiscal years 2012 through 2016 indicate that NIV adjudications generally followed an annual cycle, ebbing during certain months during the fiscal year; however, adjudications in fiscal year 2017 departed slightly from this trend. Specifically, from fiscal years 2012 through 2016, the number of NIV adjudications typically peaked in the summer months. State officials noted that the summer peak is generally due to international students who are applying for their visas for the coming academic year. However, in fiscal year 2017, the summer months did not experience a similar increase from previous months, departing from the trend over the previous five fiscal years, according to State data. Instead, NIV adjudications peaked in December of fiscal year 2017. State officials attributed some of the decline in fiscal year 2017 to a decrease in Chinese NIV applicants, which we discuss later in this report. Figure 3 shows monthly NIV adjudications for fiscal years 2012 through 2017. State data on NIV applications adjudicated from fiscal years 2012 through 2017 indicate that the number of adjudications by visa group, applicant’s country of nationality, and location of adjudication were generally consistent, with some exceptions. Visa Group. From fiscal years 2012 through 2017, about 80 percent of NIV adjudications were for tourist and business visitors as shown in figure 4. The next largest groups were visas for students and exchange visitors and temporary workers, which accounted for an average of 9 percent and 6 percent, respectively, of all adjudications during this time period. Although adjudications for visas in some categories increased, others decreased over time. For example, as shown in figure 5, NIV adjudications for temporary workers increased by approximately 50 percent from fiscal years 2012 through 2017 (592,000 to 885,000). During the same time period, adjudications for tourist and business visitors also increased by approximately 20 percent overall (from 8.18 million to 9.97 million), but decreased from fiscal years 2016 to 2017. However, NIV adjudications for student and exchange visitor visas decreased by about 2 percent from fiscal years 2012 through 2017 (1.01 million to 993,000) overall, but experienced a peak in fiscal year 2015 of 1.2 million. Appendix I includes additional information on NIV adjudication by visa group from fiscal years 2012 through 2017. State officials identified reasons to explain these trends: Temporary Workers. Although there was an increase in adjudications across all types of temporary worker visas, the largest percentage increase was for H-2A visas, which are for foreign workers seeking to perform agricultural services of a temporary or seasonal nature. Specifically, adjudications of H-2A visas increased by 140 percent from fiscal years 2012 to 2017 (from about 71,000 to 170,000). State officials noted that H-2A visas are not numerically limited by statute. Further, State officials stated that they believe U.S. employers are increasingly less likely to hire workers without lawful status and are petitioning for lawfully admitted workers, which in part led to an increase in H-2A visa demand. Tourist and Business Visitors. State officials partly attributed the overall changes to tourist and business visitor visas to the extension of the validity period of such visas for Chinese nationals, which represented the largest single country of nationality for tourist and business visitor visas in fiscal year 2017 (17.7 percent). In November 2014, the United States and the People’s Republic of China reciprocally increased the validity periods of multiple-entry tourist and business visitor visas issued to each other’s citizens for up to 10 years. The change in policy was intended to support improved trade, investment, and business by facilitating travel between the two countries. According to State officials, extending validity periods can create an initial increase in demand for such visas, followed by a period of stabilization or even decline as NIV holders would be required to apply for renewal less frequently. According to State officials, in early fiscal year 2015, the increase in the validity period to 10 years for such visas created a spike in Chinese demand in fiscal year 2015, and by fiscal year 2016, the initial demand for these visas had been met and Chinese economic growth was simultaneously slowing, resulting in fewer adjudications for such visas in fiscal year 2017. State data for this time period indicate that the number of adjudications for tourist and business visitor visas for Chinese nationals increased from 1.58 million in fiscal year 2014 to 2.54 million in fiscal year 2015, followed by a decline to 2.34 million in fiscal year 2016 and 1.76 million in fiscal year 2017. Student and Exchange Visitors. Similar to tourist and business visitors, State officials partly attributed the overall changes in student and exchange visitor visa adjudications to the extension of the validity period of such visas for Chinese nationals, which represented the largest single country of nationality for student and exchange visitor visas in fiscal year 2017 (19 percent). In November 2014, the United States extended the validity period of the F visa for academic students from 1 year to 5 years. State officials noted that similar to tourist and business visitor visas, there was an initial surge in Chinese F-visa applicants due to the new 5-year F-visa validity period that began in fiscal year 2015, but the number dropped subsequently because Chinese students with such 5-year visas no longer needed to apply as frequently for F visas. State data for this time period indicate that the number of visa adjudications for F visas for Chinese nationals increased from about 267,000 in fiscal year 2014 to 301,000 in fiscal year 2015, followed by a decline of 172,000 in fiscal year 2016 and 134,000 in fiscal year 2017. Applicant’s Country of Nationality. In fiscal year 2017, more than half of all NIV adjudications were for applicants of six countries of nationality: China (2.02 million, or 16 percent), Mexico (1.75 million, or 14 percent), India (1.28 million, or 10 percent), Brazil (670,000, or 5 percent), Colombia (460,000, or 4 percent), and Argentina (370,000, or 3 percent), as shown in figure 6. Location of Adjudication. State data indicate that the geographic distribution of NIV adjudications across visa-issuing posts worldwide remained relatively consistent from fiscal years 2012 through 2017. NIV adjudications from visa-issuing posts in the Western Hemisphere comprised the largest proportion worldwide during this time period; however, this proportion decreased from 48.8 percent in fiscal year 2012 to 41.7 percent in fiscal year 2017. During the same time period, the proportion of NIV adjudications at visa-issuing posts in other regions increased slightly. For example, the percentage of NIV adjudications from posts in Africa increased from 3.8 percent to 5.5 percent, and the percentage of adjudications from posts in South and Central Asia increased from 7.9 percent to 11.2 percent from fiscal years 2012 through 2017. Figure 7 provides the proportion of NIV adjudications at visa- issuing posts from each region from fiscal years 2012 through 2017. The percentage of NIVs refused—known as the refusal rate—increased from fiscal years 2012 through 2016, and was about the same in fiscal year 2017 as the previous year. As shown in figure 8, the NIV refusal rate rose from about 14 percent in fiscal year 2012 to about 22 percent in fiscal year 2016, and remained about the same in fiscal year 2017; averaging about 18 percent over the time period. As a result, the total number of NIVs issued peaked in fiscal year 2015 at about 10.89 million, before falling in fiscal years 2016 and 2017 to 10.38 million and 9.68 million, respectively. The NIV refusal rate can fluctuate from year to year due to many factors. For example, according to State officials, removing a large, highly- qualified set of travelers from the NIV applicant population can drive up the statistical refusal rate. State officials also noted that when a country joins the Visa Waiver Program or a visa for certain nationalities increase from 1-year to 10-year visa validity periods, these individuals no longer apply for visas and affect the overall refusal rate. Further, State officials noted that changes in political and economic conditions in individual countries can affect visa eligibility, which in turn affects the overall refusal rate. State officials noted that the degree to which an applicant might seek to travel to the United States unlawfully is directly related to political, economic, and social conditions in their countries. For example, if global or regional economic conditions deteriorate, more applicants may have an incentive to come to the United States illegally by, for example, obtaining a NIV with the intent to unlawfully stay for a particular time period or purpose other than as permitted by their visa, which then would increase the number of NIV applications that consular officers are refusing. From fiscal years 2012 through 2017, the refusal rate varied by visa group. The highest refusal rate was for tourists and business visitors, which rose from about 15 percent in fiscal year 2012 to over 25 percent in fiscal year 2017, as shown in figure 9. Other visa categories, such as foreign officials and employees, transit and crewmembers, and fiancé(e)s and spouses, had refusal rates below 5 percent during this time period. State officials noted that because different visa categories have different eligibility and documentary requirements, they have different refusal rates. For example, F, J, and H visas require documentation of eligibility for student, exchange, or employment status, respectively. According to State data, while the majority of NIV refusals from fiscal years 2012 through 2017 were a result of consular officers finding the applicants ineligible, a relatively small number of refusals were due to terrorism and other security-related concerns. NIV applicants can be refused a visa on a number of grounds of inadmissibility or other ineligibility under U.S. immigration law and State policy. For the purposes of this report, we have grouped most of these grounds for refusal into one of seven categories, as shown in table 4. State data indicate the more than 90 percent of NIVs refused each year from fiscal years 2012 through 2017 were based on the consular officers’ determination that the applicants were ineligible nonimmigrants—in other words, the consular officers believed that the applicant was an intending immigrant seeking to stay permanently in the United States, which would generally violate NIV conditions, or that the applicant otherwise failed to demonstrate eligibility for the particular visa he or she was seeking. For example, an applicant applying for a student visa could be refused as an ineligible nonimmigrant for failure to demonstrate possession of sufficient funds to cover his or her educational expenses as required. Similarly, an applicant could be refused as an ineligible nonimmigrant for indicating to the consular officer an intention to obtain a student visa to engage in unsanctioned activities while in the United States, such as full-time employment instead of pursuing an approved course of study. According to State data, the second most common reason for refusal during this time period was inadequate documentation, which accounted for approximately 5 percent of refusals each year. In such cases, a consular officer determined that the application failed to include necessary documentation for the consular officer to ascertain whether the applicant was eligible to receive a visa at that time. If, for example, the applicant provides sufficient additional information in support of the application, a consular officer may subsequently issue the visa, as appropriate. Our analysis of State data indicates that relatively few applicants— approximately 0.05 percent—were refused for terrorism and other security-related reasons from fiscal years 2012 through 2017. Security- related reasons can include applicants who have engaged in genocide, espionage, or torture, among other grounds. Terrorism-related grounds of inadmissibility include when an applicant has engaged in or incited terrorist activity, is a member of a terrorist organization, or is the child or spouse of a foreign national who has been found inadmissible based on terrorist activity occurring within the last five years, among other reasons. As shown in figure 10, in fiscal year 2017, State data indicate that 1,256 refusals (or 0.05 percent) were based on terrorism and other security-related concerns, of which 357 refusals were specifically for terrorism-related reasons. In calendar year 2017, the President issued two executive orders and a presidential proclamation that required, among other actions, visa entry restrictions for nationals of certain countries of concern, a review of information needed for visa adjudication, and changes to visa (including NIV) screening and vetting protocols and procedures (see timeline in figure 11). Initially, the President issued Executive Order 13769, Protecting the Nation from Foreign Terrorist Entry Into the United States (EO-1), in January 2017. In March 2017, the President revoked and replaced EO-1 with the issuance of Executive Order 13780 (EO-2), which had the same title as EO-1. Among other things, EO-2 suspended entry of certain foreign nationals for a 90 day period, subject to exceptions and waivers. It further directed federal agencies—including DHS, State, DOJ and ODNI—to review information needs from foreign governments for visa adjudication and develop uniform screening and vetting standards for U.S. entities to follow when adjudicating immigration benefits, including NIVs. In September 2017, as a result of the reviews undertaken pursuant to EO-2, the President issued Presidential Proclamation 9645, Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry into the United States by Terrorists or Other Public-Safety Threats (Proclamation), which imposes certain conditional restrictions and limitations on the entry of nationals of eight countries—Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela and Yemen—into the United States for an indefinite period. These restrictions are to remain in effect until the Secretaries of Homeland Security and State determine that a country provides sufficient information for the United States to assess adequately whether its nationals pose a security or safety threat. Challenges to both EOs and the Proclamation have affected their implementation and, while EO-2’s entry restrictions have expired, the visa entry restrictions outlined in the Proclamation continue to be fully implemented as of June 2018, consistent with the U.S. Supreme Court’s June 26, 2018, decision, which held that the President may lawfully establish nationality-based entry restrictions under the INA, and that Proclamation 9645 itself “is squarely within the scope of Presidential authority.” A more detailed listing of the executive actions and related challenges to those actions brought in the federal courts can be found in appendix III. Our analysis of State data indicates, out of the nearly 2.8 million NIV applications refused in fiscal year 2017, 1,338 were refused due to visa entry restrictions implemented in accordance with the executive actions. To implement the entry restrictions, in March 2017, State directed its consular officers to continue to accept all NIV applications and determine whether the applicant was otherwise eligible for a visa without regard to the applicable EO or Proclamation. If the applicant was ineligible for the visa on grounds unrelated to the executive action, such as having prior immigration violations, the applicant was to be refused on those grounds. If the applicant was otherwise eligible for the visa, but fell within the scope of the nationality-specific visa restrictions implemented pursuant to the applicable EO or Proclamation and was not eligible for a waiver or exception, the consular officer was to refuse the visa and enter a refusal code into State’s NIV database indicating that the applicant was refused solely due to the executive actions. More than 90 percent of the NIV applications refused in fiscal year 2017 pursuant to an executive action were for tourist and business visitor visas, and more than 5 percent were for students and exchange visitors. State data also indicate that the number of applications adjudicated for nationals of the 7 countries identified in EO-1—Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen—decreased by 22 percent in fiscal year 2017, as compared to a 7 percent general decrease in NIV adjudications worldwide that year. For example, as shown in table 5, the decrease in adjudications from fiscal years 2016 to 2017 for nationals of the 7 countries identified in EO-1 ranged from around 12 percent to more than 40 percent. As directed by the executive actions, DHS, State, DOJ, and ODNI took several steps to enhance NIV screening and vetting processes given their responsibilities for implementing the presidential actions. Among other things, the responsibilities included: (1) a review of information needed for visa adjudication; (2) the development of uniform screening standards for immigration programs; and (3) implementation of enhanced visa screening and vetting protocols and procedures. Review of information needed for visa adjudication. In accordance with EO-2, DHS conducted a worldwide review, in consultation with State and ODNI, to identify additional information needed from foreign countries to determine that an individual is not a security or public-safety threat when adjudicating an application for a visa, admission, or other immigration benefit. According to State officials, an interagency working group composed of State, DHS, ODNI, and National Security Council staff was formed to conduct the review. To conduct this review, DHS developed a set of criteria for information sharing in support of immigration screening and vetting, as shown by table 6. According to DHS officials, to develop these criteria, DHS, in coordination with other agencies, identified current standards and best practices for information collection and sharing under various categories of visas to create a core list of information needed from foreign governments in the visa adjudication process. For example, State sent an information request to all U.S. posts overseas requesting information on host nations’ information sharing practices, according to State officials. To assess the extent to which countries were meeting the newly established criteria, DHS officials stated that they used various information sources to preliminarily develop a list of countries that were or were not meeting the standards for adequate information sharing. For example, DHS officials stated that they reviewed information from INTERPOL on a country’s frequency of reporting lost and stolen passport information, consulted with ODNI for information on which countries are terrorist safe havens, and worked with State to obtain information that State officials at post may have on host nations’ information sharing practices. According to the Proclamation, based on DHS assessments of each country, DHS reported to the President on July 9, 2017, that 47 countries were “inadequate” or “at risk” of not meeting the standards. DHS officials identified several reasons that a country may have been assessed as “inadequate” with regard to the criteria. For example, some countries may have been willing to provide information, but lacked the capacity to do so. Or, some countries may not have been willing to provide certain information, or simply did not currently have diplomatic relations with the U.S. government. As was required by EO-2, State engaged with foreign governments on their respective performance based on these criteria for a 50-day period. In July 2017, State directed its posts to inform their respective host governments of the new information sharing criteria and request that host governments provide the required information or develop a plan to do so. Posts were directed to then engage more intensively with countries DHS’s report preliminarily deemed “inadequate” or “at risk”. Each post was to submit an assessment of mitigating factors or specific interests that should be considered in the deliberations regarding any travel restrictions for nationals of those countries. DHS officials stated that they reviewed the additional information host nations provided to State and then reevaluated the initial classifications to determine if any countries remained “inadequate.” On September 15, 2017, in accordance with EO-2, DHS submitted to the President a list of countries recommended for inclusion in a presidential proclamation that would prohibit certain categories of foreign nationals of such countries from entering the United States. The countries listed were Chad, Iran, Libya, North Korea, Syria, Venezuela, and Yemen— which were assessed as “inadequate,” and Somalia, which was identified as a terrorist safe haven. The Presidential Proclamation indefinitely suspended entry into the United States of certain nonimmigrants from the listed countries (see table 7) and directed DHS, in consultation with State, to devise a process to assess whether the entry restrictions should be continued, modified or terminated. In September 2017, State issued additional guidance to posts on implementation of the Presidential Proclamation. As of July 2018, State continues to accept and process the NIV applications of foreign nationals from the eight countries covered by the Proclamation. Such applicants are to be interviewed, according to State guidance, and consular officers are to determine if the applicant is otherwise eligible for the visa, meets any of the proclamation’s exceptions, or qualifies for a waiver. Development of uniform screening standards for U.S. immigration benefit programs. Consistent with EO-2, State, DHS, DOJ, and ODNI developed a uniform baseline for screening and vetting standards and procedures by the U.S. government. According to State officials, an interagency working group comprised of State, DHS, DOJ, and ODNI staff is implementing these requirements. Based on its review of existing screening and vetting processes, DHS officials stated that the working group established uniform standards for (1) applications, (2) interviews, and (3) security system checks (i.e., biographic and biometric). Regarding applications, DHS officials stated that the group identified data elements against which applicants are to be screened and vetted. In February 2018, DHS Office of Policy officials stated that they had taken steps to create more consistency across U.S. government forms that collect information used for screening and vetting purposes, such as State’s DS-160 NIV application as well as 12 DHS forms. For example, officials stated that they anticipate issuing Federal Register notices announcing the intended changes to such forms. Regarding interviews, DHS officials stated that the working group established a requirement for all applicants seeking an immigration benefit, including NIV applicants, to undergo a baseline uniform national security and public safety interview. DHS officials stated that the working group modeled its interview baseline on elements of the refugee screening interview. To help implement this standard, DHS officials stated that the department is offering more training courses in enhanced communications (i.e. detecting deception and eliciting responses) and making such courses accessible to other U.S. government entities and U.S. officials overseas. Regarding security checks, the working group identified certain checks that should be conducted for all applicants seeking an immigration benefit, including NIV applicants. For example, DHS officials stated that the working group concluded that all applicants for U.S. immigration benefits should be screened against DHS’s TECS, among other federal databases. In February 2018, DHS Office of Policy officials stated that they were also exploring the extent to which current screening and vetting technologies can be expanded. For example, technology that is being used to screen applicants for counterterrorism concerns can potentially be modified to screen applicants for other concerns such as public safety or participation in transnational organized crime. However, these officials noted such changes to technology can take a long time. DHS officials stated that each department and agency is responsible for implementing the uniform standards for their relevant immigration programs. For example, with regard to maintaining information electronically, State officials stated that for nonimmigrant and immigrant visas, as of May 2018, they collected most, but not all, of the application data elements. In addition to executive actions taken in calendar year 2017, the President issued National Security Presidential Memorandum 9 on February 6, 2018, which directed DHS, in coordination with State, DOJ, and ODNI, to establish a National Vetting Center to optimize the use of federal government information in support of the national vetting enterprise. This memorandum stated that the U.S. government must develop an integrated approach to the use of intelligence and other data, across national security components, in order to improve how departments and agencies coordinate and use information to identify individuals presenting a threat to national security, border security, homeland security, or public safety. The center is to be overseen and guided by a National Vetting Governance Board, consisting of six senior executives designated by DHS, DOJ, ODNI, State, the Central Intelligence Agency, and the Department of Defense. Further, within 180 days of the issuance of the memorandum, these six departments and agencies, in coordination with the Office of Management and Budget, are to jointly submit to the President for approval an implementation plan for the center, addressing, among other things, the initial scope of the center’s vetting activities; the roles and responsibilities of agencies participating in the center; a resourcing strategy for the center; and a projected schedule to reach both initial and full operational capability. On February 14, 2018, the Secretary of Homeland Security selected an official to serve as the Director of the National Vetting Center and delegated the center’s authorities to CBP. DHS Office of Policy officials stated in February 2018 that the center is intended to serve as the focal point of the larger screening and vetting enterprise, and will coordinate policy and set priorities. The center will use the uniform baselines for screening and vetting standards and procedures established per EO-2 to set short- and long-term priorities to improve screening and vetting across the U.S. government. Further, these officials stated screening and vetting activities will continue to be implemented by the entities that are currently implementing such efforts, but roles and responsibilities for screening and vetting for immigration benefits may be modified in the future based on the work of the center. According to DHS Office of Policy officials, efforts to implement National Security Presidential Memorandum 9, such as the development of an implementation plan, are ongoing as of June 2018. Implementation of new visa screening and vetting protocols and procedures. In response to the EOs and a March 2017 presidential memorandum issued the same day as EO-2, State has taken several actions to implement new visa screening and vetting protocols and procedures. For example, State sought and received emergency approval from the Office of Management and Budget in May 2017 to develop a new form, the DS-5535. The form collects additional information from a subset of visa applicants to more rigorously evaluate applicants for visa ineligibilities, including those related to national security and terrorism. The new information requested includes the applicant’s travel history over the prior 15 years, all phone numbers used over the prior 15 years, and all email addresses and social media handles used in the last 5 years. State estimated that, across all posts, the groups requiring additional vetting represented about 70,500 individuals per year. We provided a draft of the sensitive version of this report to DHS, DOJ, State, and ODNI. DHS, DOJ, and State provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until seven days from the report date. At that time, we will send copies of this report to the Secretaries of Homeland Security and State, the Attorney General, and the Director of National Intelligence. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8777or GamblerR@gao.gov. Key contributors to this report are listed in appendix IV. There are many nonimmigrant visas (NIV), which are issued to foreign nationals such as tourists, business visitors, and students seeking temporary admission into the United States. For the purposes of this report, we placed the majority of NIVs into one of seven groups. In the following enclosures, we provide a descriptive overview of each group on the basis of our analysis of the Department of State’s (State) fiscal years 2012 through 2017 NIV data. Each enclosure also contains the following: Description of the group. In this section, we provide a narrative description of the group, as well as a table of the specific NIVs that comprise the group. Characteristics of the applicants. In this section, we provide the number of annual NIV adjudications for fiscal years 2012 through 2017, the specific NIVs adjudicated in fiscal year 2017 within the group, the regions to which applicants applied for these NIVs in fiscal year 2017, and the top five nationalities that applied for NIVs in the group in fiscal year 2017. Issuances. In this section, we provide the number of NIVs issued within this group for fiscal years 2012 through 2017. Refusals. In this section, we provide the refusal rate for the entire NIV group for fiscal years 2012 through 2017. For the NIVs that were refused in fiscal year 2017 for this group, we also provide the top ground for refusal. NIV applicants can be refused a visa on a number of grounds of inadmissibility or other ineligibility under U.S. immigration law and State policy. However, across all visa groups, the top categories were either ineligible nonimmigrant or inadequate documentation: Ineligible nonimmigrant. For most NIV categories, the applicant is presumed to be an intending immigrant until the applicant establishes to the satisfaction of the consular officer that he or she is entitled to a nonimmigrant status. An applicant may be refused under this provision if, among other things, the consular officer determines the applicant lacks sufficient ties to his or her home country, or intends to abandon foreign residence; that evidence otherwise indicates an intent to immigrate to the United States permanently; or that the applicant is likely to violate the terms of the visa after being admitted. Inadequate documentation. The consular officer determined that the application is not in compliance with the INA because, for example, it lacks necessary documentation to allow the consular officer to determine visa eligibility. In such cases, the applicant would not be found eligible for the visa unless and until satisfactory documentation is provided to the consular officer or after the completion of administrative processing, such as security advisory opinions. Visa types (FY 2017) (9,968,157 adjudications) Region in which applicant applied (FY 2017) (9,968,157 adjudications) percent from fiscal years 2012 through 2015, and declined by about 13 percent from fiscal years 2015 to 2017. ● The refusal rate for tourist and business visitor visas generally increased each year from fiscal year 2012 through fiscal year 2017. ● The vast majority of refusals in fiscal year 2017 were due to the applicant’s inability to overcome the presumption of his or her intent to immigrate or meet the visa’s eligibility criteria. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (992,855 adjudications) Region in which applicant applied (FY 2017) (992,855 adjudications) ● The refusal rate for student and exchange visitor issuances decreased each year from fiscal years 2015 through 2017. visas peaked in fiscal year 2016, and slightly declined in fiscal year 2017. ● The vast majority of refusals in fiscal year 2017 were due to the applicant’s inability to overcome the presumption of his or her intent to immigrate or meet the visa’s eligibility criteria. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (884,667 adjudications) 19% 10% 16% Region in which applicant applied (FY 2017) (884,667 adjudications) ● Generally, the refusal rates for temporary worker years 2012 through 2017. visas decreased from fiscal years 2012 through 2017. ● Department of State officials noted, for example, that H-2A visas are not numerically limited by statute. They also stated that they believe U.S. employers are increasingly less likely to hire workers without lawful status and are petitioning for lawfully admitted workers. ● In fiscal year 2017, temporary worker visas were most frequently refused because the applicant did not provide adequate documentation to the consular officer. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (330,117 adjudications) Region in which applicant applied (FY 2017) (330,117 adjudications) ● The refusal rates for transit and crewmember visas about 8 percent from fiscal years 2012 through 2017 (from about 295,000 to 320,000). varied over the period of fiscal years 2012 through 2017. ● Specifically, issued C-1/D visas increased over the ● The majority of refusals in fiscal year 2017 were same time period, but the number of issued visas for the remaining visa types in this category have decreased. due to the applicant’s inability to overcome the presumption of his or her intent to immigrate or meet the visa’s eligibility criteria. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (166,187 adjudications) Region in which applicant applied (FY 2017) (166,187 adjudications) ● The refusal rates for foreign official and employee visas remained under 4 percent. ● In fiscal year 2017, foreign official and employee visas were most frequently refused because the applicant did not provide adequate documentation to the consular officer. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (68,580 adjudications) Region in which applicant applied (FY 2017) (68,580 adjudications) ● Generally, refusal rates for treaty trader and investor increased over the period of fiscal years 2012 through 2017. visas increased slightly over the period of fiscal years 2012 through 2017. ● Issuances for E-3 visas nearly doubled from fiscal ● The majority of refusals in fiscal year 2017 were year 2012 through 2017, but comprise a small percentage of this category overall. due to the applicant’s inability to overcome the presumption of their intent to immigrate or meet the visa’s eligibility criteria. Issued visas, fiscal years 2012 through 2017 (in thousands) Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Visa types (FY 2017) (40,533 adjudications) Region in which applicant applied (FY 2017) (40,533 adjudications) ● Refusal rates for fiancé(e) and spouse visas were fluctuated over the period of fiscal years 2012 through 2017, but increased overall during this time period. relatively low during the period of fiscal years 2012 through 2017. ● Most refusals in fiscal year 2017 were due to inadequate documentation from the visa applicant, potentially indicating that such applications failed to include necessary documentation for the consular officer to ascertain whether the applicant was eligible to receive a visa at that time. Issued visas, fiscal years 2012 through 2017 (in thousands) Visa refusal rates, fiscal years 2012 through 2017 (percentage) Nonimmigrant visas (NIV) are issued to foreign nationals such as tourists, business visitors, and students seeking temporary admission into the United States. The Department of State (State) is generally responsible for the adjudication of NIV applications, and manages the application process, including the consular officer corps and its functions at more than 220 U.S. embassies and consulates (i.e., visa-issuing posts) overseas. Depending on various factors, such as the particular NIV sought, the applicant’s background, and visa demand, State officials noted that the length of the visa adjudication process can vary from a single day to months. This appendix provides descriptive statistics of NIV adjudications, issuances, and refusals for fiscal years 2012 through 2017. Specific details are shown in table 8 below. State data from fiscal years 2012 through 2016 indicate that NIV adjudications generally followed an annual cycle, ebbing during certain months during the fiscal year; however, adjudications in fiscal year 2017 departed slightly from this trend. Specifically, from fiscal years 2012 through 2016, the number of NIV adjudications typically reached its highest peak in the summer months, as shown in table 9. For example, State officials noted that a summer peak is generally due to international students who are applying for their visas for the coming academic year. There are many NIVs, and for the purposes of this report, we have placed the majority of NIVs into one of seven groups. Table 10 includes the annual NIV adjudications, issuances, and refusal rates, for each visa group for fiscal years 2012 through 2017. NIV applicants seeking to travel to the United States represent many different nationalities, but the countries of nationality with the most NIV adjudications have remained relatively consistent in recent years. Table 11 provides the top 25 countries of nationality for NIV adjudications for fiscal years 2012 through 2017. NIV applicants can apply for their NIVs at more than 220 visa-issuing U.S. posts overseas. Table 12 describes the regions to which NIV applicants applied from fiscal years 2012 through 2017. NIV applicants can be refused a visa on a number of grounds of inadmissibility or other ineligibility under U.S. immigration law and State policy. For the purposes of this report, we have grouped most of these grounds for refusal into one of seven categories, and group the remaining into a miscellaneous category, as shown in table 13. From January through October 2017, the administration took various executive actions establishing nationality-based entry restrictions for certain categories of foreign nationals from designated countries. This appendix supplements information included in this report to provide a more comprehensive presentation of changes to U.S. immigration policy affecting nonimmigrant and immigrant entry into the United States, and outlines the legal standards applied, and precedent developed and relied upon, by federal courts in resolving challenges to the executive actions. In particular, it describes relevant aspects of the executive actions specifically addressed in this report—Executive Orders 13769 and 13780, both titled Protecting the Nation from Foreign Terrorist Entry into the United States, and Presidential Proclamation 9645, Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry into the United States by Terrorists or Other Public-Safety Threats—that imposed visa entry restrictions on certain countries’ nationals and included provisions addressing NIV screening and vetting, as well as other executive actions on immigration issued by the current administration. Furthermore, this appendix provides a detailed account of the interrelated challenges to these executive actions brought in the federal courts through June 2018. In summary, on March 6, 2017, the President issued Executive Order (EO) 13780, Protecting the Nation from Foreign Terrorist Entry Into the United States, which instituted visa and refugee entry restrictions, and an accompanying memorandum addressed to the Secretaries of State and Homeland Security and the Attorney General, calling for heightened screening and vetting of visa applications and other immigration benefits. EO 13780 stated that it is U.S. policy to improve the screening and vetting protocols and procedures associated with the visa-issuance process and U.S. Refugee Admissions Program (USRAP). Enforcement of sections 2(c) and 6(a) of EO 13780 which established visa entry restrictions for nationals of six countries of particular concern—Iran, Libya, Somalia, Sudan, Syria, and Yemen—for a 90-day period, and suspended all refugee admissions for 120 days, was enjoined by federal district court orders issued in March 2017. On appeal, the U.S. Courts of Appeals for the Fourth and Ninth Circuits generally upheld these decisions. Upon review by the U.S. Supreme Court in June 2017, the injunction was partially lifted except with respect to foreign nationals who have bona fide ties to the United States Implementation of EO 13780 commenced on June 29, 2017. On September 24, 2017, pursuant to section 2(e) of EO 13780, the President issued Presidential Proclamation 9645, Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry Into the United States by Terrorists or Other Public-Safety Threats. This proclamation restricts entry into the United States of certain categories of foreign nationals from eight countries—Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela, and Yemen—for an indefinite period. Preliminary injunctions issued by the U.S. District Courts for the Districts of Maryland (Maryland federal district court) and Hawaii (Hawaii federal district court) in October 2017 prohibited implementation of these visa entry restrictions except with respect to North Korean and Venezuelan nationals. On December 4, 2017, the U.S. Supreme Court issued two orders staying these district court injunctions; and on January 19, 2018, the Supreme Court granted the government’s petition for review of the December 22, 2017, decision of the Ninth Circuit, which partially affirmed the Hawaii federal district court’s preliminary injunction. As of June 2018, these latest visa entry restrictions continue to be fully implemented consistent with the Supreme Court’s June 26, 2018, decision, which held that the President may lawfully establish nationality-based entry restrictions, and that Proclamation 9645 itself “is squarely within the scope of Presidential authority.” The following sections describe these executive actions and related litigation in greater detail. On January 27, 2017, the President issued EO 13769, Protecting the Nation from Foreign Terrorist Entry Into the United States, which directed a review of information needs for adjudicating visas and other immigration benefits to confirm individuals seeking such benefits are who they claim to be, and are not security or public-safety threats. To temporarily reduce investigative burdens during the review period, the EO suspended U.S. entry for nationals of seven countries of particular concern—Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen. In addition, EO 13769 put USRAP on hold for 120 days and indefinitely barred admission of Syrian refugees. Shortly after its issuance, however, the EO faced numerous legal challenges in federal courts across the country involving various constitutional and statutory issues such as detainee applications for writs of habeas corpus, alleged religious or nationality-based discrimination, and the extent of the EO’s applicability to certain categories of foreign nationals, including U.S. lawful permanent residents (LPR) and dual nationals holding passports issued by a listed country as well as another nation not subject to visa entry restrictions. On February 3, 2017, the Washington federal district court entered a nationwide temporary restraining order (TRO) prohibiting enforcement of the EO’s entry restrictions. In rejecting the government’s argument that a TRO only cover the particular states at issue, the court reasoned that partial implementation would “undermine the constitutional imperative of ‘a uniform Rule of Naturalization’ and Congress’s instruction that the ‘immigration laws of the United States should be enforced vigorously and uniformly.’” On February 9, 2017, the Ninth Circuit affirmed the nationwide injunction, thereby denying the government’s emergency motion for a stay of the Washington federal district court’s TRO pending appeal, because the government did not show a likelihood of success on the merits of its appeal, or that failure to enter a stay would cause irreparable injury. On March 6, 2017, however, the President issued EO 13780, which revoked and replaced EO 13769, and established revised restrictions on entry for nationals of the same countries of particular concern, except Iraq. On March 6, 2017, the President signed EO 13780, Protecting the Nation from Foreign Terrorist Entry Into the United States, which revoked and replaced EO 13769 and put in place revised visa and refugee entry restrictions, and issued an accompanying memorandum calling for heightened screening and vetting of visa applications and other immigration benefits. In general, sections 2(c) and 6(a) of EO 13780 barred visa travel for nationals of six designated countries—Iran, Libya, Somalia, Sudan, Syria, and Yemen—for 90 days, and all refugee admission for 120 days. On March 15, 2017, sections 2 and 6 of the EO were enjoined on statutory grounds (i.e., based on potential violation of U.S. immigration law) pursuant to the order of the Hawaii federal district court granting the plaintiffs’ motion for a TRO. On March 16, 2017, the Maryland federal district court issued a preliminary injunction barring implementation of visa entry restrictions on a nationwide basis with respect to nationals of the six listed countries. On May 25, 2017, the Fourth Circuit affirmed the Maryland federal district court’s injunction on constitutional grounds (i.e., based on potential violation of the Establishment Clause of the First Amendment to the U.S. Constitution). On June 12, 2017, the Ninth Circuit generally affirmed the Hawaii federal district court’s ruling, but vacated the district court’s order to the extent it enjoined internal review procedures not burdening individuals outside the Executive Branch, therefore permitting the administration to conduct the internal reviews of visa information needs as directed in the EO. On June 14, 2017, the President issued a memorandum to the Secretaries of State and Homeland Security, Attorney General, and Director of National Intelligence, directing that sections 2 and 6 of EO 13780 were to be implemented 72 hours after all applicable injunctions are lifted or stayed. On June 26, 2017, the Supreme Court granted, in part, the government’s application to stay the March 15 and 16 injunctions of the Hawaii and Maryland federal district courts, as generally upheld on May 25 and June 12 by the Fourth and Ninth Circuits. The Court explained that the administration may enforce visa and refugee travel restrictions under sections 2 and 6 except with respect to an individual who can “credibly claim a bona fide relationship with a person or entity in the United States.” In the case of a visa or refugee applicant who is the relative of a person in the United States, such foreign national would be exempt from entry restrictions provided the family connection with their U.S. relative meets the “close familial relationship” standard. The Court further explained that a qualifying relationship with a U.S. entity would have to be formal, documented, and formed in the ordinary course, and not for the purpose of evading EO 13780. On June 29, 2017, the day that implementation of EO 13780 began, the State Department issued guidance providing that a close familial relationship exists for the parents, spouse, children, adult sons or daughters, sons and daughters-in-law, and siblings of a person in the United States, but not for such person’s grandparents, grandchildren, uncles, aunts, nephews, nieces, sisters-in-law, brothers-in-law or other relatives. The State of Hawaii filed a motion with the Hawaii federal district court seeking, among other things, a declaration that the partial injunction in place after the Supreme Court’s ruling prohibited application of travel restrictions to fiancés, grandparents, grandchildren, brothers and sisters in-law, aunts, uncles, nieces, nephews, and cousins of persons in the United States. On July 13, 2017, the Hawaii federal district court ruled, among other things, that section 2 of the EO, generally barring travel to the United States for nationals of certain countries, does not apply to the grandparents, grandchildren, brothers and sisters in-law, aunts, uncles, nieces, nephews and cousins of persons in the United States, who were initially excluded from the administration’s interpretation of “close family.” The government appealed this decision to the Supreme Court. On July 19, 2017, the Supreme Court denied the government’s motion seeking further clarification of its June 26 ruling, stayed the Hawaii federal district court’s order to the extent it included refugees covered by a formal assurance from a U.S.-based resettlement agency within the scope of the preliminary injunction, pending appeal to the Ninth Circuit, and left unchanged the district court’s broader formulation of exempt “close family.” On September 7, 2017, the Ninth Circuit upheld the Hawaii federal district court’s definition of close family members who are not to be subjected to travel restrictions, and rejected the government’s argument that refugees who had undergone a stringent review process and been approved by U.S.-based resettlement agencies lack a bona fide relationship to the United States, thus allowing admission of such refugees. On September 11, 2017, the Supreme Court temporarily enjoined aspects of the Hawaii federal district court’s holding that would permit admission of certain refugees with formal assurances from a U.S. resettlement entity. The next day, on September 12, 2017, the Supreme Court indefinitely stayed the Ninth Circuit’s September 7 ruling with respect to refugees covered by a formal assurance, thereby permitting the administration to suspend entry of such refugees. On September 24, 2017, pursuant to section 2(e) of EO 13780, the President issued Presidential Proclamation 9645, Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry Into the United States by Terrorists or Other Public Safety Threats, which expanded the scope and duration of visa entry restrictions from six to eight countries, and from a 90-day to an indefinite period for the listed countries. On September 25, 2017, in light of the September 24 proclamation, the Supreme Court directed the parties to file briefs addressing whether, or to what extent, the cases before it regarding EO 13780 are moot. On October 10, 2017, after receiving the parties’ supplemental briefs, the Supreme Court decided that because section 2(c) of EO 13780 expired on September 24, there was no live case or controversy; and without expressing a view on the merits, the Court vacated and remanded the Maryland case to the Fourth Circuit with instructions to dismiss as moot the challenge to EO 13780. On October 24, 2017, consistent with its October 10 ruling, the Supreme Court also vacated and remanded the Hawaii case related to EO 13780 to the Ninth Circuit with instructions to dismiss it as moot. Consequently, after challenges to EO 13780 visa and refugee entry restrictions, as curtailed by the Supreme Court’s ruling of June 26, 2017, were rendered moot, litigation continued with respect to the President’s proclamation of September 24, 2017. On September 24, 2017, pursuant to section 2(e) of EO 13780, the President issued Presidential Proclamation 9645 (the Proclamation), Enhancing Vetting Capabilities and Processes for Detecting Attempted Entry Into the United States by Terrorists or Other Public-Safety Threats, which imposes certain conditional restrictions and limitations on entry into the United States of nationals of eight countries—Chad, Iran, Libya, North Korea, Somalia, Syria, Venezuela, and Yemen—for an indefinite period. According to the Proclamation, travel restrictions are tailored to each nation’s information sharing and identity management deficiencies based on standard immigration screening and vetting criteria established by the Secretary of Homeland Security, and are to remain in effect until such time as the Secretaries of Homeland Security and State determine that a country provides sufficient information for the United States to assess adequately whether its nationals pose a security or safety threat. On October 17, 2017, the Hawaii federal district court issued a TRO, on statutory grounds, enjoining on a nationwide basis the implementation and enforcement of travel restrictions provided for under the Proclamation, except with respect to North Korean or Venezuelan nationals. On the same day, the Maryland federal district court granted in part plaintiffs’ motion for preliminary injunction, primarily on constitutional grounds, thereby prohibiting implementation of visa entry restrictions nationwide, except for nationals of North Korea and Venezuela as well as other covered foreign nationals who lack a credible claim of a bona fide relationship with a person or entity in the United States. On October 20, 2017, the Hawaii federal district court converted its October 17 TRO into a preliminary injunction, thereby continuing the nationwide prohibition on enforcement or implementation of the suspension on entry for nationals of Chad, Iran, Libya, Somalia, Syria, and Yemen. The district court did not stay its ruling or hold it in abeyance should an appeal be filed in the Ninth Circuit. On November 13, 2017, the Ninth Circuit granted, in part, the government’s request for an emergency stay of the Hawaii federal district court’s preliminary injunction, thereby allowing visa entry restrictions to go into effect with respect to the nationals of Chad, Iran, Libya, Somalia, Syria, and Yemen. However, consistent with the Supreme Court’s June 2017 ruling, the court ordered that those with a bone fide relationship to a person or entity in the United States not be subject to such travel restrictions. On November 20, 2017, the government petitioned the Supreme Court for a stay of the preliminary injunction issued by the Hawaii federal district court, pending consideration and disposition of the government’s appeal from that injunction to the Ninth Circuit and, if that court affirms the injunction, pending filing and disposition of a petition for a writ of certiorari and any further proceedings in the Supreme Court. On November 28, 2017, plaintiffs in the challenge to the Proclamation arising out of Hawaii asked that the Supreme Court deny the government’s request to lift the partial injunction left in place by the Ninth Circuit. On the same day, plaintiffs in the case arising out of Maryland requested that the Supreme Court not grant a stay of the federal district court’s preliminary injunction. In both cases, plaintiffs assert that the more expansive visa entry restrictions violate U.S. immigration law; additionally, for the Maryland case, plaintiffs argue that such restrictions are unconstitutional as a form of discrimination based on national origin. On December 4, 2017, the Supreme Court issued two orders staying the Maryland and Hawaii federal district courts’ orders of October 17 and 20 that preliminarily enjoined implementation of the Proclamation, pending decisions of the Ninth and Fourth Circuits in the government’s appeals, and of the Supreme Court regarding a petition for a writ of certiorari (if sought). As a result, the Proclamation’s visa entry restrictions were permitted to go into full effect unless and until they are either enjoined by the courts of appeals and a writ of certiorari is not sought thereafter, or the Supreme Court either denies a petition for certiorari (thereby resulting in termination of the Supreme Court’s stay order) or grants such petition followed by a final injunction prohibiting current or future implementation of the Proclamation’s restrictions. The Supreme Court further noted its expectation that the courts of appeals will render decisions “with appropriate dispatch,” in light of both courts having decided to consider their respective cases on an expedited basis. On December 8, 2017, the Department of State announced that it began fully implementing the Proclamation, as permitted by the Supreme Court, at the opening of business at U.S. embassies and consulates overseas. On December 22, 2017, the Ninth Circuit affirmed in part and vacated in part the Hawaii federal district court’s October 20 order enjoining enforcement of visa entry restrictions under the Proclamation, while limiting the preliminary injunction’s scope to foreign nationals who have a bona fide relationship with a person or entity in the United States. Without reaching plaintiffs’ constitutional claims, the court of appeals concluded that the Proclamation exceeded the scope of authority delegated to the President by Congress under the Immigration and Nationality Act (INA), in particular, sections 202(a)(1)(A) (immigrant visa nondiscrimination) and 212(f) (presidential suspension of, or imposition of restrictions on, alien entry), by deviating from statutory text, legislative history and prior executive practice; not including the requisite finding that entry of certain foreign nationals would be detrimental to U.S. interests; and contravening the INA’s prohibition on nationality-based discrimination in the issuance of immigrant visas. However, the court stayed its decision, given that the Supreme Court’s December 4 order lifted the federal district courts’ injunctions pending not only review by the courts of appeals, but also “disposition of the Government’s petition for a writ of certiorari, if such writ is sought.” On January 5, 2018, the government filed a petition for a writ of certiorari seeking review of the December 22, 2017, judgment of the Ninth Circuit which left in place the Hawaii federal district court injunction of the Proclamation’s visa entry restrictions for individuals with bona fide ties to the United States. On January 19, 2018, the Supreme Court granted the government’s certiorari petition and will therefore consider, and issue an opinion on the merits of, the Ninth Circuit’s decision. On February 15, 2018, the Fourth Circuit affirmed the preliminary injunction granted by the Maryland federal district court on constitutional grounds, but stayed its decision pending the outcome of the Ninth Circuit case before the Supreme Court. The court of appeals found that “laintiffs offer undisputed evidence that the President has openly and often expressed his desire” to bar the entry of Muslims into the United States. Therefore, the court concluded that, in light of the President’s official statements, the Proclamation likely violates the Establishment Clause as it “fails to demonstrate a primarily secular purpose,” and also goes against the basic principle that government is not to act with religious animus. On February 23, 2018, Fourth Circuit challengers filed a petition for a writ of certiorari seeking for the Supreme Court to consolidate their case with the Court’s ongoing review of the Ninth Circuit decision. These petitioners requested that the Court additionally consider their argument that the preliminary injunction should not have been limited to individuals with a bona fide relationship to a person or entity in the United States. On February 26, 2018, the Supreme Court granted Fourth Circuit petitioners’ motion to expedite consideration of their certiorari petition. On April 10, 2018, the President issued a proclamation announcing that because Chad has improved its identity-management and information sharing practices sufficiently to meet U.S. baseline security standards, nationals of Chad will again be able to receive visas for travel to the United States. On June 26, 2018, the Supreme Court held that the President lawfully exercised the broad discretion granted to him under INA § 212(f) (presidential suspension of, or imposition of restrictions on, alien entry), by issuing Proclamation No. 9645, which established nationality-based visa entry restrictions applicable to categories of foreign nationals from eight (now seven) countries for an indefinite period. In addition, while three individual plaintiffs had standing to bring an Establishment Clause challenge to entry restrictions prohibiting their relatives from coming to the United States, the Court found the Proclamation to be legitimate on its face as a way to prevent entry of certain foreign nationals where the government determines there is insufficient information for visa vetting. As a result of the Supreme Court’s June 26, 2018, decision, which held that the establishment of nationality-based entry restrictions is a lawful exercise of the President’s broad discretion in matters of immigration and national security, the visa entry restrictions imposed on categories of foreign nationals from certain countries pursuant to Presidential Proclamation 9645 continue to be fully implemented , as they have been since the Supreme Court’s December 4, 2017, orders staying the lower courts’ injunctions. On October 24, 2017, the same day the 120-day suspension of refugee admissions under EO 13780 expired, the President signed EO 13815, Resuming the United States Refugee Admissions program With Enhanced Vetting Capabilities, which resumed USRAP and directed that special measures be applied to certain categories of refugees posing potential threats to the security and welfare of the United States. On December 23, 2017, the Washington federal district court issued a nationwide preliminary injunction on aspects of EO 13815 (and its accompanying memorandum), thus prohibiting the administration from: (1) temporarily suspending admission of refugees from 11 previously identified countries of concern, and reallocating resources from the processing of their applications during the 90-day review period (except for those lacking a bona fide relationship with a person or entity in the United States); and (2) indefinitely barring admission of, and application processing for, all following-to-join refugees. On January 5, 2018, the Washington federal district court denied the government’s motion for reconsideration of the court’s December 23, 2017, order temporarily halting enforcement of refugee entry restrictions that were to be implemented as part of the resumption of USRAP under the EO. Specifically, the government “ask the court to ‘modify its preliminary injunction to exclude from coverage refugee applicants who seek to establish a on the sole ground that they have received a formal assurance from a resettlement agency.’” In denying the government’s motion for reconsideration, the court relied on the September 7, 2017, decision of the Ninth Circuit which, among other things, rejected the notion that refugees with formal assurances from U.S.-based resettlement agencies do not meet the Supreme Court’s bona fide relationship standard. The court treated this Ninth Circuit ruling as binding precedent given that the Supreme Court’s indefinite stay of September 12 neither vacated the Ninth Circuit’s decision, nor provided any underlying reason(s) that would allow another court to discern its rationale. On January 9, 2018, the Washington federal district court also denied the government’s emergency motion for a stay of the court’s December 23, 2017, preliminary injunction, pending appeal to the Ninth Circuit. On January 31, 2018, DHS announced additional security measures to prevent exploitation of USRAP. Specifically, these security measures include additional screening for certain nationals of high-risk countries, a more risk-based approach to administering USRAP, and a periodic review and update of the refugee high-risk countries list and selection criteria. Therefore, as of June 2018, while the administration has announced additional security measures to strengthen the integrity of USRAP, the Washington federal district court’s December 23, 2017, preliminary injunction of EO 13815 continues to: (1) prohibit implementation of the temporary suspension of admission, and reallocation of resources from processing applications, of refugees from 11 previously identified countries of concern; and (2) forbid enforcement of the indefinite bar on entry of following-to-join refugees. In addition to the contact named above, Kathryn Bernet (Assistant Director), Colleen Corcoran, Eric Hauswirth, Thomas Lombardi, Amanda Miller, Sasan J. “Jon” Najmi, Erin O’Brien, Garrett Riba, and Dina Shorafa made significant contributions to this report.	[ "Previous attempted and successful terrorist attacks against the United States have raised questions about the security of the U.S. government's process for adjudicating NIVs, which are issued to foreign nationals, such as tourists, business visitors, and students, seeking temporary admission into the United States. For example, the December 2015 shootings in San Bernardino, California, led to concerns about NIV screening and vetting processes because one of the attackers was admitted into the United States under a NIV. In 2017, the President issued executive actions directing agencies to improve visa screening and vetting, and establishing nationality-based visa entry restrictions, which the Supreme Court upheld in June 2018. GAO was asked to review NIV screening and vetting. This report examines (1) outcomes and characteristics of adjudicated NIV applications from fiscal years 2012 through 2017, and (2) key changes made to the NIV adjudication process in response to executive actions taken in 2017. GAO analyzed State NIV adjudication data for fiscal years 2012 through 2017, the most recent and complete data available. GAO visited seven consular posts selected based on visa workload and other factors. GAO reviewed relevant executive orders and proclamations, and documents related to implementing these actions. This is a public version of a sensitive report issued in June 2018. Information that DHS, State, and the Office of the Director of National Intelligence deemed sensitive has been removed. The total number of nonimmigrant visa (NIV) applications that Department of State (State) consular officers adjudicated annually peaked at about 13.4 million in fiscal year 2016, and decreased by about 880,000 adjudications in fiscal year 2017. NIV adjudications varied by visa group, country of nationality, and refusal reason: Visa group. From fiscal years 2012 through 2017, about 80 percent of NIV adjudications were for tourists and business visitors. During this time, adjudications for temporary workers increased by about 50 percent and decreased for students and exchange visitors by about 2 percent. Country of nationality. In fiscal year 2017, more than half of all NIV adjudications were for applicants of six countries of nationality: China (2.02 million, or 16 percent), Mexico (1.75 million, or 14 percent), India (1.28 million, or 10 percent), Brazil (670,000, or 5 percent), Colombia (460,000, or 4 percent), and Argentina (370,000, or 3 percent). Refusal reason. State data indicate that over this time period, 18 percent of adjudicated applications were refused; more than 90 percent were because the applicant did not qualify for the visa sought, and a small percentage (0.05 percent) were due to terrorism and security-related concerns. In 2017, two executive orders and a proclamation issued by the President required, among other actions, visa entry restrictions for nationals of certain listed countries of concern, the development of uniform baseline screening and vetting standards, and changes to NIV screening and vetting procedures. GAO's analysis of State data indicates that, out of the nearly 2.8 million NIV applications refused in fiscal year 2017, 1,338 applications were refused due to visa entry restrictions implemented per the executive actions. State, the Department of Homeland Security (DHS), and others developed standards for screening and vetting by the U.S. government for all immigration benefits, such as for the requirement for applicants to undergo certain security checks. Further, State sought and received emergency approval from the Office of Management and Budget in May 2017 to develop a new form to collect additional information from some visa applicants, such as email addresses and social media handles." ]	11,506	gov_report	en	null	aa553d37bf5e68ec9f38976761e2c37ea3495ef11650ce0d
The federal government has recognized 573 Indian tribes as distinct, independent political communities with tribal sovereignty. There are different categories of tribal lands, with differing implications with respect to ownership and administration. Reservations are defined geographic areas with established boundaries recognized by the United States. Tribal lands vary in size, demographics, and location. For example, those lands smallest in size are less than one square mile, and the largest, the Navajo Nation, is more than 24,000 square miles (the size of West Virginia). Tribal land locations can range from extremely remote, rural locations to urban areas. Figure 1 shows tribal lands in the United States according to the 2010 Census. The term “broadband” commonly refers to Internet access that is high speed and provides an “always-on” connection, so users do not have to reestablish a connection each time they access the Internet. Broadband service may be “fixed”—that is, providing service to a single location, such as a customer’s home—or “mobile,” that is, providing service wherever a customer has access to a mobile wireless network, including while on the move, through a mobile device, such as a smartphone. Fixed and mobile broadband providers deploy and maintain infrastructure to connect consumers to the Internet. Providers offer fixed Internet service through a number of technologies, such as copper phone lines, fiber-optic lines, coaxial cables, wireless antennas, satellites, or a mix of technologies (see fig. 2). To install fixed or wireless infrastructure, providers must obtain permits from government entities with jurisdiction over the land or permission from public utilities to deploy infrastructure on existing utility poles. The federal government has emphasized the importance of ensuring Americans have access to broadband, and a number of agencies, including FCC, currently provide funding to subsidize broadband deployment in areas in which the return on investment has not attracted private investment. The Communications Act of 1934, as amended by the Telecommunications Act of 1996, specifies that consumers in “rural, insular, and high-cost areas” should have access to telecommunication services and rates that are “reasonably comparable” to consumers in urban areas. To achieve this goal, FCC administers the High-Cost program, which provides subsidies to providers of phone service in rural, insular, and other remote areas. In 2011, FCC launched a series of reforms to its High-Cost program, including adding support for broadband services, and created the Connect America Fund, which provides subsidies to fixed and mobile providers of telecommunications and broadband services in rural, insular, and other remote areas where the costs of providing service is high. To be eligible for Universal Service Fund support from FCC, a provider must be designated an Eligible Telecommunications Carrier by the appropriate state or by FCC and must meet certain service obligations. The Connect America Fund has distributed approximately $4.5 billion per year, and has separate funding mechanisms targeted to specific goals. For example, there are funds for fixed-phone and broadband service and funds for mobile service, including a Tribal Mobility Fund (Phase 1) that awarded nearly $50 million in 2014 for the provision of 3G and 4G service to unserved tribal areas. In addition to FCC, a number of other agencies provide funding for broadband deployment in unserved or underserved areas. For example, the United States Department of Agriculture’s Community Connect Program, which provides grants to rural communities to provide high- speed Internet service to unserved areas. The American Recovery and Reinvestment Act of 2009 (Recovery Act) mandated the development of a nationwide map of broadband availability. To implement the act, the National Telecommunications & Information Administration (NTIA)—an agency within the Department of Commerce—established a grant program to enable U.S. states and territories to collect state-level broadband mapping data. NTIA used these data to launch the National Broadband Map (www.broadbandmap.gov) in February 2011. As the funding for the NTIA’s program came to an end in 2014, NTIA stopped collecting data to update the map and, according to FCC officials, created a memorandum of understanding with FCC through which FCC agreed to maintain public access to the last version of the map. FCC issued rules in 2013 to begin collecting broadband deployment data, in addition to the broadband subscription data it had collected from providers since 2000. FCC sought, but did not receive, $3 million to update the National Broadband Map in its fiscal year 2015 and fiscal year 2016 budgets. In 2018, Congress directed FCC to develop a report by March 23, 2019, evaluating broadband coverage in certain tribal lands (to include an assessment of areas that have adequate broadband coverage, as well as an assessment of unserved areas), and to complete a proceeding to address unserved areas by September 23, 2020. Currently, FCC requires broadband providers to report on their broadband deployment by filing a form twice a year (Form 477). Fixed broadband providers submit a list of the census blocks in which their broadband service is available, and mobile providers submit “shapefiles”—a geospatial depiction of the coverage area, which FCC refers to as “polygons”—of their coverage areas. FCC uses providers’ 477 data to develop a statutorily mandated annual report on advanced telecommunications capability. In addition, in 2016, FCC began publishing its own maps of broadband deployment, using the information from providers’ Form 477 filings. In February 2018, FCC launched an updated map of fixed broadband deployment (https://broadbandmap.fcc.gov/#/). This map allows users to search for broadband deployment by address and provides summary-level statistics regarding broadband deployment in specific tribal lands (see fig. 3). According to FCC officials, this new map format will support more frequent data updates. FCC also provides national maps of mobile LTE coverage; these maps do not allow users to access data at the same level of granularity as the maps of fixed broadband (see fig. 4). FCC collects and uses data that capture broadband availability to measure broadband access on tribal lands, leading to overstatements of broadband access on tribal lands. Specifically, FCC’s method of collecting mobile and fixed broadband data from providers (the Form 477) does not accurately or completely capture broadband access on tribal lands because it (1) captures nationwide broadband availability data— areas where providers may have broadband infrastructure—but does so in a way that leads to overstatements of availability, and (2) does not capture information on factors that FCC and tribal stakeholders have stated can affect broadband access on tribal lands, such as affordability, service quality, and denials of service. Nonetheless, FCC uses its Form 477 broadband availability data in annual broadband deployment reports to measure the percentage of Americans living on tribal lands with or without access to broadband, and to measure progress toward FCC’s strategic goal of increasing all Americans’ access to affordable broadband. By using broadband availability data to measure broadband access on tribal lands, FCC overstates broadband access on tribal lands. FCC’s Form 477, its primary method of collecting nationwide broadband data, collects information on broadband availability, which identifies where providers have broadband infrastructure and could potentially provide broadband services but not where consumers can actually access those services. Moreover, the Form 477’s mobile broadband data- collection methods are not standardized, and its fixed broadband data- collection methods are not sufficiently granular to provide information about broadband availability on tribal lands. FCC’s Form 477 requires mobile broadband providers to report their coverage areas by submitting geospatial data depicting the areas in which consumers could expect to receive the minimum advertised speed. FCC has previously noted the importance of collecting nationally standardized, uniform broadband data from providers to assess broadband availability and allow for easy comparison across providers. However, the Form 477 does not require that providers use a standardized method with defined technical parameters (such as signal strength, or amount of interference) when determining their coverage area, resulting in data that cannot be meaningfully compared across providers, according to FCC. To map their coverage areas, providers may use predictive models based on different measurement methods and a variety of factors known to affect mobile broadband service such as topography, tree cover, and buildings, among other factors. Providers and tribal stakeholders have expressed concern with the accuracy of FCC’s mobile broadband data, and FCC has acknowledged concerns that the lack of a standardized method resulted in data that were unreliable for the purposes of determining mobile broadband coverage for specific geographic areas, such as tribal lands. About half of the tribal government representatives we interviewed told us that they believe FCC’s data overstate mobile LTE broadband availability on their lands. For example, a few representatives expressed concerns with the accuracy of the mobile data in areas with varied terrain, such as mountains and valleys. In comments to FCC, broadband providers have also raised concerns regarding the accuracy of the mobile coverage data generated by the Form 477 for the purposes of identifying areas eligible for funding through FCC’s Mobility Fund Phase II program, which provides federal funding to increase mobile broadband services in unserved areas. In 2017, in response to such concerns, FCC reversed its prior decision to use the Form 477 data to identify specific areas eligible for federal funding through the Mobility Fund Phase II program. Instead, FCC undertook a one-time special data collection, for which it required providers to measure their coverage based on a common set of standards, in order to better identify unserved areas that would be presumptively eligible for funding. FCC plans to allow parties, including tribal governments, to challenge the data where they believe the data overstate mobile broadband coverage through August, 2018. Additionally, in an August 2017 Notice of Proposed Rulemaking, FCC requested comment on potential changes to modernize its Form 477 data collection, including whether it should require all providers to use a standardized method when submitting mobile coverage data on the form. FCC officials told us that they do not have a timeline for the development of a final rule, and as of August 2018, FCC had not yet issued a final rule on modernizing the Form 477. The Form 477 collects fixed broadband data that are not sufficiently granular to accurately depict broadband availability on tribal lands. Specifically, FCC directs fixed broadband providers to submit a list of census blocks where service is available on the Form 477. FCC defines “available” as whether the provider does—or could, within a typical service interval or without an extraordinary commitment of resources— provide service to at least one end-user premises in a census block. Thus, in its annual reports and maps of fixed broadband service, FCC considers an entire block to be served if a provider reports that it does, or could offer, service to at least one household in the census block. FCC does not define a typical service interval or an extraordinary commitment of resources in its Form 477 instructions. However, FCC officials stated that providers should not report service in areas in which major construction would be required to provide service. A few providers told us that the lack of clear guidance from FCC regarding how to determine where broadband is available has led different providers to interpret the Form 477 directions in different ways, which can affect the accuracy and consistency of reporting from provider to provider. For example, in a filing with FCC, one provider stated that it had misapplied the definition of “available” and, as a result, overstated the availability of its services by almost 3,000 census blocks. As shown in figure 5, FCC’s definition of availability leads to overstatements of fixed broadband availability on tribal lands by: (1) counting an entire census block as served if only one location has broadband, and (2) allowing providers to report availability in blocks where they do not have any infrastructure connecting homes to their networks if the providers determine they could offer service to at least one household. Almost all the providers and private companies, and most of the representatives of tribal governments and organizations we spoke with told us that due to these issues, FCC’s definition of availability results in data that overstate broadband availability. According to FCC officials, FCC requires providers to report fixed broadband availability where they could provide service within a “typical service interval” and without “an extraordinary commitment of resources” in order to: (1) ensure that it captures instances in which a provider has a network nearby but has not installed the last connection to the homes, and (2) identify where service is connected to homes, but homes have not subscribed. FCC officials also told us that FCC measures availability at the census block level because sub-census block data may be costly to collect. In 2013, FCC considered collecting more granular nationwide data on broadband deployment but decided against collecting these data because it determined that the burden would outweigh the benefit. However, FCC, tribal stakeholders, and providers have noted that FCC’s approach leads to overstatements of availability. For example, in its 2017 Notice of Proposed Rulemaking on modernizing the Form 477 data collection, FCC acknowledged that by requiring a provider to report where it could provide service, it is impossible to tell whether the provider would be unable or unwilling to take on additional subscribers in a census block it lists as served. According to FCC, this limits the value of the data to inform FCC policies. In addition, several providers and tribal stakeholders we interviewed said that some “digital subscriber line” (DSL) and fixed wireless providers may overstate their service areas on the Form 477 because they may not take into account technological or terrain limitations that would affect their ability to actually provide service. FCC has also recognized that by measuring availability at the census block level, not every person will have access to broadband in a block that the data show as served, and FCC has noted that in rural areas, such as tribal lands, census blocks can be large and providers may only deploy service to a portion of the census block. A few representatives for tribal governments and organizations noted that the use of census blocks may uniquely overstate broadband availability on tribal lands when census blocks contain both tribal and non-tribal areas, because availability in the non-tribal portion of the block can result in the tribal area of the census block also being counted as served. FCC is considering requiring providers to report whether they are willing and able to serve additional customers in a census block and collecting sub-census block data in its 2017 proposed rulemaking on modernizing the Form 477. About one-third of the parties that commented on FCC’s proposals were not in favor of FCC collecting these more granular data on the Form 477, stating that the data would be less accurate and more burdensome for providers to collect and report, among other reasons, and questioned whether more detailed information on nationwide broadband availability is necessary. We heard similar concerns from a few of the providers and trade associations we interviewed. However, about one- third of the parties that commented on FCC’s proposals were in favor of collecting more granular data, stating that such data would be more useful for policymakers and more accurate. Additionally, a few tribally owned and non-tribal providers we interviewed told us that providers already maintain data for business purposes that would allow them to report more granular information on broadband availability. One stakeholder we spoke with pointed out that, as the federal government and states work to ensure the last remaining unserved areas—rural, low- population density areas including tribal lands—have service, sub- census-block-level data are needed to ensure that governments are making wise and accurate investments. FCC does not collect information on several factors that FCC and tribal stakeholders have stated can affect broadband access. FCC and tribal stakeholders have noted that broadband access can be affected by factors such as the affordability and quality of the broadband services being offered, and the extent to which providers deny service to those who request it. By collecting and using data on factors that can affect broadband access, FCC would have more complete information on the extent to which Americans living on tribal lands have access to broadband Internet services. Affordability: FCC has noted that affordability of broadband services can affect broadband access but does not collect information on the cost of broadband service on tribal lands on the Form 477. For example, in the National Broadband Plan, FCC cited affordable access to robust broadband service as a long-term goal, and in its Strategic Plan 2018–2022, FCC acknowledged that affordability is an important factor affecting broadband access and a key driver of the digital divide. Moreover, most of the representatives of tribal governments and organizations we spoke to told us that the affordability of broadband services is an important factor for understanding whether or not people on tribal lands could realistically access broadband services. Tribal government officials from one tribe we spoke with told us that residents on their lands cannot access broadband because it is too costly. For example, a provider that advertises services on the tribe’s land charges $130 per month for broadband services, approximately one-and-a-half times the average rate providers charge for comparable services in urban areas, according to FCC (see fig. 6). In the 2018 Broadband Deployment Report, FCC acknowledged that affordability can influence a consumer’s decision on whether to purchase broadband, but FCC did not consider cost in its assessment of broadband access on tribal lands, stating that pricing does not go to the congressional requirement to assess deployment and availability in conducting its inquiry as required by Congress under section 706 of the Telecommunications Act and also citing a lack of reliable comprehensive data on this issue. In addition, FCC officials we interviewed acknowledged that while broadband service may be technically available, it may be prohibitively expensive for some, which may make availability alone an incomplete indicator of broadband access. Quality of Service: In the Telecommunications Act of 1996 Congress recognized the importance of service quality by defining advanced telecommunications capability as any technology that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications. In keeping with this legislation, FCC has consistently set thresholds for speeds that qualify as broadband services and has stated that “latency” and consistency of service figure prominently into whether a broadband service is able to provide advanced capabilities and thus whether users can access high-quality telecommunications. Likewise, almost all of the representatives for tribal governments or organizations we interviewed told us that quality of service is a key component of access to broadband and that routine outages, slow speeds, and high latency keep people on tribal lands from consistently accessing the Internet. Most tribal stakeholders and a few providers we interviewed told us that factors such as terrain, weather, and type of technology can all affect the quality of service an end user receives and, ultimately, the subscribers’ ability to access the Internet (see fig. 7). For example, some representatives of tribal governments and organizations told us issues like oversubscription— when a provider signs up more customers than its equipment can handle—and outdated or limited infrastructure result in low-quality services that cannot support advanced and, in some cases, basic functions. Though FCC uses the Form 477 to collect some data on advertised speeds from providers, FCC does not collect data on actual speeds, service outages, and latency on the form. In its 2018 Broadband Deployment Report, FCC stated that it did not consider FCC data on actual speed, latency, or consistency of service when evaluating broadband access due to the lack of appropriate data. FCC noted that the lack of Form 477 data on actual speeds in particular constrained evaluation of mobile broadband access. Service Denials: FCC has recognized that information on denials of service is pertinent to understanding actual broadband access but does not collect data on service denials in the Form 477. Specifically, in the National Broadband Plan, FCC recommended that FCC collect data to determine whether broadband service is being denied to potential residential customers based on the income of the residents in a particular geographic area. Some representatives of the tribal governments or organizations told us that that they were aware of a provider denying service to residents of tribal lands, despite the provider reporting broadband availability on at least a portion of those lands, according to our analysis of the Form 477 data. These representatives told us that they believed service was denied because of disputes with the tribal government, low demand for service, or the high costs of extending services to the home on tribal lands. Some representatives of tribal governments or organizations we spoke with also told us that providers may have denied service because their equipment was at capacity and could not accommodate new users (see fig. 8). For example, on three of the tribal lands we visited, we observed fiber optic cable located close to government and residential structures that did not have broadband access via fiber. According to tribal government officials, despite the physical proximity of the fiber optic cable, the tribal government and residents could not access it because the provider was not offering service or was unwilling or unable to build to the structures. A few providers we interviewed stated that they may not provide services to individuals who request them because of high-costs, administrative barriers, or technical limitations. However, FCC does not collect data on service denials on the Form 477. In its Strategic Plan 2018–2022 and the National Broadband Plan, FCC identified increasing all Americans’ access to affordable broadband as a long-term, strategic goal. Congress has similarly directed FCC to develop policies and programs aimed at increasing access to affordable broadband in all regions of the United States, including tribal lands, and required FCC to report annually on its progress. According to the Government Performance and Results Act (GPRA), as enhanced by the GPRA Modernization Act of 2010 (GPRAMA), agencies should use accurate and reliable data to measure progress toward achieving their goals. Additionally, Standards for Internal Control in the Federal Government state that agencies should use quality information— information that is complete, appropriate, and reliable—to inform decision-making processes and evaluate the agency’s performance in achieving goals. According to these standards, agencies should also communicate quality information externally to achieve the agency’s goals. However, FCC has used its Form 477 data, which do not accurately or completely measure broadband access on tribal lands, as its primary source to evaluate progress toward FCC’s strategic goal of increasing broadband access and to develop maps and reports intended to depict broadband access on tribal lands. For example, in its 2018 Broadband Deployment Report, FCC found that 64.6 percent of Americans residing on tribal lands have access to fixed broadband services. By using these data, FCC has overstated the extent to which Americans living on tribal lands can actually access broadband Internet services and FCC’s progress toward increasing broadband access. As a result, the digital divide may appear less significant as a national challenge, and FCC and tribal stakeholders working to target broadband funding to unserved or underserved tribal lands will be limited in their ability to make informed decisions. This increases the risk that residents living on tribal lands will continue to lack broadband access. Some tribal officials stated that inaccurate data have affected their ability to plan their own broadband networks and obtain federal broadband funding, and most of the tribal stakeholders we interviewed identified a pressing need for accurate data on the gaps in broadband access on tribal lands in order to ensure that tribes can qualify for federal funding and to effectively target the areas that need it most. For example, representatives for one tribal government that is providing broadband services said the government will not be able to use a federal grant to build broadband infrastructure in areas of their reservation that lack access, because the Form 477 data overstate actual access on the tribe’s land. As more than three quarters of the tribal governments we spoke to are working to provide broadband services on their lands in some capacity, overstating broadband access on tribal lands could affect the ability of a number of tribes to access federal funding to increase broadband access on their lands. As previously discussed, FCC is considering proposals to modify its Form 477 data collection as part of a 2017 Notice of Proposed Rulemaking, but FCC officials told us that the Commission does not have a timeline for issuance of a final rule. While some of FCC’s proposals could help address some of the limitations identified above by, for example, collecting more granular nationwide broadband availability data, FCC has not addressed specifically the collection of more accurate and complete data on broadband access for tribal lands in this proceeding. FCC has identified the need to improve broadband data for tribal lands in particular, and as previously noted, in 2018 Congress directed FCC to develop a report evaluating broadband coverage in certain tribal lands and initiate a proceeding to address the unserved areas identified in the report. FCC officials told us that FCC has not determined how it will address this requirement, but it is currently considering its options, including potentially addressing the requirement as part of its ongoing proposed rulemaking on modernizing the Form 477 data collection. An evaluation of broadband coverage on tribal lands that relies on the current Form 477 data would be subject to the limitations described above, including the overstatement of broadband access on tribal lands. Additionally, FCC has demonstrated that it is possible in some circumstances to collect more granular data when such data collection is targeted to a specific need or area. For example, in 2017 FCC began requiring certain providers that receive funding through the Connect America Fund to report the latitude and longitude of locations where broadband is available, and FCC has noted that these more granular data are extremely useful to the Commission, especially for rural areas where census blocks can be quite large. A few large providers and trade associations similarly stated in public comments on FCC’s proposed rulemaking to modernize the Form 477 process that FCC should target its collection of more granular broadband data to areas where the data are most likely to be overstated—specifically, large, rural census blocks with low population densities, such as those on tribal lands. Additionally, as discussed above, FCC undertook a one-time special data collection for Mobility Fund II to ensure that the mobile broadband data it collected would be reliable for the intended use. By developing and implementing methods for collecting and reporting accurate and complete data on broadband access specific to tribal lands, FCC would be able to better identify tribal areas without access to broadband and to target federal broadband funding to the tribal areas most in need. FCC uses data submitted by broadband providers via the Form 477 process to develop maps and datasets depicting broadband services nationwide, and in specific locations, such as tribal lands, but does not have a formal process to obtain input from tribes on the accuracy of the broadband data. FCC’s 2010 National Broadband Plan noted the need for the federal government to improve the quality of data regarding broadband on tribal lands and recommended that FCC work with tribes to ensure that any information collected is accurate and useful. It also noted that tribal representatives should have the opportunity to review mapping data about tribal lands and offer supplemental data or corrections. Similarly, federal internal control standards note the need for federal agencies to communicate with external entities, such as tribal governments, and to enable these entities to provide quality information to the agency that will help it achieve its objectives. FCC officials told us that they address questions and concerns regarding provider coverage claims submitted to the Office of Native Affairs and Policy, which will work with tribal governments to help them identify inaccurate broadband data for tribal lands, and share tribal questions and concerns with the appropriate FCC bureaus. However, FCC does not have a formal process for tribes (or other governmental entities) to provide input to ensure that the broadband data FCC collects through the 477 process, or the resulting maps that FCC creates to depict broadband on tribal lands, are accurate. Similarly, FCC does not use other methods to verify provider-submitted Form 477 data on tribal lands against other sources of information, such as on-site tests or data collected by other agencies. When discussing the lack of a formal process for tribal representatives or other governmental entities to provide feedback on the accuracy of the 477 broadband data, FCC officials noted that if consumers and local officials have information on individual locations that lack broadband service, such information does not indicate that the entire census block lacks broadband service. Additionally, FCC officials noted that providers attest to the accuracy of the data and that FCC staff validate the data by conducting internal checks to identify possible errors, such as unlikely changes in a providers’ coverage area, and may follow-up with a provider to discuss such changes. However, these checks do not include soliciting input from tribes. About half of the tribal stakeholders we spoke to raised concerns that FCC’s broadband deployment data rely solely on unverified information submitted by providers. Additionally, most tribal stakeholders we interviewed told us that consistent with the recommendations in the National Broadband Plan, FCC should work directly with tribes to obtain information from them to improve the accuracy of its broadband deployment data for tribal lands. These stakeholders identified several ways in which FCC could work with tribes on this issue, including: conducting on-site visits with tribal stakeholders to observe the extent to which broadband infrastructure and services are present; conducting outreach and technical assistance for tribal stakeholders to raise awareness and use of FCC’s broadband data; and providing opportunities for the tribes to collect their own data or submit feedback regarding the accuracy of FCC’s data. FCC’s National Broadband Plan notes the importance of supporting tribal efforts to build technical expertise with respect to broadband issues, and federal internal control standards state that federal agencies should obtain quality information from external entities. Officials we interviewed in FCC’s Office of Native Affairs and Policy told us that they provide some outreach and technical assistance to tribal officials at regional and national workshops, and FCC officials stated that they conducted specific outreach to tribal entities regarding the Mobility Fund Phase II challenge process, while, about half of the tribal representatives we spoke to stated that they were not aware of the Form 477 data or corresponding maps, or raised concerns about a lack of outreach from FCC to inform tribes about the data. Some tribal stakeholders stated that if FCC were to solicit tribal input as part of its verification of the broadband data and maps, technical training and assistance could help tribes use and provide feedback on the data, or improve the collection and submission of their own data. A few of the stakeholders we interviewed noted that tribes can face difficulties when they attempt to challenge FCC’s broadband availability data. For example, in 2013, prior to the auction that distributed Tribal Mobility Fund Phase 1 support, FCC allowed interested parties to challenge FCC’s preliminary determinations regarding which census blocks lacked 3G or better service and would be eligible for support in the auctions. However, all of the tribal entities that challenged the accuracy of FCC’s data were unsuccessful in increasing the number of eligible areas. According to FCC officials, the tribal entities did not provide sufficient or sufficiently verifiable information to support their challenges. A few tribal stakeholders provided varying reasons for this, one of which was the need for more technical expertise to help the tribe meet FCC’s requirements. Because FCC lacks a formal process to obtain tribal input on its broadband data, FCC is missing an important source of information regarding areas in which the data may overstate broadband service on tribal lands. Tribal stakeholders are able to provide a first-hand perspective on the extent to which service is available within their lands and the extent to which factors like affordability, service quality, and service denials affect residents’ ability to access broadband. FCC plans to award nearly $2 billion in support from the Connect America Fund to areas that it has identified as lacking broadband, including tribal lands. Any inaccuracies in its broadband data could affect FCC’s funding decisions and the ability of tribal lands to access broadband in the future. Additionally, in its 2017 report on tribal infrastructure, the National Congress of American Indians stressed the importance of including tribal governments in a leadership role with respect to collecting data on local infrastructure needs. Specifically, it stressed the need for the federal government to invest in tribal data systems and researchers to generate useful, locally specific data that can inform the development and implementation of infrastructure development projects and assess the effectiveness of those projects over time. By establishing a process to obtain input from tribal governments on the accuracy of provider- submitted broadband data that includes outreach and technical assistance, as recommended in the National Broadband Plan, FCC could help tribes develop and share locally specific information on broadband access, which would in turn improve the accuracy of FCC’s broadband data for tribal lands. The success of such an effort may rely on the tribes’ knowledge of, and technical ability to participate in, the process. When discussing the need to improve data regarding broadband on tribal lands, FCC’s 2010 National Broadband Plan recommended that FCC develop a process for tribes to receive information from providers about broadband services on tribal lands. In 2011, FCC required that Eligible Telecommunications Carriers (providers receiving Universal Service Funds from FCC) serving tribal lands meaningfully engage with tribes regarding communications services (including broadband). Specifically, the providers must file an annual report documenting that this engagement included a discussion of, among other things, a needs assessment and deployment planning for communications services, including broadband. FCC’s 2012 guidance on fulfilling the engagement obligations, which FCC officials confirmed is still in effect, noted that the stated goal of the engagement requirement was to benefit tribal government leaders, providers, and consumers by fostering a dialogue between tribal governments and providers that would lead to improved services on tribal lands. The guidance further noted that the tribal engagement process “cannot be viewed as simply another ‘check the box’ requirement by either party,” and states that a provider should “demonstrate repeated good faith efforts to meaningfully engage with the tribal government.” Finally, FCC noted in its 2012 guidance that the guidance would evolve over time based on the feedback of both tribal governments and broadband providers and that FCC would develop further guidance and best practices. This approach is consistent with federal internal control standards, which call for agencies to communicate with, and obtain quality information from, external parties. About half of the tribal stakeholders we interviewed raised concerns about difficulties accessing information from providers regarding broadband deployment on their tribe’s lands, a key part of the provider engagement process, according to FCC’s guidance. For example, a representative from one tribe stated that a provider declined his requests to meet more than once a year to discuss the provider’s deployment of broadband services on the tribe’s land. A representative from another tribal government stated that some providers are very focused and transparent about their broadband plans and work with the tribe, while other providers treat tribal engagement as a “box to check” and send the tribe broadband deployment information that is not useful because it is redacted. Similarly, some tribal stakeholders stated that providers heavily redacted deployment information (which providers may consider proprietary) or required the tribe sign non-disclosure agreements to access deployment data. According to one tribal stakeholder, these non-disclosure agreements could possibly require tribes to waive tribal sovereign immunity in order to view the data. Some of the industry stakeholders we interviewed stated that they attempt to engage with tribes but the level of responsiveness from tribes varies. For example, some stakeholders stated that they send letters and do not hear back from tribes. One stakeholder stated that they make repeated attempts to contact tribes when they do not hear back after their initial contact, while another stated that a provider meets regularly with some tribes. Although FCC stated in its 2012 guidance that it would update the tribal engagement guidance and develop best practices based on feedback from tribal governments and broadband providers, it has taken limited steps to obtain such feedback from providers and tribal governments to determine whether its guidance is enabling meaningful tribal engagement. Additionally, FCC has not updated the guidance or issued best practices. Thus, FCC has limited information regarding whether its tribal engagement requirement is fulfilling its intended purpose. FCC officials we interviewed said that the Office of Native Affairs and Policy (ONAP) provided information and, in some cases, held training sessions about the tribal engagement obligation during workshops with tribal representatives, and encouraged representatives to contact ONAP with any concerns. ONAP officials also noted that they handle complaints from tribes regarding a lack of provider engagement and reach out to providers to address tribal concerns. ONAP officials stated that they have had internal discussions about whether the guidance is clear or needs revision, but this has not gone beyond internal discussions. A few of the tribal stakeholders provided examples of the benefits of providers engaging with tribes to ensure tribal representatives have access to information regarding broadband availability on their lands. For example, one representative stated that this information could help the tribes plan deployments by focusing on areas that they know the provider does not plan to serve. Another representative stated that tribal engagement could help improve the accuracy of FCC’s broadband maps. By obtaining feedback from both tribal stakeholders and providers on the effectiveness of FCC’s tribal engagement guidance to determine whether changes are needed, FCC would be better positioned to ensure that tribal governments and providers are sharing information in a manner that will lead to improved services on tribal lands. FCC has collected data and developed maps and reports depicting broadband on tribal lands and has noted the lower levels of broadband access on tribal lands, in comparison to other areas. However, limitations in FCC’s existing process for collecting and reporting broadband data have led FCC to overstate broadband access on tribal lands. By taking steps to address these limitations and to collect data that more accurately and completely depict broadband access on tribal lands, FCC would have greater assurance that it is making progress on reducing the digital divide on tribal lands and targeting broadband funding to tribal lands most in need. Without taking these steps, FCC increases the risk that residents living on tribal lands will continue to lack broadband access. Compounding the limitations in FCC’s data collection process is FCC’s lack of a formal process to obtain tribal input on the accuracy of provider- submitted broadband data for tribal lands. By developing a process to solicit tribal input and ensuring that tribes know about the process and are equipped with the technical skills and abilities necessary to provide this information, FCC would be better able to ensure the accuracy of its broadband data for tribal lands. Moreover, FCC would be able to obtain firsthand, locally specific information on broadband access that could inform FCC’s policies and funding decisions and help FCC achieve its goal of increasing broadband access for all Americans, including those living on tribal lands. Finally, by obtaining feedback from providers and tribal stakeholders on the effectiveness of FCC’s tribal engagement guidance, FCC would be better positioned to assess whether its guidance is helping providers meet requirements and ultimately whether providers’ engagement is fulling its intended purpose of fostering a dialogue between tribal governments and providers that would lead to improved services on tribal lands. We are making the following three recommendations to the Chairman of the Federal Communications Commission. The Chairman of the Federal Communications Commission should develop and implement methods—such as a targeted data collection—for collecting and reporting accurate and complete data on broadband access specific to tribal lands. (Recommendation 1) The Chairman of the Federal Communications Commission should develop a formal process to obtain tribal input on the accuracy of provider-submitted broadband data that includes outreach and technical assistance to help tribes participate in the process. (Recommendation 2) The Chairman of the Federal Communications Commission should obtain feedback from tribal stakeholders and providers on the effectiveness of FCC’s 2012 statement to providers on how to fulfill their tribal engagement requirements to determine whether FCC needs to clarify the agency’s tribal engagement statement. (Recommendation 3) We provided a draft of this report to FCC for review and comment. In written comments provided by FCC (reproduced in appendix III), FCC agreed with our findings and recommendations. In its written comments, FCC described efforts, some of which are already under way, that it felt would address each recommendation and stated its intent to build upon those efforts. For example, FCC explained that it is exploring methods to collect more granular broadband deployment data and noted the need to balance the burden on Form 477 filers. FCC also noted that it is starting work to address a statutorily-required evaluation of broadband coverage on certain tribal lands. We agree that increasing the granularity of deployment data is helpful in addressing data accuracy issues, but we also note that it is important to collect data related to factors that affect broadband access on tribal lands. FCC also described informal efforts to collect tribal feedback on providers’ broadband data and stated it would explore options for a formal process to collect feedback. Regarding our recommendation related to providers’ engagement efforts, FCC outlined its existing methods by which tribal stakeholders can provide feedback on providers’ engagement efforts and agreed that seeking additional feedback from tribal stakeholders and providers would be desirable. We agree that improving feedback in these ways could help FCC determine whether it needs to clarify its tribal engagement statement. FCC also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Chairman of the Federal Communications Commission, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or GoldsteinM@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Appendix I: List of Interviewees Representatives from tribal governments or tribally owned broadband providers Choctaw Nation of Oklahoma (OK) Confederated Tribes of the Colville Reservation (WA) Fond du Lac Band of Lake Superior Chippewa (MN) Fort Belknap Indian Community (MT) Gila River Telecommunications, Inc. (AZ) Hopi Telecommunications, Inc. (AZ) Jamestown S’Klallam Tribe (WA) Karuk Tribe (CA) Leech Lake Band of Ojibwe (MN) Makah Tribe (WA) Navajo Tribal Utility Authority (AZ, NM, UT) Nez Perce Tribe (ID) Osage Nation (OK) Pueblo of Acoma (NM) Pueblo of Pojoaque (NM) Pueblo of San Ildefonso (NM) Taos Pueblo (NM) Red Spectrum Communications (Coeur d’Alene Tribe (ID)) Saint Regis Mohawk Tribe and Mohawk Networks, LLC (NY) San Carlos Apache Telecommunications Utility, Inc. (AZ) Southern California Tribal Chairmen’s Association - Tribal Digital Village Network (CA) Spokane Tribe of Indians and Spokane Tribe Telecom Exchange (WA) Standing Rock Telecommunications, Inc. (ND, SD) Warm Springs Telecommunications Co. (OR) Yurok Tribe and Yurok Connect (CA) Representatives from tribal associations/consortiums that include tribes Affiliated Tribes of Northwest Indians Middle Rio Grande Pueblo Consortium National Congress of American Indians Native American Finance Officers Association (NAFOA) REDINet Representatives from companies/academic groups that work with tribes AMERIND Risk Arizona State University, American Indian Policy Institute and School of Public Affairs Turtle Island Communications Representatives from providers/trade associations (non-tribally owned) AT&T Representatives from companies that collect broadband data Alexicon Connected Nation Government Agencies (non-tribal) Census Bureau U.S. Department of Agriculture’s Rural Utilities Service Department of Interior’s Bureau of Indian Affairs National Telecommunications and Information Administration Minnesota Office of Broadband Development One broadband provider we interviewed did not want to be included in this appendix. This report discusses the extent to which: (1) the Federal Communications Commission’s (FCC) approach to collecting broadband availability data accurately captures the ability of Americans living on tribal lands to access broadband Internet services and (2) FCC obtains tribal input on the accuracy of provider-submitted broadband data for tribal lands. To address both objectives, we analyzed FCC’s December 2016 fixed and mobile broadband availability data—the most recent data at the time of our review—to identify the speeds, technologies, and availability providers reported for federally recognized tribal lands. Providers currently report this information to FCC by filing a “Form 477,” twice a year. We also used 2010 U.S. Census data to identify census blocks completely or partially on tribal lands. To assess the reliability of FCC’s data and 2010 U.S. Census data, we reviewed a previous GAO reliability assessment, and for FCC’s data we conducted electronic testing and analysis of the data, reviewed FCC guidance and documentation, and interviewed FCC officials. Based on the results of our analysis, we determined the data to be reliable for our purposes, which were: (1) to inform our selection of tribal governments and providers for interviews and visits, as described below, and (2) to develop maps depicting fixed and mobile broadband availability for the nine tribal lands we selected for visits, in order to obtain tribal representatives’ feedback on the data. Specifically, we mapped; fixed broadband data according to speed and technology, and mobile data for long-term evolution (LTE) services by provider for each tribal land. We used those maps during our visits to discuss the accuracy of the data with representatives for each tribal government or tribally owned provider. Though we analyzed all up and download speeds that providers reported in the Form 477, for the purposes of this report we defined “broadband” as fixed Internet service reaching at least 25 megabits per second (Mbps) download and 3 Mbps upload speeds, in accordance with FCC’s advanced telecommunications capability benchmark in its 2018 Broadband Deployment Report. We also report on the availability of mobile broadband, which, for the purposes of this report, does not have a speed threshold and refers to long-term evolution (LTE) services. To address both objectives and obtain tribal government representatives’ feedback on the accuracy of FCC’s broadband data for their lands, we interviewed representatives from 25 tribal governments or tribally owned providers, including visits to 9 tribal lands. We considered a range of factors when we selected tribal governments and tribally owned providers for interviews, including our analysis of Form 477 data, recommendations from tribal, industry, or government stakeholders regarding tribal and non- tribal representatives familiar with broadband data issues, and demographic and geographic characteristics, among others. For example, we considered demographic characteristics such as unemployment rate from the 2011– 2015 American Community Survey data, and geographic characteristics such as rurality from the United States Department of Agriculture (USDA) Rural-Urban Commuting Area Codes data. The tribes included in our review vary with respect to location, level of broadband availability according to FCC, land mass, and population size and density. The results of our interviews are not generalizable to all tribal governments or tribally owned broadband providers. In addition to tribal governments and tribally owned providers, we interviewed six tribal organizations and four stakeholders who work with tribes on broadband issues. For reporting purposes, we developed the following series of indefinite quantifiers to describe the tribal responses from the 35 entities representing tribal stakeholders we interviewed: 3 to 7 is defined as “a few;” 8 to 15 is described as “some;” 16 to 20 is described as “about half;” 21 to 27 is described as “most;” and 28 to 34 is described as “almost all.” A full list of the tribal stakeholders we interviewed can be found in appendix I. Further, to obtain industry perspectives, we reviewed public comments submitted by providers and industry associations in FCC’s ongoing 2017 Notice of Proposed Rulemaking on Modernizing the Form 477 Data Program. We also interviewed 10 non-tribally owned fixed and mobile broadband providers and three industry associations to understand providers’ views on the Form 477 and how providers interact with tribal governments. When selecting providers for interviews, we included providers that reported serving the lands of tribal governments we interviewed and selected providers that varied in the percentage of tribal lands they reported serving. The providers we interviewed represent large, nationwide carriers as well as small, local carriers, and offer broadband via a variety of technologies, including fiber optics, digital subscriber line (DSL), fixed wireless, and mobile LTE. The results of our interviews with providers are not generalizable to all broadband providers. In addition, to address both objectives, we interviewed representatives from other government entities, as well as private companies that collect and report broadband data. A full list of the industry stakeholders we interviewed can be found in appendix I. To identify the extent to which FCC’s approach to collecting broadband availability data reflects the ability of Americans living on tribal lands to actually access broadband Internet services, we reviewed documentation of the Form 477 process, including submission guidance, and FCC’s proposals and public comments in its 2017 Notice of Proposed Rulemaking on Modernizing the Form 477 Data Program and Mobility Fund Phase II proceedings. We also interviewed FCC officials, industry stakeholders, and tribally owned broadband providers to understand FCC’s current process for collecting broadband data. To understand the purpose of the Form 477 data collection process and FCC’s strategic goals, we reviewed relevant statutes, and FCC documents, including FCC’s Strategic Plan 2018––2022, the National Broadband Plan, and FCC’s broadband deployment and progress reports. Given the importance placed on broadband access in these documents, we interviewed tribal stakeholders, as described above and reviewed FCC documents to identify factors affecting the ability of Americans living on tribal lands to access broadband Internet services. We also reviewed previous GAO work that identified barriers to broadband access on tribal lands. We compared the Form 477 process to FCC’s strategic goals and to factors affecting broadband access to determine the extent to which the Form 477 was designed to collect information on those factors and to meet FCC’s goals. We further evaluated this information against the Government Performance and Results Act, as enhanced by the GPRA Modernization Act of 2010 and Standards for Internal Control in the Federal Government. We also reviewed documentation for other FCC data collection programs, including the Measuring Broadband America program and the Urban Rate Survey, to determine the extent to which FCC collected data on factors affecting broadband access outside of the Form 477 process. To determine the extent to which FCC obtains tribal input on the accuracy of provider-submitted broadband data for tribal lands, we interviewed FCC officials and analyzed FCC documents regarding the collection procedures for the Form 477 data and FCC’s policies for working with tribal governments, as well as Connect America Fund documents regarding requirements for providers to share information with tribal governments. We also reviewed documents on past FCC Universal Service Fund processes to challenge broadband data and identified prior instances in which tribal governments or tribally owned providers challenged FCC’s broadband data and the outcomes of those challenges. Additionally, we interviewed tribal stakeholders, as described above, to understand the extent to which: (1) FCC involves tribal governments and other stakeholders in the validation of Form 477 broadband data, (2) tribal governments can access broadband data from FCC or providers, and (3) FCC’s Form 477 data accurately reflected broadband access on their lands. For the nine tribal lands we visited, we asked tribal governments or tribally owned providers to identify where the data do or do not accurately reflect broadband access on maps of FCC’s data. Further, to identify how providers complied with FCC’s tribal engagement requirement and obtain their perspectives, we interviewed providers and industry associations. We compared FCC’s data validation procedures and tribal stakeholders’ feedback on the process to FCC’s policies for working with tribal governments, FCC recommendations from the National Broadband Plan and Standards for Internal Control in the Federal Government. We also interviewed and received written comments from officials from other federal agencies that have broadband programs, including USDA Rural Utilities Service, the National Telecommunications and Information Administration (NTIA), and others, in addition to a state agency and three private companies that collect and report broadband data to understand how other entities collect and validate broadband data. We conducted this performance audit from June 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Mark L. Goldstein, (202) 512-2834 or GoldsteinM@gao.gov. In addition to the contact named above, Keith Cunningham (Assistant Director); Crystal Huggins (Analyst in Charge); Katherine Blair; Lilia Chaidez; Camilo Flores; Adam Gomez; Serena Lo; Jeffery Malcolm; John Mingus; Joshua Ormond; Jay Spaan; James Sweetman, Jr.; Elaine Vaurio; and Michelle Weathers made key contributions to this report.	[ "Broadband furthers economic development, educational attainment, and public health and safety; however, residents of tribal lands have lower levels of broadband access relative to the U.S. population. Congress has prioritized identifying and targeting funds to unserved areas. FCC uses data from broadband providers to develop maps and reports depicting broadband availability in the United States, with specific information on tribal lands. GAO was asked to review FCC's efforts to collect broadband data for tribal lands. This report examines the extent to which: (1) FCC's approach to collecting broadband data accurately captures broadband access on tribal lands and (2) FCC obtains tribal input on the data. GAO interviewed stakeholders from 25 tribal governments or tribally owned providers, and visited nine tribal lands. The selected tribes varied geographically and in levels of broadband availability, among other characteristics. GAO also reviewed FCC's rulemakings on broadband data and interviewed other tribal stakeholders, FCC officials, and 13 non-tribal broadband providers selected to include a diversity of technologies. Provider and tribal interviews were based on non-generalizable samples. The Federal Communications Commission (FCC) collects data on broadband availability from providers, but these data do not accurately or completely capture broadband access on tribal lands. Specifically, FCC collects data on broadband availability; these data capture where providers may have broadband infrastructure. However, FCC considers broadband to be “available” for an entire census block if the provider could serve at least one location in the census block. This leads to overstatements of service for specific locations like tribal lands (see figure). FCC, tribal stakeholders, and providers have noted that this approach leads to overstatements of broadband availability. Because FCC uses these data to measure broadband access, it also overstates broadband access—the ability to obtain service—on tribal lands. Additionally, FCC does not collect information on several factors—such as affordability, quality, and denials of service—that FCC and tribal stakeholders stated can affect the extent to which Americans living on tribal lands can access broadband services. FCC provides broadband funding for unserved areas based on its broadband data. Overstatements of access limit FCC's and tribal stakeholders' abilities to target broadband funding to such areas. For example, some tribal officials stated that inaccurate data have affected their ability to plan their own broadband networks and obtain funding to address broadband gaps on their lands. By developing and implementing methods for collecting and reporting accurate and complete data on broadband access specific to tribal lands, FCC would be better able to target federal broadband funding to tribal areas that need it the most and to more accurately assess FCC's progress toward its goal of increasing all Americans' access to affordable broadband. FCC does not have a formal process to obtain tribal input on the accuracy of provider-submitted broadband data. In the National Broadband Plan , FCC highlighted the need for a targeted approach to improve broadband availability data for tribal lands. As outlined in the plan, such an approach would include working with tribes to ensure that information is accurate and useful. About half of the tribal stakeholders GAO interviewed raised concerns that FCC relies solely on data from providers, and most stated FCC should work with tribes to improve the accuracy of FCC's data. Establishing a formal process to obtain input from tribal governments on the accuracy of provider-submitted broadband data could help improve the accuracy of FCC's broadband data for tribal lands. GAO is making three recommendations to FCC, including that it collect and report data that accurately measure tribal broadband access as well as develop a process to obtain tribal input on the accuracy of the data. FCC agreed with the recommendations." ]	8,882	gov_report	en	null	ba50360a6669fb0e2fbd41a020483b9bab271b5ce69b5c87
While no commonly accepted definition of a community bank exists, they are generally smaller banks that provide banking services to the local community and have management and board members who reside in the local community. In some of our past reports, we often defined community banks as those with under $10 billion in total assets. However, many banks have assets well below $10 billion as data from the financial condition reports that institutions submit to regulators (Call Reports) indicated that of the more than 6,100 banks in the United States, about 90 percent had assets below about $1.2 billion as of March 2016. Based on our prior interviews and reviews of documents, regulators and others have observed that small banks tend to differ from larger banks in their relationships with customers. Large banks are more likely to engage in transactional banking, which focuses on the provision of highly standardized products that require little human input to manage and are underwritten using statistical information. Small banks are more likely to engage in what is known as relationship banking in which banks consider not only data models but also information acquired by working with the banking customer over time. Using this banking model, small banks may be able to extend credit to customers such as small business owners who might not receive a loan from a larger bank. Small business lending appears to be an important activity for community banks. As of June 2017, community banks had almost $300 billion outstanding in loans with an original principal balance of under $1 million (which banking regulators define as small business lending), or about 20 percent of these institutions’ total lending. In that same month, non- community banks had about $390 billion outstanding in business loans under $1 million representing 5 percent of their total lending. Credit unions are nonprofit member-owned institutions that take deposits and make loans. Unlike banks, credit unions are subject to limits on their membership because members must have a “common bond”—for example, working for the same employer or living in the same community. Financial reports submitted to NCUA (the regulator that oversees federally-insured credit unions) indicated that of the more than 6,000 credit unions in the United States, 90 percent had assets below about $393 million as of March 2016. In addition to providing consumer products to their members, credit unions are also allowed to make loans for business activities subject to certain restrictions. These member business loans are defined as a loan, line of credit, or letter of credit that a credit union extends to a borrower for a commercial, industrial, agricultural, or professional purpose, subject to certain exclusions. In accordance with rules effective January 2017, the total amount of business lending credit unions can do is not to generally exceed 1.75 times the actual net worth of the credit union. Federal banking and credit union regulators have responsibility for ensuring the safety and soundness of the institutions they oversee, protecting federal deposit insurance funds, promoting stability in financial markets, and enforcing compliance with applicable consumer protection laws. All depository institutions that have federal deposit insurance have a federal prudential regulator. The regulator responsible for overseeing a community bank or credit union varies depending on how the institution is chartered, whether it is federally insured, and whether it is a Federal Reserve member (see table 1). Other federal agencies also impose regulatory requirements on banks and credit unions. These include rules issued by CFPB, which has supervision and enforcement authority for various federal consumer protection laws for depository institutions with more than $10 billion in assets and their affiliates. The Federal Reserve, OCC, FDIC, and NCUA continue to supervise for consumer protection compliance at institutions that have $10 billion or less in assets. Although community banks and credit unions with less than $10 billion in assets typically would not be subject to CFPB examinations, they generally are required to comply with CFPB rules related to consumer protection. In addition, FinCEN also issues requirements that financial institutions, including banks and credit unions, must follow. FinCEN is a component of Treasury’s Office of Terrorism and Financial Intelligence that supports government agencies by collecting, analyzing, and disseminating financial intelligence information to combat money laundering. It is responsible for administering the Bank Secrecy Act, which, with its implementing regulations, generally requires banks, credit unions, and other financial institutions, to collect and retain various records of customer transactions, verify customers’ identities in certain situations, maintain AML programs, and report suspicious and large cash transactions. FinCEN relies on financial regulators and others to examine U.S. financial institutions to determine compliance with these requirements. In addition, financial institutions also have to comply with requirements by Treasury’s Office of Foreign Asset Control to review transactions to ensure that business is not being done with sanctioned countries or individuals. In response to the 2007-2009 financial crisis, Congress passed the Dodd- Frank Act, which became law on July 21, 2010. The act includes numerous reforms to strengthen oversight of financial services firms, including consolidating consumer protection responsibilities within CFPB. Under the Dodd-Frank Act, federal financial regulatory agencies were directed to or granted authority to issue hundreds of regulations to implement the act’s reforms. Many of the provisions in the Dodd-Frank Act target the largest and most complex financial institutions, and regulators have noted that much of the act is not meant to apply to community banks. Although the Dodd-Frank Act exempts small institutions, such as community banks and credit unions, from several of its provisions, and authorizes federal regulators to provide small institutions with relief from certain regulations, it also contains provisions that impose additional restrictions and compliance costs on these institutions. As we reported in 2012, federal regulators, state regulatory associations, and industry associations collectively identified provisions within 7 of the act’s 16 titles that they expected to affect community banks and credit unions. The provisions they identified as likely to affect these institutions included some of the act’s mortgage reforms, such as those requiring institutions to ensure that a consumer obtaining a residential mortgage loan has the reasonable ability to repay the loan at the time the loan is consummated; comply with a new CFPB rule that combines two different mortgage loan disclosures that had been required by the Truth-in-Lending Act and the Real Estate Settlement Procedures Act of 1974; and ensure that property appraisers are sufficiently independent. In addition to the regulations that have arisen from provisions in the Dodd-Frank Act, we reported that other regulations have created potential burdens for community banks. For example, the depository institution regulators also issued changes to the capital requirements applicable to these institutions. Many of these changes were consistent with the Basel III framework, which is a comprehensive set of reforms to strengthen global capital and liquidity standards issued by an international body consisting of representatives of many nations’ central banks and regulators. These new requirements significantly changed the risk-based capital standards for banks and bank holding companies. As we reported in November 2014, officials interviewed from community banks did not anticipate any difficulties in meeting the U.S. Basel III capital requirements but expected to incur additional compliance costs. In addition to regulatory changes that could increase burden or costs on community banks, some of the Dodd-Frank Act provisions have likely resulted in reduced costs for these institutions. For example, revisions to the way that deposit insurance premiums are calculated reduced the amount paid by banks with less than $10 billion in assets by $342 million or 33 percent from the first to second quarter of 2011 after the change became effective. Another change reduced the audit-related costs that some banks were incurring in complying with provisions of the Sarbanes- Oxley Act. A literature search indicated that prior studies by other entities, including regulators, trade associations or others, which examined how to measure regulatory burden generally focused on direct costs resulting from compliance with regulations, and our analysis of them identified various limitations that restrict their usefulness in assessing regulatory burden. For example, researchers commissioned by the Credit Union National Association, which advocates for credit unions, found costs attributable to regulations totaled a median of 0.54 percent of assets in 2014 for a non- random sample of the 53 small, medium, and large credit unions responding to a nationwide survey. However, one of the study’s limitations was its use of a small, non-random sample of credit unions. In addition, the research was not designed to conclusively link changes in regulatory costs for the sampled credit unions to any one regulation or set of regulations. CFPB also conducted a study of regulatory costs associated with specific regulations applicable to checking accounts, traditional savings accounts, debit cards, and overdraft programs. Through case studies involving 200 interviews with staff at seven commercial banks with assets over $1 billion, the agency’s staff determined that the banks’ costs related to ongoing regulatory compliance were concentrated in operations, information technology, human resources, and compliance and retail functions, with operations and information technology contributing the highest costs. While providing detailed information about the case study institutions, reliance on a small sample of mostly large commercial banks limits the conclusions that can be drawn about banks’ regulatory costs generally. In addition, the study notes several challenges to quantifying compliance costs that made their cost estimates subject to some measurement error, and the study’s design limits the extent to which a causal relationship between financial regulations and costs could be fully established. Researchers from the Mercatus Center at George Mason University used a nongeneralizable survey of banks to find that respondents believed they were spending more money and staff time on compliance than before due to Dodd-Frank regulations. From a universe of banks with less than $10 billion of assets, the center’s researchers used a non-random sample to collect 200 responses to a survey sent to 500 banks with assets less than $10 billion about the burden of complying with regulations arising from the Dodd-Frank Act. The survey sought information on the respondents’ characteristics, products, and services and the effects various regulatory and compliance activities had on operations and decisions, including those related to bank profitability, staffing, and products. About 83 percent of the respondents reported increased compliance costs of greater than or equal to 5 percent due to regulatory requirements stemming from the Dodd-Frank Act. The study’s limitations include use of a non-random sample selection, small response rate, and use of questions that asked about the Dodd-Frank Act in general. In addition, the self-reported survey items used to capture regulatory burden—compliance costs and profitability—have an increased risk of measurement error and the causal relationship between Dodd- Frank Act requirements and changes in these indicators is not well- established. Community bank and credit union representatives that we interviewed identified three sets of regulations as most burdensome to their institutions: (1) data reporting requirements related to loan applicants and loan terms under the Home Mortgage Disclosure Act of 1975 (HMDA); (2) transaction reporting and customer due diligence requirements as part of the Bank Secrecy Act and related anti-money laundering laws and regulations (collectively, BSA/AML); and (3) disclosures of mortgage loan fees and terms to consumers under the TILA-RESPA Integrated Disclosure (TRID) regulations. In focus groups and interviews, many of the institution representatives said these regulations were time- consuming and costly to comply with, in part because the requirements were complex, required preparation of individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes. However, federal regulators and consumer advocacy groups said that benefits from these regulations were significant. Representatives of community banks and credit unions in all our focus groups and in most of our interviews told us that HMDA’s data collection and reporting requirements were burdensome. Under HMDA and its implementing Regulation C, banks and credit unions with more than $45 million in assets that do not meet regulatory exemptions must collect, record, and report to the appropriate federal regulator, data about applicable mortgage lending activity. For every covered mortgage application, origination, or purchase of a covered loan, lenders must collect information such as the loan’s principal amount, the property location, the income relied on in making the credit decision, and the applicants’ race, ethnicity, and sex. Institutions record this on a form called the loan/application register, compile these data each calendar year, and submit them to CFPB. Institutions have also been required to make these data available to the public upon request, after modifying them to protect the privacy of applicants and borrowers. Representatives of many community banks and credit unions with whom we spoke said that complying with HMDA regulations was time consuming. For example, representatives from one community bank we interviewed said it completed about 1,100 transactions that required HMDA reporting in 2016, and that its staff spent about 16 hours per week complying with Regulation C. In one focus group, participants discussed how HMDA compliance was time consuming because the regulations were complex, which made determining whether a loan was covered and should be reported difficult. As a part of that discussion, one bank representative told us that it was not always clear whether a residence that was used as collateral for a commercial loan was a reportable mortgage under HMDA. In addition, representatives in all of our focus groups in which HMDA was discussed and in some interviews said that they had to provide additional staff training for HMDA compliance. Among the 28 community banks and credit unions whose representatives commented on HMDA in our focus groups, 61 percent noted having to conduct additional HMDA-related training. In most of our focus groups and three of our interviews, representatives of community banks and credit unions also expressed concerns about how federal bank examiners review HMDA data for errors. When regulatory examiners conducting compliance examinations determine that an institution’s HMDA data has errors above prescribed thresholds, the institution has to correct and resubmit its data, further adding to the time required for compliance. While regulators have revised their procedures for assessing errors as discussed later, prior to 2018, if 10 percent or more of the loan/application registers that examiners reviewed had errors, an institution was required to review all of their data, correct any errors, and resubmit them. If 5 percent or more of the reviewed loan/application registers had errors in a single data field, an institution had to review all other registers and correct the data in that field. Participants in one focus group discussed how HMDA’s requirements left them little room for error and that they were concerned that examiners weigh all HMDA fields equally when assessing errors. For example, representatives of one institution noted that for purposes of fair lending enforcement, errors in fields such as race and ethnicity can be more important than errors in the action taken date (the field for the date when a loan was originated or when an application not resulting in an origination was received). Representatives of one institution also noted that they no longer have access to data submission software that allowed them to verify the accuracy of some HMDA data, and this has led to more errors in their submissions. Representatives of another institution told us that they had to have staff conduct multiple checks of HMDA data to ensure the data met accuracy standards, which added to the time needed for compliance. Representatives of many community banks and credit unions with whom we spoke also expressed concerns that compliance requirements for HMDA were increasing. The Dodd-Frank Act included provisions to expand the information institutions must collect and submit under HMDA, and CFPB issued rules implementing these new requirements that mostly became effective January 2018. In addition to certain new data requirements specified in the act, such as age and the total points and fees payable at origination, CFPB’s amendments to the HMDA reporting requirements also added additional data points, including some intended to collect more information about borrowers such as credit scores, as well as more information about the features of loans, such as fees and terms. In the final rule implementing the new requirements, CFPB also expanded the types of loans on which some institutions must report HMDA data to include open-ended lines of credit and reverse mortgages. Participants in two of our focus groups with credit unions said reporting this expanded information will require more staff time and training and cause them to purchase new or upgraded computer software. In most of our focus groups, participants said that changes should be made to reduce the burdens associated with reporting HMDA data. For example, in some focus groups, participants suggested raising the threshold for institutions that have to file HMDA reports above the then current $44 million in assets, which would reduce the number of small banks and credit unions that are required to comply. Representatives of two institutions noted that because small institutions make very few loans compared to large ones, their contribution to the overall HMDA data was of limited value in contrast to the significant costs to the institutions to collect and report the data. Another participant said their institution sometimes make as few as three loans per month. In most of our focus groups, participants also suggested that regulators could collect mortgage data in other ways. For example, one participant discussed how it would be less burdensome for lenders if federal examiners collected data on loan characteristics during compliance examinations. However, staff of federal regulators and consumer groups said that HMDA data are essential for enforcement of fair lending laws and regulations. Representatives of CFPB, FDIC, NCUA, and OCC and groups that advocate for consumer protection issues said that HMDA data has helped address discriminatory practices. For example, some representatives noted a decrease in “redlining” (refusing to make loans to certain neighborhoods or communities). CFPB staff noted that HMDA data provides transparency about lending markets, and that HMDA data from community banks and credit unions is critical for this purpose, especially in some rural parts of the country where they make the majority of mortgage loans. While any individual institution’s HMDA reporting might not make up a large portion of HMDA data for an area, CFPB staff told us that if all smaller institutions were exempted from HMDA requirements, regulators would have little or no data on the types of mortgages or on lending patterns in some areas. Agency officials also told us that few good alternatives to HMDA data exist and that the current collection regime is the most effective available option for collecting the data. NCUA officials noted that collecting mortgage data directly from credit unions during examinations to enforce fair lending rules likely would be more burdensome for the institutions. CFPB staff and consumer advocates we spoke with also said that HMDA provides a low-cost data source for researchers and local policy makers, which leads to other benefits that cannot be directly measured but are included in HMDA’s statutory goals—such as allowing local policymakers to target community investments to areas with housing needs. While representatives of some community banks and credit unions argued that HMDA data were no longer necessary because practices such as redlining have been reduced and they receive few requests for HMDA data from the public, representatives of some consumer advocate groups responded that eliminating the transparency that HMDA data creates could allow discriminatory practices to become more common. CFPB staff and representatives of one of these consumer groups also said that before the financial crisis of 2007–2009, some groups were not being denied credit outright but instead were given mortgages with terms, such as high interest rates, which made them more likely to default. The expanded HMDA data will allow regulators to detect such problematic lending practices for mortgage terms. CFPB and FDIC staff also told us that while lenders will have to collect and report more information, the new fields will add context to lending practices and should reduce the likelihood of incorrectly flagging institutions for potential discrimination. For example, with current data, a lender may appear to be denying mortgage applications to a particular racial or ethnic group, but with expanded data that includes applicant credit scores, regulators may determine that the denials were appropriate based on credit score underwriting. CFPB staff acknowledged that HMDA data collection and reporting may be time consuming, and said they have taken steps to reduce the associated burdens for community banks and credit unions. First, in its final rule implementing the Dodd-Frank Act’s expanded HMDA data requirements, CFPB added exclusions for banks and credit unions that make very few mortgage loans. Effective January 2018, an institution will be subject to HMDA requirements only if it has originated at least 25 closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the 2 preceding calendar years and also has met other applicable requirements. In response to concerns about the burden associated with the new requirement for reporting open-end lines of credit, in 2017. CFPB temporarily increased the threshold for collecting and reporting data for open-end lines of credit from 100 to 500 for the 2018 and 2019 calendar years. CFPB estimated that roughly 25 percent of covered depository institutions will no longer be subject to HMDA as a result of these exclusions. Second, the Federal Financial Institutions Examination Council (FFIEC), which includes CFPB, announced the new FFIEC HMDA Examiner Transaction Testing Guidelines that specify when agency examiners should direct an institution to correct and resubmit its HMDA data due to errors found during supervisory examinations. CFPB said these revisions should greatly reduce the burden associated with resubmissions. Under the revised standards, institutions will no longer be directed to resubmit all their HMDA data if they exceeded the threshold for HMDA files with errors, but will still be directed to correct specific data fields that have errors exceeding the specified threshold. The revised guidelines also include new tolerances for some data fields, such as application date and loan amount. Third, CFPB also introduced a new online system for submitting HMDA data in November 2017. CFPB staff said that the new system, the HMDA Platform, will reduce errors by including features to allow institutions to validate the accuracy and correct the formatting of their data before submitting. They also noted that this platform will reduce burdens associated with the previous system for submitting HMDA data. For example, institutions no longer will have to regularly download software, and multiple users within an institution will be able to access the platform. NCUA officials added that some credit unions had tested the system and reported that it reduced their reporting burden. Finally, on December 21, 2017, CFPB issued a public statement announcing that, for HMDA data collected in 2018, CFPB does not intend to require resubmission of HMDA data unless errors are material, and does not intend to assess penalties for errors in submitted data. CFPB also announced that it intends to open a rule making to reconsider various aspects of the 2015 HMDA rule, such as the thresholds for compliance and data points that are not required by statute. In all our focus groups and many of our interviews, participants said they found BSA/AML requirements to be burdensome due to the staff time and other costs associated with their compliance efforts. To provide regulators and law enforcement with information that can aid in pursuing criminal, tax, and regulatory investigations, BSA/AML statutes and regulations require covered financial institutions to file Currency Transaction Reports (CTR) for cash transactions conducted by a customer for aggregate amounts of more than $10,000 per day and Suspicious Activity Reports (SAR) for activity that might signal criminal activity (such as money laundering or tax evasion); and establish BSA/AML compliance programs that include efforts to identify and verify customers’ identities and monitor transactions to report, for example, transactions that appear to violate federal law. Participants in all of our focus groups discussed how BSA/AML compliance was time-consuming, and in most focus groups participants said this took time away from serving customers. For example, representatives of one institution we interviewed told us that completing a single SAR could take 4 hours, and that they might complete 2 to 5 SARs per month. However, representatives of another institution said that at some times of the year it has filed more than 300 SARs per month. In a few cases, representatives of institutions saw BSA/AML compliance as burdensome because they had to take actions that seemed unnecessary based on the nature of the transactions. For example, one institution’s representatives said that filing a CTR because a high school band deposited more than $10,000 after a fundraising activity seemed unnecessary, while another’s said that it did not see the need to file SARs for charitable organizations that are well known in their community. Representatives of institutions in most of our focus groups also noted that BSA/AML regulations required additional staff training. Some of these representatives noted that the requirements are complex and the activities, such as identifying transactions potentially associated with terrorism, are outside of their frontline staff’s core competencies. Representatives in all focus groups and a majority of interviews said BSA imposes financial costs on community banks and credit unions that must be absorbed by those institutions or passed along to customers. In most of our focus groups, representatives said that they had to purchase or upgrade software systems to comply with BSA/AML requirements, which can be expensive. Some representatives also said they had to hire third parties to comply with BSA/AML regulations. Representatives of some institutions also noted that the compliance requirements do not produce any material benefits for their institutions. In most of our focus groups, participants were particularly concerned that the compliance burden associated with BSA/AML regulations was increasing. In 2016, FinCEN—the bureau in the Department of the Treasury that administers BSA/AML rules—issued a final rule that expanded due-diligence requirements for customer identification. The final rule was intended to strengthen customer identification programs by requiring institutions to obtain information about the identities of the beneficial owners of businesses opening accounts at their institutions. The institutions covered by the rule are expected to be in compliance by May 11, 2018. Some representatives of community banks and credit unions that we spoke with said that this new requirement will be burdensome. For example, one community bank’s representatives said the new due-diligence requirements will require more staff time and training and cause them to purchase new or upgraded computer systems. Representatives of some institutions also noted that accessing beneficial ownership information about companies can be difficult, and that entities that issue business licenses or tax identification numbers could perform this task more easily than financial institutions. In some of our focus groups, and in some comment letters that we reviewed that community banks and credit unions submitted to bank regulators and NCUA as part of the EGRPRA process, representatives of community banks and credit unions said regulators should take steps to reduce the burdens associated with BSA/AML. Participants in two of our focus groups and representatives of two institutions we interviewed said that the $10,000 CTR threshold, which was established in 1972, should be increased, noting it had not been adjusted for inflation. One participant told us that if this threshold had been adjusted for inflation over time, it likely would be filing about half of the number of CTRs that it currently files. In several focus groups, participants also indicated that transactions that must be checked against the Office of Foreign Assets Control list also should be subject to a threshold amount. Representatives of one institution noted that they have to complete time-consuming compliance work for even very small transactions (such as less than $1). Representatives of some institutions suggested that the BSA/AML requirements be streamlined to make it easier for community banks and credit unions to comply. For example, representatives of one institution that participated in the EGRPRA review suggested that institutions could provide regulators with data on all cash transactions in the format in which they keep these records rather than filing CTRs. Finally, participants in one focus group said that regulators should better communicate how the information that institutions submit contributes to law enforcement successes in preventing or prosecuting crimes. Staff from FinCEN told us that the reports and due-diligence programs required in BSA/AML rules are critical to safeguarding the U.S. financial sector from illicit activity, including illegal narcotics and terrorist financing activities. They said they rely on CTRs and SARs that financial institutions file for the financial intelligence they disseminate to law enforcement agencies, and noted that they saw all BSA/AML requirements as essential because activities are designed to complement each other. Officials also pointed out that entities conducting terrorism, human trafficking, or fraud all rely heavily on cash, and reporting frequently made deposits makes tracking criminals easier. They said that significant reductions in BSA/AML reporting requirements would hinder law enforcement, especially because depositing cash through ATMs has become very easy. FinCEN staff said they utilize a continuous evaluation process to look for ways to reduce burden associated with BSA/AML requirements, and noted actions taken as a result. They said that FinCEN has several means of soliciting feedback about potential burdens, including through its Bank Secrecy Act Advisory Group that consists of industry, regulatory, and law enforcement representatives who meet twice a year, and also through public reporting and comments received through FinCEN’s regulatory process. FinCEN officials said that based on this advisory group’s recommendations, the agency provided SAR filing relief by reducing the frequency of submission for written SAR summaries on ongoing activity from 90 days to 120 days. FinCEN also has recognized that financial institutions do not generally see the beneficial impacts of their BSA/AML efforts, and officials said they have begun several different feedback programs to address this issue. FinCEN staff said they have been discussing ways to improve the CTR filing process, but in response to comments obtained as part of a recent review of regulatory burden they noted that the staff of law enforcement agencies do not support changing the $10,000 threshold for CTR reporting. FinCEN officials said that they have taken some steps to reduce the burden related to CTR reporting, such as by expanding the ability of institutions to seek CTR filing exemptions, especially for low-risk customers. FinCEN is also utilizing its advisory group to examine aspects of the CTR reporting obligations to assess ways to reduce reporting burden, but officials said it is too early to know the outcomes of the effort. However, FinCEN officials said that while evaluation of certain reporting thresholds may be appropriate, any changes to them or other CTR requirements to reduce burden on financial institutions, must still meet the needs of regulators and law enforcement, and prevent misuse of the financial system. FinCEN staff also said that some of the concerns raised about the upcoming requirements on beneficial ownership may be based on misunderstandings of the rule. FinCEN officials told us that under the final rule, financial institutions can rely on the beneficial ownership information provided to them by the entity seeking to open the account. Under the final rule, the party opening an account on behalf of the legal entity customer is responsible for providing beneficial ownership information, and the financial institution may rely on the representations of the customer unless it has information that calls into question the accuracy of those representations. The financial institution does not have to confirm ownership; rather, it has to verify the identity of the beneficial owners as reported by the individual seeking to open the account, which can be done with photocopies of identifying documents such as a driver’s license. FinCEN issued guidance explaining this aspect of the final rule in 2016. In all of our focus groups and many of our interviews, representatives of community banks and credit unions said that new requirements mandating consolidated disclosures to consumers for mortgage terms and fees have increased the time their staff spend on compliance, increased the cost of providing mortgage lending services, and delayed the completion of mortgages for customers. The Dodd Frank Act directed CFPB to issue new requirements to integrate mortgage loan disclosures that previously had been separately required by the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), and their implementing regulations, Regulation Z and X, respectively. Effective in October 2015, the combined TILA-RESPA Integrated Disclosure (known as TRID) requires mortgage lenders to disclose certain mortgage terms, conditions, and fees to loan applicants during the origination process for certain mortgage loans and prescribe how the disclosures should be made. The disclosure provisions also require lenders, in the absence of specified exceptions, to reimburse or refund to borrowers portions of certain fees that exceed the estimates previously provided in order to comply with the revised regulations. Under TRID, lenders generally must provide residential mortgage loan applicants with two forms, and deliver these documents within specified time frames (as shown in fig. 1). Within 3 business days of an application and at least 7 business days before a loan is consummated, lenders must provide the applicant with the loan estimate, which includes estimates for all financing costs and fees and other terms and conditions associated with the potential loan. If circumstances change after the loan estimate has been provided (for example, if a borrower needs to change the loan amount), a new loan estimate may be required. At least 3 days before a loan is consummated, lenders must provide the applicant with the closing disclosure, which has the loan’s actual terms, conditions, and associated fees. If the closing disclosure is mailed to an applicant, lenders must wait an additional 3 days for the applicant to receive it before they can execute the loan, unless they can demonstrate that the applicant has received the closing disclosure. If the annual percentage rate or the type of loan change after the closing disclosure is provided, or if a prepayment penalty is added, a new closing disclosure must be provided and a new 3-day waiting period is required. Other changes made to the closing disclosure require the provision of a revised closing disclosure, but a new 3-day waiting period is not required. If the fees in the closing disclosure are more than the fees in the loan estimate (subject to some exceptions and tolerances discussed later in this section), the lender must reimburse the applicant for the amount of the increase in order to comply with the applicable regulations. In all of our focus groups and most of our interviews, representatives of community banks and credit unions said that TRID has increased the time required to comply with mortgage disclosure requirements and increased the cost of mortgage lending. In half of our focus groups, participants discussed how they have had to spend additional time ensuring the accuracy of their initial estimates of mortgage costs, including fees charged by third parties, in part because they are now financially responsible for changes in fees during the closing process. Some participants also discussed how they have had to hire additional staff to meet TRID’s requirements. In one focus group of community banks, participants described how mortgage loans frequently involve the use of multiple third parties, such as appraisers and inspectors, and obtaining accurate estimates of the amounts these parties will charge for their services within the 3-day period prescribed by TRID can be difficult. The community banks we spoke with also discussed how fees from these parties often change at closing, and ensuring an accurate estimate at the beginning of the process was not always possible. As a result, some representatives said that community banks and credit unions have had to pay to cure or correct the difference in changed third-party fees that are outside their control. In most of our focus groups and some of our interviews, representatives told us that this TRID requirement has made originating a mortgage more costly for community banks and credit unions. Community banks and credit unions in half of our focus groups and some of our interviews also told us that TRID’s requirements are complex and difficult to understand, which adds to their compliance burden. Participants in one focus group noted that CFPB’s final rule implementing TRID was very long—the rule available on CFPB’s website is more than 1,800 pages including the rule’s preamble—and has many scenarios that require different actions by mortgage lenders or trigger different responsibilities as the following examples illustrate. Some fees in the loan estimate, such as prepaid interest, may be subsequently changed provided that the estimates were in good faith. Other fees, such as for third-party services where the charge is not paid to the lender or the lender’s affiliate, may be changed by as much as 10 percent in aggregate before the lender becomes liable for the difference. However, for some charges the lender must reimburse or refund to the borrower portions of subsequent increases, such as fees paid to the creditor, mortgage broker, or a lender affiliate, without any percentage tolerance. Based on a poll we conducted in all six focus groups, 40 of 43 participants said that they had to provide additional training to staff to ensure that TRID’s requirements were understood, which takes additional time from serving customers. In all of our focus groups and most of our interviews, community banks and credit unions also said that TRID’s mandatory waiting periods and disclosure schedules increased the time required to close mortgage loans, which created burdens for the institutions and their customers. Several representatives we interviewed told us that TRID’s waiting periods led to delays in closings of about 15 days. The regulation mandates that mortgage loans generally cannot be consummated sooner than 7 business days after the loan estimate is provided to an applicant, and no sooner than 3 business days after the closing disclosure is received by the applicant. If the closing disclosure is mailed, the lender must add another 3 business days to the closing period to allow for delivery. Representatives in some of our focus groups said that when changes needed to be made to a loan during the closing period, TRID requires them to restart the waiting periods, which can increase delays. For example, if the closing disclosure had been provided, and the loan product needed to be changed, a new closing disclosure would have to be provided and the applicant given at least 3 days to review it. Some representatives we interviewed said that their customers are frustrated by these delays and would like to close their mortgages sooner than TRID allows. Others said that TRID’s waiting periods decreased flexibility in scheduling the closing date, which caused problems for homebuyers and sellers (for instance, because transactions frequently have to occur on the same day). However, CFPB officials and staff of a consumer group said that TRID has streamlined previous disclosure requirements and is important for ensuring that consumers obtaining mortgages are protected. CFPB reported that for more than 30 years lenders have been required by law to provide mortgage disclosures to borrowers, and CFPB staff noted that prior time frames were similar to those required by TRID and Regulation Z. CFPB also noted that information on the disclosure forms that TRID replaced was sometimes overlapping, used inconsistent terminology, and could confuse consumers. In addition, CFPB staff and staff of a consumer group said that the previous disclosures allowed some mortgage-related fees to be combined, which prevented borrowers from knowing what charges for specific services were. They said that TRID disclosures better highlight important items for home buyers, allowing them to more readily compare loan options. Furthermore, CFPB staff told us that before TRID, lenders and other parties commonly increased a mortgage loan’s fees during the closing process, and then gave borrowers a “take it or leave it” choice just before closing. As a result, borrowers often just accepted the increased costs. CFPB representatives said that TRID protects consumers from this practice by shifting the responsibility for most fee increases to lenders, and increases transparency in the lending process. CFPB staff told us that it is too early to definitively identify what impact TRID has had on borrowers’ understanding of mortgage terms, but told us that some information they have seen indicated that it has been helpful. For example, CFPB staff said that preliminary results from the National Survey of Mortgage Originations conducted in 2017 found that consumer confidence in mortgage lending increased. While CFPB staff said that this may indicate that TRID, which became effective in October 2015, has helped consumers better understand mortgage terms, they noted that the complete survey results are not expected to be released until 2018. CFPB staff said that these results should provide valuable information on how well consumers generally understood mortgage terms and whether borrowers were comparison shopping for loans that could be used to analyze TRID’s effects on consumer understanding of mortgage products. CFPB staff also told us that complying with TRID should not result in significant time being added to the mortgage closing process. Based on the final rule, they noted that TRID’s waiting periods should not lead to delays of more than 3 days. CFPB staff also pointed out that the overall 7-day waiting period and the 3-day waiting period can be modified or waived if the consumer has a bona fide personal financial emergency, and thus should not be creating delays for those consumers. To waive the waiting period, consumers have to provide the lender with a written statement that describes the emergency. CFPB staff also said that closing times are affected by a variety of factors and can vary substantially, and that the delays that community banks and credit unions we spoke with reported may not be representative of the experiences of other lenders. A preliminary CFPB analysis of industry-published mortgage closing data found that closing times increased after it first implemented TRID, but that the delays subsequently declined. CFPB staff also said that they plan to analyze closing times using HMDA data now that they are collecting these data, and that they expect that delays that community banks and credit unions may have experienced so far would decrease as institutions adjusted to the new requirements. Based on our review of TRID’s requirements and discussions with community banks and credit unions, some of the burden related to TRID that community banks and credit unions described appeared to result from institutions taking actions not required by regulations, and community banks and credit unions told us they still were confused about TRID requirements. For example, representatives of some institutions we interviewed said that they believed TRID requires the entire closing disclosure process to be restarted any time any changes were made to a loan’s amount. CFPB staff told us that this is not the case, and that revised loan estimates can be made in such cases without additional waiting periods. Representatives of several other community banks and credit unions cited 5- and 10-day waiting periods not in TRID requirements, or believed that the 7-day waiting period begins after the closing disclosure is received by the applicant, rather than when the loan estimate is provided. Participants in one focus group discussed that they were confused about when to provide disclosures and what needs to be provided. Representatives of one credit union said that if they did not understand a requirement, it was in their best interest to delay closing to ensure they were in compliance. CFPB staff said that they have taken several steps to help lenders understand TRID requirements. CFPB has published a Small Entity Compliance Guide and a Guide to the Loan Estimate and Closing Disclosure Forms. As of December 2017, these guides were accessible on a TRID implementation website that has links to other information about the rule, as well as blank forms and completed samples. CFPB staff told us that the bureau conducted several well-attended, in-depth webinars to explain different aspects of TRID, including one with more than 20,000 participants, and that recordings of the presentations remained available on the bureau’s TRID website. CFPB also encourages institutions to submit questions about TRID through the website, and the staff said that they review submitted questions for any patterns that may indicate that an aspect of the regulation is overly burdensome. However, the Mortgage Bankers Association reported that CFPB’s guidance for TRID had not met the needs of mortgage lenders. In a 2017 report on reforming CFPB, this association stated that timely and accessible answers to frequently asked questions about TRID were still needed, noting that while CFPB had assigned staff to answer questions, these answers were not widely circulated. The association also reported that it had made repeated requests for additional guidance related to TRID, but the agency largely did not respond with additional materials in response to these requests. Although we found that misunderstandings of TRID requirements could be creating unnecessary compliance burdens for some small institutions, CFPB had not assessed the effectiveness of the guidance it provided to community banks and credit unions. Under the Dodd-Frank Act, CFPB has a general responsibility to ensure its regulations are not unduly burdensome, and internal control standards direct federal agencies to analyze and respond to risks related to achieving their defined objectives. However, CFPB staff said that they have not directly assessed how well community banks and credit unions have understood TRID requirements and acknowledged that some of these institutions may be applying the regulations improperly. They said that CFPB intends to review the effectiveness of its guidance, but did not indicate when this review would be completed. Until the agency assesses how well community banks and credit unions understand TRID requirements, CFPB may not be able to effectively respond to the risk that some smaller institutions have implemented TRID incorrectly, unnecessarily burdening their staff and delaying consumers’ home purchases. We did not find that regulators directed institutions to comply with regulations from which they were exempt, although institutions were concerned about the appropriateness of examiner expectations. To provide regulatory relief to community banks and credit unions, Congress and regulators have sometimes exempted smaller institutions from the need to comply with all or part of some regulations. Such exemptions are often based on the size of the financial institution or the level of particular activities. For example, CFPB exempted institutions with less than $45 million in assets and fewer than 25 closed-end mortgage loans or 500 open-end lines of credit from the expanded HMDA reporting requirements. In January 2013, CFPB also included exemptions for some institutions in a rule related to originating loans that meet certain characteristics—known as qualified mortgages—in order for the institutions to receive certain liability protections if the loans later go into default. To qualify for this treatment, the lenders must make a good faith effort to determine a borrower’s ability to repay a loan and the loan must not include certain risky features (such as interest-only or balloon payments). In its final rule, CFPB included exemptions that allow small creditors to originate loans with certain otherwise restricted features (such as balloon payments) and still be considered qualified mortgage loans. Concerns expressed to legislators about exemptions not being applied appeared to be based on misunderstandings of certain regulations. For example, in June 2016, a bank official testified that he thought his bank would be exempt from all of CFPB’s requirements. However, CFPB’s rules applicable to banks apply generally to all depository institutions, although CFPB only conducts compliance examinations for institutions with assets exceeding $10 billion. The depository institution regulators continue to examine institutions with assets below this amount (the overwhelming majority of banks and credit unions) for compliance with regulations enacted by CFPB. Although not generalizable, our analysis of select examinations did not find that regulators directed institutions to comply with requirements from which they were exempt. In our interviews with representatives from 17 community banks and credit unions, none of the institutions’ representatives identified any cases in which regulators required their institution to comply with a regulatory requirement from which they should have been exempt. We also randomly selected and reviewed examination reports and supporting material for 28 examinations conducted by the regulators to identify any instances in which the regulators had not applied exemptions. From our review of the 28 examinations, we found no instances in the examination reports or the scoping memorandums indicating that examiners had required these institutions to comply with the regulations covered by the eight selected exemptions. Because of the limited number of the examinations we reviewed, we cannot generalize our findings to the regulatory treatment of all institutions qualifying for exemptions. Although not identifying issues relating to exemptions, representatives of community banks and credit unions in about half of our interviews and focus groups expressed concerns that their regulators expected them to follow practices they did not feel corresponded to the size or risks posed by their institutions. For example, representatives from one institution we interviewed said that examiners directed them to increase BSA/AML activities or staff, whereas they did not see such expectations as appropriate for institutions of their size. Similarly, in public forums held by regulators as part of their EGRPRA reviews (discussed in the next section) a few bank representatives stated that regulators sometimes considered compliance activities by large banks to be best practices, and then expected smaller banks to follow such practices. However, institution representatives in the public forums and in our interviews and focus groups that said sometimes regulators’ expectations for their institutions were not appropriate, but did not identify specific regulations or practices they had been asked to consider following when citing these concerns. To help ensure that applicable exemptions and regulatory expectations are appropriately applied, federal depository institution regulators told us they train their staff in applicable requirements and conduct senior-level reviews of examinations to help ensure that examiners only apply appropriate requirements and expectations on banks and credit unions. Regulators said that they do not conduct examinations in a one-size-fits- all manner, and aim to ensure that community banks and credit unions are held to standards appropriate to their size and business model. To achieve this, they said that examiners undergo rigorous training. For example, FDIC staff said that its examiners have to complete four core trainings and then receive ongoing on-the-job instruction. Each of the four regulators also said they have established quality assurance programs to review and assess their examination programs periodically. For example, each Federal Reserve Bank reviews its programs for examination inconsistency and the Federal Reserve Board staff conducts continuous and point-in-time oversight reviews of Reserve Banks’ examination programs to identify issues or problems, such as examination inconsistency. The depository institution regulators also said that they have processes for depository institutions to appeal examination findings if they feel they were held to inappropriate standards. In addition to less formal steps, such as contacting a regional office, each of the four regulators have an ombudsman office to which institutions can submit complaints or concerns about examination findings. Staffs of the various offices are independent from the regulators’ management and work with the depository institutions to resolve examination issues and concerns. If the ombudsman is unable to resolve the complaints, then the institutions can further appeal their complaints through established processes. Federal depository institution regulators address regulatory burden of their regulated institutions through the rulemaking process and also through retrospective reviews that may provide some regulatory relief to community banks. However, the retrospective review process has some limitations that limit its effectiveness in assessing and addressing regulatory burden on community banks and credit unions. Federal depository institution regulators can address the regulatory burden of their regulated institutions throughout the rulemaking process and through mandated, retrospective or “look back” reviews. According to the regulators, attempts to reduce regulatory burden start during the initial rulemaking process. Staff from FDIC, Federal Reserve, NCUA, and OCC all noted that when promulgating rules, their staff seek input from institutions and others throughout the process to design requirements that achieve the goals of the regulation at the most reasonable cost and effort for regulated entities. Once a rule has been drafted, the regulators publish it in the Federal Register for public comment. The staff noted that regulators often make revisions in response to the comments received to try to reduce compliance burdens in the final regulation. After regulations are implemented, banking regulators also address regulatory burdens by periodically conducting mandated reviews of their regulations. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) directs three regulators (Federal Reserve, FDIC, and OCC, as agencies represented on the Federal Financial Institutions Examination Council) to review at least every 10 years all of their regulations and through public comment identify areas of the regulations that are outdated, unnecessary or unduly burdensome on insured depository institutions. Under the act, the regulators are to categorize their regulations and provide notice and solicit public comment on all the regulations for which they have regulatory authority. The act also includes a number of requirements on how the regulators should conduct the review, including reporting results to Congress. The first EGRPRA review was completed in 2007. The second EGRPRA review began in 2014 and the report summarizing its results was submitted to Congress in March 2017. While NCUA is not required to participate in the EGRPRA review (because EGRPRA did not include the agency in the list of agencies that must conduct the reviews), NCUA has been participating voluntarily. NCUA’s assessment of its regulations appears in separate sections of the reports provided to Congress for each of the 2007 and 2017 reviews. Regulators began the most recent EGRPRA review by providing notice and soliciting comments in 2014–2016. The Federal Reserve, FDIC, and OCC issued four public notices in the Federal Register seeking comments from regulated institutions and interested parties on 12 categories of regulations they promulgated. The regulators published a list of all the regulations they administer in the notices and asked for comments, including comments on the extent to which regulations were burdensome. Although not specifically required under EGRPRA, the regulators also held six public meetings across the country with several panels of banks and community groups. At each public meeting, at least three panels of bank officials represented banks with assets of generally less than $5 billion and a large number of the panels included banks with less than $2 billion in assets. Panels were dedicated to specific regulations or sets of regulations. For example, one panel covered capital-related rules, consumer protection, and director-related rules, and another addressed BSA/AML requirements. Although panels were dedicated to specific regulations or sets of regulations, the regulators invited comment on all of their regulations at all public meetings. The regulators then assessed the public comments they received and described actions they intended to take in response. EGRPRA requires that the regulators identify the significant issues raised by the comments. The regulators generally deemed the issues that received the most public comments as significant. For the 2017 report, representatives at the Federal Reserve, FDIC, and OCC reviewed, evaluated, and summarized more than 200 comment letters and numerous oral comments they received. For interagency regulations that received numerous comments, such as those relating to capital and BSA/AML requirements, the comment letters for each were provided to staff of one of the three regulators or to previously established interagency working groups to conduct the initial assessments. The regulators’ comment assessments also included reviews by each agency’s subject-matter experts, who prepared draft summaries of the concerns and proposed agency responses for each of the rules that received comments. According to one bank regulator, the subject-matter experts assessed the comments across three aspects: (1) whether a suggested change to the regulation would reduce bank burdens; (2) how the change to the regulation would affect the safety and soundness of the banking system; and (3) whether a statutory change would be required to address the comment. The summaries drafted by the subject-matter experts then were shared with staff representing all three regulators and further revised. The staff of the three regulators said they then met jointly to analyze the merits of the comments and finalize the comment responses and the proposed actions for approval by senior management at all three regulators. In the 2017 report summarizing their assessment of the comments received, the regulators identified six significant areas in which commenters raised concerns: (1) capital rules, (2) financial condition reporting (Call Reports), (3) appraisal requirements, (4) examination frequency, (5) Community Reinvestment Act, and (6) BSA/AML. Based on our analysis of the 2017 report, the Federal Reserve, FDIC, and OCC had taken or pledged to take actions to address 11 of the 28 specific concerns commenters had raised across these six areas. We focused our analysis on issues within the six significant issues that affected the smaller institution and defined an action taken by the regulators as a change or revision to a regulation or the issuance of guidance. Capital rules. The regulators noted in the 2017 EGRPRA report that they received comment letters from more than 30 commenters on the recently revised capital requirements. Although some of the concerns commenters expressed related to issues affecting large institutions, some commenters sought to have regulators completely exempt smaller institutions from the requirements. Others objected to the amounts of capital that had to be held for loans made involving more volatile commercial real estate. In response, the regulators stated that the more than 500 failures of banks in the recent crisis, most of which were community banks, justified requiring all banks to meet the new capital requirements. However, they pledged in the report to make some changes, and have recently proposed rules that would alter some of the requirements. For example, on September 27, 2017, the regulators proposed several revisions to the capital requirements that would apply to banks not subject to the advanced approach requirements under the capital rules (generally, banks with less than $250 billion in assets and less than $10 billion in total foreign exposure). For example, the proposed rule simplifies the capital treatment for certain commercial acquisition, development, and construction loans, and would change the treatment of mortgage servicing assets. Call Reports. The regulators also received more than 30 comments relating to the reports—known as Call Reports—that banks file with the regulators outlining their financial condition and performance. Generally, the commenters requested relief (reducing the number of items required to be reported) for smaller banks and also asked that the frequency of reporting for some items be reduced. In response to these concerns, the regulators described a review of the Call Report requirements intended to reduce the number of items to be reported to the regulators. The regulators had started this effort to address Call Report issues soon after the most recent EGRPRA process had begun in June 2014. In the 2017 EGRPRA report, the regulators noted that they developed a new Call Report form for banks with assets of less than $1 billion and domestic offices only. For instance, according to the regulators, the new form reduced the number of items such banks had to report by 40 percent. Staff from the regulators told us that about 3,500 banks used the new small-bank reporting form in March 2017, which represented about 68 percent of the banks eligible to use the new form. OCC officials told us that an additional 100 federally chartered banks submitted the form for the 2017 second quarter reporting period. After the issuance of the 2017 EGRPRA report, in June 2017 the regulators issued additional proposed revisions to the three Call Report forms that banks are required to complete. These proposed changes are to become effective in June 2018. For example, one of the proposed changes to the new community bank Call Report form would change the frequency of reporting certain data on non-accrual assets— nonperforming loans that are not generating their stated interest rate— from quarterly to semi-annually. In November 2017, the agencies issued further proposed revision to the community bank Call Report that would delete or consolidate a number of items and add a new, or raise certain existing, reporting thresholds. The proposed revision would take effect as of June 2018. Appraisals. The three bank regulators and NCUA received more than 160 comments during the 2017 EGRPRA process related to appraisal requirements. The commenters included banks and others that sought to raise the size of the loans that require appraisals, and a large number of appraisers that objected to any changes in the requirements According to the EGRPRA report, several professional appraiser associations argued that raising the threshold could undermine the safety and soundness of lenders and diminish consumer protection for mortgage financing. These commenters argued that increasing the thresholds could encourage banks to neglect collateral risk-management responsibilities. In response, in July 2017, the regulators proposed raising the threshold for when an appraisal is required from $250,000 to $400,000 for commercial real estate loans. The regulators indicated that the appraisal requirements for 1-4 family residential mortgage loans above the current $250,000 would not be appropriate at the this time because they believed having such appraisals for loans above that level increased the safety of those loans and better protected consumers and because other participants in the housing market, such as the Department of Housing and Urban Development and the government-sponsored enterprises, also required appraisals for loans above that amount. However, the depository institution regulators included in the proposal a request for comment about the appraisal requirements for residential real estate and what banks think are other factors that should be included when considering the threshold for these loans. As part of the 2017 EGRPRA process, the regulators also received comments indicating that banks in rural areas were having difficulty securing appraisers. In the EGRPRA report, the regulators acknowledged this difficulty and in May 2017, the bank regulators and NCUA issued agency guidance on how institutions could obtain temporary waivers and use other means to expand the pool of persons eligible to prepare appraisals in cases in which suitable appraiser staff were unavailable. The agencies also responded to commenters who found the evaluation process confusing by issuing an interagency advisory on the process in March 2016. Evaluations may be used instead of an appraisal for certain transactions including those under the threshold. Frequency of safety and soundness examinations. As part of the 2017 EGRPRA process, the agencies also received comments requesting that they raise the total asset threshold for an insured depository institution to qualify for the extended 18-month examination cycle from $1 billion to $2 billion and to further extend the examinations cycle from 18 months to 36 months. During the EGRPRA process, Congress took legislative action to reduce examination frequency for smaller, well-capitalized banks. In 2015, the FAST Act raised the threshold for the 18-month examination cycle from less than $500 million to less than $1 billion for certain well-capitalized and well-managed depository institutions with an “outstanding” composite rating and gave the agencies discretion to similarly raise this threshold for certain depository institutions with an “outstanding” or “good” composite rating. The agencies exercised this discretion and issued a final rule in 2016 making qualifying depository institutions with less than $1 billion in total assets eligible for an 18-month (rather than a 12-month) examination cycle. According to the EGRPRA report, agency staff estimated that the final rules allowed approximately 600 more institutions to qualify for an extended 18-month examination cycle, bringing the total number of qualifying institutions to 4,793. Community Reinvestment Act. The commenters in the 2017 EGRPRA process also raised various issues relating to the Community Reinvestment Act, including the geographic areas in which institutions were expected to provide loans to low- and moderate-income borrowers and whether credit unions should be required to comply with the act’s requirements. The regulators noted that they were not intending to take any actions to revise regulations relating to this act because many of the revisions the commenters suggested would require changes to the statute (that is, legislative action). The regulators also noted that they had addressed some of the concerns by revising the Interagency Questions and Answers relating to this act in 2016. Furthermore, the agencies noted that they have been reviewing their existing examination procedures and practices to identify policy and process improvements. BSA/AML. The regulators also received a number of comments as part of the 2017 EGRPRA process on the burden institutions encounter in complying with BSA/AML requirements. These included the threshold for reporting currency transactions and suspicious activities. The regulators also received comments on both BSA/AML examination frequency and the frequency of safety and soundness examinations generally. Agencies typically review BSA/AML compliance programs during safety and soundness examinations. As discussed previously, regulators allowed more institutions of outstanding or good composite condition to be examined every 18 months instead of every 12 months. Institutions that qualify for less frequent safety-and-soundness examinations also will be eligible for less frequent BSA/AML examinations. For the remainder of the issues raised by commenters, the regulators noted they do not have the regulatory authority to revise the requirements but provided the comments to FinCEN, which has authority for these regulations. A letter with FinCEN’s response to the comments was included as an appendix of the EGRPRA report. In the letter, the FinCEN Acting Director stated that FinCEN would work through the issues raised by the comments with its advisory group consisting of regulators, law enforcement staff, and representatives of financial institutions. Additional Burden Reduction Actions. In addition to describing some changes in response to the comments deemed significant, the regulators’ 2017 report also includes descriptions of additional actions the individual agencies have taken or planned to take to reduce the regulatory burden for banks, including community banks. The Federal Reserve Board noted that it changed its Small Bank Holding Company Policy Statement that allows small bank holding companies to hold more debt than permitted for larger bank holding companies. In addition, the Federal Reserve noted that it had made changes to certain supervisory policies, such as issuing guidance on assessing risk management for banks with less than $50 billion in assets and launching an electronic application filing system for banks and bank holding companies. OCC noted that it had issued two final rules amending its regulations for licensing/chartering and securities-related filings, among other things. According to OCC staff, the agency conducted an internal review of its agency-specific regulations and many of the changes to these regulations came from the internal review. The agency also noted that it integrated its rules for national banks and federal savings associations where possible. In addition, OCC noted that it removed redundant and unnecessary information requests from those made to banks before examinations. FDIC noted that it had rescinded enhanced supervisory procedures for newly insured banks and reduced the consumer examination frequency for small and newly insured banks. Similarly to OCC, FDIC is integrating its rules for both non-state member banks and state- chartered savings and loans associations. In addition, FDIC noted it had issued new guidance on banks’ deposit insurance filings and reduced paperwork for new bank applications. The 2017 report also presents the results of NCUA’s concurrent efforts to obtain and respond to comments as part of the EGRPRA process. NCUA conducts its review separately from the bank regulators’ review. In four Federal Register notices in 2015, NCUA sought comments on 76 regulations that it administers. NCUA received about 25 comments raising concerns about 29 of its regulations, most of which were submitted by credit union associations. NCUA received no comments on 47 regulations. NCUA’s methodology for its regulatory review was similar to the bank regulators’ methodology. According to NCUA, all comment letters responding to a particular notice were collected and reviewed by NCUA’s Special Counsel to the General Counsel, an experienced, senior-level attorney with overall responsibility for EGRPRA compliance. NCUA staff told us that criteria applied by the Special Counsel in his review included relevance, depth of understanding and analysis exhibited by the comment, and degree to which multiple commenters expressed the same or similar views on an issue. The Special Counsel prepared a report summarizing the substance of each comment. The comment summary was reviewed by the General Counsel and circulated to the NCUA Board and reviewed by the Board members and staff. NCUA identified in its report the following as significant issues relating to credit union regulation: (1) field of membership and chartering; (2) member business lending; (3) federal credit union ownership of fixed assets; (4) expansion of national credit union share insurance coverage; and (5) expanded powers for credit unions. For these, NCUA took various actions to address the issues raised in the comments. For example, NCUA modified and updated its field of credit union membership by revising the definition of a local community, rural district and underserved area, which provided greater flexibility to federal credit unions seeking to add a rural district to their field of membership. NCUA also lessened some of the restrictions on member lending to small business; and raised some of the asset thresholds for what would be defined as a small credit union so that fewer requirements would apply to these credit unions. Also, in April 2016, the NCUA Board issued a proposed rule that would eliminate the requirement that federal credit unions must have a plan by which they will achieve full occupancy of premises within an explicit time frame. The proposal would allow for federal credit unions to plan for and manage their use of office space and related premises in accordance with their own strategic plans and risk-management policies. The bank and credit union regulators’ process for the 2007 EGRPRA review also began with Federal Register notices that requested comments on regulations. The regulators then reviewed and assessed the comments and issued a report in 2007 to Congress in which they noted actions they took in some of the areas raised by commenters. Our analysis of the regulators’ responses indicated that the regulators took responsive actions in a few areas. The regulators noted they already had taken action in some cases (including after completion of a pending study and as a result of efforts to work with Congress to obtain statutory changes). However, for the remaining specific concerns, the four regulators indicated that they would not be taking actions. Similar to its response in 2017, NCUA discussed its responses to the significant issues raised about regulations in a separate section of the 2007 report. Our analysis indicated that NCUA took responsive actions in about half of the areas. For example, NCUA adjusted regulations in one case and in another case noted previously taken actions. For comments related to three other areas, NCUA took actions not reflected in the 2007 report because the actions were taken over a longer time frame (in some cases, after 8 years). In the remaining areas, NCUA deemed actions as not being desirable in four cases and outside of its authority in two other cases. The bank regulators do not conduct other retrospective reviews of regulations outside of the EGRPRA process. We requested information from the Federal Reserve, FDIC, and OCC about any discretionary regulatory retrospective reviews that they performed in addition to the EGRPRA review during 2012–2016. All three regulators reported to us they have not conducted any retrospective regulatory reviews outside of EGRPRA since 2012. However, under the Regulatory Flexibility Act (RFA), federal agencies are required to conduct what are referred to as section 610 reviews. The purpose of these reviews is to determine whether certain rules should be continued without change, amended, or rescinded consistent with the objectives of applicable statutes, to minimize any significant economic impact of the rules upon a substantial number of small entities. Section 610 reviews are to be conducted within 10 years of an applicable rule’s publication. As part of other work, we assessed the bank regulators’ section 610 reviews and found that the Federal Reserve, FDIC, and OCC conducted retrospective reviews that did not fully align with the Regulatory Flexibility Act’s requirements. Officials at each of the agencies stated that they satisfy the requirements to perform section 610 reviews through the EGRPRA review process. However, we found that the requirements of the EGRPRA reviews differ from those of the RFA-required section 610 reviews, and we made recommendations to these regulators to help ensure their compliance with this act in a separate report issued in January 2018. In addition to participating in the EGRPRA review, NCUA also reviews one-third of its regulations every year (each regulation is reviewed every 3 years). NCUA’s “one-third” review employs a public notice and comment process similar to the EGRPRA review. If a specific regulation does not receive any comments, NCUA does not review the regulation. For the 2016 one-third review, NCUA did not receive comments on 5 of 16 regulations and thus these regulations were not reviewed. NCUA made technical changes to 4 of the 11 regulations that received comments. In August 2017, NCUA staff announced they developed a task force for conducting additional regulatory reviews, including developing a 4-year agenda for reviewing and revising NCUA’s regulations. The primary factors they said they intend to use to evaluate their regulations will be the magnitude of the benefit and the degree of effort that credit unions must expend to comply with the regulations. Because the 4-year reviews will be conducted on all of NCUA’s regulations, staff noted that the annual one-third regulatory review process will not be conducted again until 2020. Our analysis of the EGRPRA review found three limitations to the current process. First, the EGRPRA statute does not include CFPB and thus the significant mortgage-related regulations and other regulations that it administers— regulations that banks and credit unions must follow—were not included in the EGRPRA review. Under the Dodd-Frank Act, CFPB was given financial regulatory authority, including for regulations implementing the Home Mortgage Disclosure Act (Regulation C); the Truth-in-Lending Act (Regulation Z); and the Truth-in-Savings Act (Regulation DD). These regulations apply to many of the activities that banks and credit unions conduct; the four depository institution regulators conduct the large majority of examinations of these institutions’ compliance with these CFPB-administered regulations. However, EGRPRA was not amended after the Dodd-Frank Act to include CFPB as one of the agencies that must conduct the EGRPRA review. During the 2017 EGRPRA review, the bank regulators only requested public comments on consumer protection regulations for which they have regulatory authority. But the banking regulators still received some comments on the key mortgage regulations and the other regulations that CFPB now administers. Our review of 2017 forum transcripts identified almost 60 comments on mortgage regulations, such as HMDA and TRID. The bank regulators could not address these mortgage regulation-related comments because they no longer had regulatory authority over these regulations; instead, they forwarded these comment letters to CFPB staff. According to CFPB staff, their role in the most recent EGRPRA process was very limited. CFPB staff told us they had no role in assessing the public comments received for purposes of the final 2017 EGRPRA report. According to one bank regulator, the bank regulators did not share non- mortgage regulation-related letters with CFPB staff because those comment letters did not involve CFPB regulations. Another bank regulator told us that CFPB was offered the opportunity to participate in the outreach meetings and were kept informed of the EGRPRA review during the quarterly FFIEC meetings that occurred during the review. Before the report was sent to Congress, CFPB staff said that they reviewed several late-stage drafts, but generally limited their review to ensuring that references to CFPB’s authority and regulations and its role in the EGRPRA process were properly characterized and explained. As a member of FFIEC, which issued the final report, CFPB’s Director was given an opportunity to review the report again just prior to its approval by FFIEC. CFPB must conduct its own reviews of regulations after they are implemented. Section 1022(d) of the Dodd-Frank Act requires CFPB to conduct an assessment of each significant rule or order adopted by the bureau under federal consumer financial law. CFPB must publish a report of the assessment not later than 5 years after the effective date of such rule or order. The assessment must address, among other relevant factors, the rule’s effectiveness in meeting the purposes and objectives of title X of the Dodd-Frank Act and specific goals stated by CFPB. The assessment also must reflect available evidence and any data that CFPB reasonably may collect. Before publishing a report of its assessment, CFPB must invite public comment on recommendations for modifying, expanding, or eliminating the significant rule or order. CFPB announced in Federal Register notices in spring 2017 that it was commencing assessments of rules related to Qualified Mortgage/Ability- to-Repay requirements, remittances, and mortgage servicing regulations. The notices described how CFPB planned to assess the regulations. In each notice, CFPB requested comment from the public on the feasibility and effectiveness of the assessment plan, data, and other factual information that may be useful for executing the plan; recommendations to improve the plan and relevant data; and data and other factual information about the benefits, costs, impacts, and effectiveness of the significant rule. Reports of these assessments are due in late 2018 and early 2019. According to CFPB staff, the requests for data and other factual information are consistent with the statutory requirement that the assessment must reflect available evidence and any data that CFPB reasonably may collect. The Federal Register notices also describe other data sources that CFPB has in-house or has been collecting pursuant to this requirement. CFPB staff told us that they have not yet determined whether certain other regulations that apply to banks and credit unions, such as the revisions to TRID and HMDA requirements, will be designated as significant and thus subjected to the one-time assessments. CFPB staff also told us they anticipate that within approximately 3 years after the effective date of a rule, it generally will have determined whether the rule is a significant rule for section 1022(d) assessment purposes. In tasking the bank regulators with conducting the EGRPRA reviews, Congress indicated its intent was to require these regulators to review all regulations that could be creating undue burden on regulated institutions. According to a Senate committee report relating to EGRPRA, the purpose of the legislation was to minimize unnecessary regulatory impediments for lenders, in a manner consistent with safety and soundness, consumer protection, and other public policy goals, so as to produce greater operational efficiency. Some in Congress have recognized that the omission of CFPB in the EGRPRA process is problematic, and in 2015 legislation was introduced to require that CFPB—and NCUA—formally participate in the EGRPRA review. Currently, without CFPB’s participation, key regulations that affect banks and credit unions may not be subject to the review process. In addition, these regulations may not be reviewed if CFPB does not deem them significant. Further, if reviewed, CFPB’s mandate is for a one-time, not recurring, review. CFPB staff told us that they have two additional initiatives designed to review its regulations, both of which have been announced in CFPB’s spring and fall 2017 Semiannual Regulatory Agendas. First, CFPB launched a program to periodically review individual existing regulations—or portions of large regulations—to identify opportunities to clarify ambiguities, address developments in the marketplace, or modernize or streamline provisions. Second, CFPB launched an internal task force to coordinate and bolster their continuing efforts to identify and relieve regulatory burdens, including with regard to small businesses such as community banks that potentially will address any regulation the agency has under its jurisdiction. Staff told us the agency has been considering suggestions it received from community banks and others on ways to reduce regulatory burden. However, CFPB has not provided public information specifically on the extent to which it intends to review regulations applicable to community banks and credit unions and other institutions or provided information on the timing and frequency of the reviews. In addition, it has not indicated the extent to which it will coordinate the reviews with the federal depository institution regulators as part of the EGRPRA reviews. Until CFPB publicly provides additional information indicating its commitment to periodically review the burden of all its regulations, community banks, credit unions, and other depository institutions may face diminished opportunities for relief from regulatory burden. Second, the federal depository institution regulators have not conducted or reported on quantitative analyses during the EGRPRA process to help them determine if changes to regulations would be warranted. Our analysis of the 2017 report indicated that in responses to comments in which the regulators did not take any actions, the regulators generally only provided their arguments against taking actions and did not cite analysis or data to support their narrative. In contrast, other federal agencies that are similarly tasked with conducting retrospective regulatory reviews are required to follow certain practices for such reviews that could serve as best practices for the depository institution regulators. For example, the Office of Management and Budget’s Circular A-4 guidance on regulatory analysis notes that a good analysis is transparent and should allow qualified third parties reviewing such analyses to clearly see how estimates and conclusions were determined. In addition, executive branch agencies that are tasked under executive orders to conduct retrospective reviews of regulations they issue generally are required under these orders to collect and analyze quantitative data as part of assessing the costs and benefits of changing existing regulations. However, EGRPRA does not require the regulators to collect and report on any quantitative data they collected or analyzed as part of assessing the potential burden of regulations. Conducting and reporting on how they analyzed the impact of potential regulatory changes to address burden could assist the depository institution regulators in conducting their EGRPRA reviews. For example, as discussed previously, Community Reinvestment Act regulations were deemed a significant issue, with commenters questioning the relevance of requiring small banks to make community development loans and suggesting that the asset threshold for this requirement be raised from $1 billion to $5 billion. The regulators told us that if the thresholds were raised, then community development loans would decline, particularly in underserved communities. However, regulators did not collect and analyze data for the EGRPRA review to determine the amount of community development loans provided by banks with assets of less than $1 billion; including a discussion of quantitative analysis might have helped show that community development loans from smaller community banks provided additional credit in communities—and thus helped to demonstrate the benefits of not changing the requirement as commenters requested. By not performing and reporting quantitative analyses where appropriate in the EGRPRA review, the regulators may be missing opportunities to better assess regulatory impacts after a regulation has been implemented, including identifying the need for any changes or benefits from the regulations and making their analyses more transparent to stakeholders. As the Office of Management and Budget’s Circular A-4 guidance on the development of regulatory analysis noted, sound quantitative estimates of costs and benefits, where feasible, are preferable to qualitative descriptions of benefits and costs because they help decision makers understand the magnitudes of the effects of alternative actions. By not fully describing their rationale for the analyses that supported their decisions, regulators may be missing opportunities to better communicate their decisions to stakeholders and the public. Lastly, in the EGRPRA process, the federal depository institution regulators have not assessed the ways that the cumulative burden of the regulations they administer may have created overlapping or duplicative requirements. Under the current process, the regulators have responded to issues raised about individual regulations based on comments they have received, not on bodies of regulations. However, congressional intent in tasking the depository institution regulators with the EGRPRA reviews was to ensure that they considered the cumulative effect of financial regulations. A 1995 Senate Committee on Banking, Housing, and Urban Affairs report stated while no one regulation can be singled out as being the most burdensome, and most have meritorious goals, the aggregate burden of banking regulations ultimately affects a bank’s operations, its profitability, and the cost of credit to customers. For example, financial regulations may have created overlapping or duplicative regulations in the areas of safety and soundness. One primary concern noted in the EGRPRA 2017 report was the amount of information or data banks are required to provide to regulators. For example, the cumulative burden of information collection was raised by commenters in relation to Call Reports, Community Reinvestment Act, and BSA/AML requirements. But in the EGRPRA report, the regulators did not examine how the various reporting requirements might relate to each other or how they might collectively affect institutions. In contrast, the executive branch agencies that conduct retrospective regulatory reviews must consider the cumulative effects of their own regulations, including cumulative burdens. For example, Executive Order 13563 directs agencies, to the extent practicable, to consider the costs of cumulative regulations. Executive Order 13563 does not apply to independent regulatory agencies such as the Federal Reserve, FDIC, OCC, NCUA, or CFPB. A memorandum from the Office of Management and Budget provided guidance to the agencies required to follow this order for assessing the cumulative burden and costs of regulations. The actions suggested for careful consideration include conducting early consultations with affected stakeholders to discuss potential interactions between rulemaking under consideration and existing regulations as well as other anticipated regulatory requirements. The executive order also directs agencies to consider regulations that appear to be attempting to achieve the same goal. However, other researchers often acknowledge that cumulative assessments of burden are difficult. Nevertheless, until the Federal Reserve, FDIC, OCC, and NCUA identify ways to consider the cumulative burden of regulations, they may miss opportunities to streamline bodies of regulations to reduce the overall compliance burden among financial institutions, including community banks and credit unions. For example, regulations applicable to specific activities of banks, such as lending or capital, could be assessed to determine if they have overlapping or duplicative requirements that could be revised without materially reducing the benefits sought by the regulations. New regulations for financial institutions enacted in recent years have helped protect mortgage borrowers, increase the safety and soundness of the financial system, and facilitate anti-terrorism and anti-money laundering efforts. But the regulations also entail compliance burdens, particularly for smaller institutions such as community banks and credit unions, and the cumulative burden on these institutions can be significant. Representatives from the institutions with which we spoke cited three sets of regulations—HMDA, BSA/AML, and TRID—as most burdensome for reasons that included their complexity. In particular, the complexity of TRID regulations appears to have contributed to misunderstandings that in turn caused institutions to take unnecessary actions. While regulators have acted to reduce burdens associated with the regulations, CFPB has not assessed the effectiveness of its TRID guidance. Federal internal control standards require agencies to analyze and respond to risks to achieving their objectives, and CFPB’s objectives include addressing regulations that are unduly burdensome. Assessing the effectiveness of TRID guidance represents an opportunity to reduce misunderstandings that create additional burden for institutions and also affect individual consumers (for instance, by delaying mortgage closings). The federal depository institution regulators (FDIC, Federal Reserve, OCC, as well as NCUA) also have opportunities to enhance the activities they undertake during EGRPRA reviews. Congress intended that the burden of all regulations applicable to depository institutions would be periodically assessed and reduced through the EGRPRA process. But because CFPB has not been included in this process, the regulations for which it is responsible were not assessed, and CFPB has not yet provided public information about what regulations it will review, and when, and whether it will coordinate with other regulators during EGPRA reviews. Until such information is publicly available, the extent to which the regulatory burden of CFPB regulation will be periodically addressed remains unclear. The effectiveness of the EGRPRA process also has been hampered by other limitations, including not conducting and reporting on depository institution regulators’ analysis of quantitative data and assessing the cumulative effect of regulations on institutions. Addressing these limitations in their EGRPRA processes likely would make the analyses the regulators perform more transparent, and potentially result in additional burden reduction. We make a total of 10 recommendations, which consist of 2 recommendations to CFPB, 2 to FDIC, 2 to the Federal Reserve, 2 to OCC, and 2 to NCUA. The Director of CFPB should assess the effectiveness of TRID guidance to determine the extent to which TRID’s requirements are accurately understood and take steps to address any issues as necessary. (Recommendation 1) The Director of CFPB should issue public information on its plans for reviewing regulations applicable to banks and credit unions, including information describing the scope of regulations the timing and frequency of the reviews, and the extent to which the reviews will be coordinated with the federal depository institution regulators as part of their periodic EGRPRA reviews. (Recommendation 2) The Chairman, FDIC, should, as part of the EGRPRA process, develop plans for their regulatory analyses describing how they will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process. (Recommendation 3) The Chairman, FDIC, should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities for streamlining bodies of regulation. (Recommendation 4) The Chair, Board of Governors of the Federal Reserve System, should, as part of the EGRPRA process develop plans for their regulatory analyses describing how they will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process. (Recommendation 5) The Chair, Board of Governors of the Federal Reserve System, should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation. (Recommendation 6) The Comptroller of the Currency should, as part of the EGRPRA process, develop plans for their regulatory analyses describing how they will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process. (Recommendation 7) The Comptroller of the Currency should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation. (Recommendation 8) The Chair of NCUA should, as part of the EGRPRA process, develop plans for their regulatory analyses describing how they will conduct and report on quantitative analysis whenever feasible to strengthen the rigor and transparency of the EGRPRA process. (Recommendation 9) The Chair of NCUA should, as part of the EGRPRA process, develop plans for conducting evaluations that would identify opportunities to streamline bodies of regulation. (Recommendation 10) We provided a draft of this report to CFPB, FDIC, FinCEN, the Federal Reserve, NCUA, and OCC. We received written comments from CFPB, FDIC, the Federal Reserve, NCUA, and OCC that we have reprinted in appendixes II through VI, respectively. CFPB, FDIC, FinCEN, the Federal Reserve, NCUA, and OCC also provided technical comments, which we incorporated as appropriate. In its written comments, CFPB agreed with the recommendation to assess its TRID guidance to determine the extent to which it is understood. CFPB stated it intends to solicit public input on how it can improve its regulatory guidance and implementation support. In addition, CFPB agreed with the recommendation on issuing public information on its plan for reviewing regulations. CFPB committed to developing additional plans with respect to their reviews of key regulations and to publicly releasing such information and in the interim, CFPB stated it intends to solicit public input on how it should approach reviewing regulations. FDIC stated that it appreciated the two recommendations and stated that it would work with the Federal Reserve and OCC to find the most appropriate ways to ensure that the three regulators continue to enhance their rulemaking analyses as part of the EGRPRA process. In addition, FDIC stated that as part of the EGRPRA review process, it would continue to monitor the cumulative effects of regulation through for example, a review of the community and quarterly banking studies and community bank Call Report data. The Federal Reserve agreed with the two recommendations pertaining to the EGRPRA process. Regarding the need conduct and report on quantitative analysis whenever feasible to strengthen and to increase the transparency of the EGRPRA process, the Federal Reserve plans to coordinate with FDIC and OCC to identify opportunities to conduct quantitative analyses where feasible during future EGRPRA reviews. With respect to the second recommendation, the Federal Reserve agreed that the cumulative impact of regulations on depository institutions is important and plans to coordinate with FDIC and OCC to identify further opportunities to seek comment on bodies of regulations and how they could be streamlined. NCUA acknowledged the report’s conclusions as part of their voluntary compliance with the EGRPRA process; NCUA should improve its qualitative analysis and develop plans for continued reductions to regulatory burden within the credit union industry. In its letter, NCUA noted it has appointed a regulatory review task force charged with reviewing and developing a four-year plan for revising their regulations and the review will consider the benefits of NCUA’s regulations as well as the burden they have on credit unions. In its written comments, OCC stated that it understood the importance of GAO’s recommendations. They stated they OCC will consult and coordinate with the Federal Reserve and FDIC to develop plans for regulatory analysis, including how the regulators should conduct and report on quantitative analysis and also, will work with these regulators to increase the transparency of the EGRPRA process. OCC also stated it will consult with these regulators to develop plans, as part of the EGRPRA process, to conduct evaluations that identify ways to decrease the regulatory burden created by bodies of regulations. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to CFPB, FDIC, FinCEN, the Federal Reserve, NCUA, and OCC. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions concerning this report, please contact me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix VII. This report examines the burdens that regulatory compliance places on community banks and credit unions and actions that federal regulators have taken to reduce these burdens; specifically: (1) the financial regulations that community banks and credit unions reported viewing as the most burdensome, the characteristics of those regulations that make them burdensome, and the benefits are associated with those regulations and (2) federal financial regulators’ efforts to reduce any existing regulatory burden on community banks and credit unions. To identify the regulations that community banks and credit unions viewed as the most burdensome, we first constructed a sample frame of financial institutions that met certain criteria for being classified as community banks or community-focused credit unions for the purposes of this review. These sample frames were then used as the basis for drawing our non-probability samples of institutions for purposes of interviews, focus group participation, and document review. Defining a community bank is important because, as we have reported, regulatory compliance may be more burdensome for community banks and credit unions than for larger banks because they are not as able to benefit from economies of scale in compliance resources. While there is no single consensus definition for what constitutes a community bank, we reviewed criteria for defining community banks developed by the Federal Deposit Insurance Corporation (FDIC), officials from the Independent Community Bankers Association, the Office of the Comptroller of the Currency (OCC). Based on this review, we determined that institutions that had the following characteristics would be the most appropriate to include in our universe of institutions, (1) fewer total assets, (2) engage in traditional lending and deposit taking activities, have limited geographic scope, and (3) did not have complex operating structures. To identify banks that met these characteristics, we began with all banks that filed a Consolidated Reports of Condition and Income (Call Report) for the first quarter of 2016 (March 31, 2016) and are not themselves subsidiaries of another bank that filed a Call Report. We then excluded banks using an asset-size threshold, to ensure we are including only small institutions. Based on interviews with regulators and our review of the FDIC’s community bank study, we targeted institutions around the $1 billion in assets as the group that could be relatively representative of the experiences of many community banks in complying with regulations. Upon review of the Call Reports data, we found that the banks in the 90th percentile by asset size were had about $1.2 billion, and we selected this to be an appropriate cutoff for our sample frame. In addition we excluded institutions with characteristics suggesting they do not engage in typical community banking activities like such as deposit-taking and lending; and those with characteristics suggesting they conduct more specialized operations not typical of community banking, such as credit card banks. In addition to ensure that we excluded banks whose views of regulatory compliance might be influenced by being part of a large and/or complex organization, we also excluded banks with foreign offices and banks that are subsidiaries of either foreign banks or of holding companies with $50 billion or more in consolidated assets. Finally, as a practical matter, we excluded banks for which we could not obtain data on one or more of the characteristics listed below. We also relied on a similar framework to construct a sample frame for credit unions. We sought to identify credit unions that were relatively small, engaged in traditional lending and deposit taking activities, and had limited geographic scope. To do this, we began with all insured credit unions that filed a Call Report for the first quarter of 2016 (March 31, 2016). We then excluded credit unions using an asset-size threshold of $860 million, which is the 95th percentile of credit unions, to ensure we are including only smaller institutions. The percentile of credit unions was higher than the percentile of banks because there are more large banks than there are credit unions. We then excluded credit unions that did not engage in activities that are typical of community lending, such as taking deposits, making loans and leases, and providing consumer checking accounts, as well as those credit unions with headquarters outside of the United States. We assessed the reliability of data from FFIEC, FDIC, the Federal Reserve Bank of Chicago, and NCUA by reviewing relevant documentation and electronically testing the data for missing values or obvious errors, and we found the data from these sources to be sufficiently reliable for the purpose of creating sample frames of community banks and credit unions. The sample frames were then used as the basis for drawing our nonprobability samples of institutions for purposes of interviews and focus groups. To identify regulations that community banks and credit unions viewed as among the most burdensome, we conducted structured interviews and focus groups with a sample of a total of 64 community banks and credit unions. To reduce the possibility of bias, we selected the institutions to ensure that banks and credit unions with different asset sizes and from different regions of the country were included. We also included at least one bank overseen by each of the three primary federal depository institution regulators, Federal Reserve, FDIC, NCUA, and OCC in the sample. We interviewed 17 institutions (10 banks and 7 credit unions) about which regulations their institutions experienced the most compliance burden. On the basis of the results of these interviews, we determined that considerable consensus existed among these institutions as to which regulations were seen as most burdensome, including those relating to mortgage fees and terms disclosures to consumers, mortgage borrower and loan characteristics reporting, and anti-money laundering activities. As a result, we determined to conduct focus groups with institutions to identify the characteristics of the regulations identified in our interviews that made these regulations burdensome. To identify the burdensome characteristics of the regulations identified in our preliminary interviews, we selected institutions to participate in three focus groups of community banks and three focus groups of credit unions. For the first focus group of community banks, we randomly selected 20 banks among 647 banks between $500 million and $1 billion located in nine U.S. census geographical areas using the sample frame of community banks we developed, and contacted them asking for their participation. Seven of the 20 banks agreed to participate in the first focus group. However, mortgages represented a low percentage of the assets of two participants in the first focus group, so we revised our selection criteria because two of the regulations identified as burdensome were related to mortgages. For the remaining two focus groups with community banks, we randomly selected institutions with more than $45 million and no more than $1.2 billion in assets to ensure that they would be required to comply with the mortgage characteristics reporting and with at least a 10 percent mortgage to asset ratio to better ensure that they would be sufficiently experienced with mortgage regulations. After identifying the large percentage of FDIC regulated banks in the first 20 banks we contacted, we decided to prioritize contact with banks regulated by OCC and the Federal Reserve for the institutions on our list. When banks declined or when we determined an institution merged or was acquired, we selected a new institution from that state and preferenced institutions regulated by OCC and the Federal Reserve. The three focus groups totaled 23 community banks with a range of assets. We used a similar selection process for three focus groups of credit unions consisting of 23 credit unions. We selected credit unions with at least $45 million in assets so that they would be required to comply with the mortgage regulations and with at least a 10 percent mortgage-to-asset ratio. During each of the focus groups, we asked the representatives from participating institutions what characteristics of the relevant regulations made them burdensome with which to comply. We also polled them about the extent to which they had to take various actions to comply with regulations, including hiring or expanding staff resources, investing in additional information technology resources, or conducting staff training. During the focus groups, we also confirmed with the participants that the three sets of regulations (on mortgage fee and other disclosures to consumers, reporting of mortgage borrower and loan characteristics, and anti-money laundering activities) were generally the ones they found most burdensome. To identify in more detail the steps a community bank or credit union may take to comply with the regulations identified as among the most burdensome, we also conducted an in-depth on-site interview with one community bank. We selected this institution by limiting the community bank sample to only those banks in the middle 80 percent of the distribution in terms of assets, mortgage lending, small business lending, and lending in general that were no more than 70 miles from Washington, D.C. We limited the sample in this way to ensure that the institution was not an outlier in terms of activities or size, and to limit the travel resources needed to conduct the site visit. We also interviewed associations representing consumers to understand the benefits of these regulations. These groups were selected using professional judgement of their knowledge of relevant banking regulations. We interviewed associations representing banks and credit unions. To identify the requirements of the regulations identified as among the most burdensome, we reviewed the Home Mortgage Disclosure Act (HMDA) and its implementing regulation, Regulation C; Bank Secrecy Act and anti-money laundering (BSA/AML) regulations, including those deriving from the Currency and Foreign Transactions Reporting Act, commonly known as the Bank Secrecy Act (BSA), and the 2001 USA PATRIOT Act; and the Integrated Mortgage Disclosure Rule Under the Real Estate Settlement Procedures Act (RESPA) with the implementing Regulation X; and the Truth-in-Lending Act (TILA) with implementing Regulation Z. We reviewed the Consumer Financial Protection Bureau’s (CFPB) small entity guidance and supporting materials on the TILA- RESPA Integrated Disclosure (TRID) regulation and HMDA to clarify the specific requirements of each rule and to analyze the information included in the CFPB guidance. We interviewed staff from each of the federal regulators responsible for implementing the regulations, as well as from the federal regulators responsible for examining community banks and credit unions. To identify the potential benefits of the regulations that were considered burdensome by community banks and credit unions, we interviewed representatives from four community groups to document their perspectives on the benefits provided by the identified regulations. To determine whether the bank regulators had required banks to comply with certain provisions from which the institutions might be exempt, we identified eight exemptions from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 from which community banks and credit unions should be exempt and reviewed a small group of the most recent examinations to identify instances in which a regulator may not have applied an exemption for which a bank was eligible. We reviewed 20 safety and soundness and consumer compliance examination reports of community banks and eight safety and soundness examination reports of credit unions. The bank examination reports we reviewed were for the first 20 community banks we contacted requesting participation in the first focus group. The bank examination reports included examinations from all three bank regulators (FDIC, Federal Reserve, and OCC). The NCUA examination reports we reviewed were for the eight credit unions that participated in the second focus group of credit unions. Because of the limited number of the examinations we reviewed, we cannot generalize whether regulators extended the exemptions to all qualifying institutions. To assess the federal financial regulators’ efforts to reduce the existing regulatory burden on community banks and credit unions, we identified the mechanisms the regulators used to identify burdensome regulations and actions to reduce potential burden. We reviewed laws and congressional and agency documentation. More specifically, we reviewed the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) that requires the Federal Reserve, FDIC, and OCC to review all their regulations every 10 years and identify areas of the regulations that are outdated, unnecessary, or unduly burdensome and reviewed the 1995 Senate Banking Committee report, which described the intent of the legislation. We reviewed the Federal Register notices that bank regulators and NCUA published requesting comments on their regulations. We also reviewed over 200 comment letters that the regulators had received through the EGRPRA process from community banks, credit unions, their trade associations, and others, as well as the transcripts of all six public forums regulators held as part the 2017 EGRPRA regulatory review efforts they conducted. We analyzed the extent to which the depository institutions regulators addressed the issues raised in comments received for the review. In assessing the 2017 and 2007 EGRPRA reports sent to Congress, we reviewed the significant issues identified by the regulators and determined the extent to which the regulators proposed or took actions in response to the comments relating to burden on small entities. We compared the requirements of Executive Orders 12866, 13563, and 13610 issued by Office of Management and Budget with the actions taken by the regulators in implementing their 10-year regulatory retrospective review. The executive orders included requirements on how executive branch agencies should conduct retrospective reviews of their regulations. For both objectives, we interviewed representatives from CFPB, FDIC, Federal Reserve, Financial Crimes Enforcement Network, NCUA, and OCC to identify any steps that regulators took to reduce the compliance burden associated with each of the identified regulations and to understand how they conduct retrospective reviews. We also interviewed representatives of the Small Business Administration’s Office of Advocacy, which reviews and comments on the burdens of regulations affecting small businesses, including community banks. We conducted this performance audit from March 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact name above, Cody J. Goebel (Assistant Director); Nancy Eibeck (Analyst in Charge); Bethany Benitez; Kathleen Boggs; Jeremy A. Conley; Pamela R. Davidson; Courtney L. LaFountain; William V. Lamping; Barbara M. Roesmann; and Jena Y. Sinkfield made key contributions to this report.	[ "In recent decades, many new regulations intended to strengthen financial soundness, improve consumer protections, and aid anti-money laundering efforts were implemented for financial institutions. Smaller community banks and credit unions must comply with some of the regulations, but compliance can be more challenging and costly for these institutions. GAO examined (1) the regulations community banks and credit unions viewed as most burdensome and why, and (2) efforts by depository institution regulators to reduce any regulatory burden. GAO analyzed regulations and interviewed more than 60 community banks and credit unions (selected based on asset size and financial activities), regulators, and industry associations and consumer groups. GAO also analyzed letters and transcripts commenting on regulatory burden that regulators prepared responding to the comments. Interviews and focus groups GAO conducted with representatives of over 60 community banks and credit unions indicated regulations for reporting mortgage characteristics, reviewing transactions for potentially illicit activity, and disclosing mortgage terms and costs to consumers were the most burdensome. Institution representatives said these regulations were time-consuming and costly to comply with, in part because the requirements were complex, required individual reports that had to be reviewed for accuracy, or mandated actions within specific timeframes. However, regulators and others noted that the regulations were essential to preventing lending discrimination and use of the banking system for illicit activity, and they were acting to reduce compliance burdens. Institution representatives also said that the new mortgage disclosure regulations increased compliance costs, added significant time to loan closings, and resulted in institutions absorbing costs when others, such as appraisers and inspectors, changed disclosed fees. The Consumer Financial Protection Bureau (CFPB) issued guidance and conducted other outreach to educate institutions after issuing these regulations in 2013. But GAO found that some compliance burdens arose from misunderstanding the disclosure regulations—which in turn may have led institutions to take actions not actually required. Assessing the effectiveness of the guidance for the disclosure regulations could help mitigate the misunderstandings and thus also reduce compliance burdens. Regulators of community banks and credit unions—the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the National Credit Union Administration—conduct decennial reviews to obtain industry comments on regulatory burden. But the reviews, conducted under the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA), had the following limitations: CFPB and the consumer financial regulations for which it is responsible were not included. Unlike executive branch agencies, the depository institution regulators are not required to analyze and report quantitative-based rationales for their responses to comments. Regulators do not assess the cumulative burden of the regulations they administer. CFPB has formed an internal group that will be tasked with reviewing regulations it administers, but the agency has not publicly announced the scope of regulations included, the timing and frequency of the reviews, and the extent to which they will be coordinated with the other federal banking and credit union regulators as part of their periodic EGRPRA reviews. Congressional intent in mandating that these regulators review their regulations was that the cumulative effect of all federal financial regulations be considered. In addition, sound practices required of other federal agencies require them to analyze and report their assessments when reviewing regulations. Documenting in plans how the depository institution regulators would address these EGRPRA limitations would better ensure that all regulations relevant to community banks and credit unions were reviewed, likely improve the analyses the regulators perform, and potentially result in additional burden reduction. GAO makes a total of 10 recommendations to CFPB and the depository institution regulators. CFPB should assess the effectiveness of guidance on mortgage disclosure regulations and publicly issue its plans for the scope and timing of its regulation reviews and coordinate these with the other regulators' review process. As part of their burden reviews, the depository institution regulators should develop plans to report quantitative rationales for their actions and addressing the cumulative burden of regulations. In written comments, CFPB and the four depository institution regulators generally agreed with the recommendations." ]	18,098	gov_report	en	null	0708332f2b27ef8843c261a207213212e80322ad79286259
FEMA’s mission is to help people before, during, and after disasters. It provides assistance to those affected by emergencies and disasters by supplying immediate needs (e.g., ice, water, food, and temporary housing) and providing financial assistance grants for damage to personal or public property. FEMA also provides non-disaster assistance grants to improve the nation’s preparedness, readiness, and resilience to all hazards. FEMA accomplishes a large part of its mission through awarding grants to state, local, and tribal governments and nongovernmental entities to help communities prevent, prepare for, protect against, mitigate the effects of, respond to, and recover from disasters and terrorist attacks. As previously mentioned, for fiscal years 2005 through 2014, the agency obligated about $104.5 billion in disaster relief grants. In addition, as of April 2018, the four major disasters in 2017—hurricanes Harvey, Irma, and Maria; and the California wildfires—had resulted in over $22 billion in FEMA grants. The current FEMA grants management environment is highly complex with many stakeholders, IT systems, and users. Specifically, this environment is comprised of 45 active disaster and non-disaster grant programs, which are grouped into 12 distinct grant categories. For example, one program in the Preparedness: Fire category is the Assistance to Firefighters Grants (AFG) program, which provides grants to fire departments, nonaffiliated emergency medical service organizations, and state fire training academies to support firefighting and emergency response needs. As another example, the Housing Assistance grant program is in the Recovery Assistance for Individuals category and provides financial assistance to individuals and households in geographical areas that have been declared an emergency or major disaster by the President. Table 1 lists FEMA’s non-disaster and disaster-based grant categories. According to FEMA, the processes for managing these different types of grants vary because the grant programs were developed independently by at least 18 separate authorizing laws that were enacted over a 62-year period (from 1947 through 2009). The various laws call for different administrative and reporting requirements. For example, the Robert T. Stafford Disaster Relief and Emergency Assistance Act, as amended, established the statutory authority for 11 of the grant programs, such as the administration of Public Assistance and Individual Assistance grant programs after a presidentially declared disaster. The act also requires the FEMA Administrator to submit an annual report to the President and Congress covering FEMA’s expenditures, contributions, work, and accomplishments, pursuant to the act. As another example, the National Dam Safety Program Act established one of the grant programs aimed at providing financial assistance to improve dam safety. Key stakeholders in modernizing the IT grants management environment include the internal FEMA officials that review, approve, and monitor the grants awarded, such as grant specialists, program analysts, and supervisors. FEMA has estimated that it will need to support about 5,000 simultaneous internal users of its grants management systems. Other users include the grant recipients that apply for, receive, and submit reports on their grant awards; these are considered the external system users. These grant recipients can include individuals, states, local governments, Indian tribes, institutions of higher education, and nonprofit organizations. FEMA has estimated that there are hundreds of thousands of external users of its grants systems. The administration of the many different grant programs is distributed across four divisions within FEMA’s organizational structure. Figure 1 provides an overview of FEMA’s organizational structure and the divisions that are responsible for administering grants. Within three of the four divisions—Resilience, United States Fire Administration, and Office of Response and Recovery—16 different grant program offices are collectively responsible for administering the 45 grant programs. The fourth division consists of 10 regional offices that help administer grants within their designated geographical regions. For example, the Office of Response and Recovery division oversees three different offices that administer 13 grant programs that are largely related to providing assistance in response to presidentially declared disasters. Figure 2 shows the number of grant programs administered by each of the four divisions’ grant program and regional offices. In addition, appendix II lists the names of the 45 grant programs. FEMA’s OCIO is responsible for developing, enhancing, and maintaining the agency’s IT systems, and for increasing efficiencies and cooperation across the entire organization. However, we and the DHS Office of Inspector General (OIG) have previously reported that the grant programs and regional offices develop information systems independent of the OCIO and that this has contributed to the agency’s disparate IT environment. We and the DHS OIG have reported that this disparate IT environment was due, in part, to FEMA’s decentralized IT budget and acquisition practices. For example, from fiscal years 2010 through 2015, the OCIO’s budget represented about one-third of the agency’s IT budget, with the grant program offices accounting for the remaining two-thirds of that budget. In February 2018, the OIG found that FEMA had shown limited progress in improving its IT management and that many of the issues reported in prior audits remained unchanged. As such, the OIG initiated a more comprehensive audit of the agency’s IT management that is ongoing. FEMA has identified 10 primary legacy IT systems that support its grants management activities. According to the agency, most of these systems were developed to support specific grant programs or grant categories. Table 2 summarizes the 10 primary legacy systems. According to FEMA officials, the 10 primary grant systems are all in operation (several have been for decades) and are not interoperable. As a result, individual grant programs and regional offices have independently developed work arounds intended to address existing capability gaps with the primary systems. FEMA officials stated that while these work arounds have helped the agency partially address capability gaps with its primary systems, they are often nonstandardized processes, and introduce the potential for information security risks and errors. This environment has contributed to labor-intensive manual processes and an increased burden for grant recipients. The disparate systems have also led to poor information sharing and reporting capabilities, as well as difficulty reconciling financial data. The DHS OIG and we have previously highlighted challenges with FEMA’s past attempts to modernize its grant management systems. For example, In December 2006, the DHS OIG reported that EMMIE, an effort to modernize its grants management systems and provide a single grants processing solution, was being developed without a clear understanding and definition of the future solution. The report also identified the need to ensure crosscutting participation from headquarters, regions, and states in developing and maintaining a complete, documented set of FEMA business and system requirements. In April 2016, we found weaknesses in FEMA’s development of the EMMIE system. For example, we noted that the system was implemented without sufficient documentation of system requirements, an acquisition strategy, up-to-date cost estimate and schedule, total amount spent to develop the system, or a systems integration plan. In response to our findings and related recommendations, FEMA took action to address these issues. For example, the agency implemented a requirements management process that, among other things, provided guidance to programs on analyzing requirements to ensure that they are complete and verifiable. We reported in November 2017 that EMMIE lacked the ability to collect information on all pre-award activities and, as a result, agency officials said that they and applicants used ad hoc reports and personal tracking documents to manage and monitor the progress of grant applications. FEMA officials added that applicants often struggled to access the system and that the system was not user friendly. Due to EMMIE’s shortfalls, the agency had to develop another system in 2017 to supplement EMMIE with additional grant tracking and case management capabilities. FEMA initiated GMM in 2015, in part, due to EMMIE’s failed attempt to modernize the agency’s grants management environment. The program is intended to modernize and streamline the agency’s grants management environment. To help streamline the agency’s grants management processes, the program established a standard framework intended to represent a common grants management lifecycle. The framework consists of five sequential phases—pre-award, award, post-award, closeout, and post- closeout—along with a sixth phase dedicated to continuous grant program management activities, such as analyzing data and producing reports on grant awards and managing IT systems. FEMA also established 43 distinct business functions associated with these six lifecycle phases. Figure 3 provides the general activities that may occur in each of the grant lifecycle phases, but specific activities would depend on the type of grant being administered (i.e., disaster versus non-disaster). GMM is expected to be implemented within the complex IT environment that currently exists at FEMA. For example, the program is intended to replace the 10 legacy grants management systems, and potentially many additional subsystems, with a single IT system. Each of the 10 legacy systems was developed with its own database(s) and with no standardization of the grants management data and, according to FEMA officials, this legacy data has grown significantly over time. Accordingly, FEMA will need to migrate, analyze, and standardize the grants management data before transitioning it to GMM. The agency awarded a contract in June 2016 to support the data migration efforts for GMM. The agency also implemented a data staging environment in October 2017 to migrate the legacy data and identify opportunities to improve the quality of the data. Further, the GMM system is expected to interface with a total of 38 other systems. These include 19 systems external to DHS (e.g., those provided by commercial entities or other federal government agencies) and 19 systems internal to DHS or FEMA. Some of the internal FEMA systems are undergoing their own modernization efforts and will need to be coordinated with GMM, such as the agency’s financial management systems, national flood insurance systems, and enterprise data warehouses. For example, FEMA’s Financial Systems Modernization Program was originally expected to deliver a new financial system in time to interface with GMM. However, the financial modernization has been delayed until after GMM is to be fully implemented; thus, GMM will instead need to interface with the legacy financial system. As a result, GMM is in the process of removing one of its key performance parameters in the acquisition program baseline related to financial systems interoperability and timeliness of data exchanged. In May 2017, DHS approved the acquisition program baseline for GMM. The baseline estimated the total lifecycle costs to be about $251 million, initial operational capability to be achieved by September 2019, and full operational capability to be achieved by September 2020. FEMA intends to develop and deploy its own software applications for GMM using a combination of commercial-off-the-shelf software, open source software, and custom developed code. The agency plans to rely on an Agile software development approach. According to FEMA planning documentation, the agency plans to fully deliver GMM by September 2020 over eight Agile development increments. Agile development is a type of incremental development, which calls for the rapid delivery of software in small, short increments. Many organizations, especially in the federal government, are accustomed to using a waterfall software development model. This type of model typically consists of long, sequential phases, and differs significantly from the Agile development approach. We have previously reported that DHS has sought to establish Agile software development as the preferred method for acquiring and delivering IT capabilities. However, the department has not yet completed critical actions necessary to update its guidance, policies, and practices for Agile programs, in areas such as, developing lifecycle cost estimates, managing IT requirements, testing and evaluation, oversight at key decision points, and ensuring cybersecurity. (See appendix III for more details on the Agile software development approach.) FEMA’s acquisition approach includes using contract support to assist with the development and deployment efforts. The agency selected a public cloud environment to host the computing infrastructure. In addition, from March through July 2017, the agency used a short-term contract aimed at developing prototypes of GMM functionality for grant tracking and monitoring, case management of disaster survivors, grant reporting, and grant closeout. The agency planned to award a second development contract by December 2017 to complete the GMM system (beyond the prototypes) and to begin this work in September 2018. However, due to delays in awarding the second contract to develop the complete GMM system, in January 2018, the program extended the scope and time frames of the initial short-term prototype contract for an additional year to develop the first increment of the GMM system— referred to as the AFG pilot. On August 31, 2018, FEMA awarded the second development contract, which is intended to deliver the remaining functionality beyond the AFG pilot (i.e., increments 2 through 8). FEMA officials subsequently issued a 90-day planning task order for the Agile development contractor to define the work that needs to be done to deliver GMM and the level of effort needed to accomplish that work. However, the planning task order was paused after a bid protest was filed with GAO in September 2018. According to FEMA officials, they resumed work on the planning task order after the bid protest was withdrawn by the protester on November 20, 2018, and then the work was paused again during the partial government shutdown from December 22, 2018, through January 25, 2019. FEMA began working on the AFG pilot—GMM’s first increment—in January 2018. This increment was intended to pilot GMM’s use of Agile development methods to replace core functionality for the AFG system (i.e., one of the 10 legacy systems).This system supports three preparedness/fire-related grant programs—Assistance to Firefighters Grants Program, Fire Prevention and Safety Grant Program, and Staffing for Adequate Fire and Emergency Response Grant Program. According to FEMA officials, the AFG system was selected as the first system to be replaced because it is costly to maintain and the DHS OIG had identified cybersecurity concerns with the system. Among the 43 GMM business functions discussed earlier in this report, FEMA officials specified 19 functions to be delivered in the AFG pilot. Figure 4 shows the planned time frames for delivering the AFG pilot in increment 1 (which consisted of four 3-month Agile development sub- increments), as of August 2018. As of August 2018, the program was working on sub-increment 1C of the pilot. In September 2018, GMM deployed its first set of functionality to a total of 19 AFG users—which included seven of 169 total internal AFG users, and 12 of more than 153,000 external AFG users. The functionality supported four of the 19 business functions that are related to the closeout of grants (i.e., the process by which all applicable administrative actions and all required work to award a grant have been completed). This functionality included tasks such as evaluation of final financial reports submitted by grant recipients and final reconciliation of finances (e.g., final disbursement to recipients and return of unobligated federal funds). According to FEMA officials, closeout functionality was selected first for deployment because it was the most costly component of the legacy AFG system to maintain, as it is an entirely manual and labor-intensive process. The remaining AFG functionality and remaining AFG users are to be deployed by the end of the AFG pilot. The GMM program is executed by a program management office, which is overseen by a program manager and program executive. This office is responsible for directing the day-to-day operations and ensuring completion of GMM program goals and objectives. The program office resides within the Office of Response and Recovery, which is headed by an Associate Administrator who reports to the FEMA Administrator. In addition, the GMM program executive (who is also the Regional Administrator for FEMA Region IX) reports directly to the FEMA Administrator. GMM is designated as a level 2 major acquisition, which means that it is subject to oversight by the DHS acquisition review board. The board is chaired by the DHS Undersecretary for Management and is made up of executive-level members, such as the DHS Chief Information Officer. The acquisition review board serves as the departmental executive board that decides whether to approve GMM through key acquisition milestones and reviews the program’s progress and its compliance with approved documentation every 6 months. The board approved the acquisition program baseline for GMM in May 2017 (i.e., estimated costs to be about $251 million and full operational capability to be achieved by September 2020). In addition, the program is reviewed on a monthly basis by FEMA’s Grants Management Executive Steering Group. This group is chaired by the Deputy Administrator of FEMA. Further, DHS’s Financial Systems Modernization Executive Steering Committee, chaired by the DHS Chief Financial Officer, meets monthly and is to provide guidance, oversight, and support to GMM. For government organizations, including FEMA, cybersecurity is a key element in maintaining the public trust. Inadequately protected systems may be vulnerable to insider threats. Such systems are also vulnerable to the risk of intrusion by individuals or groups with malicious intent who could unlawfully access the systems to obtain sensitive information, disrupt operations, or launch attacks against other computer systems and networks. Moreover, cyber-based threats to federal information systems are evolving and growing. Accordingly, we designated cybersecurity as a government-wide high risk area 22 years ago, in 1997, and it has since remained on our high-risk list. Federal law and guidance specify requirements for protecting federal information and information systems. The Federal Information Security Modernization Act (FISMA) of 2014 requires executive branch agencies to develop, document, and implement an agency-wide cybersecurity program to provide security for the information and information systems that support operations and assets of the agency. The act also tasks NIST with developing, for systems other than those for national security, standards and guidelines to be used by all agencies to establish minimum cybersecurity requirements for information and information systems based on their level of cybersecurity risk. Accordingly, NIST developed a risk management framework of standards and guidelines for agencies to follow in developing cybersecurity programs. The framework addresses broad cybersecurity and risk management activities, including categorizing the system’s impact level; selecting, implementing, and assessing security controls; authorizing the system to operate (based on progress in remediating control weaknesses and an assessment of residual risk); and monitoring the efficacy of controls on an ongoing basis. Figure 5 provides an overview of this framework. Prior DHS OIG assessments, such as the annual evaluation of DHS’s cybersecurity program, have identified issues with FEMA’s cybersecurity practices. For example, in 2016, the OIG reported that FEMA was operating 111 systems without an authorization to operate. In addition, the agency had not created any corrective action plans for 11 of the systems that were classified as “Secret” or “Top Secret,” thus limiting its ability to ensure that all identified cybersecurity weaknesses were mitigated in a timely manner. The OIG further reported that, for several years, FEMA was consistently below DHS’s 90 percent target for remediating corrective action plans, with scores ranging from 73 to 84 percent. Further, the OIG reported that FEMA had a significant number of open corrective action plans (18,654) and that most of these plans did not contain sufficient information to address identified weaknesses. In 2017, the OIG reported that FEMA had made progress in addressing security weaknesses. For example, it reported that the agency had reduced the number of systems it was operating without an authorization to operate from 111 to 15 systems. According to GAO’s Business Process Reengineering Assessment Guide and the Software Engineering Institute’s Capability Maturity Model Integration® for Development, successful business process reengineering can enable agencies to replace their inefficient and outmoded processes with streamlined processes that can more effectively serve the needs of the public and significantly reduce costs and improve performance. Many times, new IT systems are implemented to support these improved business processes. Thus, effective management of IT requirements is critical for ensuring the successful design, development, and delivery of such new systems. These leading practices state that effective business process reengineering and IT requirements management involve, among other things, (1) ensuring strong executive leadership support for process reengineering; (2) assessing the current and target business environment and business performance goals; (3) establishing plans for implementing new business processes; (4) establishing clear, prioritized, and traceable IT requirements; (5) tracking progress in delivering IT requirements; and (6) incorporating input from end user stakeholders. Among these six selected leading practices for reengineering business processes and managing IT requirements, FEMA fully implemented four and partially implemented two of them for its GMM program. For example, the agency ensured strong senior leadership commitment to changing the way it manages its grants, took steps to assess and document its business environment and performance goals, defined initial IT requirements for GMM, took recent actions to better track progress in delivering planned IT requirements, and incorporated input from end user stakeholders. In addition, FEMA had begun planning for business process reengineering; however, it had not finalized plans for transitioning users to the new business processes. Further, while GMM took steps to establish clearly defined and prioritized IT requirements, key requirements were not always traceable. Table 3 summarizes the extent to which FEMA implemented the selected leading practices. According to GAO’s Business Process Reengineering Assessment Guide, the most critical factor for engaging in a reengineering effort is having strong executive leadership support to establish credibility regarding the seriousness of the effort and to maintain the momentum as the agency faces potentially extensive changes to its organizational structure and values. Without such leadership, even the best process design may fail to be accepted and implemented. Agencies should also ensure that there is ongoing executive support (e.g., executive steering committee meetings headed by the agency leader) to oversee the reengineering effort from start to finish. FEMA senior leadership consistently demonstrated its commitment and support for streamlining the agency’s grants management business processes and provided ongoing executive support. For example, one of the Administrator’s top priorities highlighted in FEMA’s 2014 through 2022 strategic plans was to strengthen grants management through innovative systems and business processes to rapidly and effectively deliver the agency’s mission. In accordance with this strategic priority, FEMA initiated GMM with the intent to streamline and modernize grants management across the agency. In addition, FEMA established the Grants Management Executive Steering Group in September 2015. This group is responsible for transforming the agency’s grants management capabilities through its evaluation, prioritization, and oversight of grants management modernization programs, such as GMM. The group’s membership consists of FEMA senior leaders from across the agency’s program and business support areas, such as FEMA regions, Individual Assistance, Public Assistance, Preparedness, Office of the Chief Financial Officer, Office of Chief Counsel, OCIO, and the Office of Policy and Program Analysis. In this group’s ongoing commitment to reengineering grants management processes, it meets monthly to review GMM’s updates, risks, and action items, as well as the program’s budget, schedule, and acquisition activities. For example, the group reviewed the status of key acquisition activities and program milestones, such as the follow-on award for the pilot contractor and the program’s initial operational capability date. The group also reviewed GMM’s program risks, such as data migration challenges (discussed later in this report) and delays in the Agile development contract award. With this continuous executive involvement, FEMA is better positioned to maintain momentum for reengineering the new grants management business processes that the GMM system is intended to support. GAO’s Business Process Reengineering Assessment Guide states that agencies undergoing business process reengineering should develop a common understanding of the current environment by documenting existing core business processes to show how the processes work and how they are interconnected. The agencies should then develop a deeper understanding of the target environment by modeling the workflow of each target business process in enough detail to provide a common understanding of exactly what will be changed and who will be affected by a future solution. Agencies should also assess the performance of their current major business processes to identify problem areas that need to be changed or eliminated and to set realistically achievable, customer- oriented, and measurable business performance improvement goals. FEMA has taken steps to document the current and target grants management business processes. Specifically, The agency took steps to develop a common understanding of its grants management processes by documenting each of the 12 grant categories. For example, in 2016 and 2017, the agency conducted several nationwide user outreach sessions with representatives from FEMA headquarters, the 10 regional offices, and state and local grant recipients to discuss the grant categories and the current grants management business environment. In addition, FEMA’s Office of Chief Counsel developed a Grants Management Manual in January 2018 that outlined the authorizing laws, regulations, and agency policies for all of its grant programs. According to the Grants Management Executive Steering Group, the manual is intended to promote standardized grants management procedures across the agency. Additionally, the group expects grant program and regional offices to assess the manual against their own practices, make updates as needed, and ensure that their staff are properly informed and trained. FEMA also documented target grants management business process workflows for 18 of the 19 business functions that were notionally planned to be developed and deployed in the AFG pilot by December 2018. However, the program experienced delays in developing the AFG pilot (discussed later in this report) and, thus, deferred defining the remaining business function until the program gets closer to developing that function, which is now planned for August 2019. In addition, FEMA established measurable business performance goals for GMM that are aimed at addressing problem areas and improving grants management processes. Specifically, the agency established 14 business performance goals and associated thresholds in an October 2017 acquisition program baseline addendum, as well as 126 performance metrics for all 43 of the target grants management business functions in its March 2017 test and evaluation master plan. According to FEMA, the 14 business performance goals are intended to represent essential outcomes that will indicate whether GMM has successfully met critical, business-focused mission needs. GMM performance goals include areas such as improvements in the satisfaction level of users with GMM compared to the legacy systems and improvements in the timeliness of grant award processing. For example, one of GMM’s goals is to get at least 40 percent of users surveyed to agree or strongly agree that their grants management business processes are easier to accomplish with GMM, compared to the legacy systems. Program officials stated that they plan to work with the Agile development contractor to refine their performance goals and target thresholds, develop a plan for collecting the data and calculating the metrics, and establish a performance baseline with the legacy systems. Program officials also stated that they plan to complete these steps by September 2019—GMM’s initial operational capability date—which is when they are required to begin reporting these metrics to the DHS acquisition review board. According to GAO’s Business Process Reengineering Assessment Guide, agencies undergoing business process reengineering should (1) establish an overall plan to guide the effort (commonly referred to as an organizational change management plan) and (2) provide a common understanding for stakeholders of what to expect and how to plan for process changes. Agencies should develop the plan at the beginning of the reengineering effort and provide specific details on upcoming process changes, such as critical milestones and deliverables for an orderly transition, roles and responsibilities for change management activities, reengineering goals, skills and resource needs, key barriers to change, communication expectations, training, and any staff redeployments or reductions-in-force. The agency should develop and begin implementing its change management plan ahead of introducing new processes to ensure sufficient support among stakeholders for the reengineered processes. While FEMA has begun planning its business process reengineering activities, it has not finalized its plans or established time frames for their completion. Specifically, as of September 2018, program officials were in the process of drafting an organizational change management plan that is intended to establish an approach for preparing grants management stakeholders for upcoming changes. According to FEMA, this document is intended to help avoid uncertainty and confusion among stakeholders as changes are made to the agency’s grant programs, and ensure successful adoption of new business processes, strategies, and technologies. As discussed previously in this report, the transition to GMM will involve changes to FEMA’s disparate grants management processes that are managed by many different stakeholders across the agency. Program officials acknowledged that change management is the biggest challenge they face in implementing GMM and said they had begun taking several actions intended to support the agency’s change management activities. For example, program officials reported in October 2018 that they had recently created an executive-level working group intended to address FEMA’s policy challenges related to the standardization of grants management processes. Additionally, program officials reported that they planned to: (1) hire additional support staff focused on coordinating grants change management activities; and (2) pursue regional office outreach to encourage broad support among GMM’s decentralized stakeholders, such as state, local, and tribal territories. However, despite these actions, the officials were unable to provide time frames for completing the organizational change management plan or the additional actions. Until the plan and actions are complete, the program lacks assurance that it will have sufficient support among stakeholders for the reengineered processes. In addition, GMM did not establish plans and time frames for the activities that needed to take place prior to, during, and after the transition from the legacy AFG to GMM. Instead, program officials stated that they had worked collaboratively with the legacy AFG program and planned these details informally by discussing them in various communications, such as emails and meetings. However, this informal planning approach is not a repeatable process, which is essential to this program as FEMA plans to transition many sets of functionality to many different users during the lifecycle of this program. Program officials acknowledged that for future transitions they will need more repeatable transition planning and stated that they intend to establish such plans, but did not provide a time frame for when such changes would be made. Until FEMA develops a repeatable process, with established time frames for communicating the transition details to its customers prior to each transition, the agency risks that the transition from the legacy systems to GMM will not occur as intended. It also increases its risk that stakeholders will not support the implementation of reengineered grants management processes. Leading practices for software development efforts state that IT requirements are to be clearly defined and prioritized. This includes, among other things, maintaining bidirectional traceability as the requirements evolve, to ensure there are no inconsistencies among program plans and requirements. In addition, programs using Agile software development are to maintain a product vision, or roadmap, to guide the planning of major program milestones and provide a high-level view of planned requirements. Programs should also maintain a prioritized list (referred to as a backlog) of narrowly defined requirements (referred to as lower-level requirements) that are to be delivered. Programs should maintain this backlog with the product owner to ensure the program is always working on the highest priority requirements that will deliver the most value to the users. The GMM program established clearly defined and prioritized requirements and maintained bidirectional traceability among the various levels of requirements: Grant lifecycle phases: In its Concept of Operations document, the program established six grants management lifecycle phases that represent the highest level of GMM’s requirements, through which it derives lower-level requirements. Business functions: The Concept of Operations document also identifies the next level of GMM requirements—the 43 business functions that describe how FEMA officials, grant recipients, and other stakeholders are to manage grants. According to program officials, the 43 business functions are to be refined, prioritized, and delivered to GMM customers iteratively. Further, for the AFG pilot, the GMM program office prioritized 19 business functions with the product owner and planned the development of these functions in a roadmap. Epics: GMM’s business functions are decomposed into epics, which represent smaller portions of functionality that can be developed over multiple increments. According to program officials, GMM intends to develop, refine, and prioritize the epics iteratively. As of August 2018, the program had developed 67 epics in the program backlog. An example of one of the epics for the AFG pilot is to prepare and submit grant closeout materials. User stories: The epics are decomposed into user stories, which convey the customers’ requirements at the smallest and most discrete unit of work that must be done within a single sprint to create working software. GMM develops, refines, and prioritizes the user stories iteratively. As of August 2018, the program had developed 1,118 user stories in the backlog. An example of a user story is “As an external user, I can log in with a username and password.” Figure 6 provides an example of how GMM’s different levels of requirements are decomposed. Nevertheless, while we found requirements to be traceable at the sprint- level (i.e., epics and user stories), traceability of requirements at the increment-level (i.e., business functions) were inconsistent among different requirements planning documents. Specifically, the capabilities and constraints document shows that five business functions are planned to be developed within sub-increment 1A, whereas the other key planning document—the roadmap for the AFG pilot—showed one of those five functions as being planned for the sub-increment 1B. In addition, the capabilities and constraints document shows that nine business functions are planned to be developed within sub-increment 1B, but the roadmap showed one of those nine functions as being planned for the sub- increment 1C. Program officials stated that they decided to defer these functions to later sub-increments due to unexpected technical difficulties encountered when developing functionality and reprioritizing functions with the product owners. While the officials updated the roadmap to reflect the deferred functionality, they did not update the capabilities and constraints document to maintain traceability between these two important requirements planning documents. Program officials stated that they learned during the AFG pilot that the use of a capabilities and constraints document for increment-level scope planning was not ideal and that they intended to change the process for how they documented planned requirements for future increments. However, program officials did not provide a time frame for when this change would be made. Until the program makes this change and then ensures it maintains traceability of increment-level requirements between requirements planning documents, it will continue to risk confusion among stakeholders about what is to be delivered. In addition, until recently, GMM’s planning documents were missing up- to-date information regarding when most of the legacy systems will be transitioned to GMM. Specifically, while the program’s planning documents (including the GMM roadmap) provided key milestones for the entire lifecycle of the program and high-level capabilities to be delivered in the AFG pilot, these documents lacked up-to-date time frames for when FEMA planned to transition the nine remaining legacy systems. For example, in May 2017, GMM drafted notional time frames for transitioning the legacy systems, including plans for AFG to be the seventh system replaced by GMM. However, in December 2017, the program decided to reprioritize the legacy systems so that AFG would be replaced first—yet this major change was not reflected in the program’s roadmap. Moreover, while AFG program officials were informed of the decision to transition the AFG program first, in June 2018 officials from other grant programs told us that they had not been informed on when their systems were to be replaced. As a result, these programs were uncertain about when they should start planning for their respective transitions. In August 2018, GMM program officials acknowledged that they were delayed in deciding the sequencing order for the legacy system transitions. Program officials stated that the delay was due to their need to factor the Agile development contractor’s perspective into these decisions; yet, at that time, the contract award had been delayed by approximately 8 months. Subsequently, in October 2018, program officials identified tentative time frames for transitioning the remaining legacy systems. Program officials stated that they determined the tentative time frames for transitioning the legacy systems based on key factors, such as mission need, cost, security vulnerabilities, and technical obsolescence, and that they had shared these new time frames with grant program officials. The officials also stated that, once the Agile contractor begins contract performance, they expect to be able to validate the contractor’s capacity and finalize these time frames by obtaining approval from the Grants Management Executive Steering Group. By taking steps to update and communicate these important time frames, FEMA should be better positioned to ensure that each of the grant programs are prepared for transitioning to GMM. According to leading practices, Agile programs should track their progress in delivering planned IT requirements within a sprint (i.e., short iterations that produce working software). Given that sprints are very short cycles of development (e.g., 2 weeks), the efficiency of completing planned work within a sprint relies on a disciplined approach that includes using a fixed pace, referred to as the sprint cadence, that provides a consistent and predictable development routine. A disciplined approach also includes identifying by the start of a sprint which user stories will be developed, developing those stories to completion (e.g., fully tested and demonstrated to, and accepted by, the product owner), and tracking completion progress of those stories. Progress should be communicated to relevant stakeholders and used by the development teams to better understand their capacity to develop stories, continuously improve on their processes, and forecast how long it will take to deliver all remaining capabilities. The GMM program did not effectively track progress in delivering IT requirements during the first nine sprints, which occurred from January to June 2018. These gaps in tracking the progress of requirements, in part, had an impact on the program’s progress in delivering the 19 AFG business functions that were originally planned by December 2018 and are now deferred to August 2019. However, beginning in July 2018, in response to our ongoing review, the program took steps to improve in these areas. Specifically, GMM did not communicate the status of its Agile development progress to program stakeholders, such as the grant programs, the regional offices, and the development teams, during most of the first nine sprints. Program officials acknowledged that they should use metrics to track development progress and, in July 2018, they began reporting metrics to program stakeholders. For example, they began collecting and providing data on the number of stories planned and delivered, estimated capacity for development teams, and the number of days spent working on the sprint, as part of the program’s weekly status reports to program stakeholders, such as product owners. Rather than using a fixed, predictable sprint cadence, GMM allowed a variable development cadence, meaning that sprint durations varied from 1 to 4 weeks throughout the first nine sprints. Program officials noted that they had experimented with the use of a variable cadence to allow more time to complete complex technical work. Program officials stated that they realized that varying the sprints was not effective and, in July 2018 for sprint 10, they reverted back to a fixed, 2 week cadence. GMM added a significant amount of scope during its first nine sprints, after the development work had already begun. For example, the program committed to 28 user stories at the beginning of sprint eight, and then nearly doubled the work by adding 25 additional stories in the middle of the sprint. Program officials cited multiple reasons for adding more stories, including that an insufficient number of stories had been defined in the backlog when the sprint began, the realization that planned stories were too large and needed to be decomposed into smaller stories, and the realization that other work would be needed in addition to what was originally planned. Program officials recognized that, by the start of a sprint, the requirements should be sufficiently defined, such that they are ready for development without requiring major changes during the sprint. The program made recent improvements in sprints 11 and 12, which had only five stories added after the start of a sprint. By taking these steps to establish consistency among sprints, the program has better positioned itself to more effectively monitor and manage the remaining IT development work. In addition, this improvement in consistency should help the program avoid future deferments of functionality. Leading practices state that programs should regularly collaborate with, and collect input from, relevant stakeholders; monitor the status of stakeholder involvement; incorporate stakeholder input; and measure how well stakeholders’ needs are being met. For Agile programs, it is especially important to track user satisfaction to determine how well the program has met stakeholders’ needs. Consistent stakeholder participation ensures that the program meets its stakeholders’ needs. FEMA implemented its responsibilities in this area through several means, such as stakeholder outreach activities; development of a strategic communications plan; and continuous monitoring, solicitation, and recording of stakeholder involvement and feedback. For example, the agency conducted nationwide outreach sessions from January 2016 through August 2017 and began conducting additional outreach sessions in April 2018. These outreach sessions involved hundreds of representatives from FEMA headquarters, the 10 regional offices, and state and local grant recipients to collect information on the current grants management environment and opportunities for streamlining grants management processes. FEMA also held oversight and stakeholder outreach activities and actively solicited and recorded feedback from its stakeholders on a regular basis. For example, GMM regularly verified with users that the new functionality met their IT requirements, as part of the Agile development cycle. Additionally, we observed several GMM biweekly requirements validation sessions where the program’s stakeholders were involved and provided feedback as part of the requirements development and refinement process. In addition, FEMA identified GMM stakeholders and tracked its engagement with these stakeholders using a stakeholder register. The agency also defined processes for how the GMM program is to collaborate with its stakeholders in a stakeholder communication plan and Agile development team agreement. Also, while several officials from the selected grant program and regional offices that we interviewed indicated that the program could improve in communicating its plans for GMM and incorporating stakeholder input, most of the representatives from these offices stated that GMM is doing well at interacting with its stakeholders. Finally, in October 2018, program officials reported that they had recently begun measuring user satisfaction by conducting surveys and interviews with users that have utilized the new functionality within GMM. The program’s outreach activities, collection of stakeholder input, and measurement of user satisfaction demonstrate that the program is taking the appropriate steps to incorporate stakeholder input. Reliable cost estimates are critical for successfully delivering IT programs. Such estimates provide the basis for informed decision making, realistic budget formulation, meaningful progress measurement, and accountability for results. GAO’s Cost Estimating and Assessment Guide defines leading practices related to the following four characteristics of a high-quality, reliable estimate. Comprehensive. The estimate accounts for all possible costs associated with a program, is structured in sufficient detail to ensure that costs are neither omitted nor double counted, and documents all cost-influencing assumptions. Well-documented. Supporting documentation explains the process, sources, and methods used to create the estimate; contains the underlying data used to develop the estimate; and is adequately reviewed and approved by management. Accurate. The estimate is not overly conservative or optimistic, is based on an assessment of the costs most likely to be incurred, and is regularly updated so that it always reflects the program’s current status. Credible. Discusses any limitations of the analysis because of uncertainty or sensitivity surrounding data or assumptions, the estimate’s results are cross-checked, and an independent cost estimate is conducted by a group outside the acquiring organization to determine whether other estimating methods produce similar results. In May 2017, DHS approved GMM’s lifecycle cost estimate of about $251 million for fiscal years 2015 through 2030. We found this initial estimate to be reliable because it fully or substantially addressed all the characteristics associated with a reliable cost estimate. For example, the estimate comprehensively included government and contractor costs, all elements of the program’s work breakdown structure, and all phases of the system lifecycle; and was aligned with the program’s technical documentation at the time the estimate was developed. GMM also fully documented the key assumptions, data sources, estimating methodology, and calculations for the estimate. Further, the program conducted a risk assessment and sensitivity analysis, and DHS conducted an independent assessment of the cost estimate to validate the accuracy and credibility of the cost estimate. However, key assumptions that FEMA made about the program changed soon after DHS approved the cost estimate in May 2017. Thus, the initial cost estimate no longer reflects the current approach for the program. For example, key assumptions about the program that changed include: Change in the technical approach: The initial cost estimate assumed that GMM would implement a software-as-a-service model, meaning that FEMA would rely on a service provider to deliver software applications and the underlying infrastructure to run them. However, in December 2017, the program instead decided to implement an infrastructure-as-a-service model, meaning that FEMA would develop and deploy its own software application and rely on a service provider to deliver and manage the computing infrastructure (e.g., servers, software, storage, and network equipment). According to program officials, this decision was made after learning from the Agile prototypes that the infrastructure-as-a-service model would allow GMM to develop the system in a more flexible environment. Increase in the number of system development personnel: A key factor with Agile development is the number of development teams (each consisting of experts in software development, testing, and cybersecurity) that are operating concurrently and producing separate portions of software functionality. Program officials initially assumed that they would need three to four concurrent Agile development teams, but subsequently realized that they would instead need to expend more resources to achieve GMM’s original completion date. Specifically, program officials now expect they will need to at least double, and potentially triple, the number of concurrent development teams to meet GMM’s original target dates. Significant delays and complexities with data migration: In 2016 and 2017, GMM experienced various technical challenges in its effort to transfer legacy system data to a data staging platform. This data transfer effort needed to be done to standardize the data before eventually migrating the data to GMM. These challenges resulted in significant delays and cost increases. Program officials reported that, by February 2018—at least 9 months later than planned—all legacy data had been transferred to a data staging platform so that FEMA officials could begin analyzing and standardizing the data prior to migrating it into GMM. FEMA officials reported that they anticipated the cost estimate to increase, and for this increase to be high enough to breach the $251 million threshold set in GMM’s May 2017 acquisition program baseline. Thus, consistent with DHS’s acquisition guidance, the program informed the DHS acquisition review board of this anticipated breach. The board declared that the program was in a cost breach status, as of September 12, 2018. As of October 2018, program officials stated that they were in the process of revising the cost estimate to reflect the changes in the program and to incorporate actual costs. In addition, the officials stated that the program was applying a new cost estimating methodology tailored for Agile programs that DHS’s Cost Analysis Division had been developing. In December 2018, program officials stated that they had completed the revised cost estimate but it was still undergoing departmental approval. Establishing an updated cost estimate should help FEMA better understand the expected costs to deliver GMM under the program’s current approach and time frames. The success of an IT program depends, in part, on having an integrated and reliable master schedule that defines when the program’s set of work activities and milestone events are to occur, how long they will take, and how they are related to one another. Among other things, a reliable schedule provides a roadmap for systematic execution of an IT program and the means by which to gauge progress, identify and address potential problems, and promote accountability. GAO’s Schedule Assessment Guide defines leading practices related to the following four characteristics that are vital to having a reliable integrated master schedule. Comprehensive. A comprehensive schedule reflects all activities for both the government and its contractors that are necessary to accomplish a program’s objectives, as defined in the program’s work breakdown structure. The schedule also includes the labor, materials, and overhead needed to do the work and depicts when those resources are needed and when they will be available. It realistically reflects how long each activity will take and allows for discrete progress measurement. Well-constructed. A schedule is well-constructed if all of its activities are logically sequenced with the most straightforward logic possible. Unusual or complicated logic techniques are used judiciously and justified in the schedule documentation. The schedule’s critical path represents a true model of the activities that drive the program’s earliest completion date and total float accurately depicts schedule flexibility. Credible. A schedule that is credible is horizontally traceable—that is, it reflects the order of events necessary to achieve aggregated products or outcomes. It is also vertically traceable—that is, activities in varying levels of the schedule map to one another and key dates presented to management in periodic briefings are consistent with the schedule. Data about risks are used to predict a level of confidence in meeting the program’s completion date. The level of necessary schedule contingency and high-priority risks are identified by conducting a robust schedule risk analysis. Controlled. A schedule is controlled if it is updated regularly by trained schedulers using actual progress and logic to realistically forecast dates for program activities. It is compared to a designated baseline schedule to measure, monitor, and report the program’s progress. The baseline schedule is accompanied by a baseline document that explains the overall approach to the program, defines ground rules and assumptions, and describes the unique features of the schedule. The baseline schedule and current schedule are subject to a configuration management control process. GMM’s schedule was unreliable because it minimally addressed three characteristics—comprehensive, credible, and controlled—and did not address the fourth characteristic of a reliable estimate—well-constructed. One of the most significant issues was that the program’s fast approaching, final delivery date of September 2020 was not informed by a realistic assessment of GMM development activities, and rather was determined by imposing an unsubstantiated delivery date. Table 4 summarizes our assessment of GMM’s schedule. In discussing the reasons for the shortfalls in these practices, program officials stated that they had been uncertain about the level of rigor that should be applied to the GMM schedule, given their use of Agile development. However, leading practices state that program schedules should meet all the scheduling practices, regardless of whether a program is using Agile development. As discussed earlier in this report, GMM has already experienced significant schedule delays. For example, the legacy data migration effort, the AFG pilot, and the Agile development contract have been delayed. Program officials also stated that the delay in awarding and starting the Agile contract has delayed other important activities, such as establishing time frames for transitioning legacy systems. A more robust schedule could have helped FEMA predict the impact of delays on remaining activities and identify which activities appeared most critical so that the program could ensure that any risks in delaying those activities were properly mitigated. In response to our review and findings, program officials recognized the need to continually enhance their schedule practices to improve the management and communication of program activities. As a result, in August 2018, the officials stated that they planned to add a master scheduler to the team to improve the program’s schedule practices and ensure that all of the areas of concern we identified are adequately addressed. In October 2018, the officials reported that they had recently added two master schedulers to GMM. According to the statement of objectives, the Agile contractor is expected to develop an integrated master schedule soon after it begins performance. However, program officials stated that GMM is schedule-driven—due to the Executive Steering Group’s expectation that the solution will be delivered by September 2020. The officials added that, if GMM encounters challenges in meeting this time frame, the program plans to seek additional resources to allow it to meet the 2020 target. GMM’s schedule-driven approach has already led to an increase in estimated costs and resources. For example, as previously mentioned, the program has determined that, to meet its original target dates, GMM needs to at least double, and possibly triple, the number of concurrent Agile development teams. In addition, we have previously reported that schedule pressure on federal IT programs can lead to omissions and skipping of key activities, especially system testing. In August 2018, program officials acknowledged that September 2020 may not be feasible and that the overall completion time frames established in the acquisition program baseline may eventually need to be rebaselined. Without a robust schedule to forecast whether FEMA’s aggressive delivery goal for GMM is realistic to achieve, leadership will be limited in its ability to make informed decisions on what additional increases in cost or reductions in scope might be needed to fully deliver the system. NIST’s risk management framework establishes standards and guidelines for agencies to follow in developing cybersecurity programs. Agencies are expected to use this framework to achieve more secure information and information systems through the implementation of appropriate risk mitigation strategies and by performing activities that ensure that necessary security controls are integrated into agencies’ processes. The framework addresses broad cybersecurity and risk management activities, which include the following: Categorize the system: Programs are to categorize systems by identifying the types of information used, selecting a potential impact level (e.g., low, moderate, or high), and assigning a category based on the highest level of impact to the system’s confidentiality, integrity, and availability, if the system was compromised. Programs are also to document a description of the information system and its boundaries and should register the system with appropriate program management offices. System categorization is documented in a system security plan. Select and implement security controls: Programs are to determine protective measures, or security controls, to be implemented based on the system categorization results. These security controls are documented in a system security plan. For example, control areas include access controls, incident response, security assessment and authorization, identification and authentication, and configuration management. Once controls are identified, programs are to determine planned implementation actions for each of the designated controls. These implementation actions are also specified in the system security plan. Assess security controls: Programs are to develop, review, and approve a security assessment plan. The purpose of the security assessment plan approval is to establish the appropriate expectations for the security control assessment. Programs are to also perform a security control assessment by evaluating the security controls in accordance with the procedures defined in the security assessment plan, in order to determine the extent to which the controls were implemented correctly. The output of this process is intended to produce a security assessment report to document the issues, findings, and recommendations. Programs are to conduct initial remediation actions on security controls and reassess those security controls, as appropriate. Obtain an authorization to operate the system: Programs are to obtain security authorization approval in order to operate a system. Resolving weaknesses and vulnerabilities identified during testing is an important step leading up to achieving an authorization to operate. Programs are to establish corrective action plans to address any deficiencies in cybersecurity policies, procedures, and practices. DHS guidance also states that corrective action plans must be developed for every weakness identified during a security control assessment and within a security assessment report. Monitor security controls on an ongoing basis: Programs are to monitor their security controls on an ongoing basis after deployment, including determining the security impact of proposed or actual changes to the information system and assessing the security controls in accordance with a monitoring strategy that determines the frequency of monitoring the controls. For the GMM program’s engineering and test environment, which went live in February 2018, FEMA fully addressed three of the five key cybersecurity practices in NIST’s risk management framework and partially addressed two of the practices. Specifically, FEMA categorized GMM’s environment based on security risk, implemented select security controls, and monitored security controls on an ongoing basis. However, the agency partially addressed the areas of assessing security controls and obtaining an authorization to operate the system. Table 5 provides a summary of the extent to which FEMA addressed NIST’s key cybersecurity practices for GMM’s engineering and test environment. Consistent with NIST’s framework, GMM categorized the security risk of its engineering and test environment and identified it as a moderate- impact environment. A moderate-impact environment is one where the loss of confidentiality, integrity, or availability could be expected to have a serious or adverse effect on organizational operations, organizational assets, or individuals. GMM completed the following steps leading to this categorization: The program documented in its System Security Plan the various types of data and information that the environment will collect, process, and store, such as conducting technology research, building or enhancing technology, and maintaining IT networks. The program established three information types and assigned security levels of low, moderate, or high impact in the areas of confidentiality, availability, and integrity. A low-impact security level was assigned to two information types: (1) conducting technology research and (2) building or enhancing technology; and a moderate- impact security level was assigned to the third information type: maintaining IT networks. The engineering and test environment was categorized as an overall moderate-impact system, based on the highest security impact level assignment. GMM documented a description of the environment, including a diagram depicting the system’s boundaries, which illustrates, among other things, databases and firewalls. GMM properly registered its engineering and test environment with FEMA’s Chief Information Officer, Chief Financial Officer, and acting Chief Information Security Officer. By conducting the security categorization process, GMM has taken steps that should ensure that the appropriate security controls are selected for the program’s engineering and test environment. Consistent with NIST’s framework and the system categorization results, GMM appropriately determined which security controls to implement and planned actions for implementing those controls in its System Security Plan for the engineering and test environment. For example, the program utilized NIST guidance to select standard controls for a system categorized with a moderate-impact security level. These control areas include, for example, access controls, risk assessment, incident response, identification and authentication, and configuration management. Further, the program documented its planned actions to implement each control in its System Security Plan. For example, GMM documented that the program plans to implement its Incident Response Testing control by participating in an agency-wide exercise and unannounced vulnerability scans. As another example, GMM documented that the program plans to implement its Contingency Plan Testing control by testing the contingency plan annually, reviewing the test results, and preparing after action reports. By selecting and planning for the implementation of security controls, GMM has taken steps to mitigate its security risks and protect the confidentiality, integrity, and availability of the information system. Consistent with NIST’s framework, in January 2018, GMM program officials developed a security assessment plan for the engineering and test environment. According to GMM program officials, this plan was reviewed by the security assessment team. However, the security assessment plan lacked essential details. Specifically, while the plan included the general process for evaluating the environment’s security controls, the planned assessment procedures for all 964 security controls were not sufficiently defined. Specifically, GMM program officials copied example assessment procedures from NIST guidance and inserted them into its security assessment documentation for all of its 964 controls, without making further adjustments to explain the steps that should be taken specific to GMM. Table 6 shows an example of a security assessment procedure copied from the NIST guidance that should have been further adjusted for GMM. In addition, the actual assessment procedures that the GMM assessors used to evaluate the security controls were not documented. Instead, the program only documented whether each control passed or failed each test. GMM program officials stated that the planned assessment procedures are based on an agency template that was exported from a DHS compliance tool, and that FEMA security officials have been instructed by the DHS OCIO not to tailor or make any adjustments to the template language. However, the assessment procedures outlined in NIST’s guidance are to serve as a starting point for organizations preparing their program specific assessments. According to NIST, organizations are expected to select and tailor their assessment procedures for each security control from NIST’s list of suggested assessment options (e.g., review, analyze, or inspect policies, procedures, and related documentation options). DHS OCIO officials stated that, consistent with NIST’s guidance, they expect that components will ensure they are in compliance with the minimum standards and will also add details and additional rigor, as appropriate, to tailor the planned security assessment procedures to fit their unique missions or needs. In November 2018, in response to our audit, DHS OCIO officials stated that they were meeting with FEMA OCIO officials to understand why they did not document the planned and actual assessment procedures performed by the assessors for GMM. Until FEMA ensures that detailed planned evaluation methods and actual evaluation procedures specific to GMM are defined, the program risks assessing security controls incorrectly, having controls that do not work as intended, and producing undesirable outcomes with respect to meeting the security requirements. In addition, the security assessment plan was not approved by FEMA’s OCIO before proceeding with the security assessment. Program officials stated that approval was not required for the security assessment plan prior to the development of the security assessment report. However, NIST guidance states that the purpose of the security assessment plan approval is to establish the appropriate expectations for the security control assessment. By not getting the security assessment plan approved by FEMA’s OCIO before security assessment reviews were conducted, GMM risks inconsistencies with the plan and security objectives of the organization. Finally, consistent with NIST guidance, GMM performed a security assessment in December 2017 of the engineering and test environment’s controls, which identified 36 vulnerabilities (23 critical- and high-impact vulnerabilities and 13 medium- and low-impact vulnerabilities). The program also documented these vulnerabilities and associated findings and recommendations in a security assessment report. GMM conducted initial remediation actions (i.e., remediation of vulnerabilities that should be corrected immediately) for 12 of the critical- and high-impact vulnerabilities and a reassessment of those security controls confirmed that they were resolved by January 2018. Remediation of the remaining 11 critical- and high-impact vulnerabilities and 13 medium- and low- impact vulnerabilities were to be addressed by corrective action plans as part of the authorization to operate process, which is discussed in the next section. The authorization to operate GMM’s engineering and test environment was granted on February 5, 2018. Among other things, this decision was based on the important stipulation that the remaining 11 critical- and high- impact vulnerabilities associated with multifactor authentication would be addressed within 45 days, or by March 22, 2018. However, the program did not meet this deadline and, instead, approximately 2 months after this deadline passed, obtained a waiver to remediate these vulnerabilities by May 9, 2019. These vulnerabilities are related to a multifactor authentication capability. Program officials stated that they worked with FEMA OCIO officials to attempt to address these vulnerabilities by the initial deadline, but they were unsuccessful in finding a viable solution. Therefore, GMM program officials developed a waiver at the recommendation of the OCIO to provide additional time to develop a viable solution. However, a multifactor authentication capability is essential to ensuring that users are who they say they are, prior to granting users access to the GMM engineering and test environment, in order to reduce the risk of harmful actors accessing the system. In addition, as of September 2018, the program had not established corrective action plans for the 13 medium- and low-impact vulnerabilities. Program officials stated that they do not typically address low-impact vulnerabilities; however, this is in conflict with DHS guidance that specifies that corrective action plans must be developed for every weakness identified during a security control assessment and within a security assessment report. In response to our audit, in October 2018, GMM program officials developed these remaining corrective action plans. The plans indicated that these vulnerabilities were to be fully addressed by January 2019 and April 2019. While the program eventually took corrective actions in response to our audit by developing the missing plans, the GMM program initially failed to follow DHS’s guidance on preparing corrective actions plans for all security vulnerabilities. Until GMM consistently follows DHS’s guidance, it will be difficult for FEMA to determine the extent to which GMM’s security weaknesses identified during its security control assessments are remediated. Additionally, as we have reported at other agencies, vulnerabilities can be indicators of more significant underlying issues and, thus, without appropriate management attention or prompt remediation, GMM is at risk of unnecessarily exposing the program to potential exploits. Moreover, GMM was required to assess all untested controls by March 7, 2018, or no later than 30 days after the approval of the authorization to operate; however, it did not meet this deadline. Specifically, we found that, by October 2018, FEMA had not fully tested 190 security controls in the GMM engineering and test environment. These controls were related to areas such as security incident handling and allocation of resources required to protect an information system. In response to our findings, in October 2018, GMM program officials reported that they had since fully tested 27 controls and partially tested the remaining 163 controls. Program officials stated that testing of the 163 controls is a shared responsibility between GMM and other parties (e.g., the cloud service provider). They added that GMM had completed its portion of the testing but was in the process of verifying the completion of testing by other parties. Program officials stated that the untested controls were not addressed sooner, in part, because of errors resulting from configuration changes in the program’s compliance tool during a system upgrade, which have now been resolved. Until GMM ensures that all security controls have been tested, it remains at an increased risk of exposing programs to potential exploits. Consistent with the NIST framework, GMM established methods for assessing and monitoring security controls to be conducted after an authorization to operate has been approved. GMM has tailored its cybersecurity policies and practices for monitoring its controls to take into account the frequent and iterative pace with which system functionality is continuously being introduced into the GMM environment. Specifically, the GMM program established a process for assessing security impact changes to the system and conducting reauthorizations to operate within the rapid Agile delivery environment. As part of this process, GMM embedded cybersecurity experts on each Agile development team so that they are involved early and can impact security considerations from the beginning of requirements development through testing and deployment of system functionality. In addition, the process involves important steps for ensuring that the system moves from development to completion, while producing a secure and reliable system. For example, it includes procedures for creating, reviewing, and testing new system functionality. As the new system functionality is integrated with existing system functionality, it is to undergo automated testing and security scans in order to ensure that the integrity of the security of the system has not been compromised. Further, an automated process is to deploy the code if it passes all security scans, code tests, and code quality checks. GMM’s process for conducting a reauthorization to operate within the rapid delivery Agile development environment is to follow FEMA guidance that states that all high-level changes made to a FEMA IT system must receive approval from both a change advisory board and the FEMA Chief Information Officer. The board and FEMA Chief Information Officer are to focus their review and approval on scheduled releases and epics (i.e., collections of user stories). Additionally, the Information System Security Officer is to review each planned user story and, if it is determined that the proposed changes may impact the integrity of the authorization, the Information System Security Officer is to work with the development team to begin the process of updating the system authorization. Finally, GMM uses automated tools to track the frequency in which security controls are assessed and to ensure that required scanning data are received by FEMA for reporting purposes. Program officials stated that, in the absence of department-level and agency-level guidance, they have coordinated with DHS and FEMA OCIO officials to ensure that these officials are in agreement with GMM’s approach to continuous monitoring. By having monitoring control policies and procedures in place, FEMA management is positioned to more effectively prioritize and plan its risk response to current threats and vulnerabilities for the GMM program. Given FEMA’s highly complex grants management environment, with its many stakeholders, IT systems, and internal and external users, implementing leading practices for business process reengineering and IT requirements management is critical for success. FEMA has taken many positive steps, including ensuring executive leadership support for business process reengineering, documenting the agency’s grants management processes and performance improvement goals, defining initial IT requirements for the program, incorporating input from end user stakeholders into the development and implementation process, and taking recent actions to improve its delivery of planned IT requirements. Nevertheless, until the GMM program finalizes plans and time frames for implementing its organizational change management actions, plans and communicates system transition activities, and maintains clear traceability of IT requirements, FEMA will be limited in its ability to provide streamlined grants management processes and effectively deliver a modernized IT system to meet the needs of its large range of users. While GMM’s initial cost estimate was reliable, key assumptions about the program since the initial estimate had changed and, therefore, it no longer reflected the current approach for the program. The forthcoming updated cost schedule is expected to better reflect the current approach. However, the program’s unreliable schedule to fully deliver GMM by September 2020 is aggressive and unrealistic. The delays the program has experienced to date further compound GMM’s schedule issues. Without a robust schedule that has been informed by a realistic assessment of GMM’s development activities, leadership will be limited in its ability to make informed decisions on what additional increases in cost or reductions in scope might be needed to achieve their goals. Further, FEMA’s implementation of cybersecurity practices for GMM in the areas of system categorization, selection and implementation, and monitoring will help the program. However, GMM lacked essential details for evaluating security controls, did not approve the security assessment plan before proceeding with the security assessment, did not follow DHS’s guidance to develop corrective action plans for all security vulnerabilities, and did not fully test all security controls. As a result, the GMM engineering and test environment remains at an increased risk of exploitations. We are making eight recommendations to FEMA: The FEMA Administrator should ensure that the GMM program management office finalizes the organizational change management plan and time frames for implementing change management actions. (Recommendation 1) The FEMA Administrator should ensure that the GMM program management office plans and communicates its detailed transition activities to its affected customers before they transition to GMM and undergo significant changes to their processes. (Recommendation 2) The FEMA Administrator should ensure that the GMM program management office implements its planned changes to its processes for documenting requirements for future increments and ensures it maintains traceability among key IT requirements documents. (Recommendation 3) The FEMA Administrator should ensure that the GMM program management office updates the program schedule to address the leading practices for a reliable schedule identified in this report. (Recommendation 4) The FEMA Administrator should ensure that the FEMA OCIO defines sufficiently detailed planned evaluation methods and actual evaluation methods for assessing security controls. (Recommendation 5) The FEMA Administrator should ensure that the FEMA OCIO approves a security assessment plan before security assessment reviews are conducted. (Recommendation 6) The FEMA Administrator should ensure that the GMM program management office follows DHS guidance on preparing corrective action plans for all security vulnerabilities. (Recommendation 7) The FEMA Administrator should ensure that the GMM program management office fully tests all of its security controls for the system. (Recommendation 8) DHS provided written comments on a draft of this report, which are reprinted in appendix IV. In its comments, the department concurred with all eight of our recommendations and provided estimated completion dates for implementing each of them. For example, with regard to recommendation 4, the department stated that FEMA plans to update the GMM program schedule to address the leading practices for a reliable schedule by April 30, 2019. In addition, for recommendation 7, the department stated that FEMA plans to ensure that corrective action plans are prepared by July 31, 2019, to address all identified security vulnerabilities for GMM. If implemented effectively, the actions that FEMA plans to take in response to the recommendations should address the weaknesses we identified. We also received technical comments from DHS and FEMA officials, which we incorporated, as appropriate. We are sending copies of this report to the Secretary of Homeland Security and interested congressional committees. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4456 or harriscc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Our objectives were to (1) determine the extent to which the Federal Emergency Management Agency (FEMA) is implementing leading practices for reengineering its grants management business processes and incorporating business needs into Grants Management Modernization (GMM) information technology (IT) requirements; (2) assess the reliability of the program’s estimated costs and schedule; and (3) determine the extent to which FEMA is addressing key cybersecurity practices for GMM. To address the first objective, we reviewed GAO’s Business Process Reengineering Assessment Guide and Software Engineering Institute’s Capability Maturity Model for Integration for Development to identify practices associated with business process reengineering and IT requirements management. We then selected six areas that, in our professional judgment, represented foundational practices that were of particular importance to the successful implementation of an IT modernization effort that is using Agile development processes. We also selected the practices that were most relevant based on where GMM was in the system development lifecycle and we discussed the practice areas with FEMA officials. The practices are: Ensuring executive leadership support for process reengineering Assessing the current and target business environment and business Establishing plans for implementing new business processes Establishing clear, prioritized, and traceable IT requirements Tracking progress in delivering IT requirements Incorporating input from end user stakeholders We also reviewed selected chapters of GAO’s draft Agile Assessment Guide (Version 6A), which is intended to establish a consistent framework based on best practices that can be used across the federal government for developing, implementing, managing, and evaluating agencies’ IT investments that rely on Agile methods. To develop this guide, GAO worked closely with Agile experts in the public and private sector; some chapters of the guide are considered more mature because they have been reviewed by the expert panel. We reviewed these chapters to ensure that our expectations for how FEMA should apply the six practices for business process reengineering and IT requirements management are appropriate for an Agile program and are consistent with the draft guidance that is under development. Additionally, since Agile development programs may use different terminology to describe their software development processes, the Agile terms used in this report (e.g., increment, sprint, epic, etc.) are specific to the GMM program. We obtained and analyzed FEMA grants management modernization documentation, such as current and target grants management business processes, acquisition program baseline, operational requirements document, concept of operations, requirements analyses workbooks, Grants Management Executive Steering Group artifacts, stakeholder outreach artifacts, Agile increment- and sprint-level planning and development artifacts, and the requirements backlog. We assessed the program documentation against the selected practices to determine the extent to which the agency had implemented them. We then assessed each practice area as: fully implemented—FEMA provided complete evidence that showed it fully implemented the practice area; partially implemented—FEMA provided evidence that showed it partially implemented the practice area; not implemented—FEMA did not provide evidence that showed it implemented any of the practice area. Additionally, we observed Agile increment and sprint development activities at GMM facilities in Washington, D.C. We also observed a demonstration of how the program manages its lower level requirements (i.e., user stories and epics) and maintains traceability of the requirements using an automated tool at GMM facilities in Washington, D.C. We also interviewed FEMA officials, including the GMM Program Executive, GMM Program Manager, GMM Business Transformation Team Lead, and Product Owner regarding their efforts to streamline grants management business processes, collect and incorporate stakeholder input, and manage GMM’s requirements. In addition, we interviewed FEMA officials from four out of 16 grant program offices and two out of 10 regional offices to obtain contextual information and illustrative examples of FEMA’s efforts to reengineer grants management business processes and collect business requirements for GMM. Specifically, We selected the four grant program offices based on a range of grant programs managed, legacy systems used, and the amount of grant funding awarded. We also sought to select a cross section of different characteristics, such as selecting larger grant program offices, as well as smaller offices. In addition, we ensured that our selection included the Assistance to Firefighters Grants (AFG) program office because officials in this office represent the first GMM users and, therefore, are more actively involved with the program’s Agile development practices. Based on these factors, we selected: Public Assistance Division, Individual Assistance Division, AFG, and National Fire Academy. Additionally, the four selected grant program offices are responsible for 16 of the total 45 grant programs and are users of five of the nine primary legacy IT systems. The four selected grant program offices also represent about 68 percent of the total grant funding awarded by FEMA from fiscal years 2005 through 2016. We selected two regional offices based on (1) the largest amount of total FEMA grant funding for fiscal years 2005 through 2016—Region 6 located in Denton, Texas; and (2) the highest percentage of AFG funding compared to the office’s total grant funding awarded from fiscal years 2005 through 2016—Region 5 located in Chicago, Illinois. To assess the reliability of data from the program’s automated IT requirements management tool, we interviewed knowledgeable officials about the quality control procedures used by the program to assure accuracy and completeness of the data. We also compared the data to other relevant program documentation on GMM requirements. We determined that the data used were sufficiently reliable for the purpose of evaluating GMM’s practices for managing IT requirements. For our second objective, to assess the reliability of GMM’s estimated costs and schedule, we reviewed documentation on GMM’s May 2017 lifecycle cost estimate and on the program’s schedule, dated May 2018. To assess the reliability of the May 2017 lifecycle cost estimate, we evaluated documentation supporting the estimate, such as the cost estimating model, the report on GMM’s Cost Estimating Baseline Document and Life Cycle Cost Estimate, and briefings provided to the Department of Homeland Security (DHS) and FEMA management regarding the cost estimate. We assessed the cost estimating methodologies, assumptions, and results against leading practices for developing a comprehensive, accurate, well-documented, and credible cost estimate, identified in GAO’s Cost Estimating and Assessment Guide. We also interviewed program officials responsible for developing and reviewing the cost estimate to understand their methodology, data, and approach for developing the estimate. We found that the cost data were sufficiently reliable. To assess the reliability of the May 2018 GMM program schedule, we evaluated documentation supporting the schedule, such as the integrated master schedule, acquisition program baseline, and Agile artifacts. We assessed the schedule documentation against leading practices for developing a comprehensive, well-constructed, credible, and controlled schedule, identified in GAO’s Schedule Assessment Guide. We also interviewed GMM program officials responsible for developing and managing the program schedule to understand their practices for creating and maintaining the schedule. We noted in our report the instances where the quality of the schedule data impacted the reliability of the program’s schedule. For both the cost estimate and program schedule, we assessed each leading practice as: fully addressed—FEMA provided complete evidence that showed it implemented the entire practice area; substantially addressed—FEMA provided evidence that showed it implemented more than half of the practice area; partially addressed—FEMA provided evidence that showed it implemented about half of the practice area; minimally addressed—FEMA provided evidence that showed it implemented less than half of the practice area; not addressed—FEMA did not provide evidence that showed it implemented any of the practice area. Finally, we provided FEMA with draft versions of our detailed analyses of the GMM cost estimate and schedule. This was done to verify that the information on which we based our findings was complete, accurate, and up-to-date. Regarding our third objective, to determine the extent to which FEMA is addressing key cybersecurity practices for GMM, we reviewed documentation regarding DHS and FEMA cybersecurity policies and guidance, and FEMA’s authorization to operate for the program’s engineering and test environment. We evaluated the documentation against all six cybersecurity practices identified in the National Institute of Standards and Technology’s (NIST) Risk Management Framework. While NIST’s Risk Management Framework identifies six total practices, for reporting purposes, we combined two interrelated practices—selection of security controls and implementation of security controls—into a single practice. The resulting five practices were: categorizing the system based on security risk, selecting and implementing security controls, assessing security controls, obtaining an authorization to operate the system, and monitoring security controls on an ongoing basis. We obtained and analyzed key artifacts supporting the program’s efforts to address these risk management practices, including the program’s System Security Plan, the Security Assessment Plan and Report, Authorization to Operate documentation, and the program’s continuous monitoring documentation. We also interviewed officials from the GMM program office and FEMA’s Office of the Chief Information Officer, such as the GMM Security Engineering Lead, GMM Information System Security Officer, and FEMA’s Acting Chief Information Security Officer, regarding their efforts to assess, document, and review security controls for GMM. We assessed the evidence against the five practices to determine the extent to which the agency had addressed them. We then assessed each practice area as: fully addressed—FEMA provided complete evidence that showed it fully implemented the practice area; partially addressed—FEMA provided evidence that showed it partially implemented the practice area; not addressed—FEMA did not provide evidence that showed it implemented any of the practice area. To assess the reliability of data from the program’s automated security controls management tool, we interviewed knowledgeable officials about the quality control procedures used by the program to assure accuracy and completeness of the data. We also compared the data to other relevant program documentation on GMM security controls for the engineering and test environment. We found that some of the security controls data we examined were sufficiently reliable for the purpose of evaluating FEMA’s cybersecurity practices for GMM, and we noted in our report the instances where the accuracy of the data impacted the program’s ability to address key cybersecurity practices. We conducted this performance audit from December 2017 to April 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Federal Emergency Management Agency (FEMA) awards many different types of grants to state, local, and tribal governments and nongovernmental entities. These grants are to help communities prevent, prepare for, protect against, mitigate the effects of, respond to, and recover from disasters and terrorist attacks. Agile software development is a type of incremental development that calls for the rapid delivery of software in small, short increments. The use of an incremental approach is consistent with the Office of Management and Budget’s guidance as specified in its information technology (IT) Reform Plan, as well as the legislation commonly referred to as the Federal Information Technology Acquisition Reform Act. Many organizations, especially in the federal government, are accustomed to using a waterfall software development model, which typically consists of long, sequential phases, and differs significantly from the Agile development approach. Agile practices integrate planning, design, development, and testing into an iterative lifecycle to deliver software early and often. Figure 7 provides a depiction of software development using the Agile approach, as compared to a waterfall approach. The frequent iterations of Agile development are intended to effectively measure progress, reduce technical and programmatic risk, and respond to feedback from stakeholders in changes to IT requirements more quickly than traditional methods. Despite these intended benefits, organizations adopting Agile must overcome challenges in making significant changes to how they are accustomed to developing software. The significant differences between Agile and waterfall development impact how IT programs are planned, implemented, and monitored in terms of cost, schedule, and scope. For example, in waterfall development, significant effort is devoted upfront to document detailed plans and all IT requirements for the entire scope of work at the beginning of the program, and cost and schedule can be varied to complete that work. However, for Agile programs the precise details are unknown upfront, so initial planning of cost, scope, and timing would be conducted at a high level, and then supplemented with more specific plans for each iteration. While cost and schedule are set for each iteration, requirements for each iteration (or increment) can be variable as they are learned over time and revised to reflect experiences from completed iterations and to accommodate changing priorities of the end users. The differences in these two software development approaches are shown in figure 8. Looking at figure 8, the benefit provided from using traditional program management practices such as establishing a cost estimate or a robust schedule, is not obvious. However, unlike a theoretical environment, many government programs may not have the autonomy to manage completely flexible scope, as they must deliver certain minimal specifications with the cost and schedule provided. In those cases, it is vital for the team to understand and differentiate the IT requirements that are “must haves” from the “nice to haves” early in the planning effort. This would help facilitate delivery of the “must-haves” requirements first, thereby providing users with the greatest benefits as soon as possible. In addition to the contact named above, the following staff made key contributions to this report: Shannin G. O’Neill (Assistant Director), Jeanne Sung (Analyst in Charge), Andrew Beggs, Rebecca Eyler, Kendrick Johnson, Thomas J. Johnson, Jason Lee, Jennifer Leotta, and Melissa Melvin.	[ "FEMA, a component of DHS, annually awards billions of dollars in grants to help communities prepare for, mitigate the effects of, and recover from major disasters. However, FEMA's complex IT environment supporting grants management consists of many disparate systems. In 2008, the agency attempted to modernize these systems but experienced significant challenges. In 2015, FEMA initiated a new endeavor (the GMM program) aimed at streamlining and modernizing the grants management IT environment. GAO was asked to review the GMM program. GAO's objectives were to (1) determine the extent to which FEMA is implementing leading practices for reengineering its grants management processes and incorporating needs into IT requirements; (2) assess the reliability of the program's estimated costs and schedule; and (3) determine the extent to which FEMA is addressing key cybersecurity practices. GAO compared program documentation to leading practices for process reengineering and requirements management, cost and schedule estimation, and cybersecurity risk management, as established by the Software Engineering Institute, National Institute of Standards and Technology, and GAO. Of six important leading practices for effective business process reengineering and information technology (IT) requirements management, the Federal Emergency Management Agency (FEMA) fully implemented four and partially implemented two for the Grants Management Modernization (GMM) program (see table). Specifically, FEMA ensured senior leadership commitment, took steps to assess its business environment and performance goals, took recent actions to track progress in delivering IT requirements, and incorporated input from end user stakeholders. However, FEMA has not yet fully established plans for implementing new business processes or established complete traceability of IT requirements. Until FEMA fully implements the remaining two practices, it risks delivering an IT solution that does not fully modernize FEMA's grants management systems. While GMM's initial May 2017 cost estimate of about $251 million was generally consistent with leading practices for a reliable, high-quality estimate, it no longer reflects current assumptions about the program. FEMA officials stated in December 2018 that they had completed a revised cost estimate, but it was undergoing departmental approval. GMM's program schedule was inconsistent with leading practices; of particular concern was that the program's final delivery date of September 2020 was not informed by a realistic assessment of GMM development activities, and rather was determined by imposing an unsubstantiated delivery date. Developing sound cost and schedule estimates is necessary to ensure that FEMA has a clear understanding of program risks. Of five key cybersecurity practices, FEMA fully addressed three and partially addressed two for GMM. Specifically, it categorized GMM's system based on security risk, selected and implemented security controls, and monitored security controls on an ongoing basis. However, the program had not initially established corrective action plans for 13 medium- and low-risk vulnerabilities. This conflicts with the Department of Homeland Security's (DHS) guidance that specifies that corrective action plans must be developed for every weakness identified. Until FEMA, among other things, ensures that the program consistently follows the department's guidance on preparing corrective action plans for all security vulnerabilities, GMM's system will remain at increased risk of exploits. GAO is making eight recommendations to FEMA to implement leading practices related to reengineering processes, managing requirements, scheduling, and implementing cybersecurity. DHS concurred with all recommendations and provided estimated dates for implementing each of them." ]	14,516	gov_report	en	null	217e94f10e4c8ed084bf7e22681c4bbd75d5aa35d3480edd
The Clean Water Act (CWA) authorizes the principal federal program to aid municipal wastewater treatment plant construction and related eligible activities. Congress established this program in the Federal Water Pollution Control Act Amendments of 1972 (P.L. 92-500) (although prior versions of the act had authorized less ambitious grants assistance since 1956). Title II of P.L. 92-500 authorized grants to states for wastewater treatment plant construction under a program administered by the Environmental Protection Agency (EPA). Federal funds were provided through annual appropriations under a state-by-state allocation formula contained in the act itself. States used their allotments to make grants to cities to build or upgrade wastewater treatment plants, supporting the overall objectives of the act: restoring and maintaining the chemical, physical, and biological integrity of the nation's waters. The federal share of project costs, originally 75% under P.L. 92-500, was reduced to 55% in 1981. By the mid-1980s, there was considerable policy debate between Congress and the Administration over the future of the act's construction grants program and, in particular, the appropriate federal role in funding municipal water infrastructure projects. Through FY1984, Congress had appropriated nearly $41 billion under this program, representing the largest nonmilitary public works programs since the Interstate Highway System. The grants program was a target of budget cuts in the Reagan Administration, which sought to redirect budgetary priorities in part to sort out the appropriate roles of federal, state, and local governments in a number of domestic policy areas, including water pollution control. The Administration's rationale included several points: The original intent of the program to address the backlog of sewage treatment needs had been virtually eliminated by the mid-1980s. Most remaining projects (such as small, rural systems) were believed to pose little environmental threat and were not appropriate federal responsibilities. State and local governments, in the Administration's view, were fully capable of running construction programs and have a clear responsibility to construct treatment capacity to meet environmental objectives that were primarily established by states. Thus, the Reagan Administration sought a phaseout of the act's construction grants program by 1990. Many states and localities supported the idea of phasing out the grants program, since many were critical of what they viewed as burdensome rules and regulations that accompanied the federal grant money. However, they sought a longer transition and ample flexibility to set up long-term financing to promote state and local self-sufficiency. Congress's response to this debate was contained in 1987 amendments to the act ( P.L. 100-4 , the Water Quality Act of 1987). It authorized $18 billion over nine years for sewage treatment plant construction, through a combination of the Title II grants program and a new State Water Pollution Control Revolving Funds program—hereinafter the clean water state revolving fund (CWSRF) program. Under the new program, in CWA Title VI, federal grants would be provided as seed money for state-administered loans to build sewage treatment plants and, eventually, other water quality projects. Cities, in turn, would repay loans to the state, enabling a phaseout of federal involvement while the state built up a source of capital for future investments. Under the amendments, the CWSRF program was phased in beginning in FY1989 (in FY1989 and FY1990, appropriations were split equally between Title II and Title VI grants) and entirely replaced the previous Title II program in FY1991. The intention was that states would have flexibility to set priorities and administer funding, while federal aid would end after FY1994. The CWSRF authorizations for appropriations provided in the 1987 amendments expired in FY1994, but pressure to extend federal funding has continued, in part because, although Congress has appropriated $98 billion in CWA Title II and Title VI wastewater infrastructure assistance since 1972, funding needs remain high: According to the most recent formal estimate by EPA and states (prepared in 2016), an additional $271 billion nationwide is needed over the next 20 years for all types of projects eligible for funding under the act. Congress has continued to appropriate funds, and continued to assist states and localities in meeting wastewater infrastructure needs and complying with CWA requirements. In 1996, Congress established a parallel program under the Safe Drinking Water Act (SDWA) to help communities finance projects needed to comply with federal drinking water regulations. Funding support for drinking water occurred for several reasons. First, until the 1980s, the number of drinking water regulations was fairly small, and public water systems often did not need to make large investments in treatment technologies to meet those regulations. Second, good quality drinking water traditionally has been available to many communities at relatively low cost. By comparison, essentially all communities have had to construct or upgrade sewage treatment facilities to meet the requirements of the CWA. Over time, drinking water circumstances changed, as communities grew, and commercial, industrial, agricultural, and residential land-uses became more concentrated, thus resulting in more contaminants reaching drinking water sources. Moreover, as the number of federal drinking water standards has increased, many communities have found that their water may not be as good as once thought and that additional treatment technologies are required to meet the new standards and protect public health. Between 1986 and 1996, for example, the number of regulated drinking water contaminants grew from 23 to 83, and EPA and the states expressed concern that many of the nation's 52,000 small community water systems were likely to lack the financial capacity to meet the rising costs of SDWA compliance. According to the most recent EPA-state survey (issued in 2018), future funding needs for projects to treat and deliver public drinking water supplies in the United States are $473 billion over the next 20 years. Congress responded to these concerns by enacting the 1996 SDWA Amendments ( P.L. 104-182 ), which authorized a drinking water state revolving loan fund (DWSRF) program to help systems finance projects needed to comply with SDWA regulations and to protect public health. This program, fashioned after the CWSRF program, authorizes EPA to make grants to states to capitalize DWSRFs which states then use to make loans to public water systems. Appropriations for the program were authorized at $599 million for FY1994 and $1 billion annually for FY1995 through FY2003. Capitalization grants for DWSRF programs were provided for the first time in FY1997. Although the authorizations for appropriations expired in FY2003, Congress continued to provide funding for the program in annual appropriations, totaling $23 billion through FY2019. America's Water Infrastructure Act of 2018 (AWIA; P.L. 115-270 ), enacted on October 23, 2018, reauthorized appropriations for the DWSRF at $1.17 billion in FY2019, $1.30 billion in FY2020, and $1.95 billion in FY2021. The first section of this report includes a table that summarizes the history of appropriations for both wastewater and drinking water infrastructure programs. The next section discusses several historical developments in water infrastructure funding. The last section contains a detailed chronology of congressional activity regarding wastewater and drinking water infrastructure funding for each fiscal year since the 1987 CWA amendments. Table 1 summarizes funding for the wastewater and drinking infrastructure programs since enactment of the 1987 CWA amendments ( P.L. 100-4 ). Funding for these EPA programs is contained in the appropriations act providing funds for the Department of the Interior, Environment, and Related Agencies. Within the portion of the bill that funds EPA, wastewater treatment assistance was first specified in an account called Construction Grants, which was subsequently renamed State Revolving Funds/Construction Grants, and then renamed Water Infrastructure. Since FY1996, this account has been titled State and Tribal Assistance Grants (STAG). The STAG account now includes all water infrastructure funds and management grants provided to assist states in implementing air quality, water quality, and other media-specific environmental programs. The FY1996 appropriation was the first to include both water infrastructure and other state environmental grants; the latter previously were included in EPA's general program management account. Amounts shown in Table 1 include funds for CWA Title II grants, CWSRF grants, drinking water SRF grants, special project grants (discussed below), and the Water Infrastructure Finance and Innovation Act (WIFIA) program. Congress first provided appropriations to cover the subsidy costs of this program in FY2017, as discussed in the detailed chronology section below. Table 1 does not include funds for consolidated state environmental management grants. These grants include funding for a wide range of environmental programs, which have changed over time. In recent years, the categorical grants have included funding for water, air, and waste programs. The categorical grant programs most closely related to water infrastructure issues include grants for states' nonpoint source management programs (CWA Section 319) and states' pollution control programs (CWA Section 106). Funding levels for the environmental management state grants are discussed below in the appropriations chronology section. As an additional comparison, Figure 1 illustrates the total EPA water infrastructure appropriations (for clean water and drinking water assistance combined) between FY1986 and FY2019 in both nominal dollars (i.e., not adjusted for inflation) and constant (2018) dollars (i.e., adjusted for inflation). This section discusses several historical developments of note regarding appropriations for EPA's water infrastructure programs. The practice of earmarking a portion of the construction grants/SRF account for specific wastewater treatment and other water quality projects began with the FY1989 appropriations. The practice increased to the point of representing a significant portion of appropriated funds (31% of the total water infrastructure appropriation in FY1994, for example, but less in subsequent years: 2.5% in FY2009 and 5% in FY2010). The number of projects receiving these earmarked funds also increased: from 4 in FY1989 to 319 in FY2010. Beginning in FY2000, the larger total number of earmarked projects resulted in more communities receiving such grants, but at the same time receiving smaller amounts of funds. Thus, while a few communities received individual earmarked awards of $1 million or more, the average size of earmarked grants shrank: $18.1 million in FY1995, $4.9 million in FY1999, $1.08 million in FY2006, and $586,000 in FY2010. (Conference reports on the individual appropriations bills, noted in the later discussion in this report, provide some detail on projects funded in this manner.) The effective result of earmarking was to reduce the amount of funds provided to states to capitalize their SRF programs. Between FY1989 and FY2010, approximately 10% of the total water infrastructure appropriations ($7.4 billion) went to earmarked project grants. Interest groups representing state water quality program managers and administrators of infrastructure financing programs criticized the practice of earmarked appropriations. They contended that earmarking undermined the intended purpose of the state funds—promoting water quality improvements nationwide. Many state officials preferred funds to be allocated more equitably, not based on what they viewed largely as political considerations, and they preferred for state environmental and financing officials to retain responsibility to set actual spending priorities. Further, they argued that the special projects funding would diminish the level of seed funding to SRFs, delaying the time when SRFs would be financially self-sufficient. The practice of earmarking was criticized because designated projects were arguably receiving more favorable treatment than other communities' projects: They were generally eligible for 55% federal grants (and were not required to repay 100% of the funded project cost, as is the case with a loan through an SRF), and the practice circumvented the standard process of states determining the priority by which projects will receive funding. It also meant that the projects were generally not reviewed by the CWA authorizing committees. This was especially true after FY1992, when special purpose grant funding was designated for types of projects not authorized in the Clean Water Act or the Safe Drinking Water Act. Members of Congress intervened for a specific community for a number of reasons. In some cases, the communities may have been unsuccessful in seeking state approval to fund the project under an SRF loan or other program. For some, the cost of a project financed through a state loan was deemed unacceptably high, because repaying the loan would result in increased user fees that ratepayers felt would have been unduly burdensome. In the early years of this congressional practice, special purpose grant funding originated in the House version of the EPA appropriations bill, while the Senate, for the most part, resisted earmarking by rejecting or reducing amounts and projects included in House-passed legislation. Therefore, special purpose grant funding on several occasions was an issue during the House-Senate conference on the appropriations bill. Beginning in FY1999, however, both the House and Senate proposed earmarked projects in their respective versions of the EPA appropriations bill, with the final total number of projects and dollar amounts determined by conferees. The Clean Water Act Title II grants program effectively ended when authorizations for it expired after FY1990. One result of earmarking special purpose grants in appropriations bills was to continue grants as a method of funding wastewater treatment construction long after FY1990. This practice led Congress to provide EPA grants for drinking water system projects, which had not previously been available. However, as discussed in the next section, general opposition to congressional earmarking stopped the practice after FY2011. The federal percentage share and local match required on special purpose grants varied depending on the project and the year of funding. For example, in the early projects (FY1989), the 1987 CWA amendments specified the federal cost shares, which ranged from 75% to 85%. In FY1992 and FY1993, the appropriations acts specified that funds were provided "as grants under title II," resulting in a requirement for local communities to provide a 45% share of project costs. After FY1993, the appropriations acts themselves were the authority for the special purpose projects grants. In the FY1995 appropriation bill, which also directed allocation of funds appropriated in FY1994 to several needy cities, Congress addressed the issue of federal and local cost shares in report language accompanying the bill, but not in the appropriation act itself. The conferees are in agreement that the agency should work with the grant recipients on appropriate cost-share arrangements. It is the conferees' expectation that the agency will apply the 45% local cost share requirement under Title II of the Clean Water Act in most cases. In the FY1996 appropriations, both the act and accompanying reports were silent on federal/local cost share and applicability of Title II requirements. Because of that, EPA officials planned to require only a 5% local match for most of the special purpose grants in that bill, which is the standard matching requirement for other EPA noninfrastructure grants. Under the agency's rules, the local match could include in-kind services, as well as funding toward the project. In the FY1997 appropriations, Congress included report language as it had in FY1995 concerning federal and local cost share requirements. The conferees are in agreement that the Agency should work with the grant recipients on appropriate cost-share agreements and to that end the conferees direct the Agency to develop a standard cost-share consistent with fiscal year 1995. The FY1998 and FY1999 appropriations included neither bill nor report language on this point. However, language in the House and Senate Appropriations Committees' reports on the FY1998 and FY1999 bills directed EPA to work with grant recipients on appropriate cost-share arrangements. For FY2000, Congress included explicit report language concerning the local match. The conferees agree that the $331,650,000 provided to communities or other entities for construction of water and wastewater treatment facilities and for groundwater protection infrastructure shall be accompanied by a cost-share requirement whereby 45 percent of a project's cost is to be the responsibility of the community or entity consistent with long-standing guidelines for the Agency. These guidelines also offer flexibility in the application of the cost-share requirement for those few circumstances when meeting the 45 percent requirement is not possible. Similar report language concerning local cost-share requirements accompanied the conference reports on the appropriations bills from FY2001 through FY2005. Beginning with FY2004, Congress specified in the appropriations legislation that the local share of project costs shall be not less than 45%. Similarly, beginning with the FY2003 appropriations legislation, Congress also specified that, except for those limited instances in which an applicant meets the criteria for a waiver of the cost-share requirement, the earmarked grant shall provide no more than 55% of an individual project's cost, regardless of the amount appropriated. The practice of earmarking special project water infrastructure grants continued to change. First, in FY2007, Congress applied a one-year moratorium on earmarks in all appropriations bills. For the next three years, special project grants were allowed in appropriations bills—including EPA's—but again in FY2011, no special project funding was provided for congressional projects. Following the 2010 midterm election and during subsequent months while FY2011 appropriations were under consideration (discussed below), the general issue of congressional earmarks of specific projects had become highly controversial because of the overall growing number of them, concern over the influence of special interests on spending decisions, and lack of congressional oversight. In response, President Obama said he would veto any legislation containing earmarks, the House extended the ban on earmarks under the Republican Conferences rules, and the chairman of the Senate Appropriations Committee announced a moratorium on earmarks for FY2011 and FY2012. Thus, the FY2011 full-year appropriations measure contained no congressionally directed special project funds for water infrastructure projects in the EPA STAG account. However, it did include funds requested by the President: $10 million for Alaska Native Villages and $10 million for U.S.-Mexico border projects. The FY2012 full-year appropriations measure also contained no special project funding in the EPA STAG account. The FY2012 bill did include funds for Alaska Native and Rural Villages ($10 million) and for U.S.-Mexico border projects ($5 million). The moratorium on congressional earmarks has continued. The FY2013 full-year appropriations measure ( P.L. 113-6 ) contained no special project funding in the STAG account. As with other recent bills, however, it did include funds for Alaska Native and Rural Villages ($9.5 million) and for U.S.-Mexico border projects ($4.7 million). Similarly, the moratorium on earmarks continued in FY2014 and FY2015; P.L. 113-76 contained no special project funding in the STAG account for FY2014, but did include funds for Alaska Native and Rural Villages ($10 million) and for U.S.-Mexico border projects ($5 million). The FY2015 funding bill, P.L. 113-235 , was the same as FY2014. The FY2016, FY2017, and FY2018 appropriations acts ( P.L. 114-113 , P.L. 115-31 , and P.L. 115-141 , respectively) included $20 million for Alaska Native and Rural Villages and $10 million for U.S.-Mexico border projects. The FY2019 appropriations act provided $25 million for Alaska Native and Rural Villages and $15 million for U.S.-Mexico border projects. President Trump's FY2020 budget request proposes to eliminate funding for the U.S.-Mexico border program and decrease funding for the Alaska Native and Rural Villages to $3 million. Although the CWSRF and DWSRF have largely functioned as loan programs, both allow the implementing state agency to provide "additional subsidization" under certain conditions. Since its amendments in 1996, the SDWA has authorized states to use up to 30% of their DWSRF capitalization grants to provide additional assistance, such as forgiveness of loan principal or negative interest rate loans, to help disadvantaged communities (as determined by the state). In 2018, AWIA increased that percentage to 35% and conditionally required states to provide at least 6% of their annual grants as additional subsidization. Congress amended the CWA in 2014, adding similar provisions to the CWSRF program. In addition, appropriations acts in recent years have required states to use minimum percentages of their allotted funds to provide additional subsidization. This trend began with the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), which required states to use at least 50% of their funds to "provide additional subsidization to eligible recipients in the form of forgiveness of principal, negative interest loans or grants or any combination of these." Subsequent appropriation acts have included similar conditions, with varying percentages of subsidization. The FY2016, FY2017, FY2018, and FY2019 appropriations acts included an identical condition, requiring 10% of the CWSRF grants and 20% of the DWSRF grants to be used "to provide additional subsidy to eligible recipients in the form of forgiveness of principal, negative interest loans, or grants (or any combination of these)." The 1987 CWA amendments authorized federal grants to assist states in implementing programs to manage water pollution from nonpoint sources such as farm and urban areas, construction, forestry, and mining sites. Because of competing demands for funding, it was difficult for Congress to fund this grant program and other water quality initiatives in the 1987 act. Appropriators did fund Section 319 grants in EPA's general program management account (abatement, control, and compliance) in FY1990, FY1991, and FY1992 but well below authorized levels. In the FY1993 act, appropriators moved funding into the SRF/construction grants account, thereby providing a degree of protection from competing priorities. In FY1996, Congress included all state grants for management of environmental programs in a single consolidated grants appropriation. In doing so, Congress endorsed a Clinton Administration proposal for a more flexible approach to state grants, a key element of EPA's efforts to improve the federal-state partnership in environmental programs. In more recent years, Congress has provided specific funding amounts for certain programs within the categorical grants appropriation. This section summarizes, in chronological order, congressional activity to fund items in the STAG account since the 1987 CWA amendments. The authorization period covered by P.L. 100-4 was FY1986-FY1994. By the time the amendments were enacted, FY1986 was over, as was a portion of FY1987. Thus, appropriations for those two years only indirectly reflected the policy and program changes for later years that were contained in P.L. 100-4 . For FY1986, Congress appropriated a total of $1.8 billion, consisting of $600 million approved in December 1985 (while Congress was beginning to debate reauthorization legislation that eventually was enacted as P.L. 100-4 in January 1987) and $1.2 billion more in July 1986. For FY1987, while debate on CWA reauthorization continued, President Reagan requested $2.0 billion, consistent with his legislative proposal to terminate the grants program by FY1990. In October 1986, Congress appropriated $2.4 billion ( P.L. 99-500 / P.L. 99-591 ). However, only $1.2 billion of that amount was released immediately, pending enactment of a reauthorization bill, which was then in conference. Following enactment of the Water Quality Act of 1987, remaining FY1987 funds were released as part of a supplemental appropriations bill ( P.L. 100-71 ). Conferees on that measure agreed, however, to shift $39 million of the remaining unreleased grant funds to other priority water quality activities authorized in P.L. 100-4 . The final total of construction grant monies was $2.361 billion. For FY1988 the President again requested $2.0 billion. In December 1987, Congress approved legislation providing FY1988 appropriations ( P.L. 100-202 , the omnibus continuing resolution to fund EPA and other federal agencies). In it, Congress appropriated $2.304 billion for construction grants. Final action on the EPA budget and other funding bills had been delayed by budget-cutting talks between Congress and the White House. Reduced construction grants funding was one of many spending cuts required to implement a congressional-White House "summit agreement" on the budget. The final construction grants appropriation was less than funding levels that had been included in separate versions of a bill passed by the House and Senate before the budget summit, $2.4 billion. For FY1989, President Reagan requested $1.5 billion, or 35% below FY1988 appropriations and 37.5% less than the authorized level of $2.4 billion for FY1989. In separate versions of an EPA appropriations bill, the House and Senate voted to provide $1.95 billion and $2.1 billion respectively. The final figure, in P.L. 100-404 , was $1.95 billion, which included $68 million for special projects in four states. Thus, the actual amount provided for grants was $1.882 billion. That total was divided equally between the previous Title II grants program and new Title VI SRF program, as provided in the authorizing language of P.L. 100-4 . The FY1989 legislation was the first to include earmarking of funds for specified projects or grants in EPA's construction grants account, an action that continued in subsequent years, as discussed above. All of the projects funded in the 1989 legislation were ones that had been authorized in provisions of the Water Quality Act of 1987 (WQA, P.L. 100-4 ). The designated projects were in Boston (authorized in Section 513 of the WQA, to fund the Boston Harbor wastewater treatment project), San Diego/Tijuana (Section 510, to fund an international sewage treatment project needed because of the flow of raw sewage from Tijuana, Mexico, across the border), Des Moines, IA (Section 515, for sewage treatment plant construction), and Oakwood Beach/Redhook, NY (Section 512 of the WQA, to relocate natural gas distribution facilities that were near wastewater treatment works in New York City). For FY1990, President Reagan's budget requested $1.2 billion in wastewater treatment assistance, or 50% less than the authorized level and 38.5% less than the FY1989 enacted amount of $1.95 billion. Further, the Reagan budget proposed that the $1.2 billion consist of $800 million in Title VI monies and $400 million in Title II grants, contrary to provisions of the CWA directing that appropriations be equally divided between the two grant programs, as in FY1989. President Bush's revised FY1990 budget, presented in March 1989, made no changes from the Reagan budget in this area. In acting on this request, Congress agreed to provide $2.05 billion, including $46 million for three special projects (Boston, San Diego/Tijuana, and Des Moines), leaving a total of $1.002 billion each for Titles II and VI ( P.L. 101-144 ). Title II funds were reduced by $6.8 million, however, due to funds earmarked for a specific project in South Carolina. Although these amounts were appropriated, all funds in the bill were reduced by 1.55% (or, a $31.8 million reduction from the construction grants account) to provide funds for the federal government's antidrug program. Final FY1990 appropriations were altered again by passage of the FY1990 Budget Reconciliation measure and implementation of the Balanced Budget and Emergency Deficit Control Act (the Gramm-Rudman-Hollings Act), which established procedures to reduce budget deficits annually, resulting in a zero deficit by 1993. For each fiscal year that the deficit was estimated to exceed maximum targets established in law, an automatic spending reduction procedure was triggered to eliminate deficits in excess of the targets through "sequestration," or permanent cancellation of budgetary resources. Thus, to meet budget reduction mandates and, in particular, deficit reduction targets under the Balanced Budget and Emergency Deficit Control Act (the Gramm-Rudman-Hollings Act), additional funding cuts were included in P.L. 101-239 , the Budget Reconciliation Act of 1989, affecting construction grants funding and all other accounts not exempted from Gramm-Rudman procedures. P.L. 101-239 provided that the "sequestration" procedures under the Gramm-Rudman-Hollings Act would be allowed to apply for a portion of FY1990 (for 130 days, or 35.6% of the year), providing an additional automatic spending reduction in EPA and other agencies' programs subject to the act. As a result of these reductions, funding for wastewater treatment aid in FY1990 totaled $1.98 billion, or $30 million more than in FY1989. The total included $53 million for special projects in San Diego, Boston, Des Moines, and Honea Path/Ware Shoals, SC, $960 million for Title II grants, and $967 million for Title VI grants. The combined reductions amounted to 3.4% less than the amount agreed to by conferees on P.L. 101-144 (i.e., $2.05 billion), before subtracting funds for antidrug programs and accounting for effects of the Gramm-Rudman partial-year sequester. For FY1991, President Bush requested $1.6 billion in funding for wastewater treatment assistance. This total included $15.4 million for the San Diego project authorized in Section 510 of the Water Quality Act of 1987, to fund construction of an international sewage treatment project. The remainder, $1.584 billion, would be only for capitalization grants under Title VI of the act, as the 1987 legislation provides for no new Title II grants after FY1990. In acting on EPA's appropriations for FY1991 ( P.L. 101-507 ), Congress agreed to provide $2.1 billion in wastewater treatment assistance. Beginning in FY1991, all appropriated funds are utilized for capitalization grants under Title VI of the act (as provided in the Water Quality Act of 1987); funding for the traditional Title II grants program was no longer available. The enacted level included several earmarkings: $15.7 million for San Diego (Section 510 of the WQA), $20 million for Boston Harbor (Section 513 of the WQA), and $16.5 million for a new Water Quality Cooperative Agreement Program under Section 104(b)(3) of the act. The President's budget had requested $16.5 million to support state permitting, enforcement, and water quality management activities, especially to offset the reductions in aid to states due to elimination of state management setasides from the previous Title II construction grants program. Congress agreed to the level requested, but provided it as a portion of the wastewater treatment appropriation, rather than as part of EPA's general program management appropriation, as in the President's request. As a result of these earmarkings, $2.048 billion was provided for Title VI grants. For FY1992, President Bush requested $1.9 billion in wastewater treatment funds, or $100 million more than authorized under the Water Quality Act of 1987 for Title VI grants in FY1992. However, out of the $1.9 billion total, the President's request sought $1.5 billion for Title VI SRF grants and $400 million as grants under the expired Title II construction grants program for the following coastal cities: Boston, San Diego, New York, Los Angeles, and Seattle. Two of the five designated projects had been authorized in the 1987 CWA amendments; the other three did not have explicit statutory authorization. Also, $16.5 million was requested for Water Quality Cooperative Agreement grants to the states. In acting on the request in November 1991, Congress provided total wastewater funds of $2.4 billion ( P.L. 102-139 ). The total was allocated as follows: $1,948.5 million for SRF capitalization grants, $16.5 million for Section 104(b)(3) grants, $49 million for the special project in San Diego-Tijuana (Section 510 of the Water Quality Act), $46 million to the Rouge River (MI) National Wet Weather Demonstration Project, and $340 million as construction grants under title II of the Clean Water Act for several other special projects—the Back River Wastewater Treatment Plant (Baltimore), Maryland, the Boston Harbor project, New York City, Los Angeles, San Diego (a wastewater reclamation project), and Seattle. This appropriation bill was the first to include special purpose grant funding for several projects not specifically authorized in the Clean Water Act or amendments to that law. For FY1993, President Bush requested $2.484 billion for state revolving funds/construction grants (now called the water infrastructure account). The requested total included $340 million to be targeted for 55% construction grants to six communities: Boston, New York, Los Angeles, San Diego, Seattle, and Baltimore. In addition, the President requested that $130 million be directed toward a Mexican Border Initiative, consisting of $65 million for construction of the international treatment plant at San Diego (to address the Tijuana sewage problem), $15 million for projects at Nogales, AZ, and New River, CA, and $50 million as 50% grants for colonias in Texas. The President also requested $16.5 million for Section 104(b)(3) grants. Along with these special project and grant amounts, the request sought $2.014 billion for SRF assistance. Final action on FY1993 funding occurred on September 25, 1992 ( P.L. 102-389 ). It provided an appropriation of $2.55 billion, but $622.5 million of this amount was reserved for special projects and other grants. The bill provided $50 million in CWA Section 319 grants and $16.5 million in Section 104(b)(3) grants out of the SRF amount. It included $556 million for the following special purpose grants: the international treatment plant at San Diego (Tijuana—Section 510 of the WQA, with bill language capping funding for that project at $239.4 million), plus projects in Boston; New York; Los Angeles; San Diego; Seattle; Rouge River, MI; Baltimore; Ocean County, NJ; Atlanta; and for colonias in Texas, Arizona, and New Mexico. The final SRF grant amount under the bill was $1.928 billion. Early in 1993, President Clinton requested that Congress approve "economic stimulus and investment" spending, in the form of supplemental FY1993 appropriations. Both his original proposal and a subsequent modified proposal included additional SRF grant funds, but neither of the bills enacted by Congress in response to these requests ( P.L. 103-24 , P.L. 103-50 ) provided additional SRF funds. For FY1994, the Clinton Administration requested $2.047 billion for water infrastructure. The funds in this request were $1.198 billion to capitalize State Revolving Funds, $150 million for Mexican border project grants, and $100 million for a single hardship community (Boston). The request also included $599 million to capitalize new state drinking water revolving funds. The final version of the FY1994 legislation ( P.L. 103-124 ) provided $2.477 billion for water infrastructure/state revolving funds. Of this total amount, $599 million was to be reserved for drinking water SRFs, if authorization legislation were enacted; $80 million was for Section 319 grants; $22 million was for Section 104(b)(3) grants; and $58 million was for Tijuana/San Diego—Section 510 of the WQA. This resulted in an appropriation of $1.718 billion for clean water SRFs. In addition, the final bill provided that $500 million be used to support water infrastructure financing in economically distressed/hardship communities. Under the bill, these funds were not available for spending until May 31, 1994, and were set aside until projects were authorized in the CWA for this purpose. Thus, the bill as enacted provided $1.218 billion immediately for clean water SRFs, with the expectation that $500 million more would be available for financing hardship community projects after May 31, 1994. For FY1995, President Clinton requested $2.65 billion for water infrastructure consisting of $1.6 billion for CWA SRFs, $100 million for Section 319 nonpoint source management grants to states, $52.5 million for a grant to San Diego for a wastewater project pursuant to Section 510 of the WQA, $47.5 million for other Mexican border projects, $50 million to the state of Texas for colonias projects, and $100 million for grants under Title II for needy cities (intended for Boston). The request included $700 million for drinking water SRFs, pending enactment of authorizing legislation. The President's budget also requested $21.5 million for Section 104(b)(3) grants/cooperative agreements. Final agreement on FY1995 funding was contained in P.L. 103-327 , enacted in September 1994, which provided a total of $2.962 billion for water infrastructure financing. Of the total, $22.5 million was for grants under Section 104(b), $100 million for Section 319 grants, $70 million for Public Water System Supervision program grants (grants to states under the Safe Drinking Water Act to support state implementation of delegated drinking water programs), $52.5 million for the Section 510 project in San Diego, and $700 million for drinking water SRFs (contingent upon enactment of authorization legislation). The remaining $2.017 billion was for CWA projects. Of this amount, $1.235 billion was for clean water SRF grants to states under Title VI of the CWA. The remaining $781.8 million (39% of this amount, 26% of the total appropriation) was designated for 45 specific, named projects in 22 states. The earmarked amounts ranged in size from $200,000 for Southern Fulton County, PA, to $100 million for the city of Boston. Finally, the conferees included bill language concerning release of the $500 million in FY1994 needy cities money (because the authorizing committees of Congress had not acted on legislation to authorize specific projects, as had been intended in P.L. 103-124 ) as follows: $150 million to Boston, $50 million for colonias in Texas, $10 million for colonias in New Mexico, $70 million for a New York City wastewater reclamation facility, $85 million for the Rouge River project, $50 million for the city of Los Angeles, $50 million for the county of Los Angeles, and $35 million for Seattle, WA. In February 1995, President Clinton submitted the Administration's budget request for FY1996. It requested $2.365 billion for water infrastructure funding consisting of $1.6 billion for clean water state revolving funds, $500 million for drinking water state revolving funds, $150 million to support Mexico border projects under the U.S.-Mexican Border Environmental Initiative and NAFTA, and $100 million for special need/economically distressed communities (not specified in the request, but presumed to be intended for Boston), plus $15 million for water infrastructure needs in Alaska Native Villages. In February 1995, congressional appropriations committees began considering legislation to rescind previously appropriated FY1995 funds, as part of overall efforts by the 104 th Congress to shape the budget and federal spending. These efforts resulted in passage in July 1995 of P.L. 104-19 , which rescinded $16.5 billion in total funds from a number of departments, agencies, and programs. In the water infrastructure area, it rescinded $1,077,200,000 from prior year appropriations including the $3.2 million for a project in New Jersey (it had mistakenly been funded twice in P.L. 103-327 ) and $1,074,000,000 in other water infrastructure appropriations. Although not contained in bill language, it was understood that the larger rescinded amount consisted solely of drinking water SRF funds (leaving $1.235 billion for FY1995 clean water SRF funds, $778.6 million for earmarked wastewater projects—both amounts as originally appropriated—and $225 million in FY1994-FY1995 drinking water SRF funds that had not yet been authorized). It took until April 1996 for Congress and the Administration to reach agreement on FY1996 appropriations for EPA as part of omnibus legislation ( P.L. 104-134 ) that consolidated five appropriations bills not yet enacted due to disagreements over funding levels and policy. Agreement came as the fiscal year was more than one-half over. Before that, however, congressional conferees reached agreement in November 1995 on FY1996 legislation for EPA ( H.R. 2099 , H.Rept. 104-353 ). Conferees agreed to provide $2.323 billion for a new account titled State and Tribal Assistance Grants (STAG), consisting of infrastructure assistance and state environmental management grants for 16 categorical programs that had previously been funded in a separate appropriations account. The total included $1.125 billion for clean water SRF grants, $275 million in new appropriations for drinking water SRF grants, and $265 million for special purpose project grants. Report language provided that the drinking water SRF money also included $225 million from FY1995 appropriations rescinded in P.L. 104-19 . The drinking water SRF money would be available upon enactment of SDWA reauthorization legislation that would authorize a drinking water SRF program; otherwise, it would revert to clean water SRF grants if the SDWA were not reauthorized by June 30, 1996. This made the total potentially available for drinking water SRF grants $500 million. The November 1995 agreement on H.R. 2099 included $658 million for consolidated state environmental grants. In doing so, Congress endorsed an Administration proposal for a more flexible approach to state grants, a key element of EPA's efforts to improve the federal-state partnership in environmental programs. In lieu of traditional grants provided separately to support state air, water, hazardous waste, and other programs, consolidated grants are intended to reduce administrative burdens and improve environmental performance by allowing states and tribes to target funds to meet their specific needs and integrate their environmental programs, as appropriate. Congress's support was described in accompanying report language. The conferees agree that Performance Partnership Grants are an important step to reducing the burden and increasing the flexibility that state and tribal governments need to manage and implement their environmental protection programs. This is an opportunity to use limited resources in the most effective manner, yet at the same time, produce the results-oriented environmental performance necessary to address the most pressing concerns while still achieving a clean environment. Including state environmental grants in the same account with water infrastructure assistance reflected Congress's support for enhancing the ability of states and localities to implement environmental programs flexibly and support for EPA's ability to provide block grants to states and Indian tribes. The H.R. 2099 conference agreement also included legislative riders intended to limit or prohibit EPA from spending money to implement several environmental programs. The Administration opposed the riders. The House and Senate approved this bill in December, but President Clinton vetoed it, because of objections to spending and policy aspects of the legislation. With no full-year funding in place from October 1995 to April 1996, EPA and the programs it administers (along with agencies and departments covered by four other appropriations bills not yet enacted) were subject to a series of short-term continuing resolutions, some lasting only a day, some lasting several weeks. In March 1996, the House and Senate began consideration of an omnibus appropriations bill to fund EPA and other agencies for the remainder of FY1996, finally reaching agreement in April on a bill ( H.R. 3019 ) enacted as P.L. 104-134 . Congress agreed to provide $2.813 billion for a new account titled STAG, consisting of state grants and infrastructure assistance, as in H.R. 2099 , the vetoed measure. The total was divided as follows: $1.3485 billion for clean water SRF grants (including $50 million for impoverished communities), $500 million in new appropriations for drinking water SRF grants, $150 million for Mexico-border project grants and Texas colonias , as requested, $15 million for Alaska Native Villages, as requested, $141.5 million for 17 special purpose project grants, and $658 million for consolidated state environmental grants, which states could use to administer a range of delegated environmental programs. Report language provided that the drinking water SRF money also included $225 million from FY1995 appropriations that remained available after the rescissions in P.L. 104-19 , for a total of $725 million. The drinking water SRF money was contingent upon enactment of legislation authorizing an SRF program under the Safe Drinking Water Act by August 1, 1996; otherwise, it would revert to clean water SRF grants. The final agreement ( P.L. 104-134 ) included several of the legislative riders from previous versions of the legislation, including riders related to drinking water and clean air, but dropped others strongly opposed by the Administration. Funds within the STAG account were redistributed after Congress passed Safe Drinking Water Act amendments in August 1996. Enactment of the amendments ( P.L. 104-182 ) occurred on August 6—after the August 1 deadline in P.L. 104-134 that would have made $725 million available for drinking water SRF grants in FY1996. Thus, the previously appropriated $725 million reverted to clean water SRF grants, making the FY1996 total for those grants $2.0735 billion. While debate over the FY1996 appropriations was continuing, in March 1996, President Clinton submitted the details of a FY1997 budget. For water infrastructure and state and tribal assistance, the request totaled $2.852 billion consisting of $1.35 billion for clean water SRF grants (the request included language that would authorize states the discretion to use this SRF money either for clean water or drinking water projects), $165 million for U.S.-Mexico border projects, Texas colonias , and Alaska Native Village projects, $113 million for needy cities projects, $550 million for drinking water infrastructure SRF funding, contingent upon enactment of authorizing legislation, and $674 million for state performance partnership consolidated management grants, which could address a range of environmental programs. In response to the Administration's request, in June 1996 the House approved legislation ( H.R. 3666 ) providing FY1997 funding for EPA. In the STAG account, the House approved $2.768 billion, $84 million less than requested but on the whole endorsing the budget request. The total provided the following: $1.35 billion for clean water SRF grants, as requested; $165 million, as requested, for U.S.-Mexico Border projects, Texas colonias , and Alaska Native Village projects; $450 million for drinking water SRF funding, contingent upon authorization; $674 million for state performance partnership consolidated management grants; and $129 million for seven special purpose grants. In July, the Senate Appropriations Committee reported its version of H.R. 3666 . The committee approved $2.815 billion for this account, consisting of $1.426 billion for clean water SRF grants; $550 million for drinking water SRF grants, contingent upon authorization; $165 million, as requested, for U.S.-Mexico border projects, Texas colonias , and Alaska Native Village projects; and $674 million for consolidated state grants. The committee rejected the provision of the House-passed bill providing $129 million for special purpose grants, including funds for Boston and New Orleans requested by the Administration, saying in report language that earmarking is provided at the expense of state revolving funds and does not represent an equitable distribution of grant funds ( S.Rept. 104-318 ). During debate on H.R. 3666 in September, the Senate adopted an amendment to reduce the FY1997 appropriation for clean water SRF grants by $725 million in order to fund the new drinking water SRF program. This action was intended to restore funds to the drinking water program which had been lost when Safe Drinking Water Act amendments were not enacted by August 1, 1996. Thus, the Senate-passed bill provided $701 million for clean water SRF grants and $1.275 billion for drinking water SRF grants for FY1997. Other amounts in the account were unchanged. The conference report on H.R. 3666 ( H.Rept. 104-812 ) was approved by the House and Senate on September 24, 1996. President Clinton signed the bill September 26 ( P.L. 104-204 ). It reflected compromise of the House- and Senate-passed bills, providing the following amounts within the STAG account ($2.875 billion total): $625 million for clean water SRF grants, $1.275 billion for drinking water SRF grants, $165 million, as requested, for U.S.-Mexico border projects, Texas colonias , and Alaska Native Village projects, $136 million for 18 specific wastewater, water, and groundwater project grants (the 7 specified in House-passed H.R. 3666 , plus 11 more; the bill provided funds for each of the needy cities projects requested by the Administration, but in lesser amounts), and $674 million for consolidated state grants, which could support implementation of a range of environmental programs. The allocation of clean water and drinking water SRF grants was consistent with the Senate's action to restore funds to the drinking water program after enactment of the Safe Drinking Water Act amendments in early August. Subsequently, Congress passed a FY1997 Omnibus Consolidated Appropriations bill to cover agencies and departments for which full-year funding had not been enacted by October 1, 1996 ( P.L. 104-208 ). It included additional funding for several EPA programs, as well as $35 million (on top of $40 million provided in P.L. 104-204 ) for the Boston Harbor cleanup project. President Clinton presented the Administration's budget request for FY1998 in February 1997. For water infrastructure and state and tribal assistance, the request totaled $2.793 billion, consisting of $1.075 billion for clean water SRF grants, $725 million for drinking water SRF grants, $715 million for consolidated state environmental grants, and $278 million for special project grants. House and Senate committees began activities on FY1998 funding bills somewhat late in 1997, due to prolonged negotiations between Congress and the President over a five-year budget plan to achieve a balanced budget by 2002. After appropriators took up the FY1998 funding bills in June, the House passed EPA's appropriation in H.R. 2158 ( H.Rept. 105-175 ) on July 15. In the STAG account, the House approved $3.019 billion, consisting of $1.25 billion for clean water SRF grants ($600 million more than FY1997 levels and $175 million more than requested by the President), $750 million for drinking water SRF grants ($425 million less than FY1997 levels, but $25 million more than the request), $750 million for state environmental assistance grants, and $269 million for special projects. The latter included funds for the special projects requested by the Administration but at reduced levels ($149 million total for these projects), plus $120 million in special project grants for 21 other communities. The Senate passed a separate version of an FY1998 appropriations bill on July 22, 1997 ( S. 1034 , S.Rept. 105-53 ). It provided $3.047 billion for the STAG account, consisting of $1.35 billion for clean water SRF grants, $725 million for drinking water SRF grants, $725 million for state environmental assistance grants, and $247 million for special project grants. The Senate bill provided the amounts requested by the Administration for U.S.-Mexico border projects, Texas colonias , and Alaska Native Village projects (but no special funds for others requested by the President), plus $82 million for 18 special project grants for other communities identified in report language. Conferees reached agreement on FY1998 funding in early October 1997 ( H.R. 2158 , H.Rept. 105-297 ). The final version passed the House on October 8 and passed the Senate on October 9. President Clinton signed the bill October 27 ( P.L. 105-65 ). As enacted, it provided $3.213 billion for the STAG account, consisting of $1.35 billion for clean water SRF grants, $725 million for drinking water SRF grants, $745 million for consolidated state environmental assistance grants (which could address a range of environmental programs), and $393 million for 42 special purpose project and special community need grants for construction of wastewater, water treatment and drinking water facilities, and groundwater protection infrastructure. It included the following amounts for grants requested by the Administration: $75 million for U.S.-Mexico border projects, $50 million for Texas colonias , $50 million for Boston Harbor wastewater needs, $10 million for New Orleans, $3 million for Bristol County, MA, and $15 million for Alaska Native Village projects. The final bill also provided funds for all of the special purpose projects included in the separate House and Senate versions of the legislation, plus three projects not included in either earlier version. Bill language was included in P.L. 105-65 to allow states to cross-collateralize clean water and drinking water SRF funds, that is, to use the combined assets of amounts appropriated to State Revolving Funds as common security for both SRFs, which conferees said is intended to ensure maximum opportunity for states to leverage these funds. Senate committee report language also said that the conference report on the 1996 Safe Drinking Water Act Amendments had stated that bond pooling and similar arrangements were not precluded under that legislation. The appropriations bill language was intended to ensure that EPA does not take an unduly narrow interpretation of this point which would restrict the states' use of SRF funds. On November 1, 1997, President Clinton used his authority under the Line Item Veto Act ( P.L. 104-130 ) to cancel six items of discretionary budget authority provided in P.L. 105-65 . The President's authority under this act took effect in the 105 th Congress; thus, this was the first EPA appropriations bill affected by it. The cancelled items included funding for one of the special purpose grants in the bill, $500,000 for new water and sewer lines in an industrial park in McConnellsburg, PA. Reasons for the cancellation, according to the President, were that the project had not been requested by the Administration; it would primarily benefit a private entity and is outside the scope of EPA's usual mission; it is a low priority use of environmental funds; and it would provide funding outside the normal process of allocating funds according to state environmental priorities. However, in June 1998, the Supreme Court struck down the Line Item Veto Act as unconstitutional, and in July the Office of Management and Budget announced that funding would be released for 40-plus cancellations made in 1997 under that act (including those cancelled in P.L. 105-65 ) that Congress had not previously overturned. (For additional information, see CRS Report RL33635, Item Veto and Expanded Impoundment Proposals: History and Current Status , by Virginia A. McMurtry.) President Clinton's budget request for FY1999, presented to Congress in February 1998, requested $2.9 billion for the STAG account, representing 37% of the $7.9 billion total requested for EPA programs. The total included $1.075 billion for clean water SRF grants, $775 million for drinking water SRF grants, $115 million for water infrastructure projects along the U.S.-Mexico border projects and in Alaska Native Villages, $78 million for needy cities projects, and $875 million for consolidated state environmental grants (which could address a range of environmental programs). Legislative action on the budget request occurred in mid-1998. Both houses of Congress increased amounts for water infrastructure financing, finding the Administration's request for clean water and drinking water SRF grants, as well as special project funding, not adequate. First, the Senate Appropriations Committee reported its version of an EPA spending bill in June 1998 ( S. 2168 , S.Rept. 105-216 ). This bill, passed by the Senate July 17, provided $3.2 billion for the STAG account, consisting of $1.4 billion for clean water SRF grants, $800 million for drinking water SRF grants, $105 million for U.S.-Mexico and Alaska Native Village projects, $100 million for 39 other special needs infrastructure grants, and $850 million for state performance partnership/categorical grants. As in FY1998, the committee included bill language allowing states to cross-collateralize their clean water and drinking water state revolving funds, making the language explicit for FY1999 and thereafter. Second, the House passed its version of EPA's funding bill ( H.R. 4194 , H.Rept. 105-610 ) on July 29. This bill provided $3.2 billion for the STAG account, consisting of $1.25 billion for clean water SRF grants, $775 million for drinking water SRF grants, $70 million for U.S.-Mexico and Alaska Native Village projects, $253.5 million for 49 other special needs infrastructure grants (including nine projects also funded in the Senate bill), and $885 million for state environmental management grants (a 20% increase above FY1998 amounts for these state grants). Conferees resolved differences between the two versions in October 1998 ( H.R. 4194 , H.Rept. 105-769 ). The conference agreement provided $3.4 billion for the STAG account, consisting of $1.35 billion for clean water SRF grants, $775 million for drinking water SRF grants, $80 million for U.S.-Mexico and Alaska Native and Rural Village projects, $301.8 million for 80 other special needs project grants, and $880 million for state and tribal environmental program grants (which could address a range of environmental programs). The House and Senate approved the agreement on October 7 and 8, respectively, and President Clinton signed the bill into law on October 21 ( P.L. 105-276 ). Additional funding was provided in the Omnibus Consolidated and Supplemental Appropriations Act, FY1999 ( P.L. 105-277 ). This bill, which provided full-year funding for agencies and departments covered by seven separate appropriations measures, directed $20 million more in special needs grants for the Boston Harbor wastewater infrastructure project, on top of $30 million that was included in P.L. 105-276 . For FY2000, beginning on October 1, 1999, the Administration requested $2.638 billion for water infrastructure assistance and state environmental grants. The total, $370 million less than the FY1999 appropriation for this account, consisted of $800 million for clean water SRF grants, $825 million for drinking water SRF grants, $128 million for Mexican border and special project grants, and $885 million for consolidated state environmental grants (which could address a range of environmental programs). The request included one SRF policy issue. The Administration asked the appropriators to grant states the permission to set aside up to 20% of FY2000 clean water SRF monies in the form of grants for local communities to implement nonpoint source pollution and estuary management projects. Under the Clean Water Act, SRFs may only be used to provide loans. Some have argued that some types of water pollution projects which are eligible for SRF funding may not be suitable for loans, as they may not generate revenues which can be used to repay the loan to a state. This new authority, the Administration said, would allow states greater flexibility to address nonpoint pollution problems. Critics of the proposal said that making grants from an SRF would reduce the long-term integrity of a state's fund, since grants would not be repaid. Some Members of Congress and stakeholder groups were particularly critical of the budget request for clean water SRF grants, $550 million (40%) less than the FY1999 level. Critics said the request was insufficient to meet the needs of states and localities for clean water infrastructure. In response, EPA acknowledged that several years prior the Clinton Administration had made a commitment to states that the clean water SRF would revolve at $2 billion annually in the year 2005. Because of loan repayments and other factors, EPA said, the overall fund will be revolve at $2 billion per year in the year 2002, even with the 20% grant setaside included in the FY2000 request. According to EPA, the $550 million decrease from 1999 would have only a limited impact on SRFs and would still allow the agency to meet its long-term capitalization goal of providing an average amount of $2 billion in annual assistance. The House and Senate passed their respective versions of an EPA appropriations bill ( H.R. 2684 ) in September 1999. The conference committee report resolving differences between the two versions ( H.Rept. 106-379 ) was passed by the House on October 14 and the Senate on October 15 and was signed by the President on October 20 ( P.L. 106-74 ). The final bill provided $7.6 billion overall for EPA programs, including $3.47 billion for the STAG account. Within that account, the bill included $1.35 billion for clean water SRF grants, $820 million for drinking water SRF grants, $885 million for categorical state grants (which generally support state and tribal implementation and could address a range of environmental programs), $80 million for U.S.-Mexico border and Alaska Rural and Native Village projects, and $331.6 million for 141 other special needs water and wastewater grants specified in report language. The final bill did not approve the Administration's request to allow states to use up to 20% of clean water SRF monies as grants for nonpoint pollution and estuary management projects. Subsequent to enactment of the EPA funding bill, Congress passed the Consolidated Appropriations Act for FY2000 with funding for five other agencies ( P.L. 106-113 ), which included provisions requiring a government-wide cut of 0.38% in discretionary appropriations. The bill gave the President some flexibility in applying this across-the-board reduction. Details of the reduction were announced at the time of the release of the FY2001 budget. EPA's distribution of the rescission resulted in a total reduction of $16.3 million for 139 of the special needs water and wastewater projects identified in P.L. 106-74 . These projects were reduced 4.9% below enacted levels. The agency did not reduce funds for the two projects that had been included in the President's FY2000 budget request (Bristol County, MA, and New Orleans, LA) or for the United States-Mexico border and the Alaska Rural and Native Villages programs. EPA also reduced funds for the clean water SRF (enacted at $1.35 billion) by 0.3%, for a final funding level of $1.345 billion. The appropriation level was not reduced for the drinking water SRF or consolidated state grants. The President's budget for FY2001 requested a total of $2.9 billion for water infrastructure assistance and state environmental grants. For the second year in a row, President Clinton requested $800 million for the clean water SRF program, a $545 million reduction from the FY2000 level. The request included $825 million for the drinking water SRF program, $100 million for U.S.-Mexico border project grants, $15 million for Alaska Native Villages projects, two needy cities grants totaling $13 million (Bristol County, MA, and New Orleans, LA), plus $1.069 billion for consolidated state environmental grants (which could address a range of environmental programs). The budget included a policy request similar to one in the FY2000 budget, which Congress rejected. The FY2001 budget sought flexibility for states to set aside up to 19% of clean water SRF monies in the form of grants for local communities to implement nonpoint source pollution and estuary management projects. The House approved its version of EPA's funding bill ( H.R. 4635 , H.Rept. 106-674 ) on June 21, 2000. For the STAG account, H.R. 4635 provided $3.2 billion ($273 million more than requested, but $288 million below the FY2000 level). The total in the STAG account consisted of $1.2 billion for clean water SRF grants, $825 million for drinking water SRF grants, $1.068 billion (the budget request) for categorical state grants, and $85 million for U.S.-Mexico border and Alaska Rural and Native Villages projects. Beyond these, however, the House-passed bill included no funds for other special needs grants. The Senate approved its version of the funding bill ( S.Rept. 106-410 ) on October 12, 2000. For the STAG account, the Senate-passed bill provided $3.3 billion, consisting of $1.35 billion for clean water SRF grants, $820 million for drinking water SRF grants, $955 million for categorical state grants, $85 million for U.S.-Mexico border and Alaska Rural and Native Village projects, and $110 million for special needs water and wastewater grants. In October, the House and Senate approved EPA's funding bill for FY2001 ( H.Rept. 106-988 ), providing $1.35 billion for clean water SRF grants (the same level enacted for FY2000) and $825 million for drinking water SRF grants. The enacted bill included $110 million in grants for water infrastructure projects in Alaska Rural and Native Villages and U.S.-Mexico border projects and an additional $336 million for 237 other specified project grants throughout the country. The bill also provided $1,008 million for state categorical program grants ($60 million less in total than requested), which states could use to address a range of environmental programs. Total funding for the STAG account was $3.6 billion. Congress disapproved the Administration's policy request concerning use of clean water SRF monies for nonpoint source project grants. President Clinton signed the bill October 27, 2000 ( P.L. 106-377 ). Subsequently, in December, Congress provided $21 million more for five more special project water infrastructure grants (in addition to the $336 million in P.L. 106-377 ) as a provision of H.R. 4577 , the FY2001 Consolidated Appropriations Act ( P.L. 106-554 ). Also in that legislation, Congress enacted the Wet Weather Water Quality Act, authorizing a two-year, $1.5 billion grants program to reduce wet weather flows from municipal sewer systems. The provision was included in Section 112, Division B, of P.L. 106-554 . In April 2001, the Bush Administration presented its budget request for FY2002. The Administration requested a total of $2.1 billion for clean water infrastructure funds, consisting of $823 million for drinking water SRF grants, $850 million for clean water SRF grants (compared with $1.35 billion appropriated for FY2001), and $450 million for the new program of municipal sewer overflow grants under legislation enacted in December, the Wet Weather Water Quality Act. However, that act provided that sewer overflow grants are only available in years when at least $1.35 billion in clean water SRF grants is appropriated. Subsequently, Administration officials said they would request that Congress modify the provision linking new grant funds to at least $1.35 billion in clean water SRF grants. The Bush budget requested no funds for special earmarked grants, except for $75 million to fund projects along the U.S.-Mexico border and $35 million for projects in Alaska Native Villages (both are the same amounts provided in FY2001). In response, some Members of Congress and outside groups criticized the budget request, saying that it did not provide enough support for water infrastructure programs. The President's budget also requested $1.06 billion for state categorical program grants, which generally support state and tribal administration of a range of environmental programs. The House passed its version of FY2002 funding for EPA on July 30 ( H.R. 2620 , H.Rept. 107-159 ). The House-passed bill provided a total of $2.4 billion for water infrastructure funds, consisting of $1.2 billion for clean water SRF grants, $850 million for drinking water SRF grants, $200 million for special project grants (individual projects were unspecified in the report accompanying H.R. 2620 ), $75 million for U.S.-Mexico border projects, and $30 million for Alaska Rural and Native Villages. The House bill provided no separate funds for the new wet weather overflow grant program, which the Administration had requested. Including $1.08 billion for state categorical program grants, total STAG account funding in the bill was $3.44 billion, about $150 million higher than the President's request. The Senate passed its version of this appropriations bill on August 2 ( S. 1216 , S.Rept. 107-43 ). Like the House, the Senate rejected separate funding for wet weather overflow grants, and the Senate increased clean water SRF grant funding to the FY2001 level. The Senate-passed total for the STAG account was $3.49 billion, including $1.35 billion for clean water SRF grants, $850 million for drinking water SRF grants, $140 million for special needs infrastructure grants specified in accompanying report language, $75 million for U.S.-Mexico border projects, $30 million for Alaska Rural and Native Villages, and $1.03 billion for state categorical program grants. Resolution of this and other appropriations bills in fall 2001 was complicated by congressional attention to general economic conditions and responses to the September 11 terrorist attacks on the World Trade Center and the Pentagon. Nevertheless, the House and Senate gave final approval to legislation providing EPA's FY2002 funding ( H.R. 2620 , H.Rept. 107-272 ) on November 8, and President Bush signed the bill on November 26 ( P.L. 107-73 ). The final bill did not include separate funds for the new sewer overflow grant program requested by the Administration, which both the House and Senate had rejected, but it did include $1.35 billion for clean water SRF grants, $850 million for drinking water SRF grants, $344 million for 337 earmarked water infrastructure project grants specified in report language, and the requested $75 million for U.S.-Mexico border projects and $30 million for Alaska Rural and Native Villages. The bill included total STAG funding of $3.7 billion. President Bush presented the Administration's FY2003 budget request in February 2002, asking Congress to appropriate $2.185 billion for EPA's water infrastructure programs (compared with $2.659 billion appropriated for FY2002). The FY2003 request sought $1.212 billion for clean water SRF grants, $850 million for drinking water SRF grants, and $123 million for a limited number of special projects (especially in Alaska Native Villages and in communities on the U.S.-Mexico border). The Administration proposed to eliminate funds for unrequested infrastructure project spending that Congress had earmarked in the FY2002 law, which totaled $344 million. Also, the Administration requested no funds for the municipal sewer overflow grants program enacted in 2000. Some Members of Congress criticized the request level for clean water SRF capitalization grants, which was $138 million below the FY2002 enacted amount. In August 2002, the Senate Appropriations Committee approved an FY2003 funding bill for EPA that would provide $1.45 billion for clean water SRF grants, $100 million more than the FY2002 level ( S. 2797 , S.Rept. 107-222 ). In addition, the Senate committee bill included $875 million for drinking water SRF grants, $140 million for special needs infrastructure grants specified in report language, $45 million for Alaska Rural and Native Village project grants, $75 million for U.S.-Mexico border projects, and $1.134 billion for state categorical program grants, which could address a range of environmental programs. The House Appropriations Committee approved its version of an FY2003 funding bill with $1.3 billion for the clean water SRF program ( H.R. 5605 , H.Rept. 107-740 ) in October. This bill also included $850 million for drinking water SRF grants, $227.6 million for special needs infrastructure grants enumerated in report language, $35 million for Alaska Rural and Native Village project grants, $75 million for U.S.-Mexico border projects, and $1.173 billion for state categorical program grants, which could address a range of environmental programs. Neither appropriations committee included funds for the sewer overflow grant program authorized in 2000 (the Administration did not request FY2003 funds for these grants). Due to complex budgetary disputes during the year, final action did not occur before the 107 th Congress adjourned in November 2002, and it extended into 2003, more than five months after the start of the fiscal year. Congress and the President reached agreement on funding levels for EPA and other nondefense agencies in an omnibus appropriations act ( P.L. 108-7 ; H.J.Res. 2 , H.Rept. 108-10 ), which the President signed on February 20. The EPA portion of the enacted bill included $1.34 billion for clean water SRF grants, $844 million for drinking water SRF grants, and $413 million more for 489 special water infrastructure project grants to individual cities specified in conference report language, plus projects in Alaska Native Villages and communities on the U.S.-Mexico border. It also provided a total of $1.14 billion for categorical state grants, which generally support states and tribal implementation of a range of environmental programs. On February 3, 2003, before completion of the FY2003 appropriations, President Bush submitted his budget request for FY2004. It requested a total of $1.798 billion for water infrastructure funds, consisting of $850 million for clean water SRF grants, $850 million for drinking water SRF grants, and $98 million for priority projects (especially in Alaska Native Villages and in communities on the U.S.-Mexico border). As in previous years, the Administration requested no funds for congressionally earmarked project grants for individual communities. Some Members of Congress and interest groups criticized the request for clean water SRF grants ($490 million below the FY2003 enacted level), but Administration officials responded by saying that the request reflected a commitment to fund this program at the $850 million level through FY2011. Funding at that level and over that long-term period, plus repayments of previous SRF loans made by states, would be expected to increase the revolving levels of the overall program from $2.0 billion to $2.8 billion per year, the Administration said. The President's budget also requested $1.2 billion for categorical state grants, which could address a range of environmental programs. On July 25, the House approved H.R. 2861 ( H.Rept. 108-235 ), providing FY2004 appropriations for EPA. As passed, the bill included $1.2 billion for clean water SRF grants, $850 million for drinking water SRF grants, $203 million for earmarked water infrastructure project grants, and $75 million in grants for high-priority projects in Alaska Native Villages and along the U.S.-Mexico border. Senate action on its version of a funding bill for EPA ( S.Rept. 108-143 ) occurred on November 18. The Senate-passed bill provided $1.35 billion for clean water SRF grants, $850 million for drinking water SRF grants, $130 million for targeted infrastructure project grants, plus $95 million in grants for projects in Alaska Native Villages and along the U.S.-Mexico border. As with the previous year's appropriations, Congress did not enact legislation providing FY2004 funds for EPA before the beginning of the new fiscal year; thus EPA programs were covered by a series of continuing resolutions (CRs). The last of these CRs ( P.L. 108-135 ) extended FY2003 funding levels through January 31, 2004. On December 8, 2003, the House passed legislation providing full-year funding for EPA and other agencies that lacked enacted appropriations ( H.R. 2673 ). The conference report on this bill ( H.Rept. 108-401 ) provided $1.34 billion for clean water SRF grants, $845 million for drinking water SRF grants, and $425 million in grants for 520 earmarked grants in listed communities, Alaska Native Villages, and U.S.-Mexico border projects. The Senate approved the conference report on January 22, 2004, and President Bush signed the legislation January 23 ( P.L. 108-199 ). The FY2005 EPA appropriation for water infrastructure funds was the lowest total for these programs since FY1997 (the first year in which Congress provided both clean water and drinking water SRF capitalization grants, as well as earmarked project grants). The decline was due primarily to a reduction in funding for the clean water SRF program from an average of $1.35 billion since FY1998 to $1.09 billion. President Bush's FY2005 budget, presented February 2, 2004, requested a total of $3.0 billion for water infrastructure assistance and state environmental program grants. It included $850 million for clean water SRF grants, $850 million for drinking water SRF grants, $94 million for priority projects (primarily in Alaska Native Villages and along the U.S.-Mexico border), and $1.25 billion for categorical grants, which could address a range of environmental programs. As in recent budgets, the Administration requested no funds for congressionally earmarked project grants. Anticipating that critics likely would focus on the clean water SRF request ($492 million below the FY2004 level), in its budget documents the Administration said that the request included funding for the clean water SRF at $850 million annually through 2011, which, together with loan repayments, state matches, and other funding sources, would result in a long-term average revolving level of $3.4 billion. Likewise, the budget anticipated funding the drinking water SRF program at the same $850 million annually through 2011, resulting in a long-term average revolving level of $1.2 billion. House and Senate Appropriations committees began review of the EPA budget request in March. On September 9, 2004, the House Appropriations Committee reported FY2005 funding for EPA in a bill that included the Administration's requested level of $850 million for clean water SRF grants, $850 million for drinking water SRF grants, and earmarked grants for priority water infrastructure projects totaling $393.4 million ( H.R. 5041 , H.Rept. 108-674 ). On September 21, the Senate Appropriations Committee reported its version of this bill ( S. 2825 , S.Rept. 108-353 ), which included $1.35 billion for clean water SRF grants, $850 million for drinking water SRF grants, and $217 million for earmarked project grants. Final action on the FY2005 appropriation did not occur before the start of the fiscal year. On November 20, the House and Senate passed H.R. 4818 ( H.Rept. 108-792 ), the Consolidated Appropriations Act, 2005, an omnibus appropriations bill comprising nine appropriations measures, including funding for EPA. The bill provided total funding for EPA of $8.1 billion, a decrease from the $8.4 billion approved in FY2004, but $340 million more than was requested by the President in February. One of the most controversial items in the final bill was a $251 million decrease for clean water SRF grants from the FY2004 level, although the $1.09 billion total was $241 million more than in the President's budget. The final measure also included $843 million for drinking water SRF capitalization grants; $401.7 million for 669 earmarked grants in listed communities, Alaska Native Villages, and U.S.-Mexico border projects; and $1.14 billion for categorical state grants, which generally support state and tribal administration of a range of environmental programs. The $2.34 billion total for water infrastructure programs and projects was $542 million more than was requested by the President, but $276 million less than Congress appropriated for FY2004. President Bush signed the legislation December 8, 2004 ( P.L. 108-447 ). The FY2006 appropriation for water infrastructure funds marked the second consecutive year in which Congress appropriated less funding for these programs, providing lower levels both for clean water SRF capitalization grants and for earmarked project grants than in FY2005. President Bush presented the FY2006 budget request in February 2005. Overall for EPA, it sought 5.6% less than Congress had appropriated for FY2005. The Administration's deepest cuts affecting EPA were proposed for the STAG account. The budget requested $730 million for clean water SRF grants (33% below FY2005 appropriated funding and 45.6% below the FY2004 level), $850 million for drinking water SRF grants (a slight increase from the FY2005 level), $69 million for priority projects (primarily in Alaska Native Villages and along the U.S.-Mexico border), and $1.2 billion for state categorical grants, which could address a range of environmental programs. As in previous years, the Administration requested no funds for congressionally earmarked water infrastructure projects. Advocates for the SRF programs (especially state and local government officials) contended that cuts to the clean water program would impair their ability to carry out needed municipal wastewater treatment plant improvement projects. Administration officials responded that the proposed SRF reductions for FY2006 were because Congress had boosted funds above the FY2005 request level. These officials said that the Administration planned to invest $6.8 billion in the clean water SRF program between FY2004 and FY2011, after which federal funding was expected to end, and the state SRFs were expected to have an annual revolving level of $3.4 billion. If Congress appropriated more than requested in any given year (as occurred in FY2005), they said, that target would be met sooner, leading to reduced requests for the SRF in subsequent years until a planned phaseout in FY2011. On May 19, 2005, the House passed H.R. 2361 , providing FY2006 funding for EPA. As passed, it provided $850 million for clean water SRF grants ($120 million more than the President's request), $850 million for drinking water SRF grants, and $269 million for earmarked water infrastructure grants. During debate, the House rejected two amendments to increase clean water SRF funding. On June 29, the Senate passed its version of H.R. 2361 , providing $1.1 billion for clean water SRF grants, $850 million for drinking water SRF grants, and $290 million for earmarked project grants. The House bill required that $100 million of the SRF funding come from balances from expired contracts, grants, and interagency agreements from various EPA appropriation accounts. The Senate bill, in contrast, called for a $58 million rescission of unobligated amounts associated with grants, contracts, and interagency agreements in various accounts, but did not specify that such monies go to SRF funding. Conferees resolved differences between the bills ( H.Rept. 109-188 ), and the House and Senate approved the measure in July; the President signed it into law on August 2 ( P.L. 109-54 ). As enacted, the bill provided $900 million for clean water SRF grants; $850 million for drinking water SRF grants; $285 million for 259 earmarked grants in listed communities, Alaska Native Villages, and along the U.S.-Mexico border; and $1.13 billion for categorical state grants, which could address a range of environmental programs. The final bill required an $80 million rescission from expired grants, contracts, and interagency agreements in various EPA accounts (not just the STAG account) not obligated by September 1, 2006. It did not direct the rescinded funds to be applied to the clean water SRF, as proposed by the House. The $2.03 billion total in the bill for EPA water infrastructure programs and projects was $386 million more than was requested by the President, but $301 million less than Congress appropriated for FY2005. Further, the funding amounts specified in P.L. 109-54 were reduced slightly. First, a provision of P.L. 109-54 , Section 439, mandated an across-the-board rescission of 0.476% for any discretionary appropriation in that bill. Second, in December 2005 Congress enacted P.L. 109-148 , the FY2006 Department of Defense Appropriations Act, and Section 3801 of that bill mandated a 1% across-the-board rescission for discretionary accounts in any FY2006 appropriation act (except for discretionary authority of the Department of Veterans Affairs). As a result of these two rescissions, the final levels for the STAG account were $887 million for clean water SRF grants; $838 million for drinking water SRF grants; $281 million for 259 earmarked grants in listed communities, Alaska Native Villages, and along the U.S.-Mexico border; and $1.11 billion for categorical state grants, which could address a range of environmental programs. FY2006 EPA water infrastructure programs and projects thus total $2.0 billion. On October 28, President Bush requested that Congress rescind $2.3 billion from 55 "lower-priority federal programs and excess funds," including $166 million from clean water SRF monies. In the end, Congress did not endorse the specific request to reduce clean water SRF appropriations. The two rescissions resulting from P.L. 109-54 and P.L. 109-148 totaled a $13.2 million reduction from the $900 million specified in the EPA appropriations act. President Bush presented the Administration's FY2007 budget request in February 2006, asking Congress to appropriate $1.570 billion for EPA's water infrastructure programs. The FY2007 request sought $687.6 million for clean water SRF grants, $841.5 million for drinking water SRF grants, and $40.6 million for special projects in Alaska Native Villages, Puerto Rico, and along the U.S.-Mexico border. When the 109 th Congress adjourned in December 2006, it had not completed action on appropriations legislation to fund EPA (or on nine other appropriations bills covering the majority of domestic discretionary agencies and departments) for the fiscal year that began October 1, 2006, thus carrying over this legislative activity into the 110 th Congress. In December 2006, Congress enacted a continuing resolution, P.L. 109-383 (the third such continuing resolution since the start of the fiscal year on October 1), providing funds for EPA and the other affected agencies and departments until February 15, 2007. The President's FY2007 budget request for clean water SRF capitalization grants was 22% less than the FY2006 appropriation for these grants and 37% below the FY2005 funding level. The request for drinking water SRF grants was essentially the same as in recent years ($4 million more than FY2006, $1.7 million less than FY2005). As in recent budgets, the Administration proposed no funding for congressionally designated water infrastructure grants, but, as noted above, it did seek a total of $40.6 million for Administration priority projects. Advocates of the clean water SRF program (especially state and local government officials) again contended, as they have for several recent years, that the cuts would impair their ability to carry out needed municipal wastewater treatment plant improvement projects. Administration officials responded that cuts for the clean water SRF in FY2007 were necessary because Congress boosted funds above the requested level in FY2005 and FY2006. On May 18, 2006, the House passed H.R. 5386 ( H.Rept. 109-465 ), providing the requested level of $687.6 million for clean water SRF grants and $841.5 million for drinking water SRF grants. The Senate Appropriations Committee approved the same funding levels for these grant programs when it reported H.R. 5386 on June 29 ( S.Rept. 109-275 ), but the Senate did not act on this measure before the 109 th Congress adjourned in December. Before adjournment, Congress enacted a continuing resolution (CR), P.L. 109-383 (the third such CR since the start of the fiscal year on October 1), providing funds for EPA and the other affected agencies and departments until February 15, 2007. Funding levels provided under this CR followed a "lowest level" concept for individual programs; that is, programs were funded at the lowest level under either House-passed FY2007 appropriations, Senate-passed appropriations, or the FY2006 funding. For clean water SRF grants, the resulting appropriation through mid-February was $687.6 million, as in House-passed H.R. 5386 . For drinking water SRF grants, the appropriation level through mid-February was $837.5 million, the FY2006-enacted level. The CR included funds for congressionally earmarked water infrastructure project grants totaling $200 million, as in House-passed H.R. 5386 . Returning to these issues in 2007, in mid-February, Congress passed H.J.Res. 20 , a continuing appropriations resolution that provides funding for EPA and the other affected agencies through the end of FY2007. As passed, this full-year resolution held most programs and activities at their FY2006 appropriated levels. However, clean water SRF capitalization grants were one of the few programs that received a funding increase under the resolution: these grants received $1.08 billion ($197 million more than in FY2006, and $396 million more than the President requested for FY2007). The resolution further prohibited project grants for congressional earmarks, but not for special project grants requested in the President's budget. The action to ban earmarks in FY2007 occurred when leaders in the 110 th Congress sought to finish up appropriations actions that were unresolved at the end of the 109 th Congress, and at the same time the newly elected Congress moved to adopt rules and procedures to reform the congressional earmarking process for the future. (Water infrastructure project earmarks totaled $281 million in EPA's FY2006 appropriation.) President Bush signed H.J.Res. 20 on February 15, 2007 ( P.L. 110-5 ). The final FY2007 amounts provided in P.L. 110-5 were $1.084 billion for clean water SRF capitalization grants, $837.5 million for drinking water SRF capitalization grants, $83.75 million for Alaska Native Village and U.S.-Mexico border project grants requested by the Administration, and $1.11 billion for categorical state grants, which could be used to administer a range of environmental programs. President Obama presented his FY2008 budget request to Congress on February 5, 2007, before finalization of the FY2007 appropriations. The budget sought $687.6 million for clean water SRF grants, the same amount requested for FY2007; $842.2 million for drinking water SRF grants; $25.5 million for special project grants for Alaska Native Villages and the U.S.-Mexico border region; and $1.065 billion for categorical state grants, which could address a range of environmental programs. In June 2007, the House passed H.R. 2643 , providing FY2008 appropriations for EPA. This bill included $1.125 billion for clean water SRF grants, $842.2 million for drinking water SRF grants, plus $175.5 million for 143 congressionally designated water infrastructure project grants. The Senate Appropriations Committee approved companion legislation ( S. 1696 ) that similarly included higher funding levels for several water quality programs. The Senate committee's bill provided less funding for clean water SRF grants than the House bill ($887 million), the same amount for drinking water SRF grants, and slightly more for congressionally designated water infrastructure project grants ($180 million). The Senate did not take up S. 1696 . By October 1, the start of FY2008, Congress had not enacted any appropriations bills for FY2008, and Congress enacted several short-term continuing appropriations resolutions to temporarily fund EPA and other government agencies until final agreement, which occurred in December 2007. Full-year funding for EPA's water infrastructure programs was included in the Consolidated Appropriations Act for FY2008 (Division F, Title II), signed by the President December 26, 2007 ( P.L. 110-161 ). The final FY2008 amounts provided in this legislation were $689.1 million for clean water SRF capitalization grants ($1.5 million more than requested by the Administration), $829.0 million for drinking water SRF capitalization grants ($13.2 million less than requested), $177.2 million for 282 earmarked grants in listed communities, Alaska Native Villages, and U.S.-Mexico border projects ($151.7 million more than requested), and $1.078 billion for categorical state grants ($13.3 million more than requested), which could address a range of environmental programs. President Obama presented his FY2009 budget request to Congress on February 6, 2008. The budget sought $555 million for clean water SRF grants, $134 million less than Congress appropriated for FY2008; $842.2 million for drinking water SRF grants, $13 million more than was appropriated for FY2008; $25.5 million for special project grants for Alaska Native Villages and the U.S.-Mexico border region, $18.8 million less than was appropriated for FY2008; and $1.057 billion for categorical state grants, which could address a range of environmental programs. As in past years, the budget requested no funds for other earmarked grants. In June 2008, a House Appropriations subcommittee approved a bill with FY2009 funding for EPA, but no further action occurred before the start of the fiscal year. At the end of September 2008, Congress and the President agreed to legislation providing partial-year funding for EPA and most other agencies and departments. This bill, the Consolidated Security, Disaster Assistance, and Continuing Resolution Act, 2009 ( P.L. 110-329 ), provided funding through March 6, 2009, at FY2008 funding levels. A second short-term continuing resolution was enacted on March 6 ( P.L. 111-6 ), while Congress was finishing consideration of a full-year omnibus FY2009 appropriations bill that the President signed on March 11 ( P.L. 111-8 ). The omnibus bill provided $689 million in regular appropriations for clean water SRF grants, $829 million for drinking water SRF grants—both at the same levels as were appropriated in FY2008—and $1.094 billion for categorical state grants, which support administration of a range of environmental programs. The omnibus appropriations act also includes $183.5 million for earmarked water infrastructure grants. In February 2009, Congress responded to the nation's economic crisis by enacting the American Recovery and Reinvestment Act (ARRA, P.L. 111-5 ), legislation providing FY2009 supplemental appropriations to a number of government programs. Part of the philosophy underlying the legislation was the concept of using federal investments to make accelerated investments in the nation's public infrastructure in order to create jobs while also meeting infrastructure needs. To that end, the legislation included $4.0 billion for clean water SRF capitalization grants (for total FY2009 funds of $4.689 billion) and $2.0 billion for drinking water SRF capitalization grants (for total FY2009 funds of $2.829 billion). The supplemental SRF funds were available for obligation through FY2010, but under the legislation, states were to give preference when awarding funds to activities that can start and finish quickly, with a goal that at least 50% of the funds go to activities that can be initiated within 120 days of enactment. States were to give priority to wastewater projects that could proceed to construction within 12 months of enactment, and funds for projects that were not under contract or under construction by February 12, 2010, would be reallocated by EPA to other states. Further, the legislation required states to reserve at least 20% of the SRF capitalization grant funds for a Green Project Reserve, that is, projects intended to achieve improved energy or water efficiency. It also specified that all assistance agreements made in whole or in part with funds appropriated under the ARRA must comply with prevailing wage requirements of the Davis-Bacon Act. President Obama presented his Administration's FY2010 budget request on May 7, 2009. For EPA as a whole, the budget sought $10.5 billion, a 38% increase above levels enacted in EPA's regular FY2009 appropriations ( P.L. 111-8 ). The bulk of the increase in the President's budget was for water infrastructure assistance, which would receive 157% above FY2009 levels (excluding ARRA supplemental funds). The request included $2.4 billion for clean water SRF capitalization grants; $1.5 billion for drinking water SRF capitalization grants; $20 million for Alaska Native Village and U.S.-Mexico border projects; and $1.111 billion for state categorical grants (1.5% above FY2009 levels), which generally support state administration of environmental programs. Congress provided FY2010 appropriations for EPA in P.L. 111-88 , passed by the House and Senate in October 2009 and signed into law on October 30. In this measure, Congress provided the following: $2.1 billion for clean water SRF capitalization grants; $1.387 billion for drinking water SRF capitalization grants; $186.7 million for 319 congressionally earmarked special project grants, including assistance for Alaska Native Villages and U.S.-Mexico border projects; and $1.116 billion for state categorical environmental grants, which could address a range of environmental programs. The FY2010 appropriations act included some restrictions that Congress also had specified in the American Recovery and Reinvestment Act, discussed above, namely a requirement that 20% of SRF capitalization grant assistance be used for "green" infrastructure and also that Davis-Bacon Act prevailing wage rules shall apply to construction of wastewater or drinking water projects carried out in whole or in part with assistance from the SRF. President Obama presented the FY2011 budget request in February 2010. For EPA as a whole, the budget sought $10.02 billion in discretionary budget authority, a 3% decrease from levels enacted for EPA in FY2010. The largest component of the reduced request, compared with FY2010, was $200 million less for grants to capitalize clean water and drinking water SRF programs. In explaining the request, EPA budget documents noted that even with a slight reduction, the budget "continues robust funding for the SRFs." As in past years, the President requested no funds for congressionally designated water infrastructure projects. The request included $2.0 billion for clean water SRF capitalization grants; $1.287 billion for drinking water SRF capitalization grants; $20 million for Alaska Native Village and U.S.-Mexico border projects; and $1.277 billion for state categorical grant programs (14% higher than the FY2010 enacted amount), which could address a range of environmental programs. Congress took only limited action on FY2011 funding for EPA before the start of the new fiscal year on October 1, 2010: a House Appropriations subcommittee approved a bill in July, but no further action followed. At the end of September, the House and Senate passed a continuing resolution to extend FY2010 funding levels for EPA and other federal agencies and departments until December 3, 2010, because no FY2011 appropriations bills had been enacted by October 1. President Obama signed the continuing resolution (CR) on September 30 ( P.L. 111-242 ). This bill was followed by six more short-term CRs before Congress came to final resolution of FY2011 spending on April 14, 2011, enacting a bill to provide funding for EPA and all other federal agencies and departments through September 30 ( P.L. 112-10 ). The final bill reduced overall funding for EPA 15% below the FY2010 level. The enacted bill included $1.522 billion for clean water SRF capitalization grants; $963.1 million for drinking water SRF capitalization grants; $19.96 million for Alaska Native Village and U.S. Mexico-border projects; and $1.254 billion for state categorical grant programs, which generally support implementation of a range of environmental programs. Policymakers began to consider the budget for FY2012 before finalizing the funding levels for FY2011. The President submitted the Administration's FY2012 budget request on February 14, 2011. It sought $9 billion total for EPA, a decrease of $1.3 billion from the FY2010 enacted level, but 3% higher than the FY2011 enacted level. The President's request included $1.55 billion for clean water SRF capitalization grants, $990 million for drinking water SRF capitalization grants, $20 million for Alaska Native Village and U.S.-Mexico border assistance, and $1.2 billion for state categorical grants, which could address a range of environmental programs. For several days in July 2011, the House debated H.R. 2584 , providing FY2012 appropriations for EPA, but did not take final action on the bill before the August recess. As reported, the bill provided $7.3 billion for EPA, 17% less than FY2011 funds and 19% less than the President's FY2012 request. It reduced funds for the clean water SRF capitalization grants to $689 million and $829 million for drinking water SRF capitalization grants (the same levels provided in FY2008), while including no funds for congressionally designated special projects (i.e., earmarks). The reported bill also provided $1.002 billion for state categorical grants, which could address a range of environmental programs. There was no action on this bill in the Senate. Final congressional action on FY2012 appropriations for EPA and most other federal agencies and departments did not occur until the end of December 2011, enacted in an omnibus appropriations act, P.L. 112-74 . The enacted bill included $1.466 billion for clean water SRF capitalization grants (3.7% below FY2011); $917.9 million for drinking water SRF capitalization grants (4.7% below FY2011); $14.976 million for Alaska Native Village and U.S.-Mexico border projects; and $1.089 billion for state categorical grants, which could address a range of environmental programs. President Obama presented the Administration's FY2013 budget request in February 2012. It sought $8.34 billion overall for EPA, or 4.7% below the level enacted for FY2012. The request included $1.175 billion for clean water SRF capitalization grants, $850 million for drinking water SRF capitalization grants, $20 million for Alaska Native Village and U.S.-Mexico border assistance, and $1.2 billion for state categorical grants, which could address a range of environmental programs. The total amount requested for SRF capitalization grants is 15% below the FY2012 enacted level, reflecting a 20% reduction for the clean water program and a 7.4% reduction for the drinking water program. The House Appropriations Committee approved legislation providing FY2013 funds for EPA in July 2012 ( H.R. 6091 ). As reported, the bill provided $689 million for clean water SRF capitalization grants (the same level provided in FY2008), $829 million for drinking water SRF capitalization grants, $994 million for state categorical grants, and no funds for Alaska Native Village or U.S.-Mexico border projects. The House did not take up H.R. 6091 , nor did the Senate act on an EPA appropriations bill (although the Senate Appropriations Committee released a draft bill in September 2012). Prior to the start of FY2013 on October 1, 2012, Congress passed and the President signed a continuing resolution bill providing funding for government agencies and departments through March 27, 2013 ( P.L. 112-175 ). This measure funded the government generally at FY2012 levels plus a 0.6% increase. Final action on FY2013 appropriations occurred in the Further Continuing Appropriations Act, 2013 ( P.L. 113-6 ). Funding enacted in this bill included $1.452 billion for clean water SRF capitalization grants; $908.7 million for drinking water SRF capitalization grants; $15 million for Alaska Native Village and U.S.-Mexico border assistance; and $1.1 billion for state categorical grants, which generally support state and tribal implementation of a range of environmental programs. However, these amounts were reduced under the March 1, 2013, sequester order of the President, which reduced affected accounts by 5.0%, and by an across-the-board rescission of 0.2% necessary to avoid exceeding the FY2013 discretionary spending limits in law. After these reductions, available FY2013 funding was approximately $1.38 billion for the clean water SRF capitalization grants, $860 million for drinking water SRF capitalization grants, $14 million for Alaska Native Village and U.S.-Mexico border assistance, and $1.0 billion for state categorical grants. President Obama presented the Administration's FY2014 budget in April 2013. It sought $8.15 billion overall for EPA, including $1.095 billion for clean water SRF capitalization grants, $817 million for drinking water SRF capitalization grants, $15 million for Alaska Native Village and U.S.-Mexico border projects, and $1.136 billion for state categorical grants. The total amount requested for SRF capitalization grants was 19% below the FY2013 enacted level. In mid-2013, the House Appropriations Subcommittee on Interior, Environment, and Related Agencies drafted a bill (unnumbered) that would have reduced overall funding for EPA by 34% from the FY2013 enacted level, including an 83% reduction for clean water SRF capitalization grants (the bill would have provided $250 million) and a 65% reduction for drinking water SRF capitalization grants ($350 million was included in the bill). According to subcommittee documents, the reduction was appropriate because, despite recent federal support, little progress has been made to reduce the known water infrastructure gap. The full committee did not complete markup of this bill. The Senate Appropriations Subcommittee on Interior, Environment, and Related Agencies drafted an alternative bill that would have maintained funding for the clean water SRF program at $1.45 billion and funding for the drinking water SRF program at $907 million. There was no further action on this bill. Congress did not reach final agreement on FY2014 appropriations before the start of the fiscal year on October 1, but did agree to a short-term continuing appropriations measure ( P.L. 113-46 ), which provided funding through January 15, 2014. Final action on appropriations for EPA and all other federal agencies and departments occurred as part of the Consolidated Appropriations Act, 2014 ( H.R. 3547 , P.L. 113-76 ), signed by the President on January 17, 2014. This bill provides $1.45 billion for clean water SRF capitalization grants (5% more than FY2013 funds and 32% higher than the President's FY2014 budget request) and $907 million for drinking water SRF capitalization grants (5% more than FY2013 funds and 11% higher than the President's FY2014 budget request). The bill also provides $15 million for Alaska Native Village and U.S.-Mexico border assistance, and $1.0 billion for state categorical grants, which generally support state and tribal implementation of a range of environmental programs. President Obama presented the Administration's FY2015 budget on March 4, 2014. It sought $7.89 billion overall for EPA, including $1.018 billion for clean water SRF capitalization grants, $757 million for drinking water SRF capitalization grants, $15 million for Alaska Native Village and U.S.-Mexico border projects, and $1.13 billion for state categorical grants. The total amount requested for SRF capitalization grants was 25% below the FY2014 enacted level. Final full-year appropriations were enacted as part of the Consolidated and Further Continuing Appropriations Act, 2015, enacted in December 2014 ( P.L. 113-235 ). The legislation provided the same water infrastructure funding levels as in FY2014: $1.45 billion for clean water SRF capitalization grants and $907 million for drinking water SRF capitalization grants. As with the FY2014 appropriations, the bill provided $15 million for Alaska Native Village and U.S.-Mexico border assistance and $1.0 billion for state categorical grants, which could address a range of environmental programs. The Administration's FY2016 budget requested $8.6 billion overall for EPA. The request included $1.116 billion for clean water SRF capitalization grants, $1.186 billion for drinking water SRF capitalization grants (31% higher than the FY2016 appropriation), $15 million for Alaska Native Village and U.S.-Mexico border projects, and $1.162 billion for state categorical grants, which generally support state and tribal implementation of a range of environmental programs. Although the House and Senate Appropriations Committees reported bills to provide FY2016 appropriations for EPA, final appropriations action for EPA and other agencies occurred as part of the Consolidated Appropriations Act, 2016, signed by the President December 18, 2015 ( P.L. 114-113 ). The bill provided $1.394 billion for clean water SRF capitalization grants ($55 million less than FY2015, but $278 million above the President's request), $863 million for drinking water SRF capitalization grants ($44 million below the FY2015 level, and $323 million less than the President's request), and $30 million for Alaska Native Village and U.S.-Mexico border water infrastructure projects. It also provided $1.06 billion for state categorical grants. President Obama presented the Administration's FY2017 budget in February 2016, requesting $8.3 billion in total for EPA ($127 million above the FY2016 enacted budget). The request for EPA included $979.5 million for clean water SRF capitalization grants ($424 million less than the FY2016 enacted level), $1.02 billion for drinking water SRF capitalization grants ($157 million above the FY2016 amount), $22 million for Alaska Native Village and U.S.-Mexico border projects, and $1.158 billion for state categorical grants, which generally support state and tribal implementation of environmental programs. During congressional hearings on the EPA request, many Members criticized the requested 30% decrease in funds for clean water SRF capitalization grants. This criticism was reflected to some degree in appropriations bills the Appropriations Committees subsequently approved that include EPA funding. In July 2016, the House passed H.R. 5538 , FY2017 Interior and Environment Appropriations Act; it included $1.0 billion for clean water SRF grants, $1.07 billion for drinking water SRF grants, and $1.06 billion for state categorical grants. The Senate Appropriations Committee reported a companion bill, S. 3068 , in June. It included $1.35 billion for clean water SRF grants, $1.02 billion for drinking water SRF grants, and $1.09 billion for state categorical grants. The Senate did not take up this bill. Congress did not reach final agreement on an EPA funding bill before the start of FY2017. However, on September 28, the House and Senate passed a 10-week continuing resolution that extended FY2016 funding levels, minus a 0.496% across-the-board reduction, through December 9, 2016 ( P.L. 114-223 ). A second continuing resolution, passed in December 2014, extended FY2016 funding levels, minus a 0.1901% across-the-board reduction, from December 10, 2016, through April 28, 2017 ( P.L. 114-254 ). The Obama Administration's FY2017 budget submission also included a $15 million request to allow EPA to begin making water infrastructure project loans under a program that Congress enacted in 2014, the Water Infrastructure Financing and Investment Act, or WIFIA. P.L. 114-254 included the first appropriation, $20 million, for EPA to do so. The FY2017 final appropriations act (discussed below) provided an additional $8 million for EPA's WIFIA program (and $2 million for EPA to administer the program). Final full-year appropriations were enacted as part of the Consolidated and Further Continuing Appropriations Act, 2017, signed by President Trump on May 5, 2017 ( P.L. 115-31 ). The act provided the same level of funding for water infrastructure as FY2016: $1.394 billion for clean water SRF capitalization grants ($414 million above President Obama's request), $863 million for drinking water SRF capitalization grants ($158 million less than President Obama's request), and $30 million for Alaska Native Village and U.S.-Mexico border water infrastructure projects. It also provided $1.07 billion for state categorical grants, which support a range of environmental programs. The Continuing and Security Assistance Appropriations Act, 2017 ( P.L. 114-254 ), included an additional $100 million in DWSRF funding to assist Flint, MI, as authorized in the Water Infrastructure Improvements for the Nation (WIIN) Act ( P.L. 114-322 ). The Trump Administration's FY2018 budget request proposed $8.6 billion overall for EPA. The request included $1.394 billion for clean water SRF capitalization grants and $863 million for drinking water SRF capitalization grants (the same amounts as the FY2017 appropriation). The request proposed $597 million for state categorical grants, a 44% reduction compared to FY2017 levels. Much of this reduction came from the elimination of funding for nonpoint source grants (CWA Section 319) and reduction of grant funding for water pollution control (CWA Section 106). In addition, the President's budget request proposed to eliminate funding for Alaska Native Village and U.S.-Mexico border projects. Similar to the previous fiscal year, Congress did not reach final agreement on an EPA funding bill before the start of FY2018. EPA and other federal departments and agencies operated under multiple continuing resolutions generally at FY2017 enacted levels (minus across-the-board rescissions). Final full-year appropriations were enacted as part of the Consolidated Appropriations Act, 2018, signed by President Trump on March 23, 2018 ( P.L. 115-141 ). EPA's STAG account (Division G, Title II) included $1.394 billion for the clean water SRF and $863 million for the drinking water SRF program (the same amounts appropriated for FY2017, less $100 million for the DWSRF provided to assist Flint, MI). Division G, Title IV (General Provisions), Section 430, included an additional $600 million ($300.0 million each) within the STAG account for both SRF programs. P.L. 115-141 also provided $63 million for the WIFIA program, more than doubling the FY2017 appropriation. The act provided $20 million for Alaska Native Village projects and $10 million U.S.-Mexico border projects. It also provided $1.08 billion for state categorical grants, which support a range of environmental programs. In addition, the act provided the first appropriations for three programs authorized in the WIIN Act ( P.L. 114-322 , Title II, the Water and Waste Act of 2016): $10 million to help public water systems serving small or disadvantaged communities meet SDWA requirements; $20 million to support lead reduction projects, including lead service line replacement; and $20 million to establish a voluntary program for testing for lead in drinking water at schools and child care programs. The Trump Administration's FY2019 budget request proposed $6.15 billion overall for EPA. The request included $1.394 billion for clean water SRF capitalization grants and $863 million for drinking water SRF capitalization grants (the same amounts requested in FY2018). The request included $20 million for the WIFIA program: $17 million to cover subsidy costs, which EPA estimated would allow the agency to lend approximately $2 billion (EPA Budget Justification), and $3 million for administrative costs. In addition, the request proposed $597 million for state categorical grants and $3 million for Alaska Native Village projects. The request proposed to eliminate funding for nonpoint source grants (CWA Section 319), reduce grant funding for water pollution control (CWA Section 106), and eliminate funding for U.S.-Mexico border water infrastructure projects. At the beginning of FY2019, EPA operated under the terms and conditions of multiple continuing resolutions (Division C of P.L. 115-245 ; P.L. 115-298 ; and P.L. 116-5 ). A "partial government shutdown" began on December 22, 2018, during which EPA operated under its shutdown contingency plans. Final full-year appropriations were enacted as part of the Consolidated Appropriations Act, FY2019 ( P.L. 116-6 ), signed by President Trump on February 15, 2019. FY2019 appropriations were provided in two titles of P.L. 116-6 . Title II included $1.394 billion for the CWSRF, $864.0 million for the DWSRF, and $10.0 million for WIFIA. Title IV included an additional $600.0 million ($300.0 million each) for both SRF programs and an additional $58.0 million for WIFIA. Title IV of P.L. 116-6 included $65.0 million within the EPA STAG account for grants authorized in the WIIN Act ( P.L. 114-322 ): $25 million to help public water systems serving small or disadvantaged communities meet SDWA requirements, $15 million to support lead reduction projects (including lead service line replacement), and $25 million to establish a voluntary program for testing for lead in drinking water at schools and child care programs. In addition, the act provided $25 million for Alaska Native Village projects and $15 million U.S.-Mexico border projects. It also provided $1.08 billion for state categorical grants, which support a range of environmental programs. The Trump Administration's FY2020 budget request proposed $6.07 billion overall for EPA. The request included $1.120 billion for CWSRF capitalization grants; $863 million for drinking water SRF capitalization grants; $25 million for the WIFIA program: $20 million to cover subsidy costs, which EPA estimated would allow the agency to lend over $2 billion (EPA Budget Justification), and $5 million for administrative costs; $3 million for Alaska Native Village projects; $10 million for testing for lead in drinking water at schools and child care programs; $61 million for sewer overflow control grants; $154 million for water pollution control grants (CWA Section 106); and $580 million for state categorical grants, which support a range of environmental programs. The Administration's request proposed to eliminate funding for the following: nonpoint source grants, U.S.-Mexico border water infrastructure projects, drinking water grants for small and disadvantage communities, and lead reduction project grants.	[ "The principal federal program to aid municipal wastewater treatment plant construction is authorized in the Clean Water Act (CWA). Established as a grant program in 1972, it now capitalizes state loan programs through the clean water state revolving loan fund (CWSRF) program. Since FY1972, appropriations have totaled $98 billion. In 1996, Congress amended the Safe Drinking Water Act (SDWA, P.L. 104-182) to authorize a similar state loan program for drinking water to help systems finance projects needed to comply with drinking water regulations and to protect public health. Since FY1997, appropriations for the drinking water state revolving loan fund (DWSRF) program have totaled $23 billion. The U.S. Environmental Protection Agency (EPA) administers both SRF programs, which annually distribute funds to the states for implementation. Funding amounts are specified in the State and Tribal Assistance Grants (STAG) account of EPA annual appropriations acts. The combined appropriations for wastewater and drinking water infrastructure assistance have represented 25%-32% of total funds appropriated to EPA in recent years. Prior to CWA amendments in 1987 (P.L. 100-4), Congress provided wastewater grant funding directly to municipalities. The federal share of project costs was generally 55%; state and local governments were responsible for the remaining 45%. The 1987 amendments replaced this grant program with the SRF program. Local communities are now often responsible for 100% of project costs, rather than 45%, as they are required to repay loans to states. The greater financial burden of the act's loan program on some cities has caused some to seek continued grant funding. Although the CWSRF and DWSRF have largely functioned as loan programs, both allow the implementing state agency to provide \"additional subsidization\" under certain conditions. Since its amendments in 1996, the SDWA has authorized states to use up to 30% of their DWSRF capitalization grants to provide additional assistance, such as forgiveness of loan principal or negative interest rate loans, to help disadvantaged communities. America's Water Infrastructure Act of 2018 (AWIA; P.L. 115-270) increased this proportion to 35% while conditionally requiring states to use at least 6% of their capitalization grants for these purposes. Congress amended the CWA in 2014, adding similar provisions to the CWSRF program. In addition, appropriations acts in recent years have required states to use minimum percentages of their allotted SRF grants to provide additional subsidization. Final full-year appropriations were enacted as part of the Consolidated Appropriations Act, FY2019 (P.L. 116-6), on February 15, 2019. The act provided $1.694 billion for the CWSRF and $1.163 billion for the DWSRF program, nearly identical to the FY2018 appropriations. The FY0219 act provided $68 million for the WIFIA program, a $5 million increase from the FY2018 appropriation. Compared to the FY2019 appropriation levels, the Trump Administration's FY2020 budget request proposes to decrease the appropriations for the CWSRF, DWSRF, and WIFIA programs by 34%, 26%, and 63%, respectively." ]	18,229	gov_report	en	null	cbdd4b937972c65f6d9de2ef403bbacbc169a5155ecef22a
Many consumer products—such as deodorants, shaving products, and hair care products—are differentiated to appeal specifically to men or women through differences in packaging, scent, or other product characteristics (see fig. 1). These differences related to gender can affect manufacturing and marketing costs that may contribute to price differences in products targeted to different genders. However, firms may also charge consumers different prices for the same (or very similar) goods and services even when there are no differences in costs to produce. To maximize profits, firms use a variety of techniques to charge prices close to the highest price different consumers are willing to pay. Firms may attempt to get segments of the consumer market to pay a higher price than another segment by slightly altering or differentiating the product. Based on the differentiated products, consumers self-select into different groups according to their preferences and what they are willing to pay. For example, some consumer goods have different versions of what is essentially the same product—except for differences in packaging or features, such as scent—with one version intended for women and another version intended for men. The two products may be priced differently because the firm expects that one gender will be willing to pay more for the product than the other based on preference for certain product attributes. Firms may also use some group characteristic, such as age or gender, to charge different prices because some groups may have differences in willingness or ability to pay. For example, a firm may offer discounted movie tickets to students or seniors, as they may have less disposable income. For the seller the cost of providing the movie is the same for any customer, but the seller is able to maximize its profits by offering tickets to different groups of customers at different prices. A firm’s ability to differentiate prices depends on multiple factors, such as the firm’s market power (so that competitors cannot put downward pressure on prices to eliminate the price differences), the presence of consumer segments with different demands and willingness to pay, and control over the sale of its product so it cannot be easily resold to exploit price differences. In addition, the extent to which consumers pay different prices for the same or similar goods can depend on other factors, such as consumers’: willingness to purchase an item they believe may be priced higher for ability to compare prices and product characteristics and choose a product based on its characteristics rather than its price, choices about whether to purchase a more expensive version of the product (e.g., a branded item versus a cheaper store brand), choices about where to purchase the item (i.e., when different retailers sell the same item at different prices), and use of coupons or promotions. No federal law expressly prohibits businesses from charging different prices for the same or similar consumer goods and services targeted to men and women. However, consumer protection laws do prohibit sex discrimination in credit and real estate transactions. Specifically, the Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against credit applicants based on sex or certain other characteristics and the Fair Housing Act (FHA) prohibits discrimination in the housing market on the basis of sex or certain other characteristics. ECOA and FHA (collectively known as the fair lending laws) prohibit lenders from, among other things, refusing to extend credit or using different standards in determining to extend credit based on sex. Credit, such as a credit card account or mortgage loan, is generally made available and priced based on a number of risk factors, including credit score, income, and employment history. A borrower with a lower credit score is likely to pay a higher interest rate on a loan, reflecting the greater risk to the lender that the borrower could default on the loan. In addition to the interest rate, borrowing costs for consumers can also include fees and other costs charged by lenders or brokers. However, there may be differences in average outcomes for men and women—such as for availability of credit or interest rates—if there are differences related to gender in the factors that determine creditworthiness, such as income. BCFP, FTC, the federal prudential regulators, and DOJ have the authority to investigate alleged violations of ECOA and are primarily responsible for enforcing the act’s requirements, while HUD and DOJ share responsibility for enforcing the provisions of FHA. Further, BCFP and the prudential regulators oversee regulated entities for compliance with ECOA by, among other things, collecting complaints from the public and through routine inspections of the financial institutions they oversee. HUD and DOJ have the authority to bring enforcement actions for alleged violations of FHA. In 5 out of 10 product categories we analyzed, personal care products targeted to women sold at higher average prices than those targeted to men after controlling for certain observable factors. For 2 of the 10 product categories, men’s versions sold at higher average prices. While the factors we controlled for likely proxy for various costs and consumer preferences, we could not fully observe all underlying differences in costs and demand for products targeted to different genders. As a result, we could not determine the extent to which the gender-based price differences we observed may be attributed to gender bias as opposed to other factors. Women’s versions of personal care products sold at a statistically significant higher average price than men’s versions for 5 of the 10 personal care product categories we analyzed—using two different price measures and after controlling for observable factors that could affect price, such as brands, product size or quantity, promotional expenses (see table 1) and other product-specific attributes (e.g., scent, special claims, form). Because women’s and men’s versions of the same product were frequently sold in different sizes, we compared prices using two price measures: average item price and average price per ounce or count of product. For 2 of the 10 product categories—shaving gel and nondisposable razors—men’s versions sold at a statistically significant higher price using both price measures. For one category (razor blades), women’s versions sold at a statistically significant higher average price per count, but there was no gender price difference using average item prices. Additionally, for two product categories—disposable razors and mass-market perfumes—there were no statistically significant price differences between men’s and women’s products using either price measure. In addition to this analysis of retail price scanner data, we also manually collected advertised online prices for a limited selection of personal care products targeted to women and men from several online retailers. Some price comparisons of advertised online prices for men’s and women’s versions of a product were similar to comparisons of average prices paid based on the Nielsen retail price scanner data. For example, for three pairs of comparable underarm deodorants, the women’s deodorant was listed at a higher price per ounce on average than the men’s deodorant (see app. II). In addition, for one pair of shaving gel products we analyzed, the men’s shaving gel was listed at a higher price per ounce on average. However, for both pairs of nondisposable razors we analyzed, the women’s razors were listed at a higher average price per count than the men’s razors. This contrasted with the Nielsen data showing that men’s nondisposable razors sold at higher prices on average than women’s. An important limitation of our analysis of these advertised prices is that we were unable to determine the extent to which consumers actually paid these prices and in what volume the products were sold, and our results are not generalizable to the broader universe of prices for these products sold at other times or by other online retailers. Though we found that the target gender for a product is a significant factor contributing to price differences we identified, we do not have sufficient information to determine the extent to which these gender- related price differences were due to gender bias as opposed to other factors. Versions differentiated to appeal to men and women can result in different costs for the manufacturer. Our econometric analysis controlled for many observable factors related to costs, such as product size, promotional activity, and packaging type. We also controlled for many product attributes such as forms, scents, and special claims that products make to account for underlying manufacturing cost differences. In addition, we controlled for brands, which can reflect consumer preferences. However, we do not have firm-level data on all cost differences—for example, those related to advertising and packaging. As a result, we could not determine the extent to which the price differences we observed may be explained by remaining cost differences between men’s and women’s products. We also do not have the data to determine the extent to which men and women have different demands and willingness to pay for a product, which would be expected to affect the prices firms charge for differentiated products. For example, some academic experts we spoke with said that women may value some product attributes, such as design and scent, more than men do. If products differentiated to incorporate those attributes do not result in different costs, then differences in prices could be part of a firm’s pricing strategy based on the willingness of one gender to pay more than another. The conditions necessary for firms to be able to implement a strategy of price differentiation likely exist for the personal care products we analyzed. First, our analysis suggests that due to industry concentration, there is limited market competition for the 10 personal care products we analyzed. With more market power, firms can more easily set different prices for different consumer segments. Second, firms have the ability to segment the market for personal care products by tailoring product characteristics related to gender, such as by labeling the product as women’s deodorant or men’s deodorant, or by altering scent or colors. Third, while men and women are able to freely purchase a product targeted to the opposite gender, certain factors may limit the extent to which this occurs. For example, some product differences such as scents may discourage one gender from buying products targeted to another gender. In addition, consumers may find it difficult and time- consuming to compare prices for similar men’s and women’s products because of the ways they are differentiated (such as product size and scents) and because they may be sold in different parts of a store. We reviewed studies that compared prices for men and women in four markets where the product or service is not differentiated by gender: mortgages, small business credit, auto purchases, and auto repairs. First, we reviewed studies on mortgage and small business credit that analyzed interest rates and access to credit to identify any differences for men and women. Second, we reviewed studies that compared prices quoted to men and women in auto purchase and repair markets. However, several of these studies have important limitations, such as using nonrepresentative data samples, and the results are not generalizable. Studies we reviewed found that women as a group pay higher interest rates on average than men in part due to weaker credit characteristics. After controlling for borrower credit characteristics and other factors, three studies did not find statistically significant differences in interest rates between men and women for the same type of mortgage, while one study found that women paid higher mortgage rates for certain subprime loans. In addition, one study found that female borrowers defaulted less frequently on their loans than male borrowers with similar credit characteristics, suggesting that women as a group may pay higher mortgage rates than men relative to their default risk. While these studies attempted to control for factors other than gender or sex that could affect borrowing costs, several lacked important data on certain borrower risk characteristics. For example, several studies we reviewed rely on Home Mortgage Disclosure Act of 1975 (HMDA) data, which did not include data on risk factors such as borrower credit scores that could affect analysis of disparities between men and women. Also, several studies analyzed nonrepresentative samples of loans, such as subprime loans or loans originated more than 10 years ago, which limits the generalizability of the results (see table 2). Three of the studies we reviewed found that while women on average were charged higher interest rates on mortgage loans than men, this difference was not statistically significant after controlling for other factors. For example, one study found that differences in mortgage interest rates between men and women became insignificant after controlling for differences in how men and women shop for mortgage rates. The authors used data from the 2004 Survey of Consumer Finances (SCF) to analyze the effect on interest rates of mortgage features, borrower characteristics such as gender, and market conditions. However, their analysis did not include data on some borrower credit characteristics such as credit score and debt-to-income ratio that could affect borrowing costs. Another study found that women were charged higher interest rates for subprime loans made in 2005, but once the authors controlled for observed risk characteristics there was no evidence of disparity in interest rates by gender of the borrower in the subprime market. However, the authors’ data did not include any fees paid at loan origination, which could affect the overall cost of borrowing. A third study that examined disparities between men and women in subprime loans found no significant evidence that gender affected the cost of borrowing within the subprime market, though it did find that women—particularly African American women—were more likely to have subprime loans. The authors found that, even after controlling for some financial characteristics and loan terms, single African American women were more likely than non-Hispanic white couples to have subprime loans. One study analyzed subprime loans made by one large lender from 2003 through 2005 and found that women paid more for subprime mortgages than men after controlling for some risk factors. This study found that women had higher average borrowing costs—as measured by annual percentage rate—than men, and controlling for credit characteristics such as credit scores and debt-to-income ratios did not fully explain the differences. However, the authors did not control for other factors that could also affect borrowing costs, such as differences in education, shopping behaviors, and geographic location. Additionally, a research paper found that female-only borrowers—that is, where the only borrower is a woman—default less than male-only borrowers with similar loans and credit characteristics. The authors found that female-only borrowers on average pay more for their mortgage loans because they generally have weaker credit characteristics, such as lower income, and also because a higher percentage of these mortgage loans are subprime. However, after controlling for credit characteristics such as credit score, loan term, and loan-to-value ratio, among others, the analysis showed that these weaker credit characteristics do not accurately predict how well women pay their mortgage loans. Since pricing is tied to credit characteristics and not performance, women may pay more relative to their actual risk than do similar men. Studies we reviewed on small business loans generally did not find differences in interest rates, though some found differences in denial rates and other accessibility issues between female- and male-owned firms. Most of the studies we reviewed used data from the 1993, 1998, or 2003 Survey of Small Business Finances (SSBF), which could limit the applicability or relevance of their findings today. A study that analyzed data from the 1993 SSBF did not find evidence that businesses owned by women paid more for credit than firms owned by white men. However, when the authors took into account the market concentration and competition, they found that white female-owned firms experienced increased denial rates in less competitive markets. In addition, the study found that women may avoid applying for credit in those markets because of the fear of being denied. For example, almost half of all small business owners who needed credit reported that they did not apply for credit, and these rates were even higher for businesses owned by women and minorities. Other studies found that women may have less access to small business credit than men, in part because of higher denial rates and because they may not apply for credit out of fear of rejection. For example, one study found that women-owned firms have higher loan denial rates compared with men; however, this is mainly due to differences in business characteristics of female- and male-owned firms. The authors also found that even when denial rates are the same for small businesses with similar characteristics, women’s loan application rates are lower, suggesting that women may be discouraged from applying for credit by the higher overall denial rates for female-owned firms. Another study by one of the same authors examined the reasons why female borrowers may be discouraged from applying for a business loan compared to male business owners and found that it was mainly because they fear that their application will be rejected. A third study by the same author found that women in general did not have less access to credit than men, though newer female-owned firms received significantly lower loan amounts than requested compared to their male-owned counterparts. Similarly, the study also found that women with few years of experience managing or owning a business received significantly lower loan amounts compared with men with similar years of experience. A fourth study looked at six different types of loans, including lines of credit, and found that white women were significantly more likely than white men to avoid applying for a loan because they assume they would be denied. However, once the authors’ model controlled for education differences, all gender disparities in applying for credit disappeared, though white women were still less likely than white men to have loans. Studies we reviewed on auto purchases and repairs found that a seller’s expectation of what customers are willing to pay and how informed they seemed can differ by gender, which can affect the price customers are quoted. However, these studies were published in 1995 and 2001, which may limit the applicability or relevance of their findings today. The 2001 study we reviewed on auto purchases found that though women paid higher prices than men for car purchases on average, these differences declined when cars were purchased online. The authors suggest that this may be because Internet consumers can effectively convey their level of price knowledge and therefore may seem better informed to the sellers. They also suggest it could be because the dealerships have less information about online consumers and their willingness to pay, which may limit the extent of price differentiation. The 1995 study on auto purchases found that the dealers quoted significantly lower prices to white males than to female or African American test buyers using identical, scripted bargaining strategies in part because dealers may have made assumptions about women’s willingness to bargain for lower prices. We also reviewed one study on auto repairs that found that women were quoted higher prices than men if they seemed uninformed about the cost of car repair when requesting a quote, but the price differences disappeared if the study participant mentioned an expected price. The study suggests that a potential explanation for this result could be that auto repair shops expect women to accept a price that is higher than the market average and men to accept a price below it. BCFP and HUD have responsibilities to monitor consumer complaints in the consumer credit and housing markets, respectively. Additionally, FTC monitors complaints about the consumer credit and consumer goods markets. All three agencies play a role in potentially monitoring or addressing issues of gender-related price differences and have online complaint forms for submission of consumer complaints: BCFP collects and reviews consumer complaints about financial products and services and provides complaints and related data in its Consumer Complaint Database. In 2017 BCFP received approximately 320,200 consumer complaints. The products that generated the most complaints in 2017 were “Credit or consumer reporting,” “Debt collection,” and “Mortgage." According to BCFP officials, BCFP also analyzes loan and demographics data collected through HMDA and other data sources to monitor and identify market trends. In addition, BCFP and the federal financial regulators examine fair lending practices of the institutions they regulate, and these examinations have uncovered sex discrimination in credit products by FDIC and NCUA. FTC receives complaints and the complaints are stored in the Consumer Sentinel Network, a database of consumer complaints received by FTC, as well as those filed with other federal and state agencies and organizations, such as mass marketing fraud complaints from the Council of Better Business Bureaus. The complaints in the Consumer Sentinel Network focus on consumer fraud, identity theft, and other consumer protection matters, such as debt collection, and can include complaints related to consumer credit markets. HUD receives consumer complaints about potential FHA violations through its website, via its toll-free phone hotline, and in writing. HUD monitors those complaints through its online HUD Enforcement Management System. HUD investigates all complaints for which it has jurisdictional authority. HUD may monitor complaints to identify trends, but HUD officials stated that the agency does not generally monitor consumer credit and housing market data, absent a specific complaint. In cases where HUD has jurisdictional authority under FHA, HUD offers conciliation between the parties. If resolution is not reached, and HUD determines there is reasonable cause to believe a violation has occurred, the parties may elect to have the matter heard in U.S. District Court or at HUD. In their oversight of federal antidiscrimination statutes, BCFP officials said they have not identified significant consumer concerns about price differences based on a consumer’s sex or gender. FTC and HUD officials identified some examples of concerns of this nature. For example, FTC has taken enforcement actions alleging unlawful race- and gender-related price differences. HUD has also identified several cases where pregnant women and their partners applied for a mortgage while the woman was on maternity leave, and the couple’s mortgage loan application was denied. BCFP, FTC, and HUD have received few consumer complaints about price differences related to sex or gender, according to our analysis of a sample of each agency’s 2012–2017 complaint data (see table 3). In separate samples of 100 gender-related complaints at BCFP, HUD, and FTC, we found that 0, 4, and 1 complaint, respectively, were related to price differences based on sex or gender. Three of the complaints from HUD also cited differences in price based on other protected classes (such as race or ethnicity). Half of the academic experts and consumer groups we interviewed told us that in some markets it is difficult for consumers to observe and compare prices paid by other consumers, such as when prices are not posted or can be negotiated (e.g., car sales). In such cases, consumers may not know if other consumers are paying a higher or lower price than the price quoted to them. Most academic experts also told us that when consumers are aware that price differences could exist, they may make different decisions when making purchases. Additionally, officials from BCFP noted that price differences related to gender may be difficult for consumers to identify, or that consumers may not know where to complain. The consumer education resources of BCFP, FTC, and HUD provide general consumer education resources on discrimination (i.e., consumer user guide or a website) and consumer awareness. Officials from BCFP and HUD said they have not identified a need to develop other consumer education resources specific to gender-related price differences. For example, BCFP’s print and online consumer education materials are intended to inform consumers of their rights and protections related to credit discrimination, which includes discrimination based on sex or gender. The three agencies’ consumer education materials also provide advice that could help consumers avoid paying higher prices regardless of their gender—such as home-buying resources and resources on comparison shopping. However, the agencies have not developed additional educational resources focused specifically on potential gender- related price differences in part because few complaints on this topic have been collected in their databases, agency officials told us. FTC officials noted that it tries to focus its education efforts on topics that will have the greatest benefit to consumers, often determined by information it gathers through complaints and investigations. Representatives of five consumer groups and industry associations told us that they have received few complaints about gender-related price differences. However, four consumer groups noted that low concern could be the result of consumers being unaware of price differences related to gender. For example, as indicated above, price differences related to gender may be difficult for consumers to identify when they cannot determine whether they are paying a higher price than others. Representatives of two retailing industry associations similarly stated that they have not heard concerns about price differences related to gender. In response to consumer complaints or concerns about gender disparities in pricing, at least one state (California) and two municipalities (Miami- Dade County and New York City) have passed laws or ordinances to prohibit businesses from charging different prices for the same or similar goods or services solely based on gender (see table 4). In addition, two of these laws included requirements related to promoting price transparency. California enacted the Gender Tax Repeal Act of 1995, which prohibits businesses from charging different prices for the same or similar services based on a consumer’s gender. The law also requires certain businesses to display price information and disclose prices upon request, according to state officials with whom we spoke. Similarly, in 1997, Miami-Dade County passed the Gender Pricing Ordinance, which prohibits businesses from charging different prices based solely on a consumer’s gender (though businesses are permitted to charge different prices if the goods or services involve more time, difficulty, or cost). In the same year, it also passed an ordinance that prohibits dry cleaning businesses from charging different prices for similar services based on gender. This ordinance also requires those businesses to post all prices on a clear and conspicuous sign, according to county officials with whom we spoke. State and local officials we interviewed identified benefits and challenges associated with these laws. For example, California, New York City, and Miami-Dade County officials noted that these laws give them the ability to intervene to address pricing practices that may lead to discrimination based on gender. In addition, California state officials said that the state’s efforts to implement the Gender Tax Repeal Act helped to improve consumer awareness about gender price differences. However, officials from California and Miami-Dade County cited challenges associated with tracking relevant complaints. For example, Miami-Dade County’s online complaint form includes a narrative section but does not ask for the complainant’s gender. Consumers do not always identify their gender in the narrative or state that that was the reason for their treatment. Additionally, officials from California and Miami-Dade County stated that seeking out violations would be very resource-intensive, and they rely on residents to submit complaints about violations. We provided a draft of this report to BCFP, DOJ, FTC, and HUD. BCFP, FTC, and HUD provided technical comments on the report draft, which we incorporated where appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the appropriate congressional committees, BCFP, DOJ, FTC, HUD, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or cackleya@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. We used a multivariate regression model to estimate the effect of gender (to which a product is targeted to) on the price of that product while controlling for other factors that may also affect the product’s price. The factors that we controlled for were the product size, promotional and packaging costs, and other product characteristics discussed in detail later. We used scanner data from the Nielsen Company (Nielsen) for calendar year 2016 and analyzed the following 10 product categories: (1) underarm deodorants, (2) body deodorants, (3) shaving cream, (4) shaving gel, (5) disposable razors, (6) nondisposable razors, (7) razor blades, (8) designer perfumes, (9) mass-market perfumes, and (10) mass-market body sprays. We estimated the following regression model for each of our 10 product categories: P=α+βMale + λ Size + θOwner +ηPromotion+ μX + δY + ε The dependent variable P in the above equation represents price. For our analysis, we constructed two measures of price. The first is the item price, estimated as the total dollar sales of an item (each item is depicted by a unique Universal Product Code (UPC) in the Nielsen data), divided by the total units sold of that item. The second measure of price that we use is price per ounce or price per count. This is estimated as the item price divided by the total quantity of product, where quantity or size depicts the number of ounces (as in the case of fragrances) or the count of blades in razor blade packs. The total quantity of the product is the ounces or counts of one item multiplied by the number of items included in a specific product configuration. For example, a 2-pack of deodorant sticks where each deodorant stick is 2.7 ounces would be a total quantity of 5.4 ounces. The variable Male in the above equation is an indicator variable depicting whether the product is designated as a “men’s” product in the Nielsen data. It is represented as a value of “1” for men’s products and a value of “0” for women’s products. The co-efficient for this variable, parameter β, would therefore show the price difference between a men’s and women’s product. A negative value would imply a lower price for products designated as men’s products. The variable Size represents the most appropriate specification of the size of the product. Owner is a set of indicator variables representing all the brand owners selling a particular product. The brand of a product can be expected to have a substantial effect on prices for the kind of products we analyze because brands can be a proxy for quality for some consumers. However, we also found that firms often create gender-specific brands, so holding brands constant rendered most gender-based price comparisons infeasible. To overcome this, we hold owners instead of brands constant for our price comparison analysis. The variable Promotion represents the percentage of dollar sales that were sold on any type of promotion. This variable proxies for promotional costs to some extent based on the assumption that the greater the proportion of sales due to promotional activity, the greater the promotional costs. The variables X represent a set of indicator variables for packaging characteristics such as package delivery method (for example, roll-on or aerosol spray deodorants) or package shape (for example, bottle, tube, or can). We expect these characteristics to proxy for different costs associated with different packaging methods. The variables Y represent a set of indicator variables representing different product characteristics (for example, forms such as gel stick or smooth solid and claims such as “active cooling” or “anti-wetness” for underarm deodorants, and blade types such as “triple edge” and “flexible six” for razors). These product characteristics may proxy for some underlying manufacturing costs or even consumer preferences. Since firms may create gender-specific product attributes—scents like “sweet petals” and “pure sport” or razor head types and colors to differentiate products between genders—we did not always keep every product attribute constant when comparing prices. The idiosyncratic error term is represented by ε. All of our regressions are weighted, with the proportion of units sold for a particular item in that year as the weight. This is because, for personal care products, there are large differences in units sold of various product types and brands, and therefore it not useful to compare simple un- weighted average prices. For example, for one company the highest selling men’s deodorant stick sold almost 12 million units in 2016, and the highest selling women’s deodorant stick sold over 8 million units. The average units sold for underarm deodorants as a whole was just over 300,000 units, and 1,000 products out of a total of almost 3,000 products had less than 100 units sold in 2016. The linear model we used has the usual shortcomings of being subject to specification bias to the extent the relationship between price and each of the independent variables is not linear. The model also does not include complete data on costs, such as advertising and packaging, or consumers’ willingness to pay, both of which have an effect on the price differences. The model may thus also be subject to omitted variable bias. In addition, the model may have some endogeneity issues to the extent the product characteristics themselves are influenced by consumers’ willingness to pay for some of those product features. To reduce the impact of any model misspecifications or heteroscedasticity, we used the robust (or Huber-White sandwich) estimator. We estimated the regression model above for each of the 10 products separately and for each of the two measures of price. We used Nielsen’s in-store, retail price scanner data, which include information on total volume sold and dollar sales for items purchased at 228 retailers including grocery stores, drug stores, mass merchandisers (such as Target), dollar stores, club stores (such as Sam’s Club), and convenience stores. The data capture 82 percent of all U.S. sales. Nielsen also projects sales for the remaining noncooperating retailers, and that information is included in this dataset. We excluded some very small brands that did not have enough units sold from our regression analysis in order to avoid outliers. These brands usually had less than 50,000 units sold over the entire year, and for some products they represented less than 1 percent of all units sold. We found that average retail prices paid were significantly higher for women’s products than for men’s in 5 out of 10 personal care products. In 2 categories, men’s versions sold at a significantly higher price. One category had mixed results based on two price measures analyzed, and two others showed no significant gender price differences. A summary of our regression results is presented in table 5. We manually collected prices for 16 pairs of selected personal care products from the websites of four online retailers that also operated physical store locations. We selected comparable pairs of similar men’s and women’s products that were differentiated by product attributes, such as scent or color, and were sold at most or all of the four retailers. The products were selected based on several comparability factors such as brand, product claims, and number of blades in a razor. For two 1-week time periods in January and March 2018, we collected prices manually between 1:00 p.m. and 7:00 p.m. (ET) over two 7-day time periods. We collected listed prices and did not adjust the prices for any promotions that were available, such as online coupons or buy-one-get-one-free offers. Table 6 presents the results of our online price collection. These results have important limitations: The average prices shown are not generalizable to the broader universe of prices for these products sold at other times or by other online retailers. The data reflect prices advertised to consumers rather than the prices consumers actually paid. The data do not capture the volume of sales for each item for each retailer; in our analysis, we weighted all advertised prices equally across the retailers. As a result, differences we found within these advertised prices may not have translated into comparable differences in prices female and male consumers paid for these products online. The prices do not reflect any promotional discounts, volume discounts, or other discounts that may have been available to some or all consumers. This report examines (1) how prices compared for selected categories of consumer goods that are differentiated for men and women, and potential reasons for any significant price differences; (2) what is known about the extent to which men and women may pay different prices in, or experience different levels of access to, markets for credit and goods and services that are not differentiated based on gender; (3) the extent to which federal agencies have identified and taken steps to address any concerns about gender-related price differences; and (4) state and local government efforts to address concerns about gender-related price differences. To compare prices for selected goods that are differentiated for men and women, we purchased and analyzed Nielsen Company (Nielsen) data on retail prices paid for 10 personal care product categories for calendar year 2016. The product categories included underarm deodorants, body deodorants (typically sold as a spray), disposable razors, nondisposable razors, razor blades, shaving creams, shaving gels, and three categories of fragrances. We selected these categories of personal care products because they are commonly purchased consumer goods that were categorized by gender in the Nielsen data. The women’s and men’s versions of personal care products we selected are generally more similar in terms of the form, size, and packaging in comparison to certain other consumer product categories that are also differentiated by gender, such as clothing. We used regression models to analyze data on retail prices paid for the 10 categories of personal care products differentiated for women and men. To assess the reliability of the Nielsen data, we reviewed relevant documentation and conducted interviews with Nielsen representatives to review steps they took to collect and ensure the reliability of the data. In addition, we electronically tested data fields for missing values, outliers, and obvious errors. We determined that these data were sufficiently reliable for our purposes. For more details on the methodology for, and limitations of, our analysis of these retail price data, see appendix I. We also manually collected listed prices for 16 pairs of selected personal care products from four different retailer websites over two 7-day periods in January and March 2018. For each pair, we selected comparable men’s and women’s products that were differentiated by product attributes, such as scent or color, and were commonly sold across retailers. For more details on our online price data collection and the limitations associated with interpreting the results, see appendix II. To examine what is known about the extent to which men and women may be offered different prices or access for the same goods or services, we reviewed academic literature identified through a literature search covering the last 25 years. To identify existing studies from peer-reviewed journals, we conducted searches using subject and keyword searches of various databases, such as EconLit, Scopus, ProQuest, and Social SciSearch. We also used a snowball search technique—meaning we reviewed relevant academic literature cited in our selected studies—to identify additional studies. We performed these searches and identified articles from December 2016 to April 2018. From these searches, we identified 21 studies that appeared in peer-reviewed journals or research institutions’ publications from 1995 through 2016 and were relevant to gender-related price differences for the same products. We reviewed and assessed each study’s evaluation methodology based on generally accepted social science standards. See the bibliography at the end of this report for a list of the 21 studies. We then summarized the research findings. A GAO economist read and assessed each study, using the same data collection instrument. The assessment focused on information such as the types of disparities examined, the research design and data sources used, and methods of data analysis. The assessment also focused on the quality of the data used in the studies as reported by the researchers and any limitations of data sources for the purposes for which they were used. A second GAO economist reviewed each completed data collection instrument to verify the accuracy of the information included. As a result, the 21 studies that we selected for our review met our criteria for methodological quality. We found the studies we reviewed to be reliable for purposes of determining what is known about price differences for the same products. However, these studies have important limitations, such as using nonrepresentative data samples, and the results are not generalizable. To examine the federal role in overseeing gender-related price differences, we reviewed relevant federal statutes and agency guidance, and interviewed officials from the Federal Trade Commission (FTC), Bureau of Consumer Financial Protection (BCFP), the Department of Housing and Urban Development (HUD), and the Department of Justice (DOJ). To help identify the extent of concerns about gender-related price differences, we interviewed representatives from eight consumer groups, three industry associations, and four academic experts. Additionally, we reviewed a sample of consumer complaints from databases managed by BCFP, FTC, and HUD (Consumer Complaint Database, Consumer Sentinel Network, and Enforcement Management System, respectively). Complaints were submitted by consumers across the United States about various financial products, housing grievances, and other consumer protection concerns. To identify our universe of gender-related consumer complaints in BCFP and FTC databases, we used the following search terms that targeted sex or gender discrimination: discriminat, unfair, treat, decept, abus, female, woman, women, man, men, male, gender, sex, female, woman, women, man, men, male, gender, and sex. HUD’s consumer complaint database is categorized by protected class (e.g., race, sex, national origin), so we did not need to use search terms to identify gender-related complaints. For the years 2012 through 2017, we identified 6,117 BCFP consumer complaint narratives; 10,472 FTC consumer complaints narratives; and 5,421 HUD consumer complaint narratives that were relevant to our scope. We then drew a stratified random probability sample of 100 gender-related consumer complaints from each database. To determine which complaints in our samples were about price differences related to gender or sex, two team members read through each complaint narrative and coded whether or not the complainant’s narrative indicated that they felt that they paid or were charged more because of their gender or sex. A third team member conducted a final review of the results, and made a final determination in cases where there were differences in the first two team member’s assessments. With this probability sample, each member of the study population had a nonzero probability of being included, and that probability could be computed for any member. We followed a probability procedure based on random selections and our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval (with a margin of error of 5.9 percent). This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. We assessed the reliability of these data by reviewing documentation and interviewing agency officials about the databases used to collect these complaints. We determined that these data were sufficiently reliable for our purposes of identifying complaints of gender- related price differences. To explore state and local efforts to address concerns about gender- related price differences, we conducted a literature search and identified three state or local laws or ordinances that specifically address gender- related price differences: California, Miami-Dade County, Florida, and New York City, New York. We reviewed these laws and ordinances and interviewed officials from these jurisdictions to discuss motivations for, oversight of, and the impact of these laws. We conducted this performance audit from October 2016 to August 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. For each of 10 personal care product categories we analyzed, we compared the overall average prices for women’s products and men’s products using two measures of average price: average item price and average price per ounce or count. While the second price measure adjusts the average price for quantity of product, these comparisons did not take into account the effect on price of differences in product brand, packaging, and other characteristics. As shown in table 7, adjusting the average item price to account for differences in product quantity (ounces or count) significantly affected the size and magnitude of gender price differences for several product categories. This is because men’s products in the dataset were frequently larger in size or count compared with women’s products in the same category. For example, women’s disposable razors sold for 11 percent less than those targeted to men when we compared average item prices. However, when we compared average price per count of razors, women’s disposable razors sold for 19 percent more on average than men’s. This is because women’s disposable razors had on average about one fewer razor per package. In 5 out of 10 product categories, women’s versions of the product on average sold for a higher price per ounce or count than men’s and these differences were statistically significant at the 95 percent confidence level for 4 products and at the 90 percent level for one product. Information about sales and relative sizes of different products targeted to men and women are presented in table 8 below. This appendix provides additional details about the consumer complaint processes at the Bureau of Consumer Financial Protection (BCFP), Federal Trade Commission (FTC), and Department of Housing and Urban Development (HUD). Consumers with a complaint about unfair treatment related to gender could submit a complaint to one of these agencies. BCFP and FTC monitor consumer complaints related to violations under the Equal Credit Opportunity Act, while HUD and the Department of Justice (DOJ) investigate housing discrimination complaints under the Fair Housing Act. These complaints could be about price differences because of gender. Alicia Puente Cackley, (202) 512-8678 or cackleya@gao.gov. In addition to the contact named above, John Fisher (Assistant Director), Jeff Harner (Analyst in Charge), Vida Awumey, Bethany Benitez, Namita Bhatia-Sabharwal, Kelsey Kreider, and Kelsey Sagawa made key contributions to this report. Also contributing to this report were Abigail Brown, Michael Hoffman, Jill Lacey, Oliver Richard, Tovah Rom, and Paul Schmidt. We reviewed literature to identify what is known about the extent to which female and male consumers may face different prices or access in markets for credit and goods and services that are not differentiated based on gender. This bibliography contains citations for the 20 studies and articles that we reviewed that compared prices or access for female and male consumers in markets where the product is not differentiated by gender (mortgages, small business credit, auto purchases, and auto repairs). Asiedu, Elizabeth, James A. Freeman, and Akwasi Nti-Addae. “Access to Credit by Small Businesses: How Relevant Are Race, Ethnicity, and Gender?” The American Economic Review, vol. 102, no. 3 (2012): 532- 537. Ayers, Ian and Peter Siegelman. “Race and Gender Discrimination in Bargaining for a New Car.” The American Economic Review, vol. 85, no. 3. (1995): 304-321. Blanchard, Lloyd, Bo Zhaob, and John Yinger. “Do lenders discriminate against minority and woman entrepreneurs?” Journal of Urban Economics 63 (2008): 467–497. Blanchflower, David G., Phillip B. Levine, and David J. Zimmerman. “Discrimination in the Small-Business Credit Market.” The Review of Economics and Statistics, vol. 85, no. 4 (2003): 930-943. Busse, Meghan R., Ayelet Israeli, and Florian Zettelmeyer. “Repairing the Damage: The Effect of Price Expectations on Auto Repair Price Quotes.” National Bureau of Economic Research, Working Paper 19154 (2013). Cavalluzzo, Ken S., Linda C. Cavalluzzo, and John D. Wolken. “Competition, Small Business Financing, and Discrimination: Evidence from a New Survey.” The Journal of Business, vol. 75, no. 4 (2002): 641- 679. Cheng, Ping, Zhenguo Lin, and Yingchun Liu. “Do Women Pay More for Mortgages?” The Journal of Real Estate Finance and Economics, vol. 43 (2011): 423-440. Cheng, Ping, Zhenguo Lin, and Yingchun Liu. “Racial Discrepancy in Mortgage Interest Rates.” The Journal of Real Estate Finance and Economics, vol. 51 (2015): 101-120. Cole, Rebel, and Tatyana Sokolyk. “Who Needs Credit and Who Gets Credit? Evidence from the Surveys of Small Business Finances”. Journal of Financial Stability, vol. 24 (2016), 40-60. Coleman, Susan. “Access to Debt Capital for Women- and Minority- Owned Small Firms: Does Educational Attainment Have an Impact?” Journal of Developmental Entrepreneurship, vol. 9, no. 2 (2004): 127-143. Duesterhas, Megan, Liz Grauerholz, Rebecca Weichsel, and Nicholas A. Guittar. “The Cost of Doing Femininity: Gendered Disparities in Pricing of Personal Care Products and Services,” Gender Issues, vol. 28, (2011): 175-191. Goodman, Laurie, Jun Zhu, and Bing Bai. “Women Are Better than Men at Paying Their Mortgages.” Urban Institute, Research Report (2016). Haughwout, Andrew, et al. “Subprime Mortgage Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of Borrowing.” Brookings- Wharton Papers on Urban Affairs (2009): 33-63. Mijid, Naranchimeg. “Gender differences in Type 1 credit rationing of small businesses in the US.” Cogent Economics & Finance, vol. 3 (2015). Mijid, Naranchimeg. “Why are female small business owners in the United States less likely to apply for bank loans than their male counterparts?” Journal of Small Business & Entrepreneurship, vol. 27, no. 2 (2015): 229- 249. Mijid, Naranchimeg and Alexandra Bernasek. “Gender and the credit rationing of small businesses.” The Social Science Journal, vol. 50 (2013): 55-65. Morton, Fiona Scott, Florian Zettelmeyer, and Jorge Silva-Risso. “Consumer Information and Price Discrimination: Does the Internet Affect the Pricing of New Cars to Women and Minorities?” National Bureau of Economic Research, Working Paper 8668 (2001). O’Connor, Sally. “The Impact of Gender in the Mortgage Credit Market.” University of Wisconsin-Milwaukee Doctoral Dissertation (1996). Van Rensselaer, Kristy N., et al. “Mortgage Pricing and Gender: A Study of New Century Financial Corporation.” Academy of Accounting and Financial Studies Journal, vol. 18, no. 4 (2014): 95-110. Wyly, Elvin and C.S. Ponder. “Gender, age, and race in subprime America.” Housing Policy Debate, vol. 21, no. 4 (2011): 529-564. Zimmerman Treichel, Monica and Jonathan A. Scott. “Women-Owned Businesses and Access to Bank Credit: Evidence from Three Surveys Since 1987.” Venture Capital, vol. 8, no. 1 (2006): 51-67.	[ "Gender-related price differences occur when consumers are charged different prices for the same or similar goods and services because of factors related to gender. While variation in costs and consumer demand may give rise to such price differences, some policymakers have raised concerns that gender bias may also be a factor. While the Equal Credit Opportunity Act and Fair Housing Act prohibit discrimination based on sex in credit and housing transactions, no federal law prohibits businesses from charging consumers different prices for the same or similar goods targeted to different genders. GAO was asked to review gender-related price differences for consumer goods and services sold in the United States. This report examines, among other things, (1) how prices compared for selected goods and services marketed to men and women, and potential reasons for any price differences; (2) what is known about price differences for men and women for products not differentiated by gender, such as mortgages; and (3) the extent to which federal agencies have identified and addressed any concerns about gender-related price differences. To examine these issues, GAO analyzed retail price data, reviewed relevant academic studies, analyzed federal consumer complaint data, and interviewed federal agency officials, industry experts, and academics. Firms differentiate many consumer products to appeal separately to men and women by slightly altering product attributes like color or scent. Products differentiated by gender may sell for different prices if men and women have different demands or willingness to pay for these product attributes. Of 10 personal care product categories (e.g., deodorants and shaving products) that GAO analyzed, average retail prices paid were significantly higher for women's products than for men's in 5 categories. In 2 categories—shaving gel and nondisposable razors—men's versions sold at a significantly higher price. One category—razor blades--had mixed results based on two price measures analyzed, and two others—disposable razors and mass-market perfumes—showed no significant gender price differences. GAO found that the target gender for a product is a significant factor contributing to price differences identified, but GAO did not have sufficient information to determine the extent to which these gender-related price differences were due to gender bias as opposed to other factors, such as different advertising costs. Though the analysis controlled for several observable product attributes, such as product size and packaging type, all underlying differences in costs and demand for products targeted to different genders could not be fully observed. Studies GAO reviewed found limited evidence of gender price differences for four products or services not differentiated by gender—mortgages, small business credit, auto purchases, and auto repairs. For example, with regard to mortgages, women as a group paid higher average mortgage rates than men, in part due to weaker credit characteristics, such as lower average income. However, after controlling for borrower credit characteristics and other factors, three studies did not find statistically significant differences in borrowing costs between men and women, while one found women paid higher rates for certain subprime loans. In addition, one study found that female borrowers defaulted less frequently than male borrowers with similar credit characteristics, and the study suggested that women may pay higher mortgage rates than men relative to their default risk. While these studies controlled for factors other than gender that could affect borrowing costs, several lacked important data on certain borrower risk characteristics, such as credit scores, which could affect analysis of gender disparities. Also, several studies analyzed small samples of subprime loans that were originated in 2005 or earlier, which limits the generalizability of the results. In their oversight of federal antidiscrimination statutes, the Bureau of Consumer Financial Protection, Federal Trade Commission, and Department of Housing and Urban Development have identified limited consumer concerns based on gender-related pricing differences. GAO's analysis of complaint data received by the three agencies from 2012–2017 found that they had received limited consumer complaints about gender-related price differences. The agencies provide general consumer education resources on discrimination and consumer awareness. However, given the limited consumer concern, they have not identified a need to incorporate additional materials specific to gender-related price differences into their existing consumer education resources." ]	8,377	gov_report	en	null	f9c3887bcf4a8492d37350d51247c096a94d6703bbdee13b
According to the National Inventory of Dams, as of January 2016 there are approximately 90,500 dams in the United States and about 2.5 percent of these (approximately 2,100 dams) are associated with hydropower projects. Hydropower projects are owned and operated by both non-federal entities—such as private utility companies, municipalities, and state government agencies—or federal government agencies—primarily the U.S. Army Corps of Engineers (the Corps) and the Bureau of Reclamation. Collectively, these dams associated with hydropower projects account for about 8 percent of the total electric generating capacity in the United States. Hydropower projects generally consist of one or more dams and other key components associated with hydroelectric power generation and water storage, and are uniquely designed to accommodate watersheds, geology, and other natural conditions present at the time of construction. These components include both those that allow operators to adjust reservoir water levels, such as spillways and gates, as well as those that produce and distribute electricity, such as transmission lines and powerhouses, among others. (See fig. 1.) The Federal Power Act provides for FERC’s regulatory jurisdiction over a portfolio of about 1,000 non-federal hydropower projects comprising over 2,500 dams. While FERC does not construct, own, or operate dams, it licenses and provides oversight of non-federal hydropower projects to promote their safe operation. Licensees are responsible for the safety and liability of dams, pursuant to the Federal Power Act, and for their continuous upkeep and repair using sound and prudent engineering practices. FERC officials in each of the agency’s five regional offices work directly with licensees to help ensure these projects comply with licenses and meet federal guidelines for dam safety. In addition, stakeholder groups such as the Association of State Dam Safety Officials can assist licensees in staying current on federal and state dam laws and regulations, dam operations and maintenance practices, and emergency action planning, among other things. FERC’s regulations, supplemented by its Operating Manual and Engineering Guidelines, establish a framework for its dam safety oversight approach. FERC’s Operating Manual provides guidelines for the FERC staff performing inspections that are aimed at ensuring that structures are safe, are being properly maintained, and are being operated safely. FERC’s Engineering Guidelines provides FERC staff and licensees with procedures and criteria for the review and analysis of license applications, project modification proposals, technical studies, and dam designs. For example, one chapter presents guidelines for FERC staff to use to determine the appropriateness and level of geotechnical investigations and studies for dams. The Engineering Guidelines states that every dam is unique and that safety analysis of each dam require that engineers apply technical judgement based on their professional experience. As part of FERC’s safety oversight approach, it assigns a hazard classification to each dam in accordance with federal guidelines that consider the potential human or economic consequences of the dam’s failure. The hazard classification does not indicate the structural integrity of the dam itself, but rather the probable effects if a failure should occur. Depending on the hazard classification, the extent of and the frequency of safety oversight activities can vary. Low hazard dams are those where failure —an uncontrolled release of water from a water-retaining structure—would result in no probable loss of human life but could cause low economic and/or environmental losses. Significant hazard dams are those dams where failure would result in no probable loss of human life, but could cause economic loss, environmental damage, or other losses. High hazard dams are those dams where failure would probably cause loss of human life. FERC has designed a multi-layered oversight approach that involves both independent and coordinated actions with dam owners and independent consultants. Key elements of this approach include ensuring licensees have a safety program in place, conducting regular safety inspections, reviewing technical analyses, and analyzing safety as a part of project relicensing. (See fig. 2.) Licensee’s dam safety program. According to FERC guidance, licensees have the most important role in ensuring dam safety through continuous visual surveillance and ongoing monitoring to evaluate the health of the structure. Beyond this expectation for continuous oversight, FERC requires licensees of high and significant hazard dams to have an Owner’s Dam Safety Program. FERC dam safety inspection. The dam safety inspection, also called operation inspection, is a regularly-scheduled inspection conducted by a FERC regional office project engineer primarily addressing dam and public safety. FERC’s Operating Manual establishes the frequency that a FERC engineer conducts dam safety inspections. Independent consultant inspection and potential failure mode analysis. FERC requires licensees to hire a FERC-approved independent consulting engineer to inspect and evaluate high hazard dams and certain types of dams above a certain height or size and submit a report detailing the findings. Additionally, FERC requires the licensee of a high or significant hazard dam to conduct a potential failure mode analysis. A potential failure mode analysis is an exercise to identify and assess all potential failure modes under normal operating water levels and under extreme conditions caused by floods, earthquakes, and other events. FERC relicensing of projects. FERC issues hydropower licenses for the construction of new hydropower projects, and reissues licenses for existing projects when licenses expire. Licensees may submit applications for a new license for the continued operation of existing projects as part of a process known as relicensing. During relicensing, in addition to the power and development purposes for which FERC issues licenses, FERC must evaluate safety, environmental, recreational, cultural, and resource development among other factors when evaluating projects, according to its guidance. In addition, FERC requires licensees to conduct various engineering studies related to dam performance in accordance with FERC safety requirements. Required engineering studies focus on dam performance as affected by hydrology, seismicity, and dam stability. Licensees may also produce engineering studies, such as a focused spillway assessment, for their own operations or at the request of FERC. We found, based on our analysis of the 42 dam safety inspections we reviewed, that FERC staff generally conducted and collected information from these inspections consistent with guidance in its Operating Manual. According to FERC’s Operating Manual, staff’s approach to conducting these inspections and collecting information is to include preparing for the inspection by reviewing documents, conducting a field inspection of the dam and associated project components, and discussing inspection findings with licensees and with FERC supervisors. Preparation for inspection: We found that FERC staff generally met document review requirements in preparation for safety inspections of the 42 dams we reviewed. (See table 1.) According to the Operating Manual, FERC staff are to review safety-related information contained in documents such as potential failure mode analyses and hazard potential classifications. For example, we found that staff documented their review of the most recent independent consultant inspection report and potential failure mode analysis for each of the 16 high hazard dams we reviewed. FERC staff told us that they generally used checklists when preparing for these inspections. For example, some of the staff told us they tailor the checklist included in the Operating Manual, based on the dam’s type, characteristics, and hazard classification. Additionally, for each of the dams in our sample, staff stated that they prepared for the inspection by reviewing prior inspection reports and recommendations. Field inspection: We found that FERC staff generally met requirements for reviewing project components and documenting their findings from field inspections of the 42 dams we reviewed. (See table 2.) According to the Operating Manual, FERC staff are to conduct visual inspections of the dam, typically alongside the licensee, to assess the dam and project components by observing their condition and identifying any safety deficiency or maintenance requirement. Also during the inspection, FERC staff are to compare current conditions of the dam and project components to those described in prior inspection reports, and as applicable, collect information on the licensee’s progress towards resolving deficiencies and maintenance issues that can affect safety. To assess safety, FERC staff we interviewed stated that they primarily rely on their engineering judgment. Inspection findings: According to our interviews with FERC staff from selected projects, we found that staff generally followed FERC guidance in discussing inspection findings with licensees and supervisors prior to preparing inspection reports to document their findings. According to the Operating Manual, following the dam safety inspection, FERC staff are to discuss the inspection with the licensee, giving direction on how to address any findings. Additionally, upon returning to the office, staff are to discuss inspection findings with their supervisors who may suggest additional actions. FERC staff are then to develop a dam safety inspection report that documents observations and conclusions from their pre-inspection preparation and their field inspection and identifies follow-up actions for the licensee. We found that FERC staff prepared inspection reports to document findings from the 42 dam safety inspections we reviewed. In response to inspection findings, FERC requires licensees to submit a plan and schedule to remediate any deficiency, actions that FERC staff then reviews, approves, and monitors until the licensees have addressed the deficiency. While we found that FERC staff conducted inspections and collected inspection findings consistently in the files we reviewed, FERC’s approach to recording information varies across its regions, thus limiting the usefulness of the information. FERC’s approach to recording inspection information relies on multiple systems to record inspection information and affords broad discretion to its staff on how to characterize findings, such as whether to track inspection findings as maintenance issues or as safety deficiencies. As related to systems for recording inspection information, FERC staff use the Data and Management System (DAMS), the Office of Energy Projects-IT (OEP-IT) system, as well as spreadsheets. In particular, according to FERC staff: Four out of FERC’s five regional offices use DAMS—which is primarily a workload tracking tool—to track plans and schedules associated with safety investigations and modifications as well as inspection follow-up items. FERC staff stated that since the inspection information in DAMS is recorded as narrative text in a data field instead of as discrete categories, sorting or analysis of the information is difficult. One regional office uses OEP-IT to track safety deficiencies while the system is more widely used across FERC to track licensees’ compliance with the terms and conditions of their licenses. Three out of FERC’s five regional offices also use spreadsheets and other tools that are not integrated with DAMS or OEP-IT to track inspection information and licensee progress toward resolving safety deficiencies. FERC staff said that use of these different systems to record deficiencies identified during inspections limits their ability to analyze safety information. For example, according to FERC officials, OEP-IT was not designed to track safety deficiency information and is not compatible with DAMS for use in tracking information on a national level. Furthermore, because spreadsheets and other tools are specific to the regional office in which they are used, FERC staff does not use the information they contain for agency-wide analysis. Concerning decisions on how to characterize inspection findings, FERC staff relies on professional judgment, informed by their experience and the Engineering Guidelines, to determine whether to track inspection findings as a safety deficiency or as a maintenance item, according to FERC officials. With input from their supervisors, FERC staff also determines what information to record and how to track the status of the inspection finding. For example, staff assigned to a dam at a FERC- licensed project in New Hampshire observed concrete deterioration on several parts of the dam and its spillway and asked the licensee to monitor all concrete surfaces, making repairs as necessary. According to staff we interviewed, regional staff and supervisors decided not to identify this as a deficiency to be tracked in DAMS because concrete deterioration is normal and to be expected in consideration of the area’s harsh winter weather. In contrast, staff assigned to a dam at a FERC- licensed project in Minnesota observed concrete deterioration on several parts of the project, including the piers and the powerhouse walls, and entered the safety item in DAMS as requiring repair by the licensee. FERC officials stated they are comfortable with the use of professional judgement to classify and address inspection findings because it is important to allow for consideration of the characteristics unique to each situation and how they affect safety. FERC’s approach to recording inspection information is inconsistent because FERC has not provided standard language and procedures about how staff should record and track deficiencies including which system to use. Federal standards for internal control state that agencies should design an entity’s information system and related control activities to achieve objectives and control risks. In practice, this means that an agency would design control activities—such as policies and procedures—over the information technology infrastructure to support the completeness, accuracy, and validity of information processing by information technology. FERC officials acknowledged that there are inconsistent approaches in where and how staff record safety deficiency information, approaches that limit the information’s usefulness as an input to its oversight. While the agency has not developed guidance, officials stated that FERC plans to take steps to improve the consistency of recorded information by replacing the OEP-IT system with a new system, tentatively scheduled for September 2018, that will have a specific function to track dam safety requirements. However, this new system will not replace the functions of DAMS, which FERC will continue to use to store inspection information. The two will exist as parallel systems with the eventual goal of the two systems’ sharing information. By developing standard language and procedures to standardize the recording of information collected during inspections, FERC officials could help ensure that the information shared across these systems is comparable, steps that would allow FERC to identify the extent of and characteristics associated with common safety deficiencies across its entire portfolio of regulated dams. Moreover, with a consistent approach to recording information from individual dam safety inspections, FERC will be positioned to proactively identify comparable safety deficiencies across its portfolio and to tailor its inspections towards evaluating them. While FERC uses inspection information to monitor a licensee’s efforts to address a safety deficiency for an individual dam, FERC has not analyzed information collected from its dam safety inspections to evaluate safety risks across the entire regulated portfolio of dams. For example, FERC has not reviewed inspection information to identify common deficiencies among certain types of dams. Federal standards for internal control state that agencies should identify, analyze, and respond to risks related to their objectives. These standards note that one method for management to identify risks is the consideration of deficiencies identified through audits and other assessments. Dam safety inspections are an example of such an assessment. As part of such an approach, the agency analyzes risks to estimate their significance, which provides a basis for responding to the risk through specific actions. Furthermore, in our previous work on federal facilities, we have identified that an advanced use of risk management involving the ability to gauge risk across a portfolio of facilities could allow stakeholders to comprehensively identify and prioritize risks at a national level and direct resources toward alleviating them. FERC officials stated that they have not conducted a portfolio-wide analysis in part due to the inconsistency of recorded inspection data and because such an evaluation has not been a priority compared to inspecting individual dams. According to officials, the FERC headquarters office collects and reviews information semi-annually from each of its five regional offices on the progress of outstanding dam investigations and modifications in those regions. FERC’s review is designed to monitor the status of investigations on each individual dam but does not analyze risks across the portfolio of dams at the regional or national level. For example, officials from the New York Regional Office stated they do not perform trend analysis across the regional portfolio of dams under their authority, but they compile year-to-year data for each separate dam to show any progression or changes from previous data collected from individual dams. A portfolio-wide analysis could help FERC proactively identify safety risks and prioritize them at a national level. FERC officials stated that a proactive analysis of its portfolio could be useful to determining how to focus its inspections to alleviate safety risks, but it was not an action that FERC had taken to date. The benefits of a proactive analysis, for example, could be similar to those FERC derived from the analysis it conducted in reaction to the Oroville Dam incident. To conduct this analysis, FERC required 184 project licensees, identified by FERC regional offices as having spillways similar to the failed spillway at the Oroville Dam, to assess the spillways’ safety and capacity. According to FERC officials, these assessments identified 27 dam spillways with varying degrees of safety concerns. They stated that FERC’s spillway assessment initiative was a success because they were able to target a specific subgroup of dams within the portfolio and identify these safety concerns at 27 dam spillways. FERC officials stated that they are working with the dam licensees to address these safety concerns. A similar and proactive approach based on analysis of common deficiencies across the portfolio of dams under FERC’s authority could also help to identify any safety risks that may not have been targeted during the inspections of individual dams and prior to a safety incident. As directed by FERC, licensees and their consultants develop and review, or update, various engineering studies related to dam performance to help ensure their dams meet FERC requirements and remain safe. FERC regulations and guidelines describe the types and frequency of studies and analyses required based on dams’ hazard classifications. For all high hazard and some significant hazard dams, existing studies are to be reviewed by each licensee’s consultants every 5 years, as part of the independent consultant inspection and accompanying potential failure mode analysis. According to FERC officials, for those significant hazard dams that do not require an independent consultant inspection and for low hazard dams, FERC’s regulations and guidelines do not require any studies, but in practice FERC directs many licensees to conduct them. FERC also may request engineering studies in response to dam safety incidents at other projects, or engage a board of consultants to oversee the completion of a study. For example, as previously noted, following the Oroville Dam incident in 2017, FERC requested a special assessment of all dams with spillways similar to the failed spillway at the Oroville Dam. To develop these studies, all six of the consultants we interviewed stated that they follow guidelines provided by FERC and other dam safety agencies. Specifically, they stated that they use FERC’s Engineering Guidelines, which provide engineering principles to guide the development and review of engineering studies. In recognition of the unique characteristics of each dam, including its construction, geography, and applicable loading conditions, the Guidelines provides consultants with flexibility to apply engineering judgment, and as a result, the approach that licensees and their consultants use and the focus of their reviews of engineering studies may vary across regions or projects. For example, one independent consultant we interviewed noted that seismicity studies are not highlighted during the independent consultant inspections for projects in the Upper Midwest in comparison to projects in other areas of the country because the region is not seismically active, but that inspections do look closely at ice loads during the winter months. To create these studies, we found that licensees and their consultants generally use data from other federal agencies and rely on available modeling tools developed by federal agencies and the private sector to evaluate dam performance. For example, many of the engineering studies we reviewed rely on data from the National Weather Service and the National Oceanic and Atmospheric Administration to estimate precipitation patterns and the U.S. Geological Survey to estimate seismic activity. In addition, licensees and their consultants use modeling tools and simulations, such as those developed by the Corps to estimate hydrology, to develop engineering studies. FERC staff noted that the engineering studies developed by licensees and their consultants generally focus on the analysis of extreme events, such as earthquakes and floods. In reference to extreme events, FERC staff said that both actual past events and likely future events are considered in determining their magnitude. FERC staff noted the probable maximum flood—the flood that would be expected to result from the most extreme combination of reasonably possible meteorological and hydrological conditions—as an example of a dam design criterion that is based on application of analysis of extreme events. In describing the efficacy of probable maximum flood calculations, FERC officials stated that they had not observed a flood that exceeded the probable maximum flood calculated for any dam and noted that their Engineering Guidelines provides a conservative approach to estimating the probable maximum flood and other extreme events. FERC officials stated that requiring a conservative approach to estimating extreme events helps to mitigate the substantial uncertainty associated with these events, including in consideration of emerging data estimating the effects of climate change on extreme weather events. Once developed, engineering studies we reviewed often remained in effect for a number of years, until FERC or the licensee and its consultant determined an update was required. For example, we found that the hydrology studies were 20 years or older for 17 of the 42 dams in our review, including for 9 of the 16 high hazard dams in our sample. FERC’s Engineering Guidelines states that studies should be updated as appropriate. For example, FERC’s Engineering Guidelines on hydrology studies state that previously accepted flood studies are not required to be reevaluated unless it is determined that a re-analysis is warranted. The Guidelines notes that FERC or the consultant may consider reanalyzing the study for several reasons, including if they identify (1) significant errors in the original study; (2) new data that may significantly alter previous study results; or (3) significant changes in the conditions of the drainage basin. FERC staff and consultants we interviewed stated that age alone is not a primary criterion to update or replace studies and that studies should be updated as needed depending on several factors including age, new or additional data, and professional judgment. Consultants we interviewed identified some limitations that can affect their ability to develop engineering studies for a dam. For example, they noted that some dams may lack original design information, used prior to construction of the dam, which includes the assumptions and calculations used to determine the type and size of dam, the amount of water storage capacity, and information on the pre-construction site geology and earthquake potential. FERC officials estimated that for a large percentage of the dams they relicense, the original information is no longer available. For example, according to the report from the independent forensic team investigating the Oroville Dam incident and as previously noted, some design drawings and construction records for the dam’s spillway could not be located and some other documents that were available were not included in the most recent independent consultant inspection report submitted to FERC. To overcome the lack of original design information, FERC told us that licensees and their consultants may use teams of experts, advanced data collection techniques, and other modern methods, where feasible, to assess the dam’s ability to perform given current environmental conditions. In cases where design or other engineering information is incomplete, consultants stated that they generally recommend the licensee conduct additional studies based on the risk presented by the missing information but also noted that the financial resources of a licensee may affect its willingness and ability to conduct additional studies. However, FERC officials stated that FERC staff are ultimately responsible for making decisions on whether additional engineering studies are needed to evaluate a dam’s performance. FERC has established policies and procedures that use formal guidance, and permit the use of professional judgment, to evaluate and review engineering studies of dam performance submitted by licensees and their consultants. FERC officials in both the headquarters and regional offices emphasized that their role as the regulator is to review and validate engineering studies developed by the licensee and their consultants. FERC generally does not develop engineering studies as officials noted that dam safety, including the development of engineering studies, is primarily the licensee’s responsibility. To carry out their responsibility to ensure public safety, FERC staff stated they use procedures and criteria in the FERC Engineering Guidelines to review engineering studies and apply professional judgment to leverage their specialized knowledge, skills, and abilities to support their determinations of dam safety. FERC’s Engineering Guidelines provides a framework for the review of engineering studies, though the Guidelines recognizes that each dam is unique and allows for flexibility and exemptions in their use. Moreover, the Guidelines notes that analysis of data is useful when evaluating a dam’s performance, but should not be used as a substitute for judgment based on experience and common sense. Because FERC’s Engineering Guidelines allows for the application of professional judgment, the methods used to review these studies vary depending on the staff, the region, and individual dam characteristics. For example, FERC staff said that when they review consultants’ assumptions, methods, calculations and conclusions, in some cases they may decide to conduct a sensitivity analysis if—based on the staff’s judgment—they need to take additional steps to validate or confirm factors of safety for the project. FERC officials also stated that staff may conduct their own independent analyses, as appropriate, such as evaluating a major structural change to the dam or validating submitted studies. For example, as part of its 2016 review of the Union Valley Dam in California, FERC staff validated the submitted hydrology study by independently calculating key inputs, such as precipitation rates and peak floods, to evaluate the dam’s performance and verify the spillway’s reported capacity. In addition, FERC has established various controls to help ensure the quality of its review, including using a risk-based review process, assigning multiple staff to review the studies, and rotating staff responsibilities over time. We have previously found in our reporting on other regulatory agencies that practices such as rotating staff in key decision-making roles, and including at least two supervisory staff when conducting oversight reviews help reduce threats to independence and regulatory capture. Risk-based review process. FERC’s review approach is risk-based, as the frequency of staff’s review of these studies is based on the hazard classification of the dam as well as professional judgment. FERC relies on three primary engineering studies (hydrology, seismicity, and stability), and others as appropriate, which form the basis for determining if a dam is safe. In addition, FERC requires licensees to hire a FERC-approved independent consulting engineer at least every 5 years to inspect and evaluate high hazard and other applicable dams and submit a report detailing the findings as part of the independent consultant inspection process. In general, for the dams we reviewed, we found that FERC staff reviewed engineering studies for dams subject to independent consultant inspections (which are typically high or significant hazard dams) more frequently than those engineering studies associated with dams for which FERC does not require an independent consultant inspection (typically low hazard dams). For example, we found FERC staff had reviewed the most recent hydrology studies for all 22 high and significant hazard dams in our sample subject to independent consultant inspections within the last 6 years and documented their analysis. According to FERC officials, for dams not subject to an independent consultant inspection, FERC staff review engineering studies on an as needed basis, depending on whether the underlying assumptions and information from the previous studies are still relevant. For example, for the 20 dams in our study not subject to an independent consultant inspection, we found that most (15) of these studies were reviewed by FERC within the past 10 years, usually during the project’s relicensing. Multiple levels of supervisory review. As part of FERC’s quality control and internal oversight process, multiple FERC staff are to review the studies produced by the licensee and its consultant, with the number of successive reviews proportional to the complexity or importance of the study, according to FERC officials. FERC’s Operating Manual establishes the general procedure for the review of engineering studies. To begin the review process, the staff assigned to a dam is to review the engineering study and prepares an internal memo on its findings; that memo is then to be reviewed for accuracy and completeness by both a regional office Branch Chief, and the Regional Engineer. If necessary, Washington, D.C., headquarters office staff are to review and approve the final memo. Upon completion of review, FERC staff are to provide a letter to the licensee indicating any particular areas where additional information is needed or where more studies are needed to evaluate the dam’s performance. According to FERC officials, each level of review adds successive quality control steps performed by experienced staff. We have previously found in reporting on other regulatory agencies that additional levels of review increases transparency and accountability and diminishes the risk of regulatory capture. Rotation of FERC staff responsibilities. As part of an internal quality control program to help minimize the risk of missing important safety- related items, FERC officials told us they rotate staff assignments and responsibilities approximately every 3 to 4 years. According to FERC officials, this practice decreases the chance that a deficiency would be missed over time due to differences in areas of engineering expertise between or among staff. We have previously found in our reporting on other regulatory agencies that strategies such as more frequently rotating staff in key roles can help reduce the risk to supervisory independence and regulatory capture. Some FERC regional offices have developed practices to further enhance their review of these studies. For example, the New York Regional Office established a subject matter expert team that helps review dams with unusually complex hydrology issues. This team was created, in part, because FERC staff noted that some of the hydrology studies conducted in the 1990s and 2000s were not as thorough as they would have wanted, and warranted a re-examination. Currently, the New York Regional Office is reviewing the hydrology analysis associated with 12 dam break studies to determine if the hydrology data used in developing these studies were as rigorously developed and validated. According to the FERC staff in this office, utilizing a team of subject matter experts has reduced Regional Office review time and improved the hydrology studies’ accuracy. FERC staff in the New York Regional Office also told us that they are working with other regional offices on setting up similar technical teams. For example, FERC staff in the New York Regional Office have been working with the Portland Regional Office to set up a similar team. FERC procedures require the use of engineering studies at key points over the dam’s licensing period to inform components of its safety oversight approach, including during the potential failure mode analyses of individual dams as well as during relicensing. Potential failure mode analysis. The potential failure mode analysis is to occur during the recurring independent consultant inspection and is conducted by the licensee’s independent consultant along with other key dam safety stakeholders. As previously explained, the analysis incorporates the engineering studies and identifies events that could cause a dam to potentially fail. During the potential failure mode analysis, FERC, the licensee, the consultant, and other key dam safety stakeholders are to refer to the engineering studies to establish environmental conditions that inform dam failure scenarios, the risks associated with these failures, and their consequences for an individual dam. Further, according to a FERC white paper on risk analysis, FERC is beginning to use information related to potential failure modes as inputs to an analysis tool that quantifies risks at each dam. With this information, FERC expects to make relative risk estimates of dams within its inventory and establish priorities for further study or remediation of risks at individual dams, according to the white paper. Relicensing. During relicensing, FERC staff are to review the engineering studies as well as information such as historical hydrological data and extreme weather events, which also inform their safety evaluation of the licensee’s application. FERC officials also stated that as a result of their relicensing review, they might alter the articles of the new license before it is issued should their reviews indicate that environmental conditions affecting the dam’s safety have changed. We found that FERC generally met its requirement to evaluate dam safety during the relicensing process for the 42 dams we reviewed. During the relicensing process, we found that for the dams we reviewed, FERC staff review safety information such as the past reports, inspections, and studies conducted by FERC, the licensee, and independent consultants and determine whether or not a dam owner operated and maintained its dam safely. According to FERC staff, the safety review for relicensing is generally a summary of prior safety and inspection information, rather than an analysis of new safety information, unless the licensee proposes a change to the operation or structure. FERC’s review during relicensing for the high hazard and significant hazard dams we reviewed was generally consistent with its guidance and safety memo template, though the extent of its review of low hazard dams varied. (See fig. 3.) For example, for the 22 high and significant hazard dams we reviewed, the safety relicensing memos followed the template and nearly all included summaries of hydrology studies, stability analyses, prior FERC inspections, and applicable independent consultant reports. For the 20 low hazard dams, FERC staff noted that some requirements in the template are not applicable or have been exempted and therefore were not reviewed during relicensing. While low hazard dams were more inconsistently reviewed during relicensing, FERC staff also noted that there has been a recent emphasis to more closely review, replace, or conduct engineering studies, such as the stability study, for low hazard dams during relicensing. Moreover, FERC staff told us that the safety risks associated with these dams are minimal, as the failure of a low hazard dam, by definition, does not pose a threat to human life or economic activity. According to FERC staff, if a licensee proposed altering the dam or its operations in any way as part of its application for a new license, FERC staff would review the proposed change and may recommend adding articles to the new license prior to its issuance to ensure dam safety. FERC officials noted that, as part of their review, any structural or operational changes proposed by the licensee during relicensing are reviewed by FERC. These officials also noted that FERC generally recommends modifications to the licensees’ proposed changes prior to their approval and inclusion in the new license. However, FERC officials noted that, in some cases, additional information is needed prior to approving the structural or operational change to ensure there are no risks posed by the changes. In those instances, FERC may recommend that articles be added to the new license, that require the licensee to conduct additional engineering studies of the issue and submit them to FERC for review and approval. For example, during the relicensing of the Otter Creek project in Vermont in 2014, the licensee proposed changes to the project’s operation resulting from construction. As a result, FERC’s staff recommended adding a number of articles to the license, including that the licensee conduct studies to evaluate the effect of the change on safety and to ensure safety during construction. During relicensing, third parties—such as environmental organizations, nearby residents and communities, and other federal agencies, such as the U.S. Fish and Wildlife Service—may provide input on various topics related to the project, including safety. However, FERC officials said that very few third parties file studies or comments related to dam safety during relicensing. FERC’s template and guidance do not specifically require the consideration of such analyses as part of its safety review, and we did not identify any safety studies submitted by third parties for dams or reviewed by FERC in our sample. According to FERC officials, when stakeholders submit comments during relicensing, the comments tend to focus on environmental aspects of the project, such as adding passages for fish migration. Further, FERC is not required under the Federal Power Act to respond to any comments, including those related to dam safety, from third parties, according to FERC officials. However, according to FERC officials, courts have held that the Administrative Procedure Act precludes an agency from arbitrarily and capriciously ignoring issues raised in comments. Furthermore, these officials stated that if a court determines that FERC did not sufficiently address issues raised during the relicensing process, its orders are subject to being reversed and remanded by applicable United States courts of appeals. Moreover, FERC officials noted that the information needed to develop third party safety studies, such as the dam design drawings and engineering studies, are property of the licensee, rather than FERC. In addition, this information may not be readily available to third parties or the public if FERC designates it as critical energy infrastructure information, which would preclude its release to the general public. FERC staff we interviewed stated that there have been no instances where the Commission denied a new license to a licensee as a result of its safety review during relicensing. FERC staff stated that given the frequency of other inspections, including the FERC staff inspections, and independent consultant inspections, it is unlikely staff would find a previously unknown major safety issue during relicensing. FERC staff told us that rather than deny a license for safety deficiencies, FERC will keep a dam owner under the terms of a FERC license to better ensure the licensee remedies existing safety deficiencies. Specifically, FERC staff noted that under a license, FERC can ensure dam safety by (1) closely monitoring the deficiency’s remediation progress through its inspection program, (2) adding license terms in the new license tailored to the specific safety deficiency, and (3), as necessary, pursuing compliance and enforcement actions, such as civil penalties or stop work orders, to enforce the terms and conditions of the license. For example, prior to and during the relicensing of a FERC-licensed project in Wisconsin in 2014, FERC’s review identified that the spillway capacity was inadequate. While the project was relicensed in 2017 without changes to the spillway, FERC officials stated that they have been overseeing the plans and studies of the remediation of the spillway through their ongoing inspection program. However, if an imminent safety threat is identified during the relicensing review, FERC officials stated that they will order that the licensee take actions to remedy the issue immediately. Moreover, FERC officials noted that, if necessary, a license can be revoked for failure to comply with the terms of its license. FERC designed a multi-layered safety approach—which uses inspections, studies, and other assessments of individual dams—to reduce exposure to safety risks. However, as the spillway failure at the Oroville Dam project in 2017 demonstrated, it is not possible to eliminate all uncertainties and risks. As part of a continuing effort to ensure dam safety at licensed projects, FERC could complement its approach to evaluating the safety of individual dams by enhancing its capability to assess and identify the risks across its portfolio of licensed dams. Specifically, while FERC has collected and stored a substantial amount of information from its individual dam safety inspections, FERC’s approach to recording this information is inconsistent due to a lack of standard language and procedures. By clarifying its approach to the recording of information collected during inspections, FERC officials could help ensure that the information recorded is comparable when shared across its regions. Moreover, the absence of standard language and procedures to consistently record inspection information impedes a broader, portfolio- wide analysis of the extent of and characteristics associated with common safety deficiencies identified during FERC inspections. While FERC has not yet conducted such an analysis, a proactive assessment of common safety inspection deficiencies across FERC’s portfolio of licensed dams— similar to its identification of dam spillways with safety concerns following the Oroville Dam incident—could help FERC and its licensees identify safety risks prior to a safety incident and to develop approaches to mitigate those risks. We are making the following two recommendations to FERC: FERC should provide standard language and procedures to its staff on how to record information collected during inspections, including how and where to record information about safety deficiencies, in order to facilitate analysis of safety deficiencies across FERC’s portfolio of regulated dams. (Recommendation 1) FERC should use information from its inspections to assess safety risks across its portfolio of regulated dams to identify and prioritize safety risks at a national level. (Recommendation 2) We provided a draft of this report to FERC for review and comment. In its comments on the draft report, FERC said it generally agreed with the draft report’s findings and found the recommendations to be constructive. FERC said that it would direct staff to develop appropriate next steps to implement GAO’s recommendations. These comments are reproduced in appendix IV. In addition, FERC provided technical comments, which we incorporated as appropriate. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Chairman of FERC and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at 202-512-2834 or vonaha@gao.gov. Contact points for our Office of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix V. FERC seeks to ensure licensees’ compliance with FERC regulations and license requirements, including remediating safety deficiencies, by using a mix of preventative strategies to help identify situations before they become problems and reactive strategies such as issuing penalties. As part of its efforts, FERC published a compliance handbook in 2015 that provides an overall guide to compliance and enforcement of a variety of license requirements, including dam safety. The handbook includes instructions for implementing FERC rules, regulations, policies, and programs designed to ensure effective compliance with license conditions, which include dam safety, to protect and enhance beneficial public uses of waterways. FERC developed a range of enforcement actions, that include holding workshops to encourage compliance and issuing guidance, that increase in severity depending on the non- compliance issue. (See fig. 4.) More broadly, FERC’s guidance directs officials to determine enforcement actions and time frames for those actions on a case-by-case basis, depending on the characteristics of the specific compliance issue. According to FERC officials, many of these safety compliance discussions are handled informally. In addition, their compliance approach emphasizes activities that assist, rather than force, licensees to achieve compliance, according to its guidance. These activities include facilitating open lines of communication with licensees, participating in technical workshops, and publishing brochures and guidance documents, among other efforts. Also, according to these officials, FERC works with licensees to provide guidance and warnings of possible non-compliance matters, in order to avoid usage of any enforcement tools, if possible. According to FERC officials, any safety issues that endanger the public will result in immediate penalty or removal of the dam from power generation, but this action is not lightly taken. Additionally, the length of time between when a safety deficiency is identified and is resolved varies substantially depending on the specific project. As stated earlier in this report, FERC works with licensees to determine a plan and schedule for investigating safety issues and making any needed modifications. However, FERC officials stated that the majority of safety compliance issues are resolved within a month. However, FERC officials stated that if a licensee repeatedly does not take steps to address a compliance issue, FERC will explore enforcement actions through a formal process. According to officials, FERC’s enforcement options are based on authorities provided under the Federal Power Act and such options are flexible because of the variation in hazards, consequences, and dams. According to FERC officials, to ensure compliance with safety regulations, if a settlement cannot be reached, FERC may, among other things, issue an order to show cause, issue civil penalties in the form of fines to licensees, impose stop work or cease power generation orders, revoke licenses, and seek injunctions in federal court. Nevertheless, FERC officials stated that there is no specific requirement for how quickly the compliance issues or deficiencies should be resolved and that some issues can take years to resolve. For example, in 2004, the current licensee of a hydroelectric project operating in Edenville, Michigan, acquired the project, which was found by FERC to be in a state of non-compliance at that time. FERC staff made numerous attempts to work with the licensee to resolve the compliance issues. However, they were unable to resolve these issues and as a result issued a cease generation order in 2017, followed in 2018 by a license revocation order. In practice, FERC’s use of these enforcement tools to resolve safety issues has been fairly limited, particularly in comparison to other license compliance issues, according to FERC officials. Since 2013, FERC has issued one civil penalty for a safety-related hydropower violation and has issued compliance orders on eight other projects for safety-related reasons, including orders to cease generation on three projects. For the 14 projects and 42 dams we reviewed, FERC licensees and their consultants used a variety of tools to develop engineering studies of dam performance (see table 3). These tools included programs and modeling tools developed by government agencies, such as the U.S. Army Corps of Engineers (the Corps), as well as commercially available modeling tools. FERC officials stated that they also used a number of the same tools used by its licensees and consultants. Similarly, for the 14 projects and 42 dams we reviewed, FERC licensees and their consultants used a variety of datasets to develop engineering studies of dam performance (see table 4). These datasets included data maintained and updated by various government agencies, including the United States Geological Survey and National Oceanic and Atmospheric Administration. FERC officials stated that they also used a number of the same datasets used by its licensees and consultants. This report assesses: (1) how FERC collects information from its dam safety inspections and the extent to which FERC analyzes it; (2) how FERC evaluates engineering studies of dam performance to analyze safety, and (3) the extent to which FERC reviews dam safety information during relicensing and the information FERC considers. This report also includes information on FERC actions to ensure licensee compliance with license requirements related to dam safety (app. I) and selected models and data sets used to develop and evaluate engineering studies of dam performance (app. II). For each of the objectives, we reviewed laws, regulations, FERC guidance, templates, and other documentation pertaining to FERC’s evaluation of dam safety. In addition, we reviewed an independent forensic team’s assessment of the causes of the Oroville Dam incident, including the report’s analysis of FERC’s approach to ensuring safety at the project, to understand any limitations of FERC’s approach identified by the report. We also reviewed dam safety documentation, including dam performance studies, FERC memorandums, the most recent completed inspection report, and other information, from a non-probability sample of 14 projects encompassing 42 dams relicensed from fiscal years 2014 through 2017. (See table 5.) We selected these projects and dams to include ones that were geographically dispersed, had varying potential risks associated with their potential failure, and had differences in the length of their relicensing process. We developed a data collection instrument to collect information from the dam safety documentation and analyzed data from the sample to evaluate the extent to which FERC followed its dam safety guidance across the selected projects. To develop the data collection instrument, we reviewed and incorporated FERC oversight requirements from its regulations, guidance, and templates. We conducted three pre-tests of the instrument, and revised the instrument after each pre-test. To ensure consistency and accuracy in the collection of this information, for each dam in the sample, one analyst conducted an initial review of the dam safety documentation; a second analyst reviewed the information independently; and the two analysts reconciled any differences. Following our review of the information from the dam safety documentation, we conducted semi-structured interviews with FERC engineering staff associated with each of the 14 projects and 42 dams to obtain information about FERC’s inspections, review of dam performance studies, and analysis of safety during the relicensing of these projects. Our interviews with these FERC staff provided insight into FERC’s dam safety oversight approach and are not generalizable to all projects. We also interviewed FERC officials responsible for dam safety about dam safety practices. In addition, to review how FERC collects information from its dam safety inspections and the extent to which FERC analyzes it, we also reviewed inspection data from FERC’s information management systems from fiscal years 2014 through 2017. To assess the reliability of these data, we reviewed guidance and interviewed FERC officials. We determined that the data were sufficiently reliable for our purposes. We compared FERC’s approach to collecting, recording and using safety information to federal internal control standards for the design of information systems and related control activities. We also reviewed our prior work on portfolio- level risk management. To evaluate how FERC evaluates engineering studies of dam performance to analyze dam safety, we reviewed FERC policies and guidance. We interviewed six independent consultants having experience inspecting and analyzing FERC-regulated dams to understand how engineering studies of dam performance are developed. We selected consultants who had submitted an inspection report to FERC recently (between December 2017 and February 2018) based on the geographic location of the project they reviewed and experience conducting these inspections, and the number of reports submitted to FERC over this time period. (See table 6.) Our interviews with these consultants provided insight into FERC’s approach to conducting and reviewing studies and are not generalizable to all projects or consultants. To evaluate the extent to which FERC reviews dam safety information during relicensing and the information it considers, we reviewed templates developed by FERC to assess safety during the relicensing and analyzed the extent to which staff followed guidance in these templates for the 14 projects and 42 dams in our sample. We also interviewed stakeholders, including the National Hydropower Association and Friends of the River to obtain general perspectives on FERC’s relicensing approach. Our interviews with these stakeholders provided insight into FERC’s approach to relicensing, and these views are not generalizable across all stakeholders. To review actions to ensure licensee compliance with license requirements related to dam safety, we reviewed FERC’s guidance related to compliance and enforcement and interviewed FERC officials responsible for implementation of the guidance. To review information on models and datasets used to develop and evaluate engineering studies of dam performance, we reviewed dam safety documentation associated with the projects in our sample (described previously), reviewed FERC documentation, and interviewed FERC officials. We conducted this performance audit from July 2017 to October 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Andrew Von Ah, (202) 512-2834 or vonaha@gao.gov. In addition to the contact named above, Mike Armes (Assistant Director); Matt Voit (Analyst-in-Charge); David Blanding; Brian Chung; Geoff Hamilton; Vondalee Hunt; Rich Johnson; Jon Melhus; Monique Nasrallah; Madhav Panwar; Malika Rice; Sandra Sokol; and Michelle Weathers made key contributions to this report.	[ "In February 2017, components of California's Oroville Dam failed, leading to the evacuation of nearly 200,000 nearby residents. FERC is the federal regulator of the Oroville Dam and over 2,500 other dams associated with nonfederal hydropower projects nationwide. FERC issues and renews licenses—which can last up to 50 years—to dam operators and promotes safe dam operation by conducting safety inspections and reviewing technical engineering studies, among other actions. GAO was asked to review FERC's approach to overseeing dam safety. This report examines: (1) how FERC collects information from its dam safety inspections and the extent of its analysis, and (2) how FERC evaluates engineering studies of dam performance to analyze safety, among other objectives. GAO analyzed documentation on a non-generalizable sample of 42 dams associated with projects relicensed from fiscal years 2014 through 2017, selected based on geography and hazard classifications, among other factors. GAO also reviewed FERC regulations and documents; and interviewed FERC staff associated with the selected projects and technical consultants, selected based on the frequency and timing of their reviews. The Federal Energy Regulatory Commission's (FERC) staff generally followed established guidance in collecting safety information from dam inspections for the dams GAO reviewed, but FERC has not used this information to analyze dam safety portfolio-wide. For these 42 dams, GAO found that FERC staff generally followed guidance in collecting safety information during inspections of individual dams and key structures associated with those dams. (See figure.) However, FERC lacks standard procedures that specify how and where staff should record safety deficiencies identified. As a result, FERC staff use multiple systems to record inspection findings, thereby creating information that cannot be easily analyzed. Further, while FERC officials said inspections help oversee individual dam's safety, FERC has not analyzed this information to identify any safety risks across its portfolio. GAO's prior work has highlighted the importance of evaluating risks across a portfolio. FERC officials stated that they have not conducted portfolio-wide analyses because officials prioritize the individual dam inspections and response to urgent dam safety incidents. However, following the Oroville incident, a FERC-led initiative to examine dam structures comparable to those at Oroville identified 27 dam spillways with varying degrees of safety concerns, on which FERC officials stated they are working with dam licensees to address. A similar and proactive portfolio-wide approach, based on analysis of common inspection deficiencies across the portfolio of dams under FERC's authority, could help FERC identify safety risks prior to a safety incident. Guidelines recognize that each dam is unique and allow for flexibility and exemptions in its use. FERC staff use the studies to inform other components of their safety approach, including the analysis of dam failure scenarios and their review of safety to determine whether to renew a license. GAO recommends that FERC: (1) develop standard procedures for recording information collected as part of its inspections, and (2) use inspection information to assess safety risks across FERC's portfolio of dams. FERC agreed with GAO's recommendations." ]	8,621	gov_report	en	null	0371cc1b07fbeda7a45b02063ca36c1d740834ac14eb2b5f
The federal child nutrition programs provide assistance to schools and other institutions in the form of cash, commodity food, and administrative support (such as technical assistance and administrative funding) based on the provision of meals and snacks to children. In general, these programs were created (and amended over time) to both improve children's nutrition and provide support to the agriculture economy. Today, the child nutrition programs refer primarily to the following meal, snack, and milk reimbursement programs (these and other acronyms are listed in Appendix A ): National School Lunch Program (NSLP) (Richard B. Russell National School Lunch Act (42 U.S.C. 1751 et seq.)); School Breakfast Program (SBP) (Child Nutrition Act, Section 4 (42 U.S.C. 1773)); Child and Adult Care Food Program (CACFP) (Richard B. Russell National School Lunch Act, Section 17 (42 U.S.C. 1766)); Summer Food Service Program (SFSP) (Richard B. Russell National School Lunch Act, Section 13 (42 U.S.C. 1761)); and Special Milk Program (SMP) (Child Nutrition Act, Section 3 (42 U.S.C. 1772)). The programs provide financial support and/or foods to the institutions that prepare meals and snacks served outside of the home (unlike other food assistance programs such as the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) where benefits are used to purchase food for home consumption). Though exact eligibility rules and pricing vary by program, in general the amount of federal reimbursement is greater for meals served to qualifying low-income individuals or at qualifying institutions, although most programs provide some subsidy for all food served. Participating children receive subsidized meals and snacks, which may be free or at reduced price. Forthcoming sections discuss how program-specific eligibility rules and funding operate. This report describes how each program operates under current law, focusing on eligibility rules, participation, and funding. This introductory section describes some of the background and principles that generally apply to all of the programs; subsequent sections go into further detail on the workings of each. Unless stated otherwise, participation and funding data come from USDA-FNS's "Keydata Reports." The child nutrition programs are most often dated back to the 1946 enactment of the National School Lunch Act, which created the National School Lunch Program, albeit in a different form than it operates today. Most of the child nutrition programs do not date back to 1946; they were added and amended in the decades to follow as policymakers expanded child nutrition programs' institutional settings and meals provided: The Special Milk Program was created in 1954, regularly extended, and made permanent in 1970. The School Breakfast Program was piloted in 1966, regularly extended, and eventually made permanent in 1975. A program for child care settings and summer programs was piloted in 1968, with separate programs authorized in 1975 and then made permanent in 1978. These are now the Child and Adult Care Food Program and Summer Food Service Program. The Fresh Fruit and Vegetable Program began as a pilot in 2002, was made permanent in 2004, and was expanded nationwide in 2008. The programs are now authorized under three major federal statutes: the Richard B. Russell National School Lunch Act (originally enacted as the National School Lunch Act in 1946), the Child Nutrition Act (originally enacted in 1966), and Section 32 of the act of August 24, 1935 (7 U.S.C. 612c). Congressional jurisdiction over the underlying three laws has typically been exercised by the Senate Agriculture, Nutrition, and Forestry Committee; the House Education and the Workforce Committee; and, to a limited extent (relating to commodity food assistance and Section 32 issues), the House Agriculture Committee. Congress periodically reviews and reauthorizes expiring authorities under these laws. The child nutrition programs were most recently reauthorized in 2010 through the Healthy, Hunger-Free Kids Act of 2010 (HHFKA, P.L. 111-296 ); some of the authorities created or extended in that law expired on September 30, 2015. WIC (the Special Supplemental Nutrition Program for Women, Infants, and Children) is also typically reauthorized with the child nutrition programs. WIC is not one of the child nutrition programs and is not discussed in this report. The 114 th Congress began but did not complete a 2016 child nutrition reauthorization (see CRS Report R44373, Tracking the Next Child Nutrition Reauthorization: An Overview ). There was no significant legislative activity with regard to reauthorization in the 115 th Congress. The U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS) administers the programs at the federal level. The programs are operated by a wide variety of local public and private providers and the degree of direct state involvement differs by program and state. At the state level, education, health, social services, and agriculture departments all have roles; at a minimum, they are responsible for approving and overseeing local providers such as schools, summer program sponsors, and child care centers and day care homes, as well as making sure they receive the federal support they are due. At the local level, program benefits are provided to millions of children (e.g., there were 30.0 million in the National School Lunch Program, the largest of the programs, in FY2017), through some 100,000 public and private schools and residential child care institutions, nearly 170,000 child care centers and family day care homes, and just over 50,000 summer program sites. All programs are available in the 50 states and the District of Columbia. Virtually all operate in Puerto Rico, Guam, and the Virgin Islands (and, in differing versions, in the Northern Marianas and American Samoa). This section summarizes the nature and extent to which the programs' funding is mandatory and discretionary, including a discussion of appropriated entitlement status. Table 3 lists child nutrition program and related expenditures. Most spending for child nutrition programs is provided in annual appropriations acts to fulfill the legal financial obligation established by the authorizing laws. That is, the level of spending for such programs, referred to as appropriated mandatory spending, is not controlled through the annual appropriations process, but instead is derived from the benefit and eligibility criteria specified in the authorizing laws. The appropriated mandatory funding is treated as mandatory spending. Further, if Congress does not appropriate the funds necessary to fund the program, eligible entities may have legal recourse. Congress typically considers the Administration's forecast for program needs in its appropriations decisions. For the majority of funding discussed in this report, the formula that controls the funding is not capped and fluctuates based on the reimbursement rates and the number of meals/snacks served in the programs. In the meal service programs, such as the National School Lunch Program, School Breakfast Program, summer programs, and assistance for child care centers and day care homes, federal aid is provided in the form of statutorily set subsidies (reimbursements) paid for each meal/snack served that meets federal nutrition guidelines. Although all (including full-price) meals/snacks served by participating providers are subsidized, those served free or at a reduced price to lower-income children are supported at higher rates. All federal meal/snack subsidy rates are indexed annually (each July) for inflation, as are the income eligibility thresholds for free and reduced-price meals/snacks. Subsequent sections discuss how a specific program's eligibility and reimbursements work. Most subsidies are cash payments to schools or other providers, but a smaller portion of aid is provided in the form of USDA-purchased commodity foods . Laws for three child nutrition programs (NSLP, CACFP, and SFSP) require the provision of commodity foods (or in some cases allow cash in lieu of commodity foods). Meal and snack service entails nonfood costs. Federal child nutrition per-meal/snack subsidies may be used to cover local providers' administrative and operating costs. However, the separate direct federal payments for administrative/operating costs ("State Administrative Expenses," discussed in the " Related Programs, Initiatives, and Support Activities " section) are limited. In addition to the open-ended, appropriated entitlement funds summarized above, the child nutrition programs' funding also includes certain other mandatory funding and a limited amount of discretionary funding. Some of the activities discussed in " Related Programs, Initiatives, and Support Activities ," such as Team Nutrition, are provided for with discretionary funding. Aside from the annually appropriated funding, the child nutrition programs are also supported by certain permanent appropriations and transfers. Notably, funding for the Fresh Fruit and Vegetable Program is funded by a transfer from USDA's Section 32 program, a permanent appropriation of 30% of the previous year's customs receipts. Federal subsidies do not necessarily cover the full cost of the meals and snacks offered by providers. States and localities help cover program costs, as do children's families by paying charges for nonfree or reduced-price meals/snacks. There is a nonfederal cost-sharing requirement for the school meals programs (discussed below), and some states supplement school funding through additional state per-meal reimbursements or other prescribed financing arrangements. Subsequent sections of this report delve into the details of how each of the child nutrition programs support the service of meals and snacks in institutional settings; first, it is useful to take a broader perspective of primary program elements. Table 1 is a top-level look at the different programs that displays distinguishing characteristics (what meals are provided, in what settings, to what ages) and recent program spending. Other relevant CRS reports in this area include CRS In Focus IF10266, An Introduction to Child Nutrition Reauthorization CRS Report R45486, Child Nutrition Programs: Current Issues CRS Report R42353, Domestic Food Assistance: Summary of Programs CRS Report R41354, Child Nutrition and WIC Reauthorization: P.L. 111-296 (summarizes the Healthy, Hunger-Free Kids Act of 2010) CRS Report R44373, Tracking the Next Child Nutrition Reauthorization: An Overview CRS Report R44588, Agriculture and Related Agencies: FY2017 Appropriations CRS Report RL34081, Farm and Food Support Under USDA's Section 32 Program Other relevant resources include USDA-FNS's website, https://www.fns.usda.gov/school-meals/child-nutrition-programs USDA-FNS's Healthy, Hunger-Free Kids Act page, http://www.fns.usda.gov/school-meals/healthy-hunger-free-kids-act The FNS page of the Federal Register , https://www.federalregister.gov/agencies/food-and-nutrition-service This section discusses the school meals programs: the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). Principles and concepts common to both programs are discussed first; subsections then discuss features and data unique to the NSLP and SBP, respectively. The federal school meals programs provide federal support in the form of cash assistance and USDA commodity foods; both are provided according to statutory formulas based on the number of reimbursable meals served in schools. The subsidized meals are served by both public and private nonprofit elementary and secondary schools and residential child care institutions (RCCIs) that opt to enroll and guarantee to offer free or reduced-price meals to eligible low-income children. Both cash and commodity support to participating schools are calculated based on the number and price of meals served (e.g., lunch or breakfast, free or full price), but once the aid is received by the school it is used to support the overall school meal service budget, as determined by the school. This report focuses on the federal reimbursements and funding, but it should be noted that some states have provided state financing through additional state-specific funding. Federal law does not require schools to participate in the school meals programs. However, some states have mandated that schools provide lunch and/or breakfast, and some of these states require that their schools do so through NSLP and/or SBP. The program is open to public and private schools. A reimbursable meal requires compliance with federal school nutrition standards, which have changed throughout the history of the program based on nutritional science and children's nutritional needs. Food items not served as a complete meal meeting nutrition standards (e.g., a la carte offerings) are not reimbursable meals, and therefore are not eligible for federal per-meal, per-snack reimbursements. Following rulemaking to implement provisions in the Healthy, Hunger-Free Kids Act of 2010 ( P.L. 111-296 ), USDA updated the nutrition standards for reimbursable meals in January 2012 (see " Nutrition Standards " for more information). Schools serving meals that meet the updated nutrition standards are eligible for an increased reimbursement of 6 cents per lunch. USDA-FNS administers the school meals programs federally, and state agencies (typically state departments of education) oversee and transmit reimbursements through agreements with school food authorities (SFAs) (typically local educational agencies (LEAs); usually these are school districts). Figure 1 provides an overview of the roles and relationships between these levels of government. There is a cost-sharing requirement for the programs, which amounts to a contribution of approximately $200 million from the states. There also are states that choose to supplement federal reimbursements with their own state reimbursements. The school meals programs and related funding do not serve only low-income children. All students can receive a meal at a NSLP- or SBP-participating school, but how much the child pays for the meal and/or how much of a federal reimbursement the state receives will depend largely on whether the child qualifies for a "free," "reduced-price," or "paid" (i.e., advertised price) meal. Both NSLP and SBP use the same household income eligibility criteria and categorical eligibility rules. States and schools receive the largest reimbursements for free meals, smaller reimbursements for reduced-price meals, and the smallest (but still some federal financial support) for the full-price meals. There are three pathways through which a child can become certified to receive a free or reduced-price meal: 1. Household income eligibility for free and reduced-price meals (information typically collected via household application), 2. Categorical (or automatic) eligibility for free meals (information collected via household application or a direct certification process), and 3. School-wide free meals under the Community Eligibility Provision (CEP) , an option for eligible schools that is based on the share of students identified as eligible for free meals. Each of these pathways is discussed in more detail below. The income eligibility thresholds (shown in Table 2 ) are based on multipliers of the federal poverty guidelines. As the poverty guidelines are updated every year, so are the eligibility thresholds for NSLP and SBP. Free Meals: Children receive free meals if they have household income at or below 130% of the federal poverty guidelines; these meals receive the highest subsidy rate. (Reimbursements are approximately $3.30 per lunch served, less for breakfast.) Reduced-Price Meals: Children may receive reduced-price meals (charges of no more than 40 cents for a lunch or 30 cents for a breakfast) if their household income is above 130% and less than or equal to 185% of the federal poverty guidelines; these meals receive a subsidy rate that is 40 cents (NSLP) or 30 cents (SBP) below the free meal rate. (Reimbursements are approximately $2.90 per lunch served.) Paid Meals: A comparatively small per-meal reimbursement is provided for full-price or paid meals served to children whose families do not apply for assistance or whose family income does not qualify them for free or reduced-price meals. The paid meal price is set by the school but must comply with federal regulations. (Reimbursements are approximately 30 cents per lunch served.) The above reimbursement rates are approximate; exact current-year federal reimbursement rates for NSLP and SBP are listed in Table B -1 and Table B -3 , respectively. Households complete paper or online applications that collect relevant income and household size data, so that the school district can determine if children in the household are eligible for free meals, reduced-price meals, or neither. Though these income guidelines primarily influence funding and administration of NSLP and SBP, they also affect the eligibility rules for the SFSP, CACFP, and SMP (described further in subsequent sections). In addition to the eligibility thresholds listed above, the school meals programs also convey eligibility for free meals based on household participation in certain other need-tested programs or children's specified vulnerabilities (e.g., foster children). Per Section 12 of the National School Lunch Act, "a child shall be considered automatically eligible for a free lunch and breakfast ... without further application or eligibility determination, if the child is" in a household receiving benefits through SNAP (Supplemental Nutrition Assistance Program); FDPIR (Food Distribution Program on Indian Reservations, a program that operates in lieu of SNAP on some Indian reservations) benefits; or TANF (Temporary Assistance for Needy Families) cash assistance; enrolled in Head Start; in foster care; a migrant; a runaway; or homeless. For meals served to students certified in the above categories, the state/school receive a reimbursement at the free meal amount and children receive a free meal. (See Table B -1 and Table B -3 for school year 2018-2019 rates.) Some school districts collect information for these categorical eligibility rules via paper application. Others conduct a process called direct certification —a proactive process where government agencies typically cross-check their program rolls and certify a household's children for free school meals without the household having to complete a school meals application. Prior to 2004, states had the option to conduct direct certification of SNAP (then, the Food Stamp Program), TANF, and FDPIR participants. In the 2004 child nutrition reauthorization ( P.L. 108-265 ), states were required under federal law to conduct direct certification for SNAP participants, with nationwide implementation taking effect in school year 2008-2009. Conducting direct certification for TANF and FDPIR remains at the state's discretion. The Healthy, Hunger-Free Kids Act of 2010 (HHFKA; P.L. 111-296 ) made further policy changes to expand direct certification (discussed further in the next section). One of those changes was the initiation of a demonstration project to look at expanding categorical eligibility and direct certification to some Medicaid households. The law also funded performance incentive grants for high-performing states and authorized correcting action planning for low-performing states in direct certification activities. Under SNAP direct certification rules generally, schools enter into agreements with SNAP agencies to certify children in SNAP households as eligible for free school meals without requiring a separate application from the family. Direct certification systems match student enrollment lists against SNAP agency records, eliminating the need for action by the child's parents or guardians. Direct certification allows schools to make use of SNAP's more in-depth eligibility certification process; this can reduce errors that may occur in school lunch application eligibility procedures that are otherwise used. From a program access perspective, direct certification also reduces the number of applications a household must complete. Figure 2 , created by GAO and published in a May 2014 report, provides an overview of how school districts certify students for free and reduced-price meals under the income-based and category-based rules, via applications and direct certification. A USDA-FNS study of school year 2014-2015 estimates that 11.1 million students receiving free meals were directly certified—68% of all categorically eligible students receiving free meals. HHFKA also authorized the school meals Community Eligibility Provision (CEP), an option in NSLP and SBP law that allows eligible schools and school districts to offer free meals to all enrolled students based on the percentage of their students who are identified as automatically eligible from nonhousehold application sources (primarily direct certification through other programs). Based on the statutory parameters, USDA-FNS piloted CEP in various states over three school years and it expanded nationwide in school year 2014-2015. Eligible LEAs have until June 30 of each year to notify USDA-FNS if they will participate in CEP. According to a database maintained by the Food Research and Action Center, just over 20,700 schools in more than 3,500 school districts (LEAs) participated in CEP in SY2016-2017, an increase of approximately 2,500 schools compared to SY2015-2016. For a school (or school district, or group of schools within a district) to provide free meals to all children the school(s) must be eligible for CEP based on the share (40% or greater) of enrolled children that can be identified as categorically (or automatically) eligible for free meals, and the school must opt-in to CEP. Though CEP schools serve free meals to all students, they are not reimbursed at the "free meal" rate for every meal. Instead, the law provides a funding formula: the percentage of students identified as automatically eligible (the "identified student percentage" or ISP) is multiplied by a factor of 1.6 to estimate the proportion of students who would be eligible for free or reduced-price meals had they been certified via application. The result is the percentage of meals served that will be reimbursed at the free meal rate, with the remainder reimbursed at the far lower paid meal rate. For example, if a CEP school identifies that 40% of students are eligible for free meals, then 64% of the meals served will be reimbursed at the free meal rate and 36% at the paid meal rate. Schools that identify 62.5% or more students as eligible for free meals receive the free meal reimbursement for all meals served. Some of the considerations that may impact a school's decision to participate in CEP include whether the new funding formula would be beneficial for their school meal budget; an interest in reducing paperwork for families and schools; and an interest in providing more free meals, including meals to students who have not participated in the program before. The Healthy, Hunger-Free Kids Act of 2010 (HHFKA; P.L. 111-296 ) set in motion changes to the nutrition standards for school meals, requiring USDA to update the standards within a certain timeframe. The law required that the revised standards be based on recommendations from the Institute of Medicine (IOM) (now the Health and Medicine Division) at the National Academy of Sciences. The law also provided increased federal subsidies (6 cents per lunch) for schools meeting the new requirements and funding for technical assistance related to implementation. USDA published the final regulations in January 2012. The final rule sought to align school meal patterns with the 2010 Dietary Guidelines for Americans, and, generally consistent with IOM's recommendations, increased the amount of fruits, vegetables, whole grains, and low-fat or fat-free milk in school meals. The regulations also included calorie maximums and sodium limits to phase in over time, among other requirements. The nutrition standards largely took effect in SY2012-2013 for lunches and in SY2013-2014 for breakfasts. A few other requirements were scheduled to phase in over multiple school years. Some schools experienced difficulty implementing the new guidelines, and Congress and USDA have made changes to the 2012 final rule's whole grain, sodium, and milk requirements. For SY2019-2020 and onwards, schools are operating under a final rule published December 12, 2018. The HHFKA also gave USDA the authority to regulate other foods in the school nutrition environment. Sometimes called "competitive foods," these include foods and drinks sold in a la carte lines, vending machines, snack bars and concession stands, and fundraisers. Relying on recommendations made by a 2007 IOM report, USDA-FNS promulgated a proposed rule and then an interim final rule in June 2013, which went into effect for SY2014-2015. The interim final rule created nutrition guidelines for all non-meal foods and beverages that are sold during the school day (defined as midnight until 30 minutes after dismissal). The final rule, published on July 29, 2016, maintained the interim final rules with minor modifications. Under the final standards, these foods must meet whole-grain requirements; have certain primary ingredients; and meet calorie, sodium, and fat limits, among other requirements. Schools are limited to a list of no- and low-calorie beverages they may sell (with larger portion sizes and caffeine allowed in high schools). There are no limits on fundraisers selling foods that meet the interim final rule's guidelines. Fundraisers outside of the school day are not subject to the guidelines. HHFKA and the interim final rule provide states with discretion to exempt infrequent fundraisers selling foods or beverages that do not meet the nutrition standards. The rule does not limit foods brought from home, only foods sold at school during the school day. The federal standards are minimum standards; states and school districts are permitted to issue more stringent policies. In FY2017, NSLP subsidized 4.9 billion lunches to children in close to 96,000 schools and 3,200 residential child care institutions (RCCIs). Average daily participation was 30.0 million students (58% of children enrolled in participating schools and RCCIs). Of the participating students, 66.7% (20.0 million) received free lunches and 6.5% (2.0 million) received reduced-price lunches. The remainder were served full-price meals, though schools still receive a reimbursement for these meals. Figure 3 shows FY2017 participation data. FY2017 federal school lunch costs totaled approximately $13.6 billion (see Table 3 for the various components of this total). The vast majority of this funding is for per-meal reimbursements for free and reduced-price lunches. The HHFKA also provided an additional 6-cent per-lunch reimbursement to schools that provide meals that meet the updated nutritional guidelines requirements. This bonus is not provided for breakfast, but funds may be used to support schools' breakfast programs. NSLP lunch reimbursement rates are listed in Table B -1 . In addition to federal cash subsidies, schools participating in NSLP receive USDA-acquired commodity food s . Schools are entitled to a specific, inflation-indexed value of USDA commodity foods for each lunch they serve. Also, schools may receive donations of bonus commodities acquired by USDA in support of the farm economy. In FY2017, the value of federal commodity food aid to schools totaled nearly $1.4 billion. The per-meal rate for commodity food assistance is included in Table B-4 . While the vast majority of NSLP funding is for lunches served during the school day, NSLP may also be used to support snack service during the school year and to serve meals during the summer. These features are discussed in subsequent sections, " Summer Meals " and " After-School Meals and Snacks: CACFP, NSLP Options ." Reimbursement rates for snacks are listed in Table B -2 . The School Breakfast Program (SBP) provides per-meal cash subsidies for breakfasts served in schools. Participating schools receive subsidies based on their status as a severe need or nonsevere need institution. Schools can qualify as a severe need school if 40% or more of their lunches are served free or at reduced prices. See Table B -3 for SBP reimbursement rates. Figure 4 displays SBP participation data for FY2017. In that year, SBP subsidized over 2.4 billion breakfasts in over 88,000 schools and nearly 3,200 RCCIs. Average daily participation was 14.7 million children (30.1% of the students enrolled in participating schools and RCCIs). The majority of meals served through SBP are free or reduced-price. Of the participating students, 79.1% (11.6 million) received free meals and 5.7% (835,000) purchased reduced-price meals. Federal school breakfast costs for the fiscal year totaled approximately $4.3 billion (see Table 3 for the various components of this total). Significantly fewer schools and students participate in SBP than in NSLP. Participation in SBP tends to be lower for several reasons, including the traditionally required early arrival by students in order to receive a meal and eat before school starts. Some schools offer (and anti-hunger groups have encouraged) models of breakfast service that can result in greater SBP participation, such as Breakfast in the Classroom, where meals are delivered in the classroom; "grab and go" carts, where students receive a bagged breakfast that they bring to class, or serving breakfast later in the day in middle and high schools. Unlike NSLP, commodity food assistance is not a formal part of SBP funding; however, commodities provided through NSLP may be used for school breakfasts as well. In addition to the school meals programs discussed above, other federal child nutrition programs provide federal subsidies and commodity food assistance for schools and other institutions that offer meals and snacks to children in early childhood, summer, and after-school settings. This assistance is provided to (1) schools and other governmental institutions, (2) private for-profit and nonprofit child care centers, (3) family/group day care homes, and (4) nongovernmental institutions/organizations that offer outside-of-school programs for children. (Although this report focuses on the programs that serve children, one child nutrition program (CACFP) also serves day care centers for chronically impaired adults and elderly persons under the same general per-meal/snack subsidy terms.) The programs in the sections to follow serve comparatively fewer children and spend comparatively fewer federal funds than the school meal programs. CACFP subsidizes meals and snacks served in early childhood, day care, and after-school settings. CACFP provides subsidies for meals and snacks served at participating nonresidential child care centers, family day care homes, and (to a lesser extent) adult day care centers. The program also provides assistance for meals served at after-school programs. CACFP reimbursements are available for meals and snacks served to children age 12 or under, migrant children age 15 or under, children with disabilities of any age, and, in the case of adult care centers, chronically impaired and elderly adults. Children in early childhood settings are the overwhelming majority of those served by the program. CACFP provides federal reimbursements for breakfasts, lunches, suppers, and snacks served in participating centers (facilities or institutions) or day care homes (private homes). The eligibility and funding rules for CACFP meals and snacks depend first on whether the participating institution is a center or a day care home (the next two sections discuss the rules specific to centers and day care homes). According to FY2017 CACFP data, child care centers have an average daily attendance of about 56 children per center, day care homes have an average daily attendance of approximately 7 children per home, and adult day care centers typically care for an average of 48 chronically ill or elderly adults per center. Providers must demonstrate that they comply with government-established standards for other child care programs. Like in school meals, federal assistance is made up overwhelmingly of cash reimbursements calculated based on the number of meals/snacks served and federal per-meal/snack reimbursements rates, but a far smaller share of federal aid (4.3% in FY2017) is in the form of federal USDA commodity foods (or cash in lieu of foods). Federal CACFP reimbursements flow to individual providers either directly from the administering state agency (this is the case with many child/adult care centers able to handle their own CACFP administrative functions) or through "sponsors" who oversee and provide administrative support for a number of local providers (this is the case with some child/adult care centers and with all day care homes). In FY2017, total CACFP spending was over $3.5 billion, including cash reimbursement, commodity food assistance, and costs for sponsor audits. (See Table 3 for a further breakdown of CACFP costs.) This total also includes the after-school meals and snacks provided through CACFP's "at-risk after-school" pathway; this aspect of the program is discussed later in " After-School Meals and Snacks: CACFP, NSLP Options ." As with school foods, the HHFKA required USDA to update CACFP's meal patterns. USDA's final rule revised the meal patterns for both meals served in child care centers and day care homes, as well as preschool meals served through the NSLP and SBP, effective October 1, 2017. For infants (under 12 months of age), the new meal patterns eliminated juice, supported breastfeeding, and set guidelines for the introduction of solid foods, among other changes. For children ages one and older, the new meal patterns increased whole grains, fruits and vegetables, and low-fat and fat-free milk; limited sugar in cereals and yogurts; and prohibited frying, among other requirements. Child care centers in CACFP can be (1) public or private nonprofit centers, (2) Head Start centers, (3) for-profit proprietary centers (if they meet certain requirements as to the proportion of low-income children they enroll), and (4) shelters for homeless families. Adult day care centers include public or private nonprofit centers and for-profit proprietary centers (if they meet minimum requirements related to serving low-income disabled and elderly adults). In FY2017, over 65,000 child care centers with an average daily attendance of over 3.6 million children participated in CACFP. Over 2,700 adult care centers served nearly 132,000 adults through CACFP. Participating centers may receive daily reimbursements for up to either two meals and one snack or one meal and two snacks for each participant, so long as the meals and snacks meet federal nutrition standards. The eligibility rules for CACFP centers largely track those of NSLP: children in households at or below 130% of the current poverty line qualify for free meals/snacks while those between 130% and 185% of poverty qualify for reduced-price meals/snacks (see Table 2 ). In addition, participation in the same categorical eligibility programs as NSLP as well as foster child status convey eligibility for free meals in CACFP. Like school meals, eligibility is determined through paper applications or direct certification processes. Like school meals, all meals and snacks served in the centers are federally subsidized to some degree, even those that are paid. Different reimbursement amounts are provided for breakfasts, lunches/suppers, and snacks, and reimbursement rates are set in law and indexed for inflation annually. The largest subsidies are paid for meals and snacks served to participants with family income below 130% of the federal poverty income guidelines (the income limit for free school meals), and the smallest to those who have not met a means test. See Table B -5 for current CACFP center reimbursement rates. Unlike school meals, CACFP institutions are less likely to collect per-meal payments. Although federal assistance for day care centers differentiates by household income, centers have discretion on their pricing of meals. Centers may adjust their regular fees (tuition) to account for federal payments, but CACFP itself does not regulate these fees. In addition, centers can charge families separately for meals/snacks, so long as there are no charges for children meeting free-meal/snack income tests and limited charges for those meeting reduced-price income tests. Independent centers are those without sponsors handling administrative responsibilities. These centers must pay for administrative costs associated with CACFP out of nonfederal funds or a portion of their meal subsidy payments. For centers with sponsors, the sponsors may retain a proportion of the meal reimbursement payments they receive on behalf of their centers to cover such costs. CACFP-supported day care homes serve a smaller number of children than CACFP-supported centers , both in terms of the total number of children served and the average number of children per facility. Roughly 17% of children in CACFP (approximately 757,000 in FY2017 average daily attendance) are served through day care homes. In FY2017, approximately 103,000 homes (with just over 700 sponsors) received CACFP support. As with centers, payments to day care homes are provided for up to either two meals and one snack or one meal and two snacks a day for each child. Unlike centers, day care homes must participate under the auspices of a public or, more often, private nonprofit sponsor that typically has 100 or more homes under its supervision. CACFP day care home sponsors receive monthly administrative payments based on the number of homes for which they are responsible. Federal reimbursements for family day care homes differ by the home's status as "Tier I" or "Tier II." Unlike centers, day care homes receive cash reimbursements (but not commodity foods) that generally are not based on the child participants' household income. Instead, there are two distinct, annually indexed reimbursement rates that are based on area or operator eligibility criteria Tier I homes are located in low-income areas (defined as areas in which at least 50% of school-age and enrolled children qualify for free or reduced-price meals) or operated by low-income providers whose household income meets the free or reduced-price income standards. They receive higher subsidies for each meal/snack they serve. Tier II (lower) rates are by default those for homes that do not qualify for Tier I rates; however, Tier II providers may seek the higher Tier I subsidy rates for individual low-income children for whom financial information is collected and verified. (See Table B-6 for current Tier I and Tier II reimbursement rates.) Additionally, HHFKA introduced a number of additional ways (as compared to prior law) by which family day care homes can qualify as low-income and get Tier I rates for the entire home or for individual children. As with centers, there is no requirement that meals/snacks specifically identified as free or reduced-price be offered; however, unlike centers, federal rules prohibit any separate meal charges. Current law SFSP and the NSLP/SBP Seamless Summer Option provide meals in congregate settings nationwide; the related Summer Electronic Benefits Transfer (SEBTC or Summer EBT) demonstration project is an alternative to congregate settings. SFSP supports meals for children during the summer months. The program provides assistance to local public institutions and private nonprofit service institutions running summer youth/recreation programs, summer feeding projects, and camps. Assistance is primarily in the form of cash reimbursements for each meal or snack served; however, federally donated commodity foods are also offered. Participating service institutions are often entities that provide ongoing year-round service to the community including schools, local governments, camps, colleges and universities in the National Youth Sports program, and private nonprofit organizations like churches. Similar to the CACFP model, sponsors are institutions that manage the food preparation, financial, and administrative responsibilities of SFSP. Sites are the places where food is served and eaten. At times, a sponsor may also be a site. State agencies authorize sponsors, monitor and inspect sponsors and sites, and implement USDA policy. Unlike CACFP, sponsors are required for an institution's participation in SFSP as a site. In FY2017, nearly 5,500 sponsors with 50,000 food service sites participated in the SFSP and served an average of approximately 2.7 million children daily (according to July data). Participation of sites and children in SFSP has increased in recent years. Program costs for FY2017 totaled over $485 million, including cash assistance, commodity foods, administrative cost assistance, and health inspection costs. There are several options for eligibility and meal/snack service for SFSP sponsors (and their sites) Open sites provide summer food to all children in the community. These sites are certified based on area eligibility measures, where 50% or more of area children have family income that would make them eligible for free or reduced-price school meals (see Table 2 ). Closed or Enrolled sites provide summer meals/snacks free to all children enrolled at the site. The eligibility test for these sites is that 50% or more of the children enrolled in the sponsor's program must be eligible for free or reduced-price school meals based on household income. Closed/enrolled sites may also become eligible based on area eligibility measures noted above. Summer camps (that are not enrolled sites) receive subsidies only for those children with household eligibility for free or reduced-price school meals. Other programs specified in law , such as the National Youth Sports Program and centers for homeless or migrant children. Summer sponsors get operating cost (food, storage, labor) subsidies for all meals/snacks they serve—up to one meal and one snack, or two meals per child per day. In addition, sponsors receive payments for administrative costs, and states are provided with subsidies for administrative costs and health and meal-quality inspections. See Table B -7 for current SFSP reimbursement rates. Actual payments vary slightly (e.g., by about 5 cents for lunches) depending on the location of the site (e.g., rural vs. urban) and whether meals are prepared on-site or by a vendor. Although SFSP is the child nutrition program most associated with providing meals during summer months, it is not the only program option for providing these meals and snacks. The Seamless Summer Option, run through NSLP or SBP programs, is also a means through which food can be provided to students during summer months. Much like SFSP, Seamless Summer operates in summer sites (summer camps, sports programs, churches, private nonprofit organizations, etc.) and for a similar duration of time. Unlike SFSP, schools are the only eligible sponsors , although schools may operate the program at other sites. Reimbursement rates for Seamless Summer meals are the same as current NSLP/SBP rates. Beginning in summer 2011 and (as of the date of this report) each summer since, USDA-FNS has operated Summer Electronic Benefit Transfer for Children (SEBTC or "Summer EBT") demonstration projects in a limited number of states and Indian Tribal Organizations (ITOs). These Summer EBT projects provide electronic food benefits over summer months to households with children eligible for free or reduced-price school meals. Depending on the site and year, either $30 or $60 per month is provided, through a WIC or SNAP EBT card model. In the demonstration projects, these benefits were provided as a supplement to the Summer Food Service Program (SFSP) meals available in congregate settings. Summer EBT and other alternatives to congregate meals through SFSP were first authorized and funded by the FY2010 appropriations law ( P.L. 111-80 ). Although a number of alternatives were tested and evaluated, findings from Summer EBT were among the most promising, and Congress provided subsequent funding. Summer EBT evaluations showed significant impacts on reducing child food insecurity and improving nutritional intake. Summer EBT was funded by P.L. 111-80 in the summers from 2011 to 2014. Projects have continued to operate and were annually funded by FY2015-FY2018 appropriations; most recently, the FY2018 appropriations law ( P.L. 115-141 ) provided $28 million. According to USDA-FNS, in summer 2016 Summer EBT served over 209,000 children in nine states and two tribal nations—an increase from the 11,400 children served when the demonstration began in summer 2011. Schools (and institutions like summer camps and child care facilities) that are not already participating in the other child nutrition programs can participate in the Special Milk Program. Schools may also administer SMP for their part-day sessions for kindergartners or pre-kindergartners. Under SMP, participating institutions provide milk to children for free and/or at a subsidized paid price, depending on how the enrolled institution opts to administer the program (see Table B -8 for current Special Milk reimbursement rates for each of these options) An institution that only sells milk will receive the same per-half pint federal reimbursement for each milk sold (approximately 20 cents). An institution that sells milk and provides free milk to eligible children (income eligibility is the same as free school meals, see Table 2 ), receives a reimbursement for the milk sold (approximately 20 cents) and a higher reimbursement for the free milks. An institution that does not sell milk provides milk free to all children and receives the same reimbursement for all milk (approximately 20 cents). This option is sometimes called nonpricing. In FY2017, over 41 million half-pints were subsidized, 9.5% of which were served free. Federal expenditures for this program were approximately $8.3 million in FY2017. States receive formula grants through the Fresh Fruit and Vegetable Program, under which state-selected schools receive funds to purchase and distribute fresh fruit and vegetable snacks to all children in attendance (regardless of family income). Money is distributed by a formula under which about half the funding is distributed equally to each state and the remainder is allocated by state population. States select participating schools (with an emphasis on those with a higher proportion of low-income children) and set annual per-student grant amounts (between $50 and $75). Funding is set by law at $150 million for school year 2011-2012 and inflation-indexed for every year after. In FY2017, states used approximately $184 million in FFVP funds. FFVP is funded by a mandatory transfer of funds from USDA's Section 32 program—a permanent appropriation of 30% of the previous year's customs receipts. This transfer is required by FFVP's authorizing laws (Section 19 of the Richard B. Russell National School Lunch Act and Section 4304 of P.L. 110-246 ). Up until FY2018's law, annual appropriations laws delayed a portion of the funds to the next fiscal year. After a pilot period, the Child Nutrition and WIC Reauthorization Act of 2004 ( P.L. 108-265 ) permanently authorized and funded FFVP for a limited number of states and Indian reservations. In recent years, FFVP has been amended by omnibus farm bill laws rather than through child nutrition reauthorizations. The 2008 farm bill ( P.L. 110-246 ) expanded FFVP's mandatory funding, specifically providing funds through Section 32, and enabled all states to participate in the program. The 2014 farm bill ( P.L. 113-79 ) essentially made no changes to this program but did include, and fund at $5 million in FY2014, a pilot project that requires USDA to test offering frozen, dried, and canned fruits and vegetables and publish an evaluation of the pilot. Four states (Alaska, Delaware, Kansas, and Maine) participated in the pilot in SY2014-2015 and the evaluation was published in 2017. Other proposals to expand fruits and vegetables offered in FFVP have been introduced in both the 114 th and 115 th Congress. Two of the child nutrition programs discussed in previous sections, the National School Lunch Program (NSLP) and Child and Adult Care Food Program (CACFP), provide federal support for snacks and meals served during after-school programs. NSLP provides reimbursements for after-school snacks; however, this option is open only to schools that already participate in NSLP. These schools may operate after-school snack-only programs during the school year, and can do so in two ways: (1) if low-income area eligibility criteria are met, provide free snacks in lower-income areas; or (2) if area eligibility criteria are not met, offer free, reduced-price, or fully paid-for snacks, based on household income eligibility (like lunches in NSLP). The vast majority of snacks provided through this program are through the first option. Through this program, approximately 206 million snacks were served in FY2017 (a daily average of nearly 1.3 million). This compares with nearly 4.9 billion lunches served (a daily average of 27.8 million). CACFP provides assistance for after-school food in two ways. First, centers and homes that participate in CACFP and provide after-school care may participate in traditional CACFP (the eligibility and administration described earlier). Second, centers in areas where at least half the children in the community are eligible for free or reduced-price school meals can opt to participate in the CACFP At-Risk Afterschool program, which provides free snacks and suppers. Expansion of the At-Risk After-School meals program was a major policy change included in HHFKA. Prior to the law, 13 states were permitted to offer CACFP At-Risk After-School meals (instead of just a snack); the law allowed all CACFP state agencies to offer such meals. In FY2017, the At-Risk Afterschool program served a total of approximately 242.6 million free meals and snacks to a daily average of more than 1.7 million children. Federal child nutrition laws authorize and program funding supports a range of additional programs, initiatives, and activities. Through State Administrative Expenses funding, states are entitled to federal grants to help cover administrative and oversight/monitoring costs associated with child nutrition programs. The national amount each year is equal to about 2% of child nutrition reimbursements. The majority of this money is allocated to states based on their share of spending on the covered programs; about 15% is allocated under a discretionary formula granting each state additional amounts for CACFP, commodity distribution, and Administrative Review efforts. In addition, states receive payments for their role in overseeing summer programs (about 2.5% of their summer program aid). States are free to apportion their federal administrative expense payments among child nutrition initiatives (including commodity distribution activities) as they see fit, and appropriated funding is available to states for two years. State Administrative Expense spending in FY2017 totaled approximately $279 million. Team Nutrition is a USDA-FNS program that includes a variety of school meals initiatives around nutrition education and the nutritional content of the foods children eat in schools. This includes Team Nutrition Training Grants, which provide funding to state agencies for training and technical assistance, such as help implementing USDA's nutrition requirements and the Dietary Guidelines for Americans. From 2004 to 2018, Team Nutrition also included the HealthierUS Schools Challenge (HUSSC), which originated in the 2004 reauthorization of the Child Nutrition Act. HUSSC was a voluntary certification initiative designed to recognize schools that have created a healthy school environment through the promotion of nutrition and physical activity. Farm-to-school programs broadly refer to "efforts that bring regionally and locally produced foods into school cafeterias," with a focus on enhancing child nutrition. The goals of these efforts include increasing fruit and vegetable consumption among students, supporting local farmers and rural communities, and providing nutrition and agriculture education to school districts and farmers. HHFKA amended existing child nutrition programs to establish mandatory funding of $5 million per year for competitive farm-to-school grants that support schools and nonprofit entities in establishing farm-to-school programs that improve a school's access to locally produced foods. The FY2018 appropriations law provided an additional $5 million in discretionary funding to remain available until expended. Grants may be used for training, supporting operations, planning, purchasing equipment, developing school gardens, developing partnerships, and implementing farm-to-school programs. USDA's Office of Community Food Systems provides additional resources on farm-to-school issues. Through an Administrative Review process (formerly referred to as Coordinated Review Effort (CRE)), USDA-FNS, in cooperation with state agencies, conducts periodic on-site NSLP school compliance and accountability evaluations to improve management and identify administrative, subsidy claim, and meal quality problems. State agencies are required to conduct administrative reviews of all school food authorities (SFAs) that operate the NSLP under their jurisdiction at least once during a three-year review cycle. Federal Administrative Review expenditures were approximately $9.9 million in FY2017. USDA-FNS and state agencies conduct many other child nutrition program support activities for which dedicated funding is provided. Among other examples, there is the Institute of Child Nutrition (ICN), which provides technical assistance, instruction, and materials related to nutrition and food service management; it receives $5 million a year in mandatory funding appropriated in statute. ICN is located at the University of Mississippi. USDA-FNS provides training on food safety education. Funding is also provided for USDA-FNS to conduct studies, provide training and technical assistance, and oversee payment accuracy. Appendix A. Acronyms Used in This Report Appendix B. Per-meal or Per-snack Reimbursement Rates for Child Nutrition Programs This appendix lists the specific reimbursement rates discussed in the earlier sections of the report. Reimbursement rates are adjusted for inflation for each school or calendar year according to terms laid out in the programs' authorizing laws. Each year, the new rates are announced in the Federal Register .	[ "The \"child nutrition programs\" refer to the U.S. Department of Agriculture's Food and Nutrition Service (USDA-FNS) programs that provide food for children in school or institutional settings. The best known programs, which serve the largest number of children, are the school meals programs: the National School Lunch Program (NSLP) and the School Breakfast Program (SBP). The child nutrition programs also include the Child and Adult Care Food Program (CACFP), which provides meals and snacks in day care and after school settings; the Summer Food Service Program (SFSP), which provides food during the summer months; the Special Milk Program (SMP), which supports milk for schools that do not participate in NSLP or SBP; and the Fresh Fruit and Vegetable Program (FFVP), which funds fruit and vegetable snacks in select elementary schools. Funding: The vast majority of the child nutrition programs account is considered mandatory spending, with trace amounts of discretionary funding for certain related activities. Referred to as open-ended, \"appropriated entitlements,\" funding is provided through the annual appropriations process; however, the level of spending is controlled by benefit and eligibility criteria in federal law and dependent on the resulting levels of participation. Federal cash funding (in the form of per-meal reimbursements) and USDA commodity food support is guaranteed to schools and other providers based on the number of meals or snacks served and participant category (e.g., free meals for poor children get higher subsidies). Participation: The child nutrition programs serve children of varying ages and in different institutional settings. The NSLP and SBP have the broadest reach, serving qualifying children of all ages in school settings. Other child nutrition programs serve more-narrow populations. CACFP, for example, provides meals and snacks to children in early childhood and after-school settings among other venues. Programs generally provide some subsidy for all food served but a larger federal reimbursement for food served to children from low-income households. Administration: Responsibility for child nutrition programs is divided between the federal government, states, and localities. The state agency and type of local provider differs by program. In the NSLP and SBP, schools and school districts (\"school food authorities\") administer the program. Meanwhile, SFSP (and sometimes CACFP) uses a model in which sponsor organizations handle administrative responsibilities for a number of sites that serve meals. Reauthorization: The underlying laws covering the child nutrition programs were last reauthorized in the Healthy, Hunger-Free Kids Act of 2010 (HHFKA, P.L. 111-296, enacted December 13, 2010). This law made significant changes to child nutrition programs, including increasing federal financing for school lunches, expanding access to community eligibility and direct certification options for schools, and expanding eligibility options for home child care providers. The law also required an update to school meal nutrition guidelines as well as new guidelines for food served outside the meal programs (e.g., snacks sold in vending machines and cafeteria a la carte lines). Current Issues: The 114th Congress began but did not complete a 2016 child nutrition reauthorization, and there was no significant legislative activity with regard to reauthorization in the 115th Congress. However, the vast majority of operations and activities continue with funding provided by appropriations laws. Current issues in the child nutrition programs are discussed in CRS Report R45486, Child Nutrition Programs: Current Issues." ]	8,317	gov_report	en	null	cbeec70bcfb72047d4e6c61220081a119adaa31560983e53
T he federal government pays benefits to coal miners affected by coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) and other lung diseases linked to coal mining in cases where the responsible mine operators are not able to pay. Benefit payments and related administrative expenses are paid out of the Black Lung Disability Trust Fund. The primary source of revenue for the trust fund is an excise tax on coal produced and sold domestically. If excise tax revenue is not sufficient to finance Black Lung Program benefits, the trust fund may borrow from the general fund of the Treasury, which contains federal receipts not earmarked for a specific purpose. For 2018, the tax rates on coal were $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined coal, limited to 4.4% of the sales price. Starting in 2019, under current law, these tax rates are $0.50 per ton of underground-mined coal or $0.25 per ton of surface-mined coal, limited to 2% of the sales price. This decline in the excise tax rates will likely put additional financial strain on a trust fund that already borrows from the general fund to meet obligations. The decline in domestic coal production, recent increases in the rate of CWP, and bankruptcies in the coal sector also contribute to the financial strain on the trust fund. This report provides background information and policy options to help inform the debate surrounding the coal excise tax rate, and other considerations related to the Black Lung Disability Trust Fund. The report begins with an overview of the federal black lung program, providing information on black lung disease and benefits under the program. The report proceeds to examine Black Lung Disability Trust Fund revenues, focusing on the coal excise tax and its history. The report closes with a discussion of policy options, evaluating various revenue- and benefits-related policy options that could improve the fiscal outlook of the Black Lung Disability Trust Fund. The Black Lung Disability Trust Fund is used to finance the payment of federal Black Lung Program benefits under Part C of the Black Lung Benefits Act (BLBA) when a responsible coal operator does not meet its obligations under the law to pay benefits. Coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) is an interstitial lung disease caused by the inhalation of coal dust. Like in other types of pneumoconioses, the inhalation of coal dust results in the scarring of the lung tissue and affects the gas-exchanging ability of the lungs to remove carbon dioxide and take oxygen into the bloodstream. Exposure to coal dust over an extended period of time can lead to CWP and continued exposure can lead to the progression from the early stages of CWP referred to as "simple CWP," to more advanced stages of scarring referred to as "complicated CWP" or progressive massive fibrosis (PMF). There is no cure for CWP and PMF. CWP can lead to loss of lung function, the need for lung transplantation, and premature death. CWP can be identified by observing light spots, or opacities, in x-ray images of the lungs and can be classified using guidelines established by the International Labour Organization (ILO). Despite technological advances in mining dust control, mandatory chest x-rays for miners, free CWP surveillance offered to miners by the National Institute for Occupational Safety and Health (NIOSH), the enactment of numerous pieces of mine safety and health legislation, and the promulgation and enforcement of mine safety and health standards by the Mine Safety and Health Administration (MSHA), CWP persists in American coal miners, especially those in the Appalachian region. After reductions in rates of PMF in the 1990s, this advanced form of CWP has recently been found in Central Appalachia at rates not seen since the early 1970s. In 2017 researchers discovered, among coal miners mostly living in Kentucky and Virginia and served by three federally funded Black Lung Clinics in Virginia, what may be the largest cluster of PMF ever recorded. This cluster of miners with PMF includes a relatively high number of miners with less than 20 years of mining experience as well as cases of PMF in current miners. The occurrence of this advanced stage of CWP in short-tenured and current miners is noteworthy since MSHA standards require that any miner with evidence of CWP be given the option, without loss of compensation or other penalty, to work in an area of the mining operation in which the average concentration of coal dust in the air is continuously maintained at or below an established level that is lower than the permissible exposure level for all miners with the goal of preventing the progression of CWP. The federal Black Lung Program was created in 1969 with the enactment of Title IV of the Federal Coal Mine Health and Safety Act of 1969 (Coal Act, P.L. 91-173, later renamed the Federal Mine Safety and Health Act of 1977 by P.L. 95-164 ). Section 401 of the Coal Act provides the congressional justification for the federal Black Lung Program and cites the lack of benefits for disability and death caused by CWP provided by existing state workers' compensation systems as justification for the creation of a federal program. This section also states that the program is intended to be a cooperative effort between the federal government and the states. The Coal Act also established mandatory safety and health standards for coal mines, including standards limiting exposure of miners to coal dust and giving miners with CWP the option of being moved, without loss of compensation or penalty, to an area of the mine with lower dust concentrations. The Coal Act was later amended by the Black Lung Benefits Act of 1972 (BLBA, P.L. 92-303). The Coal Act established Part B of the federal Black Lung Program to provide cash benefits to miners totally disabled due to CWP and to the survivors of miners who die from CWP. Part B only applies to cases filed on or before December 31, 1973. Part B benefits are paid out of general revenue and were initially administered by the Social Security Administration (SSA). Today, with the exception of a small number of pending appellate cases, Part B benefits are administered by the Department of Labor (DOL), Office of Workers' Compensation Programs (OWCP). The Coal Act established Part C of the Federal Black Lung Program for cases filed after December 31, 1973, and was later amended by the BLBA. Under Part C of the BLBA, all claims for benefits for disability or death due to CWP are to be filed with each state's workers' compensation system, but only if such systems have been determined by DOL as providing benefits that are equivalent to or greater than the cash benefits provided by the federal government under Part B of the BLBA and the medical benefits provided to disabled longshore and harbor workers under the federal Longshore and Harbor Workers' Compensation Act (LHWCA). If a state's workers' compensation system is not determined by DOL to meet these standards, then Part C benefits are to be paid by the each miner's coal employer, or, if no such employer is available to pay benefits, by the federal government. In 1973, Maryland, Kentucky, Virginia, and West Virginia submitted their state workers' compensation laws to DOL for approval, but were denied. To date, no state workers' compensation system has been approved by DOL under Part C of the BLBA. Because no state's workers' compensation system has been determined to be sufficient to pay benefits under Part C, each operator of an underground coal mine is responsible for the payment of benefits to that operator's miners. Operators are required to provide for these benefits either by purchasing insurance for benefits or through self-insurance approved by DOL. A self-insured operator is required to purchase an indemnity bond or provide another form of security (such as a deposit of negotiable securities in a Federal Reserve Bank or the establishment of a trust) in an amount specified by DOL. In order to be approved for self-insurance, federal regulations require that a mine operator have been in business for at least the three previous years and have average assets over the previous three years that exceed current liabilities by the sum of expected benefit payments and annual premiums on the indemnity bond. When a claim for benefits is approved, benefits are to be paid by the "responsible" operator, which is generally the last coal operator to employ the miner. If a company has acquired the assets of a mine operator, then that company is considered a "successor operator" and is responsible for the payment of claims related to the original operator. The federal government pays benefits in cases in which the responsible operator no longer exists and has no successor operator, or is unable to pay benefits. The federal government pays benefits when an operator has not made payment within 30 days of a determination of eligibility or when benefits are otherwise due to be paid. Initially, under Part C of the Coal Act, these federal benefits were paid out of general revenue. However, pursuant to the Black Lung Benefits Revenue Act of 1977 ( P.L. 95-227 ), these benefits are now paid from the Black Lung Disability Trust Fund established by this law and primarily financed by an excise tax on coal. If a responsible operator can later be identified, the trust fund is authorized by law to seek to recover from this operator the amount of benefits paid by the trust fund and any interest earned on these amounts. The trust fund is also used for the following federal Black Lung Program-related expenses: the payment of benefits for miners whose last coal mine employment was before January 1, 1970; reimbursement to the Treasury for the costs of Part C benefits paid from general revenue before April 1, 1978, for periods of benefit eligibility after January 1, 1974; the repayment and payment of interest on advances made from the general fund to the trust fund; the payment of administrative expenses related to Part C of the BLBA and the coal excise tax incurred after March 1, 1978; and the reimbursement of coal operators who paid Part C benefits before April 1, 1978, for miners whose last coal mine employment ended before January 1, 1970. A miner is eligible for benefits if that miner is totally disabled due to pneumoconiosis arising out of coal mine employment. The survivors of a miner are eligible for benefits if the miner's death was due to pneumoconiosis arising out of coal mine employment. Benefits are only available to miners and their survivors. The BLBA defines a miner as any individual who works or has worked in or around a coal mine or coal preparation facility in the extraction or preparation of coal. Such term also includes an individual who works or has worked in coal mine construction or transportation in or around a coal mine, to the extent such individual was exposed to coal dust as a result of such employment. Thus, other workers who may be exposed to coal dust in their work, such as railroad workers or workers at coal-fired power plants are not eligible for benefits. Persons who live near coal mines or power plants are also not eligible for benefits even if they are exposed to coal dust. In addition, while a miner's family members may receive benefits as survivors and the number of family members can increase the amount of a miner's monthly benefits, family members may not claim benefits on their own due to exposure to coal dust in the home such as from cleaning the miner's soiled clothing. The BLBA defines pneumoconiosis for the purposes of benefit eligibility as "a chronic dust disease of the lung and its sequelae, including respiratory and pulmonary impairments, arising out of coal mine employment." The BLBA directs the Secretary of Labor to develop, through regulations, standards for determining if a miner is totally disabled due to pneumoconiosis or died due to pneumoconiosis. The federal Black Lung Program regulations provide that the definition of pneumoconiosis includes medical or "clinical" pneumoconiosis and statutory or "legal" pneumoconiosis. Clinical pneumoconiosis is defined as follows: "Clinical pneumoconiosis" consists of those diseases recognized by the medical community as pneumoconioses, i.e., the conditions characterized by permanent deposition of substantial amounts of particulate matter in the lungs and the fibrotic reaction of the lung tissue to that deposition caused by dust exposure in coal mine employment. This definition includes, but is not limited to, coal workers' pneumoconiosis, anthracosilicosis, anthracosis, anthrosilicosis, massive pulmonary fibrosis, silicosis or silicotuberculosis, arising out of coal mine employment. Legal pneumoconiosis is defined as any chronic lung disease or impairment and its sequelae arising out of coal mine employment. This definition includes, but is not limited to, any chronic restrictive or obstructive pulmonary disease arising out of coal mine employment. Through these definitions, DOL has established that benefits are available not just to miners with CWP, but also to those miners with other respiratory diseases arising out of coal mine employment such as chronic obstructive pulmonary disease (COPD) even though these diseases are not pneumoconioses and may be linked to other factors unrelated to exposure to coal dust such as cigarette smoking. The BLBA contains five presumptions used to determine if a miner is eligible for black lung benefits. Three of these presumptions are "rebuttable," meaning that, in the absence of any contrary evidence, eligibility is presumed. One presumption is "irrebutable" and eligibility for Black Lung program benefits is established if the statutory requirements of the presumption are met. Three of these presumptions apply to current Black Lung Program claims while two apply only to cases filed before the end of 1981. Table 1 provides a summary of the following five presumptions provided by the BLBA. 1. A rebuttable presumption that the pneumoconiosis of a miner who was employed in mining for at least 10 years was caused by his or her employment. 2. A rebuttable presumption that the death of a miner who worked in mining for at least 10 years and who died of any respirable disease, was due to pneumoconiosis. This presumption does not apply to claims filed on or after January 1, 1982, the effective date of the Black Lung Benefits Amendments of 1981 ( P.L. 97-119 ). 3. An irrebuttable presumption that a miner with any chronic lung disease which meets certain statutory tests or diagnoses is totally disabled due to pneumoconiosis or died due to pneumoconiosis. 4. A rebuttable presumption that a miner employed in mining for at least 15 years, and who has a chest x-ray that is interpreted as negative with respect to certain statutory standards but who has other evidence of a totally disabling respiratory or pulmonary impairment, is totally disabled due to pneumoconiosis or died due to pneumoconiosis. This presumption may only be rebutted by the Secretary of Labor establishing that the miner does not or did not have pneumoconiosis or that the miner's respiratory or pulmonary impairment did not arise out of connection to mine employment. 5. A presumption that a miner who died on or before March 1, 1978, and who was employed in mining for at least 25 years before June 30, 1971, died due to pneumoconiosis, unless it is established that at the time of the miner's death, he or she was not at least partially disabled due to pneumoconiosis. This presumption does not apply to claims filed on or after June 29, 1982, which is 180 days after the effective date of the Black Lung Benefits Amendments of 1981. This presumption is not listed in the law as either rebuttable or irrebuttable. The Patient Protection and Affordable Care Act (commonly referred to as the Affordable Care Act (ACA), P.L. 111-148 ) included two provisions that amended the BLBA to reinstate one of the eligibility presumptions and a provision affecting survivors' benefits. The effect of these changes was to increase the opportunity to establish eligibility through the statutory presumptions and make it easier for certain survivors to receive benefits. Pursuant to Section 202(a) of the Black Lung Benefits Amendments of 1981, the fourth presumption did not apply to cases filed on or after January 1, 1982. Section 1556(a) of the ACA removed the prohibition on applying the fourth presumption to cases filed on or after January 1, 1982. It is expected that this ACA provision will increase the number of miners eligible for benefits. The BLBA provides that, for Part C claims, the survivors of a miner who was determined to be eligible to receive benefits at the time of his or her death are not required to file new claims for benefits or revalidate any claim for benefits, thus permitting the payment of survivors' benefits in these cases even if the miner's death was not caused by pneumoconiosis. Pursuant to Section 203(a)(6) of the Black Lung Benefits Amendments of 1981, this provision did not apply to claims filed on or after January 1, 1982. Section 1556(b) of the ACA removed from this provision the exception for claims filed on or after January 1, 1982. It is expected that this ACA provision will increase the number of survivors eligible for benefits. The amendments to the BLBA provided in Section 1556 of the ACA apply to any claims filed under Part B or C of the act after January 1, 2005, that were pending on or after March 23, 2010, the date of enactment of the ACA. Eligible miners receiving benefits under Parts B and C are entitled to medical coverage for their pneumoconiosis and related disability. This medical coverage is provided at no cost to the miner and can generally be obtained from the miner's choice of medical providers. Eligible miners are also entitled to cash disability benefits. The basic benefit rate is set at 37.5% of the basic pay rate at GS-2, Step 1, on the federal pay schedule without any locality adjustment. If the miner has one dependent (a spouse or minor child) the miner is eligible for a benefit of 150% of the basic benefit. A miner with two dependents is eligible for 175% of the basic benefit and a miner with three or more dependents is eligible for 200% of the basic benefit. Benefits may also be paid to the divorced spouse of a miner if the marriage lasted at least 10 years and the divorced spouse was dependent on the miner for at least half of the spouse's support at the time of the miner's disability. A child is considered a dependent until the child marries, or reaches age 18, unless the child is either disabled using the Social Security Disability Insurance (SSDI) definition of disability or is under the age of 23 and a full-time student. The benefit rates are adjusted whenever there are changes to the federal employee pay schedules, but are not separately adjusted to reflect changes in the cost of living. Table 2 provides the benefit rates for 2019. Benefits are offset by state workers' compensation or other benefits paid on account of the miner's disability or death due to pneumoconiosis. Part C benefits, but not Part B benefits, are considered workers' compensation for the purposes of reducing a miner's SSDI benefits. The total amount paid in cash disability benefits has fallen over time, as illustrated in Figure 1 . More is paid in cash disability benefits than is paid in medical benefits. Certain survivors of a miner whose death was due to pneumoconiosis are eligible for cash benefits. In the case of a surviving spouse or divorced spouse, the spouse's benefit is equal to what the miner would have received and is based on the number of dependents of the spouse as provided in Table 2 . If there is no surviving spouse, then benefits are awarded to the surviving minor children in equal shares. If there are no surviving minor children, then benefits can be paid to the miner's dependent parents or dependent siblings. If there are no eligible survivors, no benefits are paid upon the miner's death and benefits do not go to the miner's estate or to any other person, including a person named by the miner in a will. The number of miners and survivors receiving benefits has declined over time, as illustrated in Figure 2 . The primary revenue source for the Black Lung Disability Trust Fund is a per-ton excise tax on coal. Historically, the coal excise tax has not generated enough revenue to meet the trust fund's obligations. Thus, additional funds have been provided from the general fund of the Treasury. The general fund includes governmental receipts not earmarked for a specific purpose, the proceeds of general borrowing, and is used for general governmental expenditures. Internal Revenue Code (IRC) Section 4121 imposes the black lung excise tax (BLET) on sales or use of domestically mined coal. Generally, a producer that sells the coal is liable for the tax. Producers that use their own domestically mined coal, such as integrated utilities or steel companies, are also liable for the tax. The tax rate depends on how coal is mined. Effective January 1, 2019, the tax on underground-mined coal is the lesser of (1) $0.50 per ton, or (2) 2% of the sale price. The tax on surface-mined coal is the lesser of (1) $0.25 per ton, or (2) 2% of the sales price. Before 2019, the tax rates were $1.10 per ton for coal from underground mines or $0.55 per ton for coal from surface mines, with the tax being no more than 4.4% of the sale price. In FY2017, $229 million was collected on coal mined underground (see Figure 3 ). Nearly all of this coal was taxed at the $1.10 per ton rate. In FY2017, $200 million was collected on surface-mined coal. Just over half of this coal was taxed at the $0.55 per ton rate, with the rest subject to the 4.4% of sales price maximum tax. On January 1, 2019, the BLET rates declined to their current levels. The rates that took effect January 1, 2019, would also have taken effect if the Black Lung Disability Trust Fund had repaid, with interest, all amounts borrowed from the General Fund of the Treasury. The tax is imposed on "coal from mines located in the United States" and does not apply to imported coal. The tax is designed to support the Black Lung Disability Trust Fund for domestic miners. Very little domestically consumed coal is imported. The BLET also does not apply to exported coal under the Export Clause of the United States Constitution. A credit or refund can be claimed if coal is taxed before it is exported. Black lung excise tax collections have generally declined in recent years (see Figure 3 ). In FY2009, more than $650 million was collected from the BLET. In FY2017, collections were about $429 million. The decline in BLET collections follows the general decline in U.S. coal production. As the price of coal rose in the 2000s, coal mined underground tended to pay the tax at a fixed rate of $1.10 per ton, as opposed to paying 4.4% of the sales price. In the years beyond 2018, coal excise tax receipts are expected to fall sharply, reflecting the decrease in the coal excise tax rate (see Figure 3 ). The excise tax on coal was established to help ensure the coal industry shared in the social costs imposed by black lung disease. Over time, the rate of the tax has been increased, in an effort to provide sufficient revenue to meet this objective. The Black Lung Benefits Revenue Act of 1977 ( P.L. 95-227 ) first imposed the Section 4121 excise tax on coal. When enacted, the tax was $0.50 per ton for coal from underground mines, and $0.25 per ton for coal from surface mines. The tax was limited to 2% of the sales price. The tax was effective for sales after March 31, 1978. Before P.L. 95-227 was enacted there was considerable debate surrounding how black lung benefits programs should be financed. Various mechanisms to shift the costs of the black lung benefits program to the coal industry and its customers were considered. These debates ultimately led to the establishment of the Black Lung Disability Trust Fund and the related excise tax on coal. There was also debate about how to structure the proposed tax. Some suggested a graduated tax, with higher rates imposed on coal with a higher British thermal unit (Btu) content, as such coal was believed to be more likely to cause black lung disease. There were concerns, however, that such a tax could be difficult to administer. Other proposals suggested that coal be subject to a uniform rate, with coal mined from underground deposits subject to a higher rate than other coal (including lignite). A concern with this approach was that coal prices vary substantially per ton for different types of coal (lignite is less expensive than anthracite), meaning that the tax as a percent of the sales price could differ substantially across different types of coal. One answer to this concern is to impose an ad valorem tax, or a tax based on the sales price. Another approach that was considered was to impose a "premium rate" at a level that would fully finance the Black Lung Disability Trust Fund, giving authority to the Department of Labor to adjust the fee as necessary. The tax as enacted was the lesser of the per-unit price or the ad valorem rate of 2%. In the early 1980s, it was observed that coal excise tax revenues were not sufficient to meet the trust fund's obligations. The Black Lung Benefits Revenue Act of 1981 ( P.L. 97-119 ) doubled the excise tax rates to $1.00 per ton for coal from underground mines, and $0.50 per ton for coal from surface mines, not to exceed 4% of the sales price. The higher rates were effective January 1, 1982. The doubled rates were temporary, and scheduled to revert to the previous rates on January 1, 1996. Further, the rates could be reduced earlier if the trust fund repaid all advances and interest from the general fund of the Treasury. A stated goal of this legislation was to eliminate the Black Lung Disability Trust Fund's debt. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ) again increased the BLET rates to $1.10 for underground-mined coal, and $0.55 for surface-mined coal, not to exceed 4.4% of the sales price. The Omnibus Budget Reconciliation Act of 1987 ( P.L. 100-203 ) extended these rates through 2013. Increased excise tax rates on coal were again extended in 2008. Current-law rates were extended through 2018 as part of the Emergency Economic Stabilization Act of 2008 (EESA; P.L. 110-343 ). When extending the increased rates, Congress reiterated the original intent of establishing trust fund financing for black lung benefits, observing that it is "to reduce reliance on the Treasury and to recover costs from the mining industry." It was also observed that the program's expenses had continued to exceed revenues over time, and that the debt to the Treasury was not likely to be paid off by 2013. For these reasons, "the Congress believe[d] that it [was] appropriate to continue the tax on coal at the increased rates beyond the expiration date." When receipts of the trust fund are less than expenditures, advances are appropriated from the general fund of the Treasury to the trust fund. These advances are repayable, and interest charged on these advances is also payable to the general fund. The Consolidated Omnibus Budget Reconciliation Act of 1985 ( P.L. 99-272 ) provided a five-year forgiveness of interest on debt owed to the Treasury's general fund. As a result, the principal amount of trust fund debt outstanding was relatively unchanged throughout the late 1980s. The moratorium on interest payments ended September 30, 1990. Throughout the 1990s and into the 2000s, the cumulative end-of-year debt of the trust fund grew, and the trust fund continued to receive repayable advances from the general fund to cover expenses. The trust fund was subject to financial restructuring when the current excise tax rate was extended until January 1, 2019, in EESA. The Black Lung Disability Trust Fund debt was restructured in FY2009. Essentially, the partial forgiveness and restructuring allowed the trust fund to refinance outstanding repayable advances and unpaid interest on those advances. As a result of the partial forgiveness and refinancing, the cumulative debt was reduced from $10.4 billion at the end of FY2008 to $6.2 billion by the end of FY2009. At the time of the restructuring it was expected that the trust fund's debt would be fully eliminated by FY2040. The trust fund's cumulative debt has trended downward since the restructuring (see Figure 4 ). However, coal excise tax revenue has been less than anticipated in recent years. As a result, current projections suggest that the trust fund debt will rise over time when considering annual borrowing as well as legacy debt. The trust fund's debt is therefore not on a path to be eliminated. By FY2050, the Government Accountability Office (GAO) projects the trust fund's debt will be $15.4 billion without any changes in current policy. In addition to revenue from the BLET and repayable general fund advances, the trust fund receives revenue from the collection of certain fines, penalties, and interest paid by coal operators and miners and reimbursements from responsible operators. Part C of the BLBA authorizes the following fines and penalties for violations of the act: a civil penalty of up to $1,000 per day for a mine operator's failure to secure benefits through insurance or approved self-insurance; a fine of up to $1,000 upon conviction of the misdemeanor offense of knowingly destroying or transferring property of a mine operator with the intent to avoid the payment of benefits for which the mine operator is responsible; a fine of up to $1,000 upon conviction of the misdemeanor offense of making a false or misleading statement or representation for the purposes of obtaining benefits; and a civil penalty of up to $500 for a mine operator's failure to file a report on miners who are or may be entitled to benefits as required by DOL. The amount of these penalties and fines, as well as interest assessed, is paid into the trust fund. In FY2017, trust fund receipts from fines, penalties, and interest totaled $1.2 million. This is a small source of trust fund revenue relative to the coal excise tax, which generated $428.7 million in trust fund revenues in FY2017. The trust fund is authorized to begin paying benefits within 30 days if no responsible operator has begun payment. If, after paying benefits, DOL is able to identify a responsible operator, the trust fund may seek to collect from that operator the costs of benefits already paid by the trust fund and interest assessed on this amount. The amount of these collections is paid into the trust fund. In FY2017, $19.9 million was collected from responsible mine operators. The amount collected from responsible mine operators has fluctuated over time, but has averaged about 1% of total receipts since 1995. Various factors have contributed to the ongoing situation of trust fund expenditures exceeding trust fund revenues. Throughout the 1980s, black lung benefit payments and administrative expenditures exceeded trust fund revenue. As a result, the trust fund accumulated debt. As discussed above, over time, various efforts have been made to improve the fiscal condition of the trust fund. However, as of the end of FY2017, the trust fund remains in debt. The trust fund's cumulative debt at the end of FY2017 was $3.1 billion. The trust fund also borrowed $1.3 billion from the general fund that same year. Projections suggest that borrowing from the general fund will increase over the next few years, even as cumulative (or legacy) debt is paid down. Under the current excise tax rates, benefit payments and administrative expenses will be approximately equal to trust fund revenues in FY2020 through FY2022 (see Figure 5 ). However, revenues are not projected to be sufficient to repay debt, and expenses are projected to rise over time when debt and interest expenses are included. Specifically, by FY2022, it is projected that the trust fund will borrow $2.6 billion in repayable advances from the general fund. There are various policy options that Congress might consider to improve the fiscal condition of the Black Lung Disability Trust Fund. Broadly, increasing taxes on the coal industry (or maintaining 2018 rates) would pass the costs associated with paying black lung benefits onto the coal industry. Alternatively, forgiving trust fund interest or debt or financing black lung benefits out of general fund revenues would pass the costs of federal black lung benefits onto taxpayers in general. Another option would be to reduce federal black lung benefits. Additional revenue would likely need to be provided to the trust fund if the trust fund is to pay for past black lung benefits and maintain current benefit levels. Additional revenue may be needed even if past debt is forgiven (or assumed by the general fund), as anticipated trust fund revenues are not likely to be sufficient to cover anticipated trust fund expenditures. As discussed above, in the past, Congress and the President have opted to increase the excise tax on coal to address shortfalls in the Black Lung Disability Trust Fund. These increased rates have been temporary, and scheduled to revert back to the reduced rate if the trust fund's debt is eliminated. Congress has chosen to extend the increased rates beyond their scheduled expiration when the trust fund is in debt. One option would be to extend 2018 rates.. The GAO projects that if 2018 coal excise tax rates are extended, the trust fund will have a debt of $4.5 billion in 2050 (see "GAO Options for Improving Trust Fund Finances" below). GAO projections suggest that increasing 2018 tax rates by 25% would eliminate the trust fund's debt, leaving the trust fund with a surplus of $0.6 billion in 2050. An alternative way to raise revenue from the coal industry is to scale back or eliminate various tax expenditures, or tax preferences, from which the coal industry benefits. For example, coal producers benefit from being able to expense exploration and development costs and are able to recover costs using percentage depletion (depletion based on revenue from the sale of the mineral asset) instead of cost depletion (depletion based on the amount of the mineral asset exhausted and the amount invested in the asset). The Obama Administration regularly proposed repealing these tax incentives as part of the Administration's annual budget. It could be difficult to assign the revenues raised via the repeal of tax benefits to the trust fund. With an excise tax, it is straightforward to identify the revenue generated by the tax and earmark the revenue for a trust fund. It is not as straightforward to determine the amount of revenue that is raised through the repeal of an income tax expenditure, or direct the additional revenue raised because a certain preference is no longer in the code to a trust fund. Repeal of coal-industry tax benefits could, however, be used to offset the cost of a one-time transfer from the general fund to the trust fund. Revenue from various sources, including the general fund, could be used to supplement trust fund revenue generated from current sources. General fund revenues are not earmarked for a specific purpose, and there is generally no direct link between the source of general fund revenue and the government good or service provided. Black lung benefits were paid out of general revenue before the trust fund was established in 1977. Trust funds are generally established when there is a link between the government benefits or services being provided and the revenue source funding those benefits or services. The Black Lung Disability Trust Fund was established because Congress believed that the costs of the part C black lung program should be borne by the coal industry. Financing black lung benefits with general fund revenue would weaken the link between the industry and black lung benefits, while reducing the burden on the industry associated with paying for black lung benefits. In the past the Black Lung Disability Trust Fund's fiscal outlook has been improved through interest and debt forgiveness. As discussed above, in the late 1990s, there was a five-year forgiveness of interest on debt owed to the Treasury's general fund. More recently, debt was forgiven as part of the 2008 restructuring of the trust fund's debt. The GAO projects that if all current debt were forgiven, the trust fund would accumulate $2.3 billion in new debt by 2050. If all interest were forgiven, the trust fund debt is projected to be $5.8 billion by 2050. Forgiving the trust fund's interest or debt obligations would shift the burden of paying for black lung disability benefits from the coal industry to general taxpayers. However, a one-time appropriation to forgive interest or debt is a transparent option for satisfying the trust fund's obligations to the general fund. The primary expenditures of the trust fund are for the payment of Part C benefits to miners in cases in which there is no responsible operator. In order to reduce expenditures and improve the long-term financial health of the trust fund, Congress could consider several options to reduce the generosity and scope of benefits or increase the ability of the federal government to ensure that coal operators, even those who are in the bankruptcy process, pay benefits for their miners. A reduction in the amount of Part C benefits would result in lower Part C expenditures from both responsible coal operators and the trust fund. However, as compared to other workers' compensation benefits, Part C benefits are relatively low. The basic Part C benefit rate for a single miner is equal to 37.5% of the base rate of pay for federal employees at the GS-2, Step 1 level. For 2019 this benefit is just over $660 per month, or under $8,000 per year. In the majority of state workers' compensation programs, the basic benefit rate is set at two-thirds of the worker's pre-disability wage, subject to statutory minimums and maximums. The other workers' compensation programs administered by DOL, the LHWCA, and the Federal Employees' Compensation Act (FECA) use two-thirds of a worker's pre-disability wage as the basis for their benefits. A federal worker with a spouse or dependent in the FECA program is entitled to 75% of his or her pre-disability wage. The minimum benefit for total disability or death in the FECA program, 75% of GS-2, Step 1, is twice the amount of the Part C benefit rate. In addition, unlike the other federal workers' compensation programs and many state programs, there is no automatic adjustment to Part C benefits to reflect increases in the cost of living. Part C benefits instead increase only when federal pay rates are increased. The eligibility of miners and survivors to Part C benefits could be restricted to reduce expenditures from responsible operators and the trust fund. In 1981, Congress enacted several eligibility restrictions to miners and survivors as part of the Black Lung Benefits Revenue Act of 1981, to address concerns about the financial insolvency of the trust fund. Specifically, this law removed the following three eligibility presumptions for new claims going forward: A rebuttable presumption that the death of a miner who worked in mining for at least 10 years and who died of any respirable disease, was due to pneumoconiosis (listed as presumption 2 in Table 1 ). A rebuttable presumption that a miner employed in mining for at least 15 years, and who has a chest x-ray that is interpreted as negative with respect to certain statutory standards but who has other evidence of a totally disabling respiratory or pulmonary impairment, is totally disabled due to pneumoconiosis, or died due to pneumoconiosis. This presumption may only be rebutted by the Secretary of Labor establishing that the miner does not or did not have pneumoconiosis or that the miner's respiratory or pulmonary impairment did not arise out of connection to mine employment (presumption 4 in Table 1 ). A presumption that a miner who died on or before March 1, 1978, and who was employed in mining for at least 25 years before June 30, 1971, died due to pneumoconiosis, unless it is established that at the time of the miner's death, he or she was not at least partially disabled due to pneumoconiosis (presumption 5 in Table 1 ). In addition to removing three of the five existing eligibility presumptions, the 1981 law also removed the right of the survivors of a miner who is determined to be eligible for Part C benefits at the time of his or her death to receive survivors' benefits without filing a new claim, thus permitting the payment of survivors' benefits in the case of a current beneficiary, even if the beneficiary's death is not proven to be linked to pneumoconiosis. Two of the restrictions put in place by the 1981 legislation were later removed by the ACA. The ACA reinstated the fourth eligibility presumption and expanded rights for survivors' benefits, thus expanding eligibility for both miners and certain survivors. Under Part C of the BLBA, the federal government may recover the costs of benefits, and interest accrued on those benefits, paid by the trust fund from identified responsible operators. In addition, Part C allows the federal government to place a lien on the property and rights to property of an operator that refuses to pay the benefits and interest it owes to the trust fund. In the case of a bankruptcy or insolvency proceeding, this lien is to be treated in the same manner as a lien for taxes owed to the federal government. However, in a 2016 letter to the Comptroller General requesting a GAO review of the trust fund, Representatives Bobby Scott, Ranking Member of the House Committee on Education and the Workforce, and Sander Levin, Ranking Member of the House Committee on Ways and Means, claimed that the number of current and potential bankruptcies among coal operators is placing stress on the trust fund. Representatives Scott and Levin cited the example of Patriot Coal which, according to their letter, transferred $62 million in Part C liabilities to the trust fund when it became insolvent. In addition, this letter claims that insolvent coal operators may be able to avoid trust fund liens by continuing to make benefit payments until after the court in their bankruptcy cases has approved the sale of their assets to another company. Because the original company was never in default of its payments, no lien was filed, and these assets were able to be purchased by another company without any lien or future liability to the trust fund. Congress may examine the issue of the impact of coal operator bankruptcies and the interaction of bankruptcy law and the BLBA's lien provisions, to strengthen both the federal government's ability to ensure that responsible operators are paying for benefits and reduce the benefit expenditures of the trust fund.	[ "The federal government pays benefits to coal miners affected by coal workers' pneumoconiosis (CWP, commonly referred to as black lung disease) and other lung diseases linked to coal mining in cases where responsible mine operators are not able to pay. In 2019, the monthly benefit for a miner with no dependents is $660.10. Benefits can be as much as $1,320.10 per month for miners with three or more dependents. Medical benefits are provided separately from disability benefits. Benefit payments and related administrative expenses in cases in which the responsible operators do not pay are paid out of the Black Lung Disability Trust Fund. The primary source of revenue for the trust fund is an excise tax on coal produced and sold domestically. If excise tax revenue is not sufficient to finance Black Lung Program benefits, the trust fund may borrow from the general fund of the Treasury. For 2018, the tax rates on coal were $1.10 per ton of underground-mined coal or $0.55 per ton of surface-mined coal, limited to 4.4% of the sales price. These rates were established in 1986. Starting in 2019, under current law, these tax rates are $0.50 per ton of underground-mined coal or $0.25 per ton of surface-mined coal, limited to 2% of the sales price. These are the rates that were set when the trust fund was established in 1977. The decline in the excise tax rates will likely put additional financial strain on a trust fund that already borrows from the general fund to meet obligations. The decline in domestic coal production, recent increases in the rate of CWP, and bankruptcies in the coal sector also contribute to the financial strain on the trust fund. The Black Lung Disability Trust Fund and associated excise tax on coal were established so that the coal industry, as opposed to taxpayers in general, would bear the burden associated with providing black lung benefits. Throughout its history, the Black Lung Disability Trust Fund has not raised revenues sufficient to meet obligations. As a result, at various points in time, Congress and the President have acted to increase the excise tax on coal, forgive or refinance trust fund debt, and modify black lung benefits eligibility. With the rate of the excise tax on coal reduced in 2019, the 116th Congress may again evaluate options for improving the fiscal condition of the Black Lung Disability Trust Fund, or other issues related to providing federal benefits to miners with black lung disease." ]	7,218	gov_report	en	null	1ebf280f607e6a5b65e277b3c2960537006c9860b5325957
Puerto Rico, which has approximately 3.3 million residents according to U.S. Census Bureau (Census) estimates, is the largest and most populous territory of the United States. As a territory, Puerto Rico is subject to congressional authority, though Congress has granted it broad authority over matters of internal governance—notably, by approving Puerto Rico’s constitution in 1952. Individuals born in Puerto Rico are U.S. citizens and can migrate freely to the states. Puerto Rico and its residents are generally subject to the same federal laws as the states and their residents, except in cases where specific exemptions have been made, such as with certain federal programs. For example, Puerto Rico residents generally have full access to Social Security and unemployment insurance; however, for some programs, such as Medicaid, federal funding in Puerto Rico is restricted as compared to funding in the states. Residents of Puerto Rico are exempt from paying federal income tax on income from sources in Puerto Rico. Residents are required to pay federal income tax on income from sources outside of Puerto Rico. They are also required to pay federal employment taxes, such as Social Security and Medicare taxes, on their income regardless of where it was earned. Puerto Rico residents are also ineligible for certain federal tax credits. Corporations located in Puerto Rico are generally subject to the same federal tax laws as corporations located in a foreign country. Corporations in Puerto Rico are generally exempt from federal taxes on profits except as such profits are effectively connected to a trade or business in the states, and so long as those profits remain held outside of the states. Additionally, these corporations were subject to a withholding tax on certain investment income from the United States not connected to a trade or business. Under the 2017 Public Law 115-97, starting in 2018 U.S. corporations that are shareholders in foreign corporations, such as those organized under Puerto Rico law, generally do not owe tax on dividends received from those foreign corporations. Prior to this law, dividend payments to U.S. corporate shareholders were considered taxable interest for the U.S. parent corporation. Prior to 1996, a federal corporate income tax credit—the possessions tax credit—was available to certain U.S. corporations that located in Puerto Rico. In general, the credit equaled the full amount of federal tax liability related to an eligible corporation’s income from its operations in a possession—including Puerto Rico—effectively making such income tax- free. In 1996, the tax credit was repealed, although corporations that were existing credit claimants were eligible to claim credits through 2005. Puerto Rico’s economy is in a prolonged period of economic contraction. According to data from Puerto Rico’s government, Puerto Rico’s economy grew in the 1990s and early 2000s. However, between 2005 and 2016— the latest year for which data were available as of March 1, 2018—Puerto Rico’s economy experienced year-over-year declines in real output in all but two years, as measured by real gross domestic product (GDP). From 2005 to 2016, Puerto Rico’s real GDP fell by more than 9 percent (from $82.8 billion to $75.0 billion in 2005 dollars). Puerto Rico’s gross national product (GNP) followed a similar pattern over the same period, declining by more than 11 percent from 2005 to 2016 (from $53.8 billion to $47.7 billion in 2005 dollars). Figure 1 shows Puerto Rico’s real GDP and GNP growth rates from 1991 through 2016. The decline in Puerto Rico’s output has, in more recent years, occurred in conjunction with a decline in Puerto Rico’s population. According to Census estimates, Puerto Rico’s population declined from a high of approximately 3.8 million people in 2004 to 3.3 million people in 2017, a decline of 12.8 percent. This population loss closely matched the decline in real output. From 2004 to 2016, Puerto Rico’s real GNP fell by 9.5 percent, while its real GNP per capita increased by 1.6 percent over the same time period. In addition to Puerto Rico’s declining population, the territory also has a lower share of employed persons compared to the United States as a whole. As of 2017, approximately 37 percent of Puerto Rico residents were employed compared to approximately 60 percent for the United States as a whole. Puerto Rico’s employment-to-population ratio reached highs in 2005 and 2006 when it was approximately 43 percent, according to data from the Federal Reserve Bank of St. Louis. According to data from the Bureau of Labor Statistics (BLS), between 2005 and 2017, Puerto Rico’s unemployment rate fluctuated between 10.2 percent and 17.0 percent, with an average of 13.1 percent. During the same period, the nationwide unemployment rate fluctuated between 4.1 percent and 10.0 percent, with an average of 6.5 percent. These factors have combined to leave Puerto Rico with a small and declining labor force. From January 2006 to December 2017—the latest month for which data were available as of March 1, 2018—Puerto Rico’s labor force decreased from approximately 1.4 million persons to 1.1 million persons, according to data from BLS. Puerto Rico’s government has operated with a deficit—where expenses exceed revenues—in each fiscal year since 2002, and its deficits grew over time (see figure 2). Puerto Rico’s governmental activities can be divided among the primary government and component units. Puerto Rico’s primary government provides and funds services such as public safety, education, health care, and economic development. Puerto Rico’s component units are legally separate entities for which its government is nonetheless financially accountable, and provide services such as public transportation, highways, electricity, and water. In fiscal year 2014, the latest for which audited financial data are available, the Puerto Rico government collected $32.5 billion in revenue, of which $19.3 billion was collected by the primary government, and $13.2 billion was collected by the component units. That year Puerto Rico’s government spent $38.7 billion, of which $22.0 billion was spent directly by the primary government, while $16.7 billion was spent by the government’s various component units. The Puerto Rico Electric Power Authority (PREPA), which operates the territory’s electricity generation and distribution infrastructure, represented the largest component unit expenditure in fiscal year 2014. Figures 3 and 4 show a breakdown of expenses for Puerto Rico’s primary government and its component units, respectively. Puerto Rico’s government spending accounts for more than a third of the territory’s GDP. In fiscal year 2014—the latest year for which audited spending data were available as of March 1, 2018—primary government expenditures of $22.0 billion represented 21 percent of the territory’s GDP. Including component spending, total public expenditures were $38.7 billion, which represented 38 percent of the territory’s GDP. By comparison, our prior work has shown that in 2014, total state and local government expenditures represented about 14 percent of GDP for the United States as a whole, excluding territories. Federal government expenditures were 20 percent of GDP for the United States as a whole in 2014. Puerto Rico’s total public debt as a share of its economy has grown over time. In 2002, the value of its debt was 42 percent of the territory’s GDP, and 67 percent of its GNP. Both of these ratios grew over time such that by 2014, Puerto Rico’s total public debt was 66 percent of the territory’s GDP and 99 percent of its GNP. Figure 5 compares Puerto Rico’s total public debt to its GDP and GNP, in both aggregate and per capita. As of the end of fiscal year 2014, the last year for which Puerto Rico issued audited financial statements, Puerto Rico had $67.8 billion in net public debt outstanding, or $68.1 billion excluding accounting adjustments that are not attributed in the financial statements to specific agencies. Of the $68.1 billion, $40.6 billion was owed by Puerto Rico’s primary government, and $27.6 billion was owed by its component units, as shown in figure 6 (these amounts do not sum to $68.1 billion because of rounding). The growth of Puerto Rico’s total debt resulted in greater annual debt servicing obligations. In fiscal year 2002, it cost Puerto Rico $2.7 billion to service its debt, representing about 12 percent of Puerto Rico’s $21.6 billion in total public revenue for that year. By fiscal year 2014, Puerto Rico’s annual debt service cost rose to $5.0 billion, representing just over 15 percent of Puerto Rico’s $32.5 billion in total public revenue for that year. Following years of expenditures that exceeded revenue, and a growing debt burden, in August 2015, Puerto Rico failed to make a scheduled bond payment. Since then, Puerto Rico has defaulted on over $1.5 billion in debt. In June 2016, Congress enacted and the President signed PROMESA in response to Puerto Rico’s fiscal crisis. PROMESA established a Financial Oversight and Management Board for Puerto Rico (Oversight Board), and granted it broad powers of fiscal and budgetary control over Puerto Rico. PROMESA also established a mechanism through which the Oversight Board could petition U.S. courts on Puerto Rico’s behalf to restructure debt. Under federal bankruptcy laws, Puerto Rico is otherwise prohibited from authorizing its municipalities and instrumentalities from petitioning U.S. courts to restructure debt. The Oversight Board petitioned the U.S. courts to restructure debt on behalf of Puerto Rico’s Highways and Transportation Authority and the Government Employees Retirement System on May 21, 2017 and on behalf of PREPA on July 2, 2017. In addition to its debt obligations, Puerto Rico also faces a large financial burden from its pension obligations for public employees. Puerto Rico’s public pension systems had unfunded liabilities of approximately $49 billion as of the end of fiscal year 2015, the most recent year for which data are available. Unfunded pension liabilities are similar to other kinds of debt because they constitute a promise to make a future payment or provide a benefit. Based on interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, as well as a review of relevant literature, the factors that contributed to Puerto Rico’s financial condition and levels of debt related to: (1) Puerto Rico’s government running persistent deficits and (2) its use of debt to cope with deficits. As previously mentioned, Puerto Rico’s government has operated with a deficit in all years since 2002, and deficits grew over time. To cope with its deficits, Puerto Rico’s government issued debt to finance operations, rather than reduce its fiscal gap by cutting spending, raising taxes, or both. Through interviews with current and former Puerto Rico officials; federal officials; experts in Puerto Rico’s economy, the municipal securities markets, and state and local budgeting and debt management; as well as a review of relevant literature, we identified three groups of factors that contributed to Puerto Rico’s persistent deficits: (1) inadequate financial management and oversight practices, (2) policy decisions, and (3) prolonged economic contraction. Some of the factors in these groups may be interrelated. To cope with its persistent deficits, Puerto Rico issued debt to finance operations. In reviewing 20 of Puerto Rico’s largest bond issuances from 2000 to 2017, totaling around $31 billion, we found that 16 were issued exclusively to repay or refinance existing debt and to fund operations. According to ratings agency officials and experts in state and local government, states rarely issue debt to fund operations, and many states prohibit this practice. According to former Puerto Rico officials and experts on Puerto Rico’s economy, high demand for Puerto Rico debt and the Government Development Bank for Puerto Rico (GDB) facilitating rising debt levels enabled Puerto Rico to continue to use debt to finance operations. Puerto Rico issued a relatively large amount of debt, given the size of its population. Based on an analysis of fiscal year 2014 comprehensive annual financial reports of the 50 states and Puerto Rico, Puerto Rico had the second highest amount of outstanding debt among states and territories, while its population falls between the 29th and 30th most populous states. By comparison, California, the state with the largest amount of outstanding debt, is the most populated state. Various factors drove demand for Puerto Rico municipal bonds, even as the government’s financial condition deteriorated. Triple tax exemption: According to a former Puerto Rico official, Federal Reserve Bank of New York officials, and an expert on Puerto Rico’s economy, Puerto Rico’s municipal bonds were attractive to investors because interest on the bonds was not subjected to federal, state, or local taxes, regardless of where the investors resided. In contrast, investors may be required to pay state or local taxes on interest income earned from municipal securities issued by a state or municipality in which they do not reside. Investment grade bond ratings: Puerto Rico maintained investment grade bond ratings until February 2014, even as its financial condition was deteriorating. Credit ratings inform investment decisions by both institutional investors and broker dealers. According to a current Puerto Rico official and an expert on Puerto Rico’s economy, investment grade ratings for Puerto Rico municipal bonds may have driven demand for these securities in the states. Based on interviews with ratings agency officials and a review of rating agency criteria, we found that Puerto Rico may have maintained its investment grade rating for two reasons. First, Puerto Rico could not seek debt restructuring under federal bankruptcy laws, prior to the passage of PROMESA in 2016. According to rating agency officials, bonds with assumed bankruptcy protection tend to rate higher than those without such protection. Second, legal frameworks that prioritize debt service are often viewed as positive for credit ratings, according to rating agency criteria. In the event that the Puerto Rico government does not have sufficient resources to meet appropriations for a given fiscal year, Puerto Rico’s constitution requires that the government pay interest and amortization on the public debt before disbursing funds for other purposes in accordance with the order of priorities established by law. The prior Puerto Rico Governor cited this constitutional provision as providing the authority to redirect revenue streams from certain entities to the payment of general obligation debt. This redirection of revenue streams is commonly known as a clawback. Lack of transparency on its financial condition: Municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition, which may have resulted in investors not being able to fully take the investment risks into account when purchasing Puerto Rico debt. According to one report, between 2010 and 2016 municipal issuers issued their audited financial statements an average of 200 days after the end of their fiscal years. However, between fiscal years 2002 and 2014, Puerto Rico issued its statements an average of 386 days after the end of its fiscal year, according to our analysis of Puerto Rico’s audited financial statements. Moreover, Puerto Rico had not issued its fiscal years 2015 and 2016 audited financial statements as of March 1, 2018, or 975 and 609 days after the end of those fiscal years, respectively. Estate tax structures: Puerto Rico residents had incentive to invest in municipal bonds issued in Puerto Rico over those issued in the United States because of federal and Puerto Rico estate tax structures. Current and former Puerto Rico officials told us that this incentive drove demand among Puerto Rico residents for bonds issued in Puerto Rico. For federal estate tax purposes, Puerto Rico residents are generally considered non-U.S. residents and non-citizens for all of their U.S.-based property, including investments. Estates of Puerto Rico residents are required to pay the prevailing federal estate tax— which ranges from 18 percent to 40 percent depending on the size of an estate—for any U.S.-based property valued over $60,000. In contrast, prior to 2017, all Puerto Rico-based property was only subject to the Puerto Rico estate tax of 10 percent. Puerto Rico’s estate tax was repealed in 2017. In addition to financing from the municipal bond markets, GDB also provided an intragovernmental source of financing. Prior to April 2016, GDB acted as a fiscal agent, trustee of funds, and intergovernmental lender for the Government of Puerto Rico. GDB issued loans to Puerto Rico’s government agencies and public corporations to support their operations. GDB provided loans to government entities valued at up to 60 percent of GDB’s total assets, as shown in Figure 11. In general, these entities did not fulfill the terms of their borrowing agreements with GDB, while they independently accessed the municipal bond market. Additionally, according to GDB’s audited financial statements, GDB did not reflect loan losses in its audited financial statements until 2014 because it presumed that Puerto Rico’s legislature would repay loans through the general fund or appropriations, as generally required by the acts that approved such loans. Facing non-repayment of public sector loans, GDB took on debt to maintain liquidity. According to GDB documents, repayment of amounts owed to GDB was a main reason for the creation of the Puerto Rico Sales Tax Financing Corporation (COFINA), an entity backed by a new sales tax, through which Puerto Rico issued some of its debt. Though initially intended as a means to repay GDB and other debt, COFINA bonds were also used to finance operations. Through our interviews and an assessment of relevant literature, we identified three potential federal actions that could help address some of the factors that contributed to unsustainable indebtedness in Puerto Rico. Consistent with the provision in PROMESA that was the statutory requirement for this work, we focused on actions that were non-fiscal in nature—that is, actions that would not increase the federal deficit. There are tradeoffs for policymakers to consider when deciding whether or how to implement any policy. For each action, we describe a specific challenge as it relates to debt accumulation in Puerto Rico, identify a possible federal response to the challenge, and describe other considerations for policymakers. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, legislative and executive branch policymakers could further ensure that municipal securities issuers provide timely, ongoing, and complete disclosure materials to bondholders and the public. Specifically, Congress could authorize SEC to establish requirements for municipal issuers on the timing, frequency, and content of initial and continuing disclosure materials. In general, the municipal securities market is less regulated and transparent than other capital markets, such as equity markets. For example, SEC’s authority to directly establish or enforce initial and continuing disclosure requirements for issuers—including those in Puerto Rico—is limited. SEC requires that underwriters (sellers of municipal securities) reasonably determine that issuers have undertaken continuing disclosure agreements (CDA) to publicly disclose ongoing annual financial information, operating data, and notices of material events. However, federal securities laws do not provide SEC with the authority to impose penalties on municipal issuers for noncompliance with CDAs, which may limit any incentive for issuers to comply with SEC disclosure and reporting guidance. As a result, SEC has limited ability to compel issuers to provide continuing disclosure information. As previously discussed, the Puerto Rico government often issued its audited financial statements in an untimely manner, thus failing to meet its contractual obligations to provide continuing disclosures for securities it issued. SEC could not directly impose any consequences on Puerto Rico’s government for failing to adhere to the terms of, or enforce compliance with, the CDAs. Additionally, as previously discussed, municipal market analysts told us that untimely financial information made it difficult for institutional and individual investors to assess Puerto Rico’s financial condition. Timely disclosure of information would help investors make informed decisions about investing in municipal securities and help protect them against fraud involving the securities. These disclosures would be made to investors at the time of purchasing securities and throughout the term of the security, including when material changes to an issuer’s financial condition occur. According to SEC staff, enhanced authority could prompt more municipal issuers to disclose financial information, including audited financial statements, in a timelier manner. For example, SEC staff said that if the agency had required that issuers provide timely financial statements at the time of issuing a municipal security, this may have precluded Puerto Rico from issuing its $3.5 billion general obligation bond in 2014. However, any rulemaking SEC would or could take as a result of enhanced authority would depend on a number of factors, such as compliance with other SEC guidance and related laws. Since this action would apply to all U.S. municipal securities issuers, it has policy and implementation implications that extend well beyond Puerto Rico. For example, establishing and enforcing initial and continuing disclosure requirements for municipal securities issuers could place additional burdens on state and local issuers, and not all municipal issuers use standardized accounting and financial reporting methods. As a result, state and local governments may need to spend resources to adjust financial reporting systems to meet standardized reporting requirements. However, in a 2012 report proposing this action, SEC said it could mitigate this burden by considering content and frequency requirements that take into account, and possibly vary by, the size and nature of the municipal issuer, the frequency of issuance of securities, the type of municipal securities offered, and the amount of outstanding securities. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could ensure that investors residing in Puerto Rico receive the same federal investor protections as investors residing in states. Specifically, Congress could subject all investment companies in Puerto Rico to the Investment Company Act of 1940, as amended (1940 Act). In recent years, the House and Senate separately have passed legislation that would achieve this action. Certain investment companies in Puerto Rico and other territories— specifically, those whose securities are sold solely to the residents of the territory in which they are located—are exempt from the 1940 Act’s requirements. The 1940 Act regulates investment companies, such as mutual funds that invest in securities of other issuers and issue their own securities to the investing public. It imposes several requirements on investment companies intended to protect investors. For example, it requires that investment companies register with SEC and disclose information to investors about the businesses and risks of the companies in which they invest, and the characteristics of the securities that they issue. It also restricts investment companies from engaging in certain types of transactions, such as purchasing municipal securities underwritten by affiliated companies. According to a former Puerto Rico official, some broker-dealers in Puerto Rico underwrote Puerto Rico municipal securities issuances and investment companies managed by affiliated companies of these underwriters purchased the securities, packaged them into funds, and marketed the funds to investors residing in Puerto Rico. This practice would be prohibited or restricted for investment companies subject to the 1940 Act, as it might result in investment companies not acting in the best interests of their investors. If all Puerto Rico investment companies had been subject to the 1940 Act, they would have been prohibited or restricted from investing in Puerto Rico municipal bonds underwritten by affiliated companies. Also, these investment companies may have further disclosed the risks involved in Puerto Rico municipal bonds to Puerto Rico investors. As a result, demand for Puerto Rico municipal bonds from Puerto Rico investment companies and residents may have been lower had the 1940 Act requirements applied to all Puerto Rico investment companies, and it may have been more difficult for the Puerto Rico government to issue debt to finance deficits. SEC staff told us that industry groups had raised objections to extending the 1940 Act provisions to all investment companies in Puerto Rico. These industry groups noted that, among other things, certain investment companies would have difficulty meeting the 1940 Act’s leverage and asset coverage requirements and adhering to some restrictions on affiliated transactions. However, SEC staff noted that under certain legislation that passed the House or Senate separately, as described above, Puerto Rico investment companies would have three years to come into compliance if they were newly subject to the 1940 Act. Further, under that legislation, after three years, investment companies in Puerto Rico could also request an additional three years to come into compliance. Regarding affiliated company restrictions, SEC has previously waived some requirements for investment companies if they are unable to obtain financing by selling securities to unaffiliated parties with an agreement to repurchase those securities at a higher price in the future, known as repurchase agreements. According to SEC staff, SEC would consider allowing companies in Puerto Rico to enter into reverse repurchase agreements with their affiliates if the 1940 Act applied to them. To help address the factors that contributed to the high demand for Puerto Rico debt relative to other municipal debt, Congress could remove the triple tax exemption for Puerto Rico’s municipal securities. This action would mean that interest income from Puerto Rico municipal securities earned by investors residing outside of Puerto Rico could be taxed by states and local governments, while still being exempt from federal income taxes, similar to the current tax treatment of municipal bond income in the states. As mentioned previously, former Puerto Rico officials and experts in municipal securities told us that the triple tax exemption fueled investor demand and enabled Puerto Rico to continue issuing bonds despite deteriorating financial conditions. Some of the demand for Puerto Rico municipal securities came from certain U.S. municipal bond funds. These funds concentrated their investments in one state to sell to investors within that state, but also included Puerto Rico bonds in their portfolios. Puerto Rico bond yields generally were higher than state bonds yields, according to industry experts. When added to a fund, the higher yields from Puerto Rico bonds would increase the overall return on investment yield of a fund. Modifying the triple tax exemption for Puerto Rico’s municipal securities might result in reduced demand for Puerto Rico’s debt. In response to reduced demand for its debt, Puerto Rico’s government may need to address any projected operating deficits by decreasing spending, raising revenues, or both. According to U.S. Treasury officials, this action could increase the proportionate share of investors in Puerto Rico debt that reside in Puerto Rico, because of reduced demand from investors in the states. In the event of a future debt crisis, this could result in a concentration of financial losses within Puerto Rico. Also, debt financing allows governments to make needed capital investments and provides liquidity to governments, and can be a more stable funding source to manage fiscal stress. Reduced market demand for Puerto Rico’s bonds could make access to debt financing difficult, as the Puerto Rico bond market may not support the Puerto Rico government’s future borrowing at reasonable interest rates, according to Treasury officials. Alternately, a variant of this action would be to retain the triple tax exemption for Puerto Rico debt only for bonds related to capital investments rather than for deficit financing, according to Treasury officials. Various provisions in PROMESA were intended to help Puerto Rico improve its fiscal condition. PROMESA requires that the Oversight Board certify fiscal plans for achieving fiscal responsibility and access to capital markets. The intent of the fiscal plans is to eliminate Puerto Rico’s structural deficits; create independent revenue estimates for the budget process; and improve Puerto Rico’s fiscal governance, accountability, and controls, among other things. From March 2017 to April 2017, the Oversight Board certified the fiscal plans the Government of Puerto Rico developed for the primary government and certain component units, such as PREPA. As a result of the effects of Hurricanes Irma and Maria, the Oversight Board requested that the Government develop updated fiscal plans. Although the Government of Puerto Rico developed and submitted updated fiscal plans, the Oversight Board did not certify them, with the exception of the plan for GDB. Instead, in April 2018, the Oversight Board certified fiscal plans it developed itself, as PROMESA allows. PROMESA also requires the Oversight Board to determine whether or not Puerto Rico’s annual budgets, developed by the Governor, comply with the fiscal plans prior to being submitted to Puerto Rico’s legislature for approval. Technical assistance is another area where the federal government has taken action to help Puerto Rico address its fiscal condition. In 2015, Congress first authorized Treasury to provide technical assistance to Puerto Rico, and has continued to reauthorize the technical assistance, most recently through September 30, 2018. For example, Treasury officials told us that they helped Puerto Rico’s Planning Board develop a more accurate macroeconomic forecast, which should enable Hacienda to develop more accurate revenue estimates and receipt forecasts. Treasury officials also told us that the agency began helping Puerto Rico improve its collection of delinquent taxes—for example, by helping Hacienda develop an office dealing with Puerto Rico’s largest and most sophisticated taxpayers, which are often multinational corporations. With Puerto Rico focused on hurricane recovery efforts, Treasury and the Puerto Rico government are reassessing the types of assistance that Treasury might provide in the future, according to Treasury officials. Current and former Puerto Rico government officials and experts on Puerto Rico’s economy also told us that the federal government could further help Puerto Rico address its persistent deficits through federal policy changes that are fiscal in nature. For example, it could change select federal program funding rules—at a cost to the federal government—such as eliminating the cap on Medicaid funding and calculating the federal matching rate similar to how the rate is calculated in the states. Likewise, the Congressional Task Force on Economic Growth in Puerto Rico (Congressional Task Force), as established by PROMESA, issued a report in December 2016 that recommended changes to federal laws and programs that would spur sustainable long- term economic growth in Puerto Rico, among other recommendations. In addition to federal actions that could address the factors that contributed to Puerto Rico’s fiscal condition and debt levels, the Puerto Rico government plans to take various actions. For example, according to current Puerto Rico officials and the Puerto Rico government’s April 2018 fiscal plan, the government is: Planning to implement an integrated new information technology system for financial management, to include modernized revenue management and accounting and payroll systems. Hacienda officials stated that they are in the process of developing a project schedule for this long-term effort. Developing a new public healthcare model in which Puerto Rico’s government pays for basic services and patients pay for premium services. The government will begin implementing the new healthcare model in fiscal year 2019 and expects to achieve annual savings of $841 million by fiscal year 2023. Collaborating with the private sector for future infrastructure and service projects, including for reconstruction efforts related to Hurricanes Irma and Maria, which it expects will stimulate Puerto Rico’s weakened economy. We also asked Puerto Rico officials about progress made toward addressing many of the factors we identified. However, they did not provide us this information. We provided a draft of this report for review to Treasury, SEC, the Federal Reserve Bank of New York, the Government of Puerto Rico, and the Oversight Board. Treasury and SEC provided technical comments, which we incorporated as appropriate. The Federal Reserve Bank of New York and the Oversight Board had no comments. We received written comments from the Government of Puerto Rico, which are reprinted in appendix II. In its comments, the Government of Puerto Rico generally agreed with the factors we identified that contributed to Puerto Rico’s financial condition and levels of debt. It also provided additional context on Puerto Rico’s accumulation of debt, such as Puerto Rico’s territorial status and its effect on federal programs in Puerto Rico and outmigration. The Government of Puerto Rico also noted that the federal actions we identified to address factors contributing to Puerto Rico’s unsustainable debt levels did not include potential actions that were fiscal in nature or that addressed Puerto Rico’s long-term economic viability. As we note in the report, we excluded fiscal actions from our scope, consistent with the provision in PROMESA that was the statutory requirement for this work. We excluded potential actions that could promote economic growth in Puerto Rico because these actions would address debt levels in Puerto Rico only indirectly and because the Congressional Task Force on Economic Growth in Puerto Rico already recommended actions for fostering economic growth in Puerto Rico in its December 2016 report. We are sending copies of the report to the appropriate congressional committees, the Government of Puerto Rico, the Secretary of the Treasury, the Chairman of the Securities and Exchange Commission, and other interested parties. In addition, this report is available at no charge on the GAO website at http://gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-6806 or krauseh@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. Our objectives were to describe (1) the factors that contributed to Puerto Rico’s financial condition and levels of debt; and (2) federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt. Consistent with the provision in the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) that was the statutory requirement for this work, we focused on actions that would not increase the federal deficit. For both objectives we interviewed current Puerto Rico officials from several agencies—the Puerto Rico Department of Treasury (Hacienda in Spanish), Government Development Bank for Puerto Rico (GDB), the Puerto Rico Office of Management and Budget (Spanish acronym OGP), Fiscal Agency and Financial Advisory Authority (FAFAA), and the Puerto Rico Electric Power Authority. We also interviewed 13 former Puerto Rico officials that held leadership positions at Hacienda, GDB, or OGP, or a combination thereof. These former officials served between 1997 and 2016 for various gubernatorial administrations associated with the two political parties in Puerto Rico that held the governorship during that period. We also interviewed officials from the U.S. Department of the Treasury (Treasury), the Securities and Exchange Commission (SEC), the Federal Reserve Bank of New York, and the Financial Oversight and Management Board for Puerto Rico (created by PROMESA). Additionally, we conducted another 13 interviews with experts on Puerto Rico’s economy, the municipal securities markets, state and territorial budgeting and debt management—including credit rating agencies—and with select industry groups in Puerto Rico. We selected the experts we interviewed based on their professional knowledge closely aligning with our engagement objectives, as demonstrated through published articles, congressional testimonies, and referrals from agency officials or other experts. To describe the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior work related to Puerto Rico’s financial condition and levels of public debt. We also collected and analyzed additional financial data from Puerto Rico’s audited financial statements for the fiscal years 2002 to 2014, the last year for which audited financial statements were available. To determine how the Puerto Rico government used bond proceeds, we reviewed a nongeneralizable sample of Puerto Rico bonds prospectuses issued between 2000 and 2017 from the Electronic Municipal Market Access database of the Municipal Securities Rulemaking Board. We reviewed literature—including academic reports, congressional hearing transcripts, and credit rating agency reports—that described Puerto Rico’s economy and factors that contributed to Puerto Rico’s levels of debt. We also reviewed credit rating agency reports that described Puerto Rico’s municipal debt and the agencies’ methodologies for rating municipal debt. We also collected and reviewed Puerto Rico government documents related to budget formulation and execution, debt issuance, and financial management. We considered factors to include, but not be limited to, macroeconomic trends, federal policies, and actions taken by Puerto Rico government officials. Our review focused largely, though not exclusively, on conditions that contributed to the debt crisis during those years for which we collected financial data on Puerto Rico, fiscal years 2002 to 2014. Finally, we also conducted a thematic analysis of the summaries of our interviews to identify common patterns and ideas. Although these results are not generalizable to all current and former officials and experts with this subject-matter expertise, and do not necessarily represent the views of all the individuals we interviewed, the thematic analysis provided greater insight and considerations for the factors we identified. To describe federal actions that could address the factors that contributed to Puerto Rico’s financial condition and levels of debt, we reviewed our prior reports and documents from Treasury and SEC, conducted a literature review, and conducted various interviews. Specifically, we met with federal agencies with subject-matter expertise or whose scope of responsibilities related to these actions, as well as with current and former Puerto Rico officials and municipal securities experts. Consistent with PROMESA, we omitted from our scope: (1) actions that could increase the federal deficit (i.e., fiscal options), (2) actions that could be taken by the Puerto Rico government, (3) actions that could infringe upon Puerto Rico’s sovereignty and constitutional parameters, and (4) actions that would imperil America’s homeland and national security. We considered actions that could promote economic growth in Puerto Rico as outside of scope, as they could address debt levels in Puerto Rico indirectly, rather than directly, and because a study issued by the Congressional Task Force on Economic Growth in Puerto Rico already identified actions that Congress and executive agencies could take to foster economic growth in Puerto Rico. We also considered actions that could address Puerto Rico’s unfunded pension liability as outside of our scope. The actions we identified may also help avert future unsustainable debt levels in other territories; however, we did not assess whether and how each action would apply to other territories. We conducted this performance audit from January 2017 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Jeff Arkin (Assistant Director), Amy Radovich (Analyst in Charge), Pedro Almoguera, Karen Cassidy, Daniel Mahoney, A.J. Stephens, and Justin Snover made significant contributions to this report.	[ "Puerto Rico has roughly $70 billion in outstanding debt and $50 billion in unfunded pension liabilities and since August 2015 has defaulted on over $1.5 billion in debt. The effects of Hurricanes Irma and Maria will further affect Puerto Rico's ability to repay its debt, as well as its economic condition. In response to Puerto Rico's fiscal crisis, Congress passed the Puerto Rico Oversight, Management, and Economic Security Act (PROMESA) in 2016, which included a provision for GAO to review Puerto Rico's debt. This report describes the factors that contributed to Puerto Rico's financial condition and levels of debt and federal actions that could address these factors. Consistent with PROMESA, GAO focused on actions that would not increase the federal deficit. To address these objectives, GAO reviewed documents and interviewed officials from the Puerto Rico and federal governments and conducted a review of relevant literature. GAO also interviewed former Puerto Rico officials and experts in Puerto Rico's economy, the municipal securities markets, and state and territorial budgeting, financial management, and debt practices, as well as officials from the Financial Oversight and Management Board for Puerto Rico (created by PROMESA). GAO is not making recommendations based on the federal actions identified because policymakers would need to consider challenges and tradeoffs related to implementation. The Puerto Rico government generally agreed with the factors we identified and provided additional information. GAO incorporated technical comments from SEC as appropriate. The factors that contributed to Puerto Rico's financial condition and levels of debt relate to (1) the Puerto Rico government running persistent annual deficits—where expenses exceed revenues—and (2) its use of debt to cope with deficits. Based on a literature review and interviews with current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified factors that contributed to Puerto Rico's persistent deficits: The Puerto Rico government's inadequate financial management and oversight practices. For example, the Puerto Rico government frequently overestimated the amount of revenue it would collect and Puerto Rico's agencies regularly spent more than the amounts Puerto Rico's legislature appropriated for a given fiscal year. Policy decisions by Puerto Rico's government. For example, Puerto Rico borrowed funds to balance budgets and insufficiently addressed public pension funding shortfalls. Puerto Rico's prolonged economic contraction. Examples of factors contributing to the contraction include outmigration and the resulting diminished labor force, and the high cost of importing goods and energy. Additional factors enabled Puerto Rico to use debt to finance its deficits, such as high demand for Puerto Rico debt. One cause of high demand was that under federal law, income from Puerto Rico bonds generally receives more favorable tax treatment than income from bonds issued by states and their localities. Based on an assessment of relevant literature and input from current and former Puerto Rico officials, federal officials, and other relevant experts, GAO identified three potential federal actions that may help address some of these factors. GAO also identified considerations for policymakers related to these actions. Modify the tax exempt status for Puerto Rico municipal debt. Making interest income from Puerto Rico bonds earned by investors residing outside of Puerto Rico subject to applicable state and local taxes could lower demand for Puerto Rico debt. However, reduced demand could hinder Puerto Rico's ability to borrow funds for capital investments or liquidity. Apply federal investor protection laws to Puerto Rico. Requiring Puerto Rico investment companies to disclose risks with Puerto Rico bonds and adhere to other requirements could lower demand for the bonds. However, this action could also limit Puerto Rico's ability to borrow funds. Modify the Securities and Exchange Commission's (SEC) authority over municipal bond disclosure requirements. SEC could be allowed to require timely disclosure of materials—such as audited financial statements—associated with municipal bonds. Over the past decade, Puerto Rico often failed to provide timely audited financial statements related to its municipal bonds. Timely disclosure could help investors make informed decisions about investing in municipal bonds. However, a broad requirement could place additional burdens on all U.S. municipal issuers, such as the costs of standardizing reporting." ]	6,356	gov_report	en	null	02205a009a0372f40788ffee246ca81298f2cd5a0e622748
CMS has four principal programs: Medicare, Medicaid, CHIP, and the health-insurance marketplaces. See table 1 for information about the four programs. As discussed earlier, Medicare and Medicaid are CMS’s largest programs and have been growing steadily (see fig. 1). CBO projects that, in 2026, under current law, Medicare spending will reach $1.3 trillion. Medicaid is also expected to continue to grow—program spending is projected to increase 66 percent to over $950 billion by fiscal year 2025, and more than half of the states have chosen to expand their Medicaid programs by covering certain low-income adults not historically eligible for Medicaid coverage, as authorized under the Patient Protection and Affordable Care Act of 2010 (PPACA). The two programs’ use of managed-care delivery systems to provide care has also increased. For example, the number and percentage of Medicare beneficiaries enrolled in Medicare Part C has grown steadily over the past several years, increasing from 8.7 million (20 percent of all Medicare beneficiaries) in calendar year 2007 to 17.5 million (32 percent of all Medicare beneficiaries) in calendar year 2015. As of July 1, 2015, nearly two-thirds of all Medicaid beneficiaries were enrolled in managed- care plans and about 40 percent of expenditures in fiscal year 2015 were for health-care services delivered through managed care. CMS receives appropriations to carry out antifraud activities through several funds including the Health Care Fraud and Abuse Control (HCFAC) program and the Medicaid Integrity Program. The HCFAC program was established under the Health Insurance Portability and Accountability Act of 1996 to coordinate federal, state, and local law- enforcement efforts to address health-care fraud and abuse and to conduct investigations and audits, among other things. In fiscal year 2016, CMS received $560 million through the HCFAC program appropriations. The Medicaid Integrity Program, established by the Deficit Reduction Act of 2005, supports contracts to audit and identify overpayments in Medicaid claims, and provides technical assistance for states’ program-integrity efforts. According to CMS, it received $75 million every year since fiscal year 2009 through the Medicaid Integrity Program appropriations. According to CMS, in fiscal year 2016, total program-integrity obligations to address fraud, waste, and abuse for Medicare and Medicaid were $1.45 billion. As mentioned previously, we designated Medicare and Medicaid as high- risk programs starting in 1990 and 2003, respectively, because their size, scope, and complexity make them vulnerable to fraud, waste, and abuse. Similarly, the Office of Management and Budget (OMB) designated all parts of Medicare as well as Medicaid “high-priority” programs because these programs report $750 million or more in estimated improper payments in a given year. We also highlighted challenges associated with improper payments in Medicare and Medicaid in our annual report on duplication and opportunities for cost savings in federal programs. Improper payments are a significant risk to the Medicare and Medicaid programs and can include payments made as a result of fraud. Improper payments are payments that are either made in an incorrect amount (overpayments and underpayments) or those that should not be made at all. For example, CMS estimated in fiscal year 2016 that the Medicare fee-for-service (FFS) improper payment rate was 11 percent (approximately $41 billion) and the Medicaid improper payment rate was 10.5 percent (approximately $36 billion). Improper payment measurement does not specifically identify or estimate improper payments due to fraud. Health-care fraud can take many forms, and a single case can involve more than one scheme. Schemes may include fraudulent billing for services not provided, services provided that were not medically necessary, and services intentionally billed at a higher level than appropriate. These fraud schemes may include compensating providers, beneficiaries, or others for participating in the fraud scheme. Fraud can be regionally focused or can target particular service areas such as home-health services, or durable medical equipment such as wheelchairs. Fraud may also have nonfinancial effects. For example, patients may be subjected to harmful or unnecessary services by fraudulent providers. Fraud can be perpetrated by different actors, such as providers, beneficiaries, health-insurance plans, as well as organized crime. Fraud and “fraud risk” are distinct concepts. Fraud is challenging to detect because of its deceptive nature. Additionally, once suspected fraud is identified, alleged fraud cases may be prosecuted. If the court determines that fraud took place, then fraudulent spending may be recovered. Fraud risk exists when individuals have an opportunity to engage in fraudulent activity, have an incentive or are under pressure to commit fraud, or are able to rationalize committing fraud. When fraud risks can be identified and mitigated, fraud may be less likely to occur. Although the occurrence of one or more cases of health-care fraud indicates there is a fraud risk, a fraud risk can exist even if fraud has not yet been identified or occurred. Suspicious billing patterns, certain types of health-care providers, or complexities in program design may indicate a risk of fraud. Information to help identify potential fraud risks may come from various sources, including whistleblowers, agency officials, contractors, law-enforcement agencies, beneficiaries, or providers. According to federal standards and guidance, executive-branch agency managers are responsible for managing fraud risks and implementing practices for combating those risks. Federal internal control standards call for agency management officials to assess the internal and external risks their entities face as they seek to achieve their objectives. The standards state that as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks. Risk management is a formal and disciplined practice for addressing risk and reducing it to an acceptable level. In July 2015, GAO issued the Fraud Risk Framework, which provides a comprehensive set of key components and leading practices that serve as a guide for agency managers to use when developing efforts to combat fraud in a strategic, risk-based way. The Fraud Risk Framework describes leading practices in four components: commit, assess, design and implement, and evaluate and adapt, as depicted in figure 2. The Fraud Reduction and Data Analytics Act of 2015, enacted in June 2016, requires OMB to establish guidelines for federal agencies to create controls to identify and assess fraud risks and design and implement antifraud control activities. The act further requires OMB to incorporate the leading practices from the Fraud Risk Framework in the guidelines. In July 2016, OMB published guidance about enterprise risk management and internal controls in federal executive departments and agencies. Among other things, this guidance affirms that managers should adhere to the leading practices identified in the Fraud Risk Framework. Further, the act requires federal agencies to submit to Congress a progress report each year for 3 consecutive years on the implementation of the controls established under OMB guidelines, among other things. CMS’s antifraud efforts for its four principal programs are part of the agency’s broader program-integrity approach to address fraud, waste, and abuse. CMS’s Center for Program Integrity (CPI) is the agency’s focal point for program integrity across the programs. According to CMS, its approach to program-integrity allows it to “address the whole spectrum of fraud, waste, and abuse.” For example, CMS describes its program- integrity activities as addressing unintentional errors resulting from providers being unaware of recent policy changes on one end of the spectrum, through somewhat more-serious patterns of abuse such as billing for a more-expensive service than was performed (known as upcoding), and finally up to serious fraudulent activities, such as billing for services that were not provided. CMS then aims to target its corrective actions to fit the risk. See figure 3 for CMS’s description of the spectrum of fraud, waste, and abuse that its program-integrity activities aim to address. Within its program-integrity activities, CMS has established several control activities that are specific to managing fraud risks, while others serve broader program-integrity purposes. According to CMS officials, the agency’s antifraud control activities mainly focus on providers in Medicare FFS. Officials told us that when CPI began operating, its primary focus was developing program integrity for Medicare FFS and, as a result, it is the most “mature” of all of CPI’s programs. CMS’s specific fraud control activities include, for example, the Fraud Prevention System (FPS), a predictive-analytics system that helps identify potentially fraudulent payments in Medicare FFS, and the Unified Program Integrity Contractors (UPIC), which detect and investigate aberrant provider behavior and potential fraud in Medicare and Medicaid. Other control activities serve broader program-integrity purposes such as to reduce improper payments resulting from error, waste, and abuse in addition to preventing or detecting potential fraud. For example, CMS provides education and outreach to Medicare providers and beneficiaries on issues identified through data analyses in order to reduce improper payments and to increase their awareness of fraud. HHS and CMS department- and agency-wide strategic plans guide CMS’s program-integrity activities—including antifraud activities. The program-integrity goals identified in the HHS strategic plan primarily focus on improper payments and are driven by statutory requirements. For example, the HHS strategic plan for fiscal years 2014–2018 includes performance goals of reducing the percentage of improper payments made under Medicare FFS and Medicare Parts C and D. One antifraud- focused goal in the HHS strategic plan is to increase the percentage of Medicare providers and suppliers identified as high risk that receive administrative actions, such as suspending payments to providers or revoking providers’ billing privileges. HHS and CMS department- and agency-wide strategic plans also include an emphasis on fraud prevention and early detection—a leading practice in the Fraud Risk Framework—and moving away from a “pay-and-chase” model. For example, the HHS strategic plan calls for “fostering early detection and prevention of improper payments by focusing on preventing bad actors from enrolling or remaining in Medicare and Medicaid” and to “use public-private partnerships to prevent and detect fraud across the health care industry by sharing fraud-related information and data between the public and private sectors.” As a part of this emphasis on prevention, CMS developed FPS in response to the Small Business Jobs Act of 2010, which required CMS to implement predictive-analytics technologies. Also, the Patient Protection and Affordable Care Act of 2010 (PPACA) included provisions to strengthen Medicare and Medicaid’s provider enrollment standards and procedures, among other program-integrity provisions. CMS works with an extensive and complex network of stakeholders to manage fraud risks in its four principal programs. In Medicaid and CHIP, CMS partners with and oversees the 50 states and the District of Columbia. Until the Deficit Reduction Act of 2005 expanded CMS’s role in Medicaid program integrity to provide effective federal support and assistance to states’ efforts to combat fraud, waste, and abuse, states were primarily responsible for Medicaid program integrity. Each state has its own Medicaid program-integrity unit, Medicaid Fraud Control Unit (MFCU), and state audit organization. CMS also uses numerous contractors to conduct the majority of its program-integrity activities. Since the enactment of Medicare in 1965, contractors have played an integral role in the administration of the program. The original Medicare program was designed so that the federal government contracted with health insurers or similar organizations experienced in handling physician and hospital claims to pay Medicare claims. Later, the Health Insurance Portability and Accountability Act of 1996 required the Secretary of Health and Human Services to enter into contracts to promote the integrity of the Medicare program. According to CMS officials, in fiscal year 2016 contractors received 92 percent of CMS’s program-integrity funding. Medicare and Medicaid program- integrity contractors play a variety of roles: (1) processing and reviewing claims, (2) conducting site visits of providers enrolling in Medicare, (3) auditing claims and recovering overpayments, (4) performing data analysis, and (5) investigating aberrant claims and provider behaviors, among other things. States also use contractors in many of these roles for managing program integrity. Additionally, multiple private health-insurance plans in Medicare Parts C and D and over 200 health-insurance plans in Medicaid managed care also carry out program-integrity activities. For the health-insurance marketplaces, CMS is responsible for operating the federally facilitated marketplace and overseeing the state-based marketplaces. CMS also developed the Federal Data Services Hub, which acts as a portal for exchanging information between state-based marketplaces, the federally facilitated marketplace, and state Medicaid agencies, among other entities, as well as other external partners, including other federal agencies, such as the Internal Revenue Service. Finally, law- enforcement groups, including the joint Department of Justice (DOJ) and HHS OIG Medicare Fraud Strike Force Teams, identify, investigate, and prosecute instances of fraud in CMS programs. See figure 4 for a depiction of CMS’s stakeholder network for managing fraud risks. This figure illustrates approximate numbers of stakeholders (through the concentration of dots), but not the extent of individual stakeholder roles. CMS provides oversight to, or partners with, these stakeholders to manage fraud risks. For oversight, CMS creates policies and guidance to direct stakeholders’ antifraud efforts, such as Medicare and Medicaid program-integrity manuals and the Medicaid Provider Enrollment Compendium. CMS also provides technical assistance to states in areas such as provider enrollment and data analysis. In areas where CMS does not have a primary role, it acts as a partner by collaborating and coordinating program-integrity and antifraud activities. For example, CMS is directly responsible for Medicare program integrity, but, in Medicaid and CHIP, states are the first line of program-integrity efforts. Similarly, CMS maintains control over Medicare FFS program integrity, but within Medicare managed care, it provides guidance for health- insurance plans to carry out their own program-integrity activities. In the health-insurance marketplaces, CMS reviews state-based marketplaces’ procedures for verifying applicant eligibility for coverage. For example, it conducts annual reviews of the state-based marketplaces, which include a review of states’ fraud, waste, and abuse policies. See figure 5 for a further description of CMS’s and various stakeholders’ roles and responsibilities in fraud risk management. CMS also facilitates collaboration among federal, state, and private entities for managing fraud risks. In 2012, CMS created the Healthcare Fraud Prevention Partnership (HFPP) to share information with public and private stakeholders and to conduct studies related to health-care fraud, waste, and abuse. According to CMS, as of October 2017, the HFPP included 89 public and private partners, including Medicare- and Medicaid-related federal and state agencies, law-enforcement agencies, private health-insurance plans (payers), and antifraud and other health- care organizations. The HFPP has conducted studies that pool and analyze multiple payers’ claims data to identify providers with patterns of suspect billing across payers. In a recent report, participants separately told us that the HFPP’s studies helped them to identify and take action against potentially fraudulent providers and payment vulnerabilities of which they might not otherwise have been aware, and fostered both formal and informal information sharing. CMS’s relationships with stakeholders were varied in terms of maturity and extent of information sharing, according to stakeholders we interviewed. While some relationships between CMS and stakeholders have been long-standing, some are developing, and others exist on an ad hoc basis. For example, CMS has had a long-standing relationship with state Medicaid program-integrity units, by collaborating through monthly meetings of the Medicaid Fraud and Abuse Technical Advisory Group, sending fraud alerts, and offering courses through the Medicaid Integrity Institute. However, in our interviews with state program-integrity units, and as we recently reported, some state Medicaid agencies shared concerns about the communication, level of policy guidance, and technical support provided by and received from CMS for managing fraud risks in Medicaid. This concern was echoed by state audit officials, with whom CMS recently initiated coordination to build relationships that would facilitate state auditing of Medicaid programs. CMS also has varying relationships with its law-enforcement partners. For example, the relationship between CMS and DOJ’s Health Care Fraud unit, which leads the DOJ and HHS OIG Medicare Fraud Strike Force Teams, has been ad hoc. According to CMS and DOJ officials, the interactions between the agencies have been based on specific fraud cases such as coordination of national takedowns when DOJ provided CMS with the names of providers committing fraud so that CMS could suspend them consistently with the timing of the enforcement efforts. According to CMS officials, they coordinate more with HHS OIG, working together on payment suspensions and revocations for OIG cases, or working with it to take administrative actions against large providers. CMS’s antifraud efforts partially align with the Fraud Risk Framework. Consistent with the framework, CMS has demonstrated commitment to combating fraud by creating a dedicated entity to lead antifraud efforts. It has also taken steps to establish a culture conducive to fraud risk management, although it could expand its antifraud training to include all employees. CMS has taken some steps to identify fraud risks in Medicare and Medicaid; however, it has not conducted a fraud risk assessment or developed a risk-based antifraud strategy for Medicare and Medicaid as defined in the Fraud Risk Framework. CMS has established monitoring and evaluation mechanisms for its program-integrity control activities that, if aligned with a risk-based antifraud strategy, could enhance the effectiveness of fraud risk management in Medicare and Medicaid. The commit component of the Fraud Risk Framework calls for an agency to commit to combating fraud by creating an organizational culture and structure conducive to fraud risk management. This component includes establishing a dedicated entity to lead fraud risk management activities. Within CMS, the Center for Program Integrity (CPI) serves as the dedicated entity for fraud, waste, and abuse issues in Medicare and Medicaid, which is consistent with the Fraud Risk Framework. CPI was established in 2010, in response to a November 2009 Executive Order on reducing improper payments and eliminating waste in federal programs. This formalized role, according to CMS officials, elevated the status of program-integrity efforts, which previously were carried out by other parts of CMS. As an executive-level Center—on the same level with five other executive-level Centers at CMS, such as the Center for Medicare and the Center for Medicaid and CHIP Services—CPI has a direct reporting line to executive-level management at CMS. The Fraud Risk Framework identifies a direct reporting line to senior-level managers within the agency as a leading practice. According to CMS officials, this elevated organizational status offers CPI heightened visibility across CMS, attention by CMS executive leadership, and involvement in executive- level conversations. Additionally, in 2014, CMS established a Program Integrity Board that has brought together senior officials across CMS Centers on a monthly basis to coordinate on fraud and program-integrity vulnerabilities. According to CPI officials, the board is one of the mechanisms through which CPI engages other executive-level offices at CMS. CPI chairs the meetings and typically develops meeting agendas to solicit information from and disseminate information to other CMS units or stakeholders. Further, the board may establish small working groups, known as integrated project teams, to address specific vulnerabilities. For example, according to CMS officials, in 2016 the board established a Marketplace integrated project team to resolve potential fraud eligibility and enrollment issues in the federally facilitated marketplace using the Fraud Risk Framework. CPI has further demonstrated commitment to addressing fraud, waste, and abuse through several organizational changes with the goal of improving coordination and communication of program-integrity activities across Medicare and Medicaid. Most recently, in 2014, CPI reorganized its structure to align functional areas across Medicare and Medicaid, where possible. Previously, separate units within CPI administered their own program-integrity activities for Medicare and Medicaid programs. For example, CPI established a Provider Enrollment and Oversight Group, responsible for provider screening and enrollment functions in both Medicare and Medicaid. According to CMS officials, if CPI employees identify an issue in provider enrollment in Medicare, the same CPI employees also consider how this issue applies to Medicaid. According to CMS officials, the reorganization has helped CPI to look at vulnerabilities in a crosscutting way and to facilitate communication across programs. Similarly, since 2016, CPI began shifting contracting functions from separate Medicare and Medicaid regional contractors that identify and investigate cases of potential fraud and conduct audits to five regional UPICs responsible for a range of program-integrity and fraud-specific activities in both Medicare FFS and Medicaid. According to CMS, the purpose of the UPICs is to coordinate provider investigations across Medicare and Medicaid, improve collaboration with states by providing a mutually beneficial service, and increase contractor accountability through coordinated oversight. CMS officials told us that UPIC integration is a cornerstone of CMS’s contract management strategy and would help to ensure communication and coordination across Medicare and Medicaid program-integrity efforts. CMS plans to award all the UPIC contracts by the end of 2017, ultimately phasing out the ZPICs and Medicaid Integrity Contractors. The commit component of the Fraud Risk Framework also includes creating an organizational culture to combat fraud at all levels of the agency. Consistent with the Fraud Risk Framework, CMS has promoted an antifraud culture by demonstrating a senior-level commitment to combating fraud through public statements, increased resource levels, and internal and external coordination. In addition to HHS and CMS strategic documents discussed earlier, CMS and CPI leaders have testified publicly about CMS’s commitment to preventing fraud and protecting taxpayers and beneficiaries. For example, CPI’s former Director testified in May 2016 before the House Committee on Energy and Commerce’s Subcommittee on Oversight and Investigations that “CMS is deeply committed to our efforts to prevent waste, fraud and abuse in Medicare and Medicaid programs, protecting both taxpayers and the beneficiaries that we serve.” More recently, CMS’s new Administrator testified in her February 2017 confirmation hearing regarding her intent to prioritize efforts around preventing fraud and abuse. CPI’s budget and resources have increased over time to support its ongoing program-integrity mission. According to CMS, program-integrity obligations for Medicare and Medicaid increased from about $1.02 billion in fiscal year 2010 to $1.45 billion in fiscal year 2016. According to CMS officials, the Health Care Fraud and Abuse Control (HCFAC) account, one of the primary sources of CPI funding, has never received a funding reduction. Additionally, in 2015, CPI received additional funding based on a discretionary cap adjustment to HCFAC. Similarly, CPI staff resources have increased over time. According to CMS, CPI’s full-time equivalent positions increased from 177 in 2011 to 419 in 2017. Consistent with leading practices in the Fraud Risk Framework to involve all levels of the agency in setting an antifraud tone, CPI has also worked collaboratively with other CMS Centers. In addition to engaging executive-level officials of other CMS Centers through the Program Integrity Board, CPI has worked collaboratively with other Centers within CMS to incorporate antifraud features into new program design or policy development and established regular communication at the staff level. For example: Center for Medicare and Medicaid Innovation (CMMI). When developing the Medicare Diabetes Prevention Program, CMMI officials told us they worked with CPI’s Provider Enrollment and Oversight Group and Governance Management Group to develop risk-based screening procedures for entities that would enroll in Medicare to provide diabetes-prevention services, among other activities. The program was expanded nationally in 2016, and CMS determined that an entity may enroll in Medicare as a program supplier if it satisfies enrollment requirements, including that the supplier must pass existing high categorical risk-level screening requirements. Center for Medicaid and CHIP Services (CMCS). CMCS officials told us they worked closely with CPI to issue Medicaid guidance and best practices to states on home and community-based services that incorporate program-integrity provisions. A senior CMCS official told us that, to address fraud, CMS has requested that states include provider information on claims to determine whether providers are meeting eligibility criteria. Center for Medicare (CM). In addition to building safeguards into programs and developing policies, CM officials told us that there are several standing meetings, on monthly, biweekly, and weekly bases, between groups within CM and CPI that discuss issues related to provider enrollment, FFS operations, and contractor management. A senior CM official also told us that there are ad hoc meetings taking place between CM and CPI: “We interact multiple times daily at different levels of the organization. Working closely is just a regular part of our business.” CMS has also demonstrated its commitment to addressing fraud, waste, and abuse to its stakeholders. Representatives of CMS’s extensive stakeholder network whom we interviewed—state officials, contractors, and officials from public and private entities—generally recognized the agency’s commitment to combating fraud. In our interviews with stakeholders, officials observed CMS’s increased commitment over time to address fraud, waste, and abuse and cited examples of specific CMS actions. State officials, for example, told us that the Medicaid Integrity Institute, a training center coordinated jointly by CMS and DOJ, has been a helpful resource for states to build capacity to address fraud and program integrity. CMS contractors told us that CMS’s commitment to combating fraud is incorporated into contractual requirements, such as requiring (1) data analysis for potential fraud leads and (2) fraud- awareness training for providers. Officials from entities that are members of the HFPP, specifically, a health-insurance plan and the National Health Care Anti-Fraud Association, added that CMS’s effort to establish the HFPP and its ongoing collaboration and information sharing reflect CMS’s commitment to combat fraud in Medicare and Medicaid. The Fraud Risk Framework identifies training as one way of demonstrating an agency’s commitment to combating fraud. Training and education intended to increase fraud awareness among stakeholders, managers, and employees, serves as a preventive measure to help create a culture of integrity and compliance within the agency. The Fraud Risk Framework discusses requiring all employees to attend training upon hiring and on an ongoing basis thereafter. To increase awareness of fraud risks in Medicare and Medicaid, CMS offers and requires training for stakeholder groups such as providers, beneficiaries, and health-insurance plans. Specifically, through its National Training Program and Medicare Learning Network, CMS makes available training materials on combating Medicare and Medicaid fraud, waste, and abuse. These materials help to identify and report fraud, waste, and abuse in CMS programs and are geared toward providers, beneficiaries, as well as trainers and other stakeholders. Separately, CMS requires health-insurance plans working with CMS to provide annual fraud, waste, and abuse training to their employees. However, CMS does not offer or require similar fraud-awareness training for the majority of its workforce. For a relatively small portion of its overall workforce—specifically, contracting officer representatives who are responsible for certain aspects of the acquisition function—CMS requires completion of fraud and abuse prevention training every 2 years. According to CMS, 638 of its contracting officer representatives (or about 10 percent of its overall workforce) completed such training in 2016 and 2017. Although CMS offers fraud-awareness training to others, the agency does not require fraud-awareness training for new hires or on a regular basis for all employees because the agency has focused on providing process-based internal controls training for its employees. While fraud-awareness training for contracting officer representatives is an important step in helping to promote fraud risk management, fraud- awareness training specific to CMS programs would be beneficial for all employees. Such training would not only be consistent with what CMS offers to or requires of its stakeholders and some of its employees, but would also help to keep the agency’s entire workforce continuously aware of fraud risks and examples of known fraud schemes, such as those identified in successful OIG investigations. Such training would also keep employees informed as they administer CMS programs or develop agency policies and procedures. Considering the vulnerability of Medicare and Medicaid programs to fraud, waste, and abuse, without regular required training CMS cannot be assured that its workforce of over 6,000 employees is continuously aware of risks facing its programs. Although CMS has shown commitment to combating fraud, at times CPI’s efforts to combat fraud compete with other mission priorities, such as (1) ensuring beneficiary access to health-care services and (2) limiting provider burden. CPI leadership has been aware of this inherent challenge. For example, at a congressional hearing in May 2016, CPI’s Director stated that “our efforts strike an important balance: protecting beneficiary access to necessary health care services and reducing the administrative burden on legitimate providers and suppliers, while ensuring that taxpayer dollars are not lost to fraud, waste, and abuse.” Beneficiary access to care. In accordance with its mission statement, providing and improving beneficiaries’ access to health care is a CMS priority. CMS’s commitment to providing access to high-quality care and coverage is reflected in the agency’s mission statement and is one of its four strategic goals. As a result, before taking administrative actions against a Medicare Part A provider, such as a hospice, or providers in rural areas, CMS officials told us that they first look at whether there is a sufficient number of providers in an area by running a provider search by provider county and adjacent counties and considering how heavily populated an area is with Medicare beneficiaries. According to these officials, rather than taking an administrative action against a provider that would limit beneficiaries’ access to services, the agency may enter into a corrective action plan with the provider. CMS officials told us that revoking a provider’s enrollment in Medicare, an option available to CMS in cases of provider noncompliance or misconduct, is rare. Administrative burden on providers. According to CMS documents and officials, concern over placing undue burden on providers—the majority of whom are presumed to be honest—provides a counterforce to implementing program-integrity control activities. CMS’s web page entitled Reducing Provider Burden states: “CMS is committed to reducing improper payments but must be mindful of provider burden because medical review is a resource-intensive process for both the healthcare provider and the Medicare review contractor.” Two CMS contractors told us that they scaled back or did not pursue audits of providers’ documentation because of provider burden or sensitivity considerations. One contractor removed providers from audit samples after some providers opposed having to supply multiple medical records. CPI officials told us that they want to reduce provider burden in a logical manner. For example, according to CMS officials, in the Medicare FFS Recovery Audit Program, CMS established limits on Additional Documentation Requests, which are requests for medical documentation supporting a claim being reviewed. CMS requires such documentation adjustments so that they align with a providers’ claim denial rates. Providers with low denial rates will have lower documentation requirements, while providers with high denial rates will have higher documentation requirements, thus adjusting provider burden based on demonstrated compliance. The assess component of the Fraud Risk Framework calls for federal managers to plan regular fraud risk assessments and to assess risks to determine a fraud risk profile. Identifying fraud risks is one of the steps included in the Fraud Risk Framework for assessing risks to determine a fraud risk profile. CMS has taken steps to identify some fraud risks through several control activities that target areas the agency has designated as higher risk within Medicare and Medicaid, including specific provider types, such as home health agencies, and specific geographic locations. As discussed earlier, CMS officials told us that CPI initially focused on developing control activities for Medicare FFS and considers these activities to be the most mature of all CPI efforts to address fraud risks. CMS has identified fraud risks in the following selected examples, which are not an exhaustive list of its control activities. Data analytics to assist investigations in Medicare FFS. In 2011, CMS implemented FPS, a data-analytic system that screens all Medicare FFS claims to identify health-care providers with suspect billing patterns for further investigation. Medicare FFS contractors—ZPICs and UPICs— have used FPS to identify and prioritize leads for investigations of potential fraud by high-risk Medicare FFS providers. Contractors told us that FPS allows them to quickly identify and triage leads. CMS’s guidance requires contractors to prioritize investigations with the greatest program impact or urgency and identifies required criteria for prioritizing investigations, such as patient abuse or harm, multistate fraud, and high dollar amount of potential overpayments. One contractor we interviewed developed a risk-prioritization model that incorporated CMS’s required criteria, such as patient harm, as well as additional criteria, such as provider spikes in billing, into a tool that automatically creates a provider risk score to help the contractor focus and prioritize investigative resources. Prior authorization for Medicare FFS services or supplies. CMS published a final rule in December 2015 that identifies a master list of durable medical equipment, prosthetics, orthotics, and supplies for which CMS can require prior authorization before suppliers submit a Medicare FFS claim. In this rule, CMS identified 135 items that are frequently subject to unnecessary utilization and stated that the agency expects the final rule to result in savings in the form of reduced unnecessary utilization, fraud, waste, and abuse. Under this program, prior authorization is a condition of payment for claims. CMS can choose which items on the master list to subject to prior authorization. For example, in March 2017, it began requiring prior authorization for selected power wheelchairs in four states and expanded the prior authorization program for these items to all states in July 2017. CMS also began to test the use of prior authorization on a voluntary basis through a series of fixed-length demonstrations for items and services that have been associated with high levels of improper payments, including high incidences of fraud in some cases, and unnecessary utilization in certain geographic areas. For example, CMS began implementing a voluntary prior authorization demonstration in September 2012 for other power mobility devices, such as power scooters, in seven states where historically there has been extensive evidence of fraud and improper payments. CMS expanded the demonstration to an additional 12 states in October 2014, for a total of 19 states. According to the initial Federal Register notice, CMS planned to use the demonstration to develop improved methods for investigation and prosecution of fraud to protect federal funds from fraudulent actions and the resulting improper payments. Under the demonstration, providers and suppliers are encouraged—but not required—to submit a request for prior authorization for certain items before they provide the item to the beneficiary and submit a claim for payment. Revised provider screening and enrollment processes for Medicare FFS and Medicaid FFS. In response to PPACA, in 2011 CMS implemented a revised screening process for providers and suppliers who enroll in Medicare and Medicaid based on identified provider risk categories. CMS placed all Medicare provider and supplier types into one of three risk categories—limited, moderate, or high—based on its assessment of the potential risk of fraud, waste, and abuse each provider and supplier type poses. For example, CMS designated prospective (newly enrolling) home health agencies and prospective suppliers of durable medical equipment, prosthetics, orthotics, and supplies in the high-risk category. According to the final rule and our interviews with CMS officials, CMS developed these risk-based categories based on its review and synthesis of various information sources about the fraud risks posed by each provider and supplier type, including (1) the agency’s experience with claims data used to identify potentially fraudulent billing practices, (2) expertise of contractors responsible for investigating and identifying Medicare fraud, and (3) GAO and OIG reports. CMS designated specific screening activities for each risk category, with increased requirements for moderate- and high-risk provider and supplier types. For example, moderate- and high-risk providers and suppliers must receive preenrollment site visits, and high-risk providers and suppliers also are subject to fingerprint-based criminal-background checks. As part of the revised screening process, beginning in September 2011, CMS also undertook its first program-wide effort to rescreen, or revalidate, the enrollment records of about 1.5 million existing Medicare FFS providers and suppliers, to determine whether they remain eligible to bill Medicare. Temporary provider enrollment moratoriums for certain providers and geographic areas for Medicare FFS and Medicaid FFS. CMS identified certain provider types and geographic areas as high risk for fraud and used its authority under PPACA to implement temporary moratoriums to suspend enrollment of such Medicare and Medicaid providers in those areas. For example, in July 2016, CMS extended temporary moratoriums statewide on the enrollment of new Medicare Part B nonemergency ambulance suppliers and Medicare home health agencies statewide in six states, as applicable. The statewide moratoriums also apply to Medicaid. According to the Federal Register notice, CMS imposed the temporary moratoriums based on qualitative and quantitative factors suggesting a high risk of fraud, waste, or abuse, such as law-enforcement expertise with emerging fraud trends and investigations. CMS’s data analysis also confirmed the agency’s determination of a high risk of fraud, waste, and abuse for these provider and supplier types within certain geographic areas, according to the notice. Medicaid state program integrity reviews and desk reviews. CMS tailored state Medicaid program-integrity reviews to areas it identified as high risk for improper payments, such as personal care services, which may also be at high risk for fraud. In March 2017, we reported that, from fiscal years 2014 through 2016, CMS conducted focused reviews of state program-integrity efforts in 31 states, reviewing 10 or 11 states annually. For each state, CMS tailored its focused reviews to the state’s managed care plans and relevant other high-risk areas, including provider enrollment and screening, nonemergency medical transportation, and personal care services. CMS and state officials we spoke with as part of that work told us that the tailored oversight had been beneficial and helped identify areas for improvement. CMS has also initiated desk reviews of state program-integrity efforts. According to CMS, these desk reviews allow the agency to provide states with customized program- integrity oversight. Vulnerability tracking system for Medicare. CPI recently initiated an effort to centralize and formalize a vulnerability tracking process for Medicare, which could support identification of specific fraud risks, both in Medicare and possibly Medicaid. As described by CPI officials, the process aims to collect information on fraud-related vulnerabilities from CMS employees, contractors, and other sources, such as GAO and HHS OIG reports. The assess component of the Fraud Risk Framework calls for federal managers to plan regular fraud risk assessments and assess risks to determine a fraud risk profile. Furthermore, federal internal control standards call for agency management to assess the internal and external risks their entities face as they seek to achieve their objectives. The standards state that, as part of this overall assessment, management should consider the potential for fraud when identifying, analyzing, and responding to risks. The Fraud Risk Framework states that, in planning the fraud risk assessment, effective managers tailor the fraud risk assessment to the program by, among other things, identifying appropriate tools, methods, and sources for gathering information about fraud risks and involving relevant stakeholders in the assessment process. Fraud risk assessments that align with the Fraud Risk Framework involve (1) identifying inherent fraud risks affecting the program, (2) assessing the likelihood and impact of those fraud risks, (3) determining fraud risk tolerance, (4) examining the suitability of existing fraud controls and prioritizing residual fraud risks, and (5) documenting the results. (See fig. 6.) Although, as discussed earlier, CMS has identified some fraud risks posed by providers in Medicare FFS and, to a lesser degree, Medicaid FFS, the agency has not conducted a fraud risk assessment for either the Medicare or Medicaid program. Such a risk assessment would provide the detailed information and insights needed to create a fraud risk profile, which, in turn, is the basis for creating an antifraud strategy. According to CMS officials, CMS has not conducted a fraud risk assessment for Medicare or Medicaid because, within CPI’s broader approach of preventing and eliminating improper payments, its focus has been on addressing specific vulnerabilities among provider groups that have shown themselves particularly prone to fraud, waste, and abuse. With this approach, however, it is unlikely that CMS will be able to design and implement the most-appropriate control activities to respond to the full portfolio of fraud risks. A fraud risk assessment consists of discrete activities that build upon each other. Specifically: Identifying inherent fraud risks affecting the program. As discussed earlier, CMS has taken steps to identify fraud risks. However, CMS has not used a process to identify inherent fraud risks from the universe of potential vulnerabilities facing Medicare and Medicaid programs, including threats from various sources. According to CPI officials, most of the agency’s fraud control activities are focused on fraud risks posed by providers. The Fraud Risk Framework discusses fully considering inherent fraud risks from internal and external sources in light of fraud risk factors such as incentives, opportunities, and rationalization to commit fraud. For example, according to CMS officials, the inherent design of the Medicare Part C program may pose fraud risks that are challenging to detect. A fraud risk assessment would help CMS identify all sources of fraudulent behaviors, beyond threats posed by providers, such as those posed by health-insurance plans, contractors, or employees. Assessing the likelihood and impact of fraud risks and determining fraud risk tolerance. CMS has taken steps to prioritize fraud risks in some areas, but it has not assessed the likelihood or impact of fraud risks or determined fraud risk tolerance across all parts of Medicare and Medicaid. Assessing the likelihood and impact of inherent fraud risks would involve consideration of the impact of fraud risks on program finances, reputation, and compliance. Without assessing the likelihood and impact of risks in Medicare or Medicaid or internally determining which fraud risks may fall under the tolerance threshold, CMS cannot be certain that it is aware of the most-significant fraud risks facing these programs and what risks it is willing to tolerate based on the programs’ size and complexity. Examining the suitability of existing fraud controls and prioritizing residual fraud risks. CMS has not assessed existing control activities or prioritized residual fraud risks. According to the Fraud Risk Framework, managers may consider the extent to which existing control activities—whether focused on prevention, detection, or response—mitigate the likelihood and impact of inherent risks and whether the remaining risks exceed managers’ tolerance. This analysis would help CMS to prioritize residual risks and to determine mitigation approaches. For example, CMS has not established preventive fraud control activities in Medicare Part C. Using a fraud risk assessment for Medicare Part C and closely examining existing fraud control activities and residual risks, CMS could be better positioned to address fraud risks facing this growing program and develop preventive control activities. Further, without assessing existing fraud control activities and prioritizing residual fraud risks, CMS cannot be assured that its current control activities are addressing the most-significant risks. Such analysis would also help CMS determine whether additional, preferably preventive, fraud controls are needed to mitigate residual risks, make adjustments to existing control activities, and potentially scale back or remove control activities that are addressing tolerable fraud risks. Documenting the risk-assessment results in a fraud risk profile. CMS has not developed a fraud risk profile that documents key findings and conclusions of the fraud risk assessment. According to the Fraud Risk Framework, the risk profile can also help agencies decide how to allocate resources to respond to residual fraud risks. Given the large size and complexity of Medicare and Medicaid, a documented fraud risk profile could support CMS’s resource-allocation decisions as well as facilitate the transfer of knowledge and continuity across CMS staff and changing administrations. Senior CPI officials told us that the agency plans to start a fraud risk assessment for Medicare and Medicaid after it completes a separate fraud risk assessment of the federally facilitated marketplace. This fraud risk assessment for the federally facilitated marketplace eligibility and enrollment process is being conducted in response to a recommendation we made in February 2016. In April 2017, CPI officials told us that this fraud risk assessment was largely completed, although in September 2017 CPI officials told us that the assessment was undergoing agency review. CPI officials told us that they have informed CM and CMCS officials that there will be future fraud risk assessments for Medicare and Medicaid; however, they could not provide estimated timelines or plans for conducting such assessments, such as the order or programmatic scope of the assessments. Once completed, CMS could use the federally facilitated marketplace fraud risk assessment and apply any lessons learned when planning for and designing fraud risk assessments for Medicare and Medicaid. According to the Fraud Risk Framework, factors such as size, resources, maturity of the agency or program, and experience in managing risks can influence how the entity plans the fraud risk assessment. Additionally, effective managers tailor the fraud risk assessment to the program when planning for it. The large scale and complexity of Medicare and Medicaid as well as time and resources involved in conducting a fraud risk assessment underscore the importance of a well-planned and tailored approach to identifying the assessment’s programmatic scope. Planning and tailoring may involve decisions to conduct a fraud risk assessment for Medicare and Medicaid programs as a whole or divided into several subassessments to reflect their various component parts (e.g., Medicare FFS, Medicaid managed care) as well as determining the timing and order of assessments (e.g., concurrently or consecutively for Medicare and Medicaid). CMS’s existing fraud risk identification efforts as well as communication channels with stakeholders could serve as a foundation for developing a fraud risk assessment for Medicare and Medicaid. The leading practices identified in the Fraud Risk Framework discuss the importance of identifying appropriate tools, methods, and sources for gathering information about fraud risks and involving relevant stakeholders in the assessment process. CMS’s fraud risk identification efforts discussed earlier could provide key information about fraud risks and their likelihood and impact. Further, existing relationships and communication channels across CMS and its extensive network of stakeholders could support building a comprehensive understanding of known and potential fraud risks for the purposes of a fraud risk assessment. For example, the fraud vulnerabilities identified through data analysis and information sharing with states, health-insurance plans, law-enforcement organizations, and contractors through the HFPP could inform a fraud risk assessment. CPI’s Command Center missions—facilitated collaboration sessions that bring together experts from various disciplines to improve the processes for fraud prevention in Medicare and Medicaid—could bring together experts to identify potential or emerging fraud vulnerabilities or to brainstorm approaches to mitigate residual fraud risks. As CMS makes plans to move forward with a fraud risk assessment for Medicare and Medicaid, it will be important to consider the frequency with which the fraud risk assessment would need to be updated. While, according to the Fraud Risk Framework, the time intervals between updates can vary based on the programmatic and operating environment, assessing fraud risks on an ongoing basis is important to ensure that control activities are continuously addressing fraud risks. The constantly evolving fraud schemes, the size of the programs in terms of beneficiaries and expenditures, as well as continual changes in Medicare and Medicaid programs—such as development of innovative payment models and increasing managed-care enrollment—call for constant vigilance and regular updates to the fraud risk assessment. The design and implement component of the Fraud Risk Framework calls for federal managers to design and implement a strategy with specific control activities to mitigate assessed fraud risks and collaborate to help ensure effective implementation. According to the Fraud Risk Framework, effective managers develop and document an antifraud strategy that describes the program’s approach for addressing the prioritized fraud risks identified during the fraud risk assessment, also referred to as a risk-based antifraud strategy. A risk- based antifraud strategy describes existing fraud control activities as well as any new fraud control activities a program may adopt to address residual fraud risks. In developing a strategy and antifraud control activities, effective managers focus on fraud prevention over detection, develop a plan for responding to identified instances of fraud, establish collaborative relationships with stakeholders, and create incentives to help effectively implement the strategy. Additionally, as part of a documented strategy, management identifies roles and responsibilities of those involved in fraud risk management activities; describes control activities as well as plans for monitoring and evaluation, creates timelines, and communicates the antifraud strategy to employees and stakeholders, among other things. As discussed earlier, CMS has some control activities in place to identify fraud risk in Medicare and Medicaid, particularly in the FFS program. However, CMS has not developed and documented a risk-based antifraud strategy to guide its design and implementation of new antifraud activities and to better align and coordinate its existing activities to ensure it is targeting and mitigating the most-significant fraud risks. Antifraud strategy. CMS officials told us that CPI does not have a documented risk-based antifraud strategy. Although CMS has developed several documents that describe efforts to address fraud, the agency has not developed a risk-based antifraud strategy for Medicare and Medicaid because, as discussed earlier, it has not conducted a fraud risk assessment that would serve as a foundation for such strategy. In 2016, CPI identified five strategic objectives for program integrity, which include antifraud elements and an emphasis on prevention. However, according to CMS officials, these objectives were identified from discussions with CMS leadership and various stakeholders and not through a fraud risk assessment process to identify inherent fraud risks from the universe of potential vulnerabilities, as described earlier and called for in the leading practices. These strategic objectives were presented at an antifraud conference in 2016, but were not announced publicly until the release of the Annual Report to Congress on the Medicare and Medicaid Integrity Programs for Fiscal Year 2015 in June 2017. Stakeholder relationships and communication. CMS has established relationships and communicated with stakeholders, but, without an antifraud strategy, stakeholders we spoke with lacked a common understanding of CMS’s strategic approach. Prior work on practices that can help federal agencies collaborate effectively calls for a strategy that is shared with stakeholders to promote trust and understanding. Once an antifraud strategy is developed, the Fraud Risk Framework calls for managers to collaborate to ensure effective implementation. Although some CMS stakeholders were able to describe various CMS program- integrity priorities and activities, such as home health being a fraud risk priority, the stakeholders could not communicate, articulate, or cite a common CMS strategic approach to address fraud risks in its programs. Incentives. The Fraud Risk Framework discusses creating incentives to help ensure effective implementation of the antifraud strategy once it is developed. Currently, some incentives within stakeholder relationships may complicate CMS’s antifraud efforts. As discussed earlier, CMS is a partner and provides oversight to states’ program-integrity functions. Officials from one state told us that they were reluctant to share their program vulnerabilities because CMS would use this information to later audit the state. Among contractors, CMS encourages information sharing through conferences and workshops; however, competition for CMS business among contractors can be a disincentive to information sharing. CMS officials acknowledged this concern and said that they expect contractors to share information related to fraud schemes, outcomes of investigations, and tips for addressing fraud, but not proprietary information such as algorithms to risk-score providers. Without developing and documenting an antifraud strategy based on a fraud risk assessment, as called for in the design and implement component of the Fraud Risk Framework, CMS cannot ensure that it has a coordinated approach to address the range of fraud risks and to appropriately target and allocate resources for the most-significant risks. Considering fraud risks to which the Medicare and Medicaid programs are most vulnerable, in light of the malicious intent of those who aim to exploit the programs, would help CMS to examine its current control activities and potentially design new ones with recognition of fraudulent behavior it aims to prevent. This focus on fraud is distinct from a broader view of program integrity and improper payments by considering the intentions and incentives of those who aim to deceive rather than well-intentioned providers who make mistakes. Also, continued growth of the programs, such as growth of Medicare Part C and Medicaid managed care, call for consideration of preventive fraud control activities across the entire network of entities involved. Further, considering the large size and complexity of Medicare and Medicaid and the extensive stakeholder network involved in managing fraud in the programs, a strategic approach to managing fraud risks within the programs is essential to ensure that a number of existing control activities and numerous stakeholder relationships and incentives are being aligned to produce desired results. Once developed, an antifraud strategy that is clearly articulated to various CMS stakeholders would help CMS to address fraud risks in a more coordinated and deliberate fashion. Thinking strategically about existing control activities, resources, tools, and information systems could help CMS to leverage resources while continuing to integrate Medicare and Medicaid program-integrity efforts along functional lines. A strategic approach grounded in a comprehensive assessment of fraud risks could also help CMS to identify future enhancements for existing control activities, such as new preventive capabilities for FPS or additional fraud factors in provider enrollment and revalidation, such as provider risk scoring, to stay in step with evolving fraud risks. The evaluate and adapt component of the Fraud Risk Framework calls for federal managers to evaluate outcomes using a risk-based approach and adapt activities to improve fraud risk management. Furthermore, according to federal internal control standards, managers should establish and operate monitoring activities to monitor the internal control system and evaluate the results, which may be compared against an established baseline. Ongoing monitoring and periodic evaluations provide assurances to managers that they are effectively preventing, detecting, and responding to potential fraud. CMS has established monitoring and evaluation mechanisms for its program-integrity activities that it could incorporate into an antifraud strategy. In Medicare, CMS has taken steps to measure the rate of fraud in a particular service area. We have previously reported that agencies may face challenges measuring outcomes of fraud risk management activities in a reliable way. These challenges include the difficulty of measuring the extent of deterred fraud, isolating potential fraud from legitimate activity or other forms of improper payments, and determining the amount of undetected fraud. Despite these challenges, CMS has taken steps to estimate a fraud baseline—meaning the rate of probable fraud—in the home health benefit. In fiscal year 2016, CMS conducted a pretest in the Miami-Dade area of Florida to evaluate its potential measurement approach that could later be used in a nationwide study of probable fraud among home health agencies. The pretest was not a random sample and was not intended to produce a rate of fraud, but instead was intended to test the interview instruments and data-collection methodology CMS might use in a study nationwide. CMS and its contractor collected information from home health agencies, the attending providers, and Medicare beneficiaries in the Miami-Dade area in order to test these interview instruments. CMS completed this pretest, but, according to CMS officials, the agency does not yet have plans to roll out a nationwide study that would estimate a probable fraud rate for the Medicare FFS home health benefit. In its 2015 annual report to Congress, CMS stated that “documenting the baseline amount of fraud in Medicare is of critical importance, as it allows officials to evaluate the success of ongoing fraud prevention activities.” CMS officials working on the pilot told us that having an estimate of the rate of fraud in home health benefits would allow CMS to reliably assess its efforts at eliminating or reducing fraud. Without a baseline, officials said, the agency cannot know whether its antifraud efforts are as effective as they could be. We previously reported that the lack of a baseline for the amount of health-care fraud that exists limits CMS’s ability to determine whether its activities are effectively reducing health care fraud and abuse. A baseline estimate could provide an understanding of the extent of fraud and, with additional information on program activities, could help to inform decision making related to allocation of resources to combat health-care fraud. As described in the Fraud Risk Framework, in the absence of a fraud baseline, agencies can gather additional information on the short-term or intermediate outcomes of some antifraud initiatives, which may be more readily measured. For example, CMS has developed some performance measures to provide a basis for monitoring its progress towards meeting the program-integrity goals set in the HHS Strategic Plan and Annual Performance Plan. Specifically, CMS measures whether it is meeting its goal of “increasing the percentage of Medicare FFS providers and suppliers identified as high risk that receive an administrative action.” CMS does not set specific antifraud goals for other parts of Medicare or Medicaid; other CMS performance measures relate to measuring or reducing improper payments in CHIP, Medicaid, and the various parts of Medicare. CMS uses return-on-investment and savings estimates to measure the effectiveness of its Medicare program-integrity activities and FPS. For example, CMS uses return-on-investment to measure the effectiveness of FPS and, in response to a recommendation we made in 2012, CMS developed outcome-based performance targets and milestones for FPS. CMS has also conducted individual evaluations of its program-integrity activities, such as an interim evaluation of the prior-authorization demonstration for power mobility devices that began in 2012 and is currently implemented in 19 states. Commensurate with greater maturity of control activities in Medicare FFS compared to other parts of Medicare and Medicaid, monitoring and evaluation activities for Medicare Parts C and D and Medicaid are more limited. For example, CMS calculates savings for its program-integrity activities in Medicare Parts C and D, but not a full return-on-investment. CMS officials told us that calculating costs for specific activities is challenging because of overlapping activities among contractors. CMS officials said they continue to refine methods and develop new savings estimates for additional program-integrity activities. According to the Fraud Risk Framework, effective managers develop a strategy and evaluate outcomes using a risk-based approach. In developing an effective strategy and antifraud activities, managers consider the benefits and costs of control activities. Ongoing monitoring and periodic evaluations provide reasonable assurance to managers that they are effectively preventing, detecting, and responding to potential fraud. Monitoring and evaluation activities can also support managers’ decisions about allocating resources, and help them to demonstrate their continued commitment to effectively managing fraud risks. As CMS takes steps to develop an antifraud strategy, it could include plans for refining and building on existing methods such as return-on- investment or savings measures, and setting appropriate targets to evaluate the effectiveness of all of CMS’s antifraud efforts. Such a strategy would help CMS to efficiently allocate program-integrity resources and to ensure that the agency is effectively preventing, detecting, and responding to potential fraud. For example, while doing so would involve challenges, CMS’s strategy could detail plans to advance efforts to measure a potential fraud rate through baseline and periodic measures. Fraud rate measurement efforts could also inform risk assessment activities, identify currently unknown fraud risks, align resources to priority risks, and develop effective outcome metrics for antifraud controls. Such a strategy would also help CMS ensure that it has effective performance measures in place to assess its antifraud efforts beyond those related to providers in Medicare FFS, and establish appropriate targets to measure the agency’s progress in addressing fraud risks. As CMS makes plans to move forward with a strategy and to further develop evaluation and monitoring mechanisms, it will be important to share its efforts with stakeholders. The Fraud Risk Framework states that effective managers communicate lessons learned from fraud risk management activities to stakeholders. For example, CMS could be a leader to states in measuring the effectiveness of program-integrity efforts. Officials in three of the four states we spoke with expressed interest in receiving CMS guidance on how to measure the effectiveness of their Medicaid program-integrity efforts, such as by providing models for how to calculate return-on-investment. Medicare and Medicaid provide health insurance to over 129 million Americans, but the size—in terms of number of beneficiaries and amount of expenditures—as well as complexity of these programs make them inherently susceptible to fraud and improper payments. CMS currently manages these risks across its programs as part of a broader approach to identifying and controlling for multiple sources of improper payments and by developing relationships with an extensive network of stakeholders. In Medicare and Medicaid specifically, we note that CMS has taken many important steps toward implementing a strategic approach for managing fraud. However, the agency could benefit by more fully aligning its efforts with the four components of the Fraud Risk Framework. CMS is well positioned to leverage its fraud risk management efforts— such as demonstrated leadership for combating fraud, existing control activities, and stakeholder relationships—to provide additional antifraud training, as well as to develop an antifraud strategy based on fraud risk assessments for Medicare and Medicaid. We recognize that the effort may be challenging, given the size and complexity of Medicare and Medicaid, and the need to balance antifraud activities with CMS’s other mission priorities. However, by not employing the actions identified in the Fraud Risk Framework and incorporating them in its approach to managing fraud risks, CMS is missing a significant opportunity to better ensure employee vigilance against fraud, and to organize and focus its many antifraud and program-integrity activities and related resources into a comprehensive strategy. Such a strategy would (1) provide reasonable assurance that CMS is targeting the most-significant fraud risks in its programs and (2) help protect the government’s substantial and growing investments in these programs. We are making the following three recommendations to CMS: The Administrator of CMS should provide fraud-awareness training relevant to risks facing CMS programs and require new hires to undergo such training and all employees to undergo training on a recurring basis. (Recommendation 1) The Administrator of CMS should conduct fraud risk assessments for Medicare and Medicaid to include respective fraud risk profiles and plans for regularly updating the assessments and profiles. (Recommendation 2) The Administrator of CMS should, using the results of the fraud risk assessments for Medicare and Medicaid, create, document, implement, and communicate an antifraud strategy that is aligned with and responsive to regularly assessed fraud risks. This strategy should include an approach for monitoring and evaluation. (Recommendation 3) We provided a draft of this report to HHS and DOJ for comment. HHS provided written comments, which are reprinted in appendix I. DOJ did not have comments. HHS and DOJ also provided technical comments, which we incorporated as appropriate. In commenting on this report, HHS agreed with our three recommendations. Specifically, in response to our first recommendation to provide required fraud-awareness training to all employees, HHS stated that it will develop and implement a fraud-awareness training plan to ensure all CMS employees receive training. Regarding our second recommendation to conduct fraud risk assessments for Medicare and Medicaid, HHS stated that it is currently conducting a fraud risk assessment on the federally facilitated marketplace and, when this assessment is complete, will apply the lessons learned in assessing this program to fraud risk assessments of Medicare and Medicaid. In response to our third recommendation to create, document, implement, and communicate an antifraud strategy that is aligned with and responsive to regularly assessed fraud risks, HHS stated that it will develop respective risk-based antifraud strategies after completing fraud risk assessments for Medicare and Medicaid. We are sending copies of this report to the Acting Secretary of Health and Human Services, the Administrator of CMS, the Assistant Attorney General for Administration at DOJ, as well as appropriate congressional committees and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-6722 or bagdoyans@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made contributions to this report are listed in appendix II. In addition to the contact named above, Tonita Gillich (Assistant Director), Irina Carnevale (Analyst-in-Charge), Michael Duane, Laura Sutton Elsberg, and Catrin Jones made key contributions to this report. Also contributing to the report were Lori Achman, James Ashley, Colin Fallon, Leslie V. Gordon, Maria McMullen, Sabrina Streagle, and Shana Wallace.	[ "CMS, an agency within the Department of Health and Human Services (HHS), provides health coverage for over 145 million Americans through its four principal programs, with annual outlays of about $1.1 trillion. GAO has designated the two largest programs, Medicare and Medicaid, as high risk partly due to their vulnerability to fraud, waste, and abuse. In fiscal year 2016, improper payment estimates for these programs totaled about $95 billion. GAO's Fraud Risk Framework and the subsequent enactment of the Fraud Reduction and Data Analytics Act of 2015 have called attention to the importance of federal agencies' antifraud efforts. This report examines (1) CMS's approach for managing fraud risks across its four principal programs, and (2) how CMS's efforts managing fraud risks in Medicare and Medicaid align with the Fraud Risk Framework. GAO reviewed laws and regulations and HHS and CMS documents, such as program-integrity manuals. It also interviewed CMS officials and a sample of CMS stakeholders, including state officials and contractors. GAO selected states based on fraud risk and other factors, such as geographic diversity. GAO selected contractors based on a mix of companies and geographic areas served. The approach that the Centers for Medicare & Medicaid Services (CMS) has taken for managing fraud risks across its four principal programs—Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and the health-insurance marketplaces—is incorporated into its broader program-integrity approach. According to CMS officials, this broader program-integrity approach can help the agency develop control activities to address multiple sources of improper payments, including fraud. As the figure below shows, CMS views fraud as part of a spectrum of actions that may result in improper payments. CMS's efforts managing fraud risks in Medicare and Medicaid partially align with GAO's 2015 A Framework for Managing Fraud Risks in Federal Programs (Fraud Risk Framework). This framework describes leading practices in four components: commit , assess , design and implement , and evaluate and adapt . CMS has shown commitment to combating fraud in part by establishing a dedicated entity—the Center for Program Integrity—to lead antifraud efforts. Furthermore, CMS is offering and requiring antifraud training for stakeholder groups such as providers, beneficiaries, and health-insurance plans. However, CMS does not require fraud-awareness training on a regular basis for employees, a practice that the framework identifies as a way agencies can help create a culture of integrity and compliance. Regarding the assess and design and implement components, CMS has taken steps to identify fraud risks, such as by designating specific provider types as high risk and developing associated control activities. However, it has not conducted a fraud risk assessment for Medicare or Medicaid, and has not designed and implemented a risk-based antifraud strategy. A fraud risk assessment allows managers to fully consider fraud risks to their programs, analyze their likelihood and impact, and prioritize risks. Managers can then design and implement a strategy with specific control activities to mitigate these fraud risks, as well as an appropriate evaluation approach consistent with the evaluate and adapt component. By developing a fraud risk assessment and using that assessment to create an antifraud strategy and evaluation approach, CMS could better ensure that it is addressing the full portfolio of risks and strategically targeting the most-significant fraud risks facing Medicare and Medicaid. GAO recommends that CMS (1) provide and require fraud-awareness training to its employees, (2) conduct fraud risk assessments, and (3) create an antifraud strategy for Medicare and Medicaid, including an approach for evaluation. HHS concurred with GAO's recommendations." ]	10,615	gov_report	en	null	ff191f2d1d1e910150ba1af73d4d17215693b438f9cd5787
The RAD program was authorized by Congress and signed into law by the President in November 2011 under the Consolidated and Further Continuing Appropriations Act, 2012 with amendments in 2014, 2015, 2016, and 2017. The RAD program consists of two components. The first component of the RAD program—and the focus of our review— provides PHAs the opportunity to convert units subsidized under HUD’s public housing program and owned by the PHAs to properties with long- term (typically, 15–20 years) project-based voucher (PBV) or project- based rental assistance (PBRA) contracts. These are two forms of Section 8 rental assistance that tie the assistance to the unit to provide subsidized housing to low-income residents. In a RAD conversion, PHA- owned public housing properties can be owned by the PHA, transferred to new public or nonprofit owners, or transferred to private, for-profit owners when necessary to access LIHTC financing, if the PHA preserves its interest in the property in a HUD-approved manner. The second component of RAD converts privately owned properties with expiring subsidies under old rental assistance programs to PBV or PBRA in order to preserve affordability and encourage property rehabilitation. The goals of the RAD program include preserving the affordability of federally assisted rental properties and improving their physical and financial condition. Specifically, postconversion owners (PHAs, nonprofits, or for-profit entities) can leverage the subsidy payments under the newly converted contracts to raise capital through private debt and equity investments, or conventional private debt, to make improvements. The RAD program provides added flexibility for PHAs to access private and public funding sources to supplement public housing funding. These financing sources may include debt financing through public or private lenders; mortgage financing insured by FHA; PHA operating reserves; replacement housing factor funds; seller or take-back financing; deferred developer fees; equity investment generated by the availability of 4 percent and 9 percent LIHTC; or other private or philanthropic sources. PHAs also may pursue various options for their conversions, which often depend on property needs and available financing, including property rehabilitation or new construction. Additionally, PHAs may undertake conversion involving no property rehabilitation or new construction to meet certain financial goals or for future rehabilitation or new construction, as long as the PHA can demonstrate to HUD that the property does not need immediate rehabilitation and can be physically and financially maintained for the term of the Section 8 Housing Assistance Payment contract (HAP contract). The RAD authorizing legislation and RAD Notice also specify requirements for ownership and control of converted properties. That is, converted properties must have public or nonprofit ownership or control, with limited exceptions. The RAD authorizing legislation, RAD Notice, HAP contracts, and RAD Use Agreement also establish procedures to help ensure that public housing remains a public asset should challenges arise, such as default, bankruptcy, or foreclosure. Oversight of RAD conversion and properties is primarily divided among three HUD offices. The Office of Recapitalization is responsible for administering the conversion process but generally does not oversee converted properties. Before conversion, the Office of Public and Indian Housing oversees the properties. After conversion, oversight remains with Public and Indian Housing for properties that convert to PBV contracts and transfers to the Office of Multifamily Housing Programs for PBRA. The RAD program has been implemented and expanded in phases. Since its authorization, the RAD unit cap gradually increased from 60,000 units in 2011 to 225,000 units in May 2017. The RAD program is currently fully subscribed with all 225,000 units allocated. As of September 30, 2017, 689 conversions were closed that involved a total of 74,709 units (see fig. 1 for a breakdown by fiscal year). Additionally, 706 conversions involving 79,078 units were in the process of structuring conversion plans. The remaining conversions under the cap were allocated to specific properties and in the process of having commitments issued or reserved under multi-phase or portfolio awards, according to HUD officials. RAD conversions begin with the submission of an application by PHAs after which they are notified of selection. The PHA is then required to submit a financing plan within 180 days or a later deadline based on the nature of the financing proposed. A RAD conversion is considered closed when the HAP contract is signed and financial documents are executed. The properties are considered converted to Section 8 assisted housing on the effective date of the HAP, which is generally the first day of the following month. Once the RAD conversion is closed, the PHA or ownership entity can move forward with its submitted proposals or RAD-related rehabilitation or new construction and is responsible for complying with RAD requirements and associated contracts. In some cases, rehabilitation can take place in advance of conversion closing if public housing funds are being used. Most RAD conversions involved some type of construction. Our analysis of HUD data showed that as of September 30, 2017 417 of 689 closed conversions (61 percent) involved planned rehabilitation to the property, 86 (12 percent) new construction, and 186 (27 percent) no construction; and 361 of 706 active RAD conversions (51 percent) involved planned rehabilitation, 89 (13 percent) new construction, and 256 (36 percent) no construction. HUD officials stated that they approve conversions that involve no immediate planned rehabilitation or new construction as long as the property has no immediate needs to be addressed. Such conversions allow PHAs to better position themselves to access additional capital to address future rehabilitation or construction plans. Our review of 31 conversion files also showed that the scope of proposed physical changes varied among RAD conversions. For properties that included scope of work narratives, physical changes included renovations to mitigate hazardous materials, aesthetic renovations, code and accessibility compliance, and construction of new buildings, among other changes. Financing for RAD conversions involved multiple public and private sources, but many conversions used LIHTC. Our analysis of HUD data showed that as of September 30, 2017, 173 of 689 closed RAD conversions (25 percent) utilized 4 percent LIHTC, 99 (14 percent) utilized 9-percent LIHTC, and 416 (60 percent) did not use LIHTC. By dollar amount, major financing sources were 4 percent LIHTC at $2.4 billion; new first mortgages at $1.8 billion; and 9 percent LIHTC at $1.1 billion. Construction costs constituted the highest-dollar use of financing for RAD conversions, but not all conversions incurred construction costs, as discussed earlier. On average, construction costs per closed conversion were $6.4 million (ranging from no construction costs to $236 million) and nearly $60,000 per-unit converted to RAD. Construction costs represented the highest-dollar use of financing for closed RAD conversions at $4.4 billion followed by building and land acquisition costs, and developer fees. For more information on financing sources and uses, see appendix II. PHA officials and developers we interviewed cited various factors that influence financing sources needed for RAD conversions. For example, property needs assessments help establish the level of rehabilitation or new construction that would address the capital needs of the property. In turn, needs assessments can derive from physical assessment results and incorporate federal, state, or local compliance requirements. For instance, rehabilitation or construction would need to address the accessibility requirements of the Americans with Disabilities Act and local building codes, among other requirements. PHA officials and developers we interviewed also said they had to consider competition or access to financing for RAD conversions. For example, PHAs noted that tax credit applications and other financing had to be competitive. Some PHAs we interviewed also noted that while the 9 percent LIHTC provides more equity to finance low-income units (finances 70 percent of the costs of the units), there is more competition for the 9 percent LIHTC, while the 4 percent LIHTC can be automatically awarded for certain deals involving tax exempt bonds and federally subsidized projects. Thus, while some PHAs and developers might prefer to obtain 9 percent LIHTC, they often apply for 4 percent LIHTC to increase the chances of obtaining some tax credit equity. For example, one particular PHA that had used both 4 percent and 9 percent LIHTCs noted that in one transaction it had to compete against 74 applicants for 25 available awards of 9 percent credits. The RAD authorizing statute requires HUD to assess and publish findings regarding the amount of private capital leveraged as a result RAD conversions. A leverage ratio relates the dollars other sources provide to the dollars a program provides to an institution or a project. HUD uses various quantitative, qualitative, and processing and efficiency metrics to measure conversion outcomes. To meet the RAD statutory requirement, HUD published an overall RAD leverage ratio that has fluctuated between 19:1 and 9:1 since 2014. HUD’s most recent leverage ratio in fiscal year 2017 was 19:1, nearly double what the agency reported the prior year. We asked HUD officials why the leverage ratio nearly doubled between 2016 and 2017 and received conflicting information during the course of our audit. Initially, officials noted that the ratio was intended to replicate the methodology used by PD&R in its September 2016 report. Subsequently, the officials clarified that they did not follow PD&R’s methodology for categorizing financial source data. Specifically, officials did not review or make manual adjustments to the financial data PHAs entered in open source fields to ensure sources actually represented public, private, or other funding categories when calculating the leverage ratio. Finally, they noted that they disagreed with the methodology used in the PD&R September 2016 report and stated that there are various ways to calculate leverage. For the purposes of announcing the most recent leverage ratio in 2017, HUD officials decided that a leverage ratio comparing federally appropriated public housing resources would reflect the amount of financing leveraged had RAD not existed. We found, and officials from HUD acknowledged, three limitations to the RAD leverage calculation. First, HUD generally had data on funding sources and amounts a RAD conversion proposed to use (at the time of its application to HUD and at the time of closing of construction financing) rather than data after construction is completed on funding sources and amounts. HUD officials stated that they were reviewing final closing packages to confirm that the data reflect the latest reported information on sources and uses of funds for each conversion at closing. However, sources and uses of funds and amounts at the time the RAD conversion is closed may differ from amounts upon completion of construction. In October 2017, HUD implemented procedures to verify completion of planned construction activities and costs, which we discuss later in this report. Second, HUD’s leverage ratio, published in 2017, did not manually adjust funding source data to accurately account for all sources in calculating the leverage ratio for RAD. Specifically, HUD did not isolate funding sources that were federally appropriated, contributed by the PHA, or contributed by state or local municipalities to calculate leverage. For example, among approximately $2 billion from other financial sources, HUD included Moving to Work (MTW) funding (which may include public housing capital funds, public housing operating funds, and voucher funds) and tax credit equity as leveraged sources. However, these are not necessarily private sources, which we explain later in this report. As a result, HUD’s current calculation does not reflect the amount of private- sector leveraging. HUD calculated and published a RAD leverage ratio in May of 2017 using the following formula: Total leverage ratio = (total dollars from all sources – public housing dollars) To calculate the RAD leverage ratio, HUD uses some but not all financial source data it collects (see app. II for a list of data fields collected by HUD). For example, HUD mistakenly excluded data that capture private funds, reducing the amount of total sources in the numerator. HUD calculates “public housing dollars” by adding data that capture replacement factor funds, public housing operating reserve funds, and prior-year public housing capital funds. HUD considers tax credit equity, new first mortgages, and “other funding” data to be non-public housing dollars (see app. II for a list of fields in HUD’s calculation). PHAs enter a description and amount for other funding sources in “other funding” data fields (see app. II). For example, a PHA may enter a federal financial source in one of the open-entry “other funding” data fields, requiring a manual adjustment to properly account for the financial source. According to HUD, additional fields were included in mid-2016 to better differentiate certain sources such as from the HOME Investment Partnerships Program (HOME) and seller take-back financing. Prior to this point, these financial sources were placed into “other” fields, and the standard resource desk report had not been updated until mid-2017 to include all of these fields. Third, HUD does not categorize and report its leveraging by private and public sources. According to HUD officials, informative leverage methodologies could calculate the ratio based on the leveraging of public housing program funds, the leveraging of all federally appropriated funds, or the leveraging of PHA funds (i.e., sources in the transaction that have come from the PHA itself even if not federally appropriated through the public housing program), among other methodologies. The RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging. In addition, Standards for Internal Control in the Federal Government require agencies to communicate quality information with external parties, such as other government entities, to make informed decisions and evaluate the entity’s performance in achieving key objectives. HUD also does not use final (postcompletion) funding data in another metric of RAD leveraging. Specifically, in June 2017 HUD publicly reported that RAD “has leveraged more than $4 billion in capital investment in order to make critical repairs and improvements.” HUD calculates this figure by summing the construction costs—a subcomponent of total costs—with data from the time a conversion closes and not upon completion of construction. HUD officials we spoke with clarified that this metric solely reports construction investments and does not reflect any conclusion regarding private leverage of public funds. But, HUD publically characterized this measure in different ways, including as the amount of “public-private investment in distressed public housing,” the amount of “construction achieved under RAD,” and the amount of “new private and public funds leveraged by RAD.” HUD’s 2016 interim report calculated and published multiple leverage ratios, but chose to highlight a RAD leverage ratio that is consistent with ratios used for other HUD programs. However, the ratio does not specifically follow the prescribed ratio language in the authorizing statute because the report states that the ratio represents the amount of private and public external sources invested for every dollar invested by PHAs but the statutory language only discusses private-sector leveraging. Officials further noted that the statute does not require a particular methodology and HUD relies on PD&R—and its independent contractor— to determine the appropriate methodology for purposes of compliance with the statute. Lastly, the statute does not preclude the use of other leverage metrics for other purposes, such as using the ratio to measure the amount of nonpublic housing funds leveraged in RAD transactions that would not be available to the property absent RAD. As a result, HUD’s leverage metrics announced in May 2017 do not accurately reflect the amount of private-sector leveraging achieved through RAD, do include public funding as private sources, and inconsistently measured sources that were federally appropriated or contributed by PHAs, potentially under- or over-reporting the program’s performance. Additionally, in October 2017, HUD began implementing procedures to collect data after construction is completed and is not yet able to calculate a leverage metric using final (postcompletion) financial sources rather than the financial sources collected at closing. The lack of a consistent metric for private leveraging could also lead to inconsistent reporting of the leverage ratio, as has occurred in prior years. We recalculated RAD leverage ratios in a number of different ways, including to correct errors we identified during our review. For example, HUD’s 2016 interim report noted that data on closed transactions do not provide detailed description of “other sources,” requiring a crosswalk between applications and closed transactions to develop estimates for the allocation of “other sources” across financial source categories. Abbreviated descriptions are provided in the form of notes that are not always clear and consistent; therefore public housing sources may include federally appropriated sources, as well state, city, or county sources. Through our estimates, we found that the overall leverage ratio could range from 7.44:1 for a ratio recalculating HUD’s leverage ratio to 1.23:1 for a ratio estimating private-sector leveraging. Recalculation with HUD methodology and financial source recategorization. As discussed previously, HUD’s methodology does not account for all financial data collected by HUD and includes “other” funding sources erroneously considered as leveraged funds. Thus, we manually adjusted RAD funding source data and found that nearly $1.2 billion were erroneously considered leveraged funds because they are not private funds. For example, HUD included MTW funds; public housing operating reserves; public housing capital funds; replacement housing factor funds; other federal funds; other state, local, or county funds; and take-back financing funds as leveraged financial sources. For more information, see appendix II. We obtained documentation from HUD to replicate their methodology and recategorized financial sources that corrected errors in the data, and found that the RAD leverage ratio was less than half of HUD’s most recently publicly reported leverage ratio (19:1), approximately 7.44:1 (see app. II). Recalculation to exclude LIHTC and other federal sources. We previously reported that LIHTCs are considered a federal source because tax credit equity represents foregone federal tax revenue and, therefore, are a direct cost to the government. Accordingly, we recalculated the RAD leverage ratio by excluding all federal funding sources and obtained a ratio of approximately 1.43:1 (see app. II). Recalculation of private-sector leveraging. Lastly, the RAD authorizing statute requires HUD to assess and publish findings on the amount of private-sector leveraging, but HUD’s current calculation does not present the amount of private-sector leveraging and does not include all available data (for example, the “Other Private” funds collected by HUD). We estimated the amount of private-sector leveraging by grouping public housing sources, other public sources, and private sources, resulting in a leverage ratio of approximately 1.23:1 (see app. II). In October 2017, HUD implemented procedures to certify completion after developers finish RAD-approved rehabilitation or construction. Previously, HUD had a limited ability to monitor and evaluate final (postcompletion) physical and financial changes in RAD projects with existing data. According to HUD officials, HUD did not implement completion certification procedures before October 2017 because it had been addressing what it considered to be the highest risks first (such as clarifying requirements for RAD participants, resident safeguards, and other procedural and administrative requirements). HUD’s October 2017 completion certification procedures include instructions for owners to report final construction costs and documentation on completion of repairs or construction within 45 days of the completion date recorded in the RAD Conversion Commitment. More specifically, HUD requires owners to list a final construction cost amount—a subcomponent of total costs—in the RAD resource desk, describe variances from the approved construction cost amount in a comment box, and describe how increases in costs were addressed. Additionally, a third-party must certify that the repairs in the scope of work were completed by providing an attestation to HUD. However, HUD’s procedures do not require documentation from the owners to support the final total cost figures, which include not only construction costs but also building and land acquisition costs, and developer fees, among others as noted earlier in this report. These procedures also do not require a certification from owners on all financing sources and costs recorded in the RAD Conversion Commitment. Standards for Internal Control in the Federal Government require that management implement control activities through documented policies and procedures to provide reasonable assurance that the objectives of the agency will be achieved, and also communicate quality information with external parties to make informed decisions and evaluate the entity’s performance in achieving key objectives. While HUD now has certification completion procedures in place, this process provides the agency limited financial information from owners. As a result, HUD is unable to report metrics that reflect final (postcompletion) RAD financial outcomes after construction is completed. Furthermore, HUD is limited in its ability to effectively oversee conversion budget and cost variances, and expenditures that require HUD approval. Lastly, the RAD authorizing statute requires that the Secretary of HUD demonstrate the feasibility of the RAD conversion model to recapitalize and operate public housing properties under various situations and by leveraging other sources of funding to recapitalize properties. Without metrics that reflect the final (postcompletion) financial outcomes of RAD after construction is completed, HUD and congressional decisionmakers are unable to make informed decisions concerning the RAD program. HUD has not systematically tracked or analyzed household data on residents in RAD-converted units that are available from its public housing or Section 8 databases or from PHAs or other postconversion owners—the main sources of resident data for the RAD program. In addition, HUD has not yet developed monitoring procedures for all the resident safeguards in the RAD program. Finally, residents told us of some concerns about information they received on RAD conversions, communications opportunities, and the relocation process. HUD officials told us that the agency does not systematically track or analyze household-level data on residents in RAD-converted units across existing program databases (HUD maintains household data for the public housing and Section 8 rental assistance programs in two databases). In particular, HUD does not track changes in household characteristics before and after conversion, such as changes in rent, as well as relocations or displacement of individual households. However, according to HUD officials, their databases are not designed to track the impact of RAD conversion on residents and they are unable to electronically link household information submitted before RAD conversion to information submitted after conversion. Once a property is converted, the property and corresponding household information are removed from the public housing database. Owners of converted properties are to use software to manually enter household information into the databases for the Section 8 program when submitting tenant certifications and information for assistance payments. This procedure is the standard for administration of all project-based Section 8 properties. HUD officials stated that they have explored the possibility of transferring household data from one system to another at the time of a property’s conversion. While HUD has not systematically analyzed household information from its public housing and Section 8 databases, we were able to perform a limited analysis. We requested and received data from HUD on the households affected by RAD. Using the data provided that were current as of June 2017, we were able to identify about 26,000 households that lived in units that were converted to a PBV subsidy, but we were unable to identify the total number of households converted to a PBRA subsidy. Based on our analysis of 26,000 PBV households, we found about 2,700 (about 11 percent of) households were headed by an about 6,800 (about 26 percent of) households were headed by an individual with a disability; about 2,700 households (about 10 percent of) households were headed by an elderly person who also had a disability; over half (about 14,000 or 54 percent) of the households were headed by an individual identified as black; close to 11,000 households (about 41 percent) were identified as white; and about 1,000 households (about 4 percent) were identified as Asian. Close to 3,100 households (about 12 percent) were headed by an individual identified as Hispanic; about half (about 49 percent) of the PBV households were single- person households; the median annual income of PBV households both before and after RAD conversion was about $10,000; and about 5,300 (about 20 percent) of households were paying a flat rent rather than income-based rent before RAD conversion. However, the data on PBV households were not comprehensive. For example, while about 10,000 residents (about 57 percent) experienced a rent increase following RAD conversion under PBV, we could not determine if the rent increase was the result of an increase in resident income. We also could not determine changes in location among the PBV households following RAD conversion. Rather than relying on the public housing and Section 8 databases for tracking household information during conversion, HUD officials indicated that the agency will rely on locally maintained resident logs, which contain household information collected by property owners, as the starting point when HUD determines a compliance review is warranted. The logs will be the primary way the agency collects household information for compliance reviews under the RAD program, according to HUD officials. In November 2016, HUD issued a notice, which requires the PHA or other postconversion owner to maintain a log about every household at a converting project, including information on race and ethnicity, household size, and disability. The notice also requires owners to track residence status throughout the relocation process, including whether the resident has returned, moved elsewhere, was permanently relocated or evicted; relocation dates; and details on any temporary housing and moving assistance provided. Owners are required to make the information available to HUD upon request for audits and other purposes. According to HUD officials, the agency expects the information in the resident logs to be more robust than what they would collect through the public housing and Section 8 databases, which do not track residents while they are relocated. HUD officials stated that the agency plans to review selected resident logs as part of an ongoing limited compliance review of about 90 RAD conversion projects. HUD officials told us they are developing procedures for performing compliance reviews—such as developing a mechanism to review a sample of logs on a periodic basis—but they have not yet done so because they have been focusing on developing procedures for activities that present a high risk to the program as described in the following section. HUD has not established a time frame for developing these procedures. However, HUD officials indicated that they plan to select resident logs for review based on risk of noncompliance and do not plan to analyze program-wide information currently collected in the public housing and Section 8 databases for program monitoring. HUD officials also noted that that PD&R is planning to track a sample of residents through its evaluation of the program, which we previously mentioned. While HUD has decided to rely on resident logs because of the difficulty of tracking household information across its program databases, using resident logs to assess the effects of the RAD program on residents has limitations. While the resident logs would contain detailed household information, they were not required prior to November 2016 and may not contain information on households converted before that date (RAD conversions started in 2013). HUD’s public housing and Section 8 databases contain information on such households. Second, as previously mentioned, HUD plans to review resident logs only when there is a risk of noncompliance, but they collect household information in their databases on a rolling basis. Standards for Internal Control in the Federal Government require agencies to use quality information to achieve their objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information—one based on information in HUD data systems as well as resident logs—HUD cannot reasonably assess the effects of ongoing and completed RAD conversions on residents and compliance with resident safeguards, as discussed in the next section. HUD has not yet developed monitoring procedures for certain resident safeguards under the RAD program. RAD requirements include those intended to ensure that residents whose units are converted through RAD are informed about the conversion process; can continue to live in a converted property following RAD conversion; are afforded certain protections carried over from the public housing are afforded a phase-in of any rent increases under Section 8 program requirements. Currently, based on HUD notice requirements, PHAs must document compliance with three safeguards (PHA plan amendments, resident notification, and procedural rights) in their RAD application and other conversion paperwork. For example, PHAs must submit comprehensive written responses to resident comments received in connection with the required resident meetings with their RAD application. For one safeguard, PHAs are not required to report to HUD but must retain documentation of compliance to be made available to HUD as part of the monitoring for the program. For others, the HUD notice does not specify reporting and monitoring requirements. Based on our review of files for selected conversions, which we previously discussed, we found PHAs generally submitted documentation of their efforts to inform residents about RAD conversion, such as providing evidence to HUD of meetings with residents and written responses to resident questions as required. However, the specific documents for these requirements were not available from HUD in all cases. HUD’s review of amendments to PHA plans was documented in all but one of the conversions we reviewed. Documentation requirements for resident relocations have changed since RAD was introduced, which made the documentation more difficult to assess. HUD developed and started implementing procedures in October 2017 that require owners to certify and provide data supporting compliance with the resident right-to-return requirements. For example, owners must certify the number of residents who exercised their right to return to a converted property compared with the number of residents who did not return. HUD is also developing standard operating procedures to review each conversion for compliance with RAD relocation provisions. Specifically, the procedures would describe the review steps required at different stages of the conversion process, a process for identifying risks, and how to address instances of noncompliance with RAD requirements. Additionally, HUD noted that they have 2 compliance reviews under way including 1 involving a set of HUD requirements that affect relocations of more than 1 year and the limited compliance review of 90 projects that we previously described. HUD officials noted that they are developing additional guidance in other areas. First, HUD officials indicated that as part of an overall update of RAD standard operating procedures, they are developing additional protocols on resident notification and how residents’ comments are addressed through conversion planning. Second, the agency had not been consistently collecting required documentation on “house rules,” which describe the conditions and procedures for evicting residents and terminating assistance at RAD PBRA properties, so it has developed and implemented additional legal review procedures as part of the implementation of RAD resident eviction and grievance procedural rights requirements. According to HUD officials, they have been focusing primarily on right-to-return and relocation requirements because they represent areas of highest risk. HUD has not developed separate monitoring procedures for other resident safeguards—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements. However, HUD officials told us that they plan to assess how administrative data can be used to monitor choice mobility as part of the planning for a separate PD&R evaluation of this safeguard. HUD officials also indicated that there are procedures for residents to report complaints to HUD if resident representation and organization requirements are not met. Standards for Internal Control in the Federal Government require agencies to implement control activities through documented policies and procedures to provide reasonable assurance that agency objectives will be achieved. These standards also require agencies to design procedures to achieve goals and objectives, and identify, analyze, and respond to risks related to achieving the defined objectives. Table 1 includes a description and information on implementation of resident safeguards that most directly affect residents’ experience with the conversion process and ability to live at the property following conversion. Appendix III describes these and other RAD resident safeguards. HUD officials indicated that the safeguards for the phase-in of tenant rent increases, resident representation, procedural rights, and choice mobility presented a lower risk than the right-to-return requirements, so they were a lower priority, and in some cases were addressed through general monitoring of the Section 8 program. For choice mobility options, HUD indicated that its data systems are not designed to track whether residents are able to exercise these options, such as tracking whether residents left a property to exercise choice mobility or for other reasons. All but two of the resident safeguards do not take effect until after a property has been converted and is part of the Section 8 program. For example, residents are only eligible to use vouchers through choice mobility after they have lived in the converted property for 1 or 2 years depending on the assistance contract involved (PBV or PBRA). Moreover, certain RAD safeguards are not typically available for Section 8 residents. For example, RAD establishes resident representation provisions and procedural rights that are more in line with public housing rather than Section 8 requirements. While HUD has indicated that the Section 8 program has experience administering different types of assistance contracts, RAD nonetheless creates separate requirements for certain provisions from the public housing and Section 8 programs. As previously mentioned, RAD conversions have been completed at an increasing pace in the last 5 years. However, because HUD has not yet developed separate monitoring procedures for certain requirements—the phase-in of tenant rent increases, resident representation through tenant organizations, and choice mobility requirements, many of which take effect after a conversion—and without using all available household data, the agency will not be able to reasonably ensure that these safeguards were implemented. Residents who participated in our focus groups expressed some concerns about information they received on RAD conversions, communications opportunities, and the relocation process. Residents indicated that they were notified about RAD conversion in a variety of ways. Residents in 5 of 14 focus groups found the information presented to them on RAD to be helpful. Residents in 7 of 14 focus groups indicated that the information they received was not helpful. Across these focus groups, a range of concerns was expressed, including that the information provided was not always clear or reflective of the final changes resulting from RAD conversion, and that the PHA and management were not always forthcoming with information about the RAD changes. Residents in some focus groups also indicated that they were not involved in the RAD conversion. Residents in 5 of 14 groups indicated that they were not given the opportunity to provide input into the RAD changes, while residents in 6 of 14 groups indicated that their concerns were not addressed and their suggestions were not incorporated. Residents also described problems with relocations. Some of the concerns expressed by resident focus groups on relocation related to the location of the temporary units (3 of 14 focus groups), the timing of relocation or amount of notice given (7 of 14 focus groups), and moving issues (such as items damaged during moves). Residents were asked to describe ways in which RAD conversion improved or harmed their living conditions. Residents in several focus groups indicated that RAD improved their living conditions, including both the condition (7 of 14 focus groups) and appearance of their units or the property in which they lived (6 of 14 focus groups). Some of the changes residents liked included the installation of new appliances, mold and pest removal, and safety and energy efficiency improvements. However, residents in several of the focus groups identified problems with their living conditions following RAD conversion. The problems residents identified included security concerns (10 of 14 focus groups); renovations that were of poor quality (6 of 14 focus groups); and other problems with the units (10 of 14 focus groups), such as pest problems; decreased amenities (8 of 14 focus groups), such as the removal of common areas or in-unit washing machines; and issues with property management (11 of 14 focus groups). For example, in several instances, residents stated that new managers or owners in place following RAD conversion were not responsive to their needs or concerns. During our site visits, residents described other experiences with RAD conversion. Residents in all of the groups identified being notified about RAD. Residents in 9 of 14 focus groups indicated that their rent was the same following RAD conversion. Residents in a few focus groups indicated that their rent had increased because of changes in their income or conversion from a flat rent. However, residents in a few focus groups experienced challenges in how their income was certified for the purpose of calculating rents, such as problems with requests for information (2 of 14 focus groups) and other issues with the process (4 of 14 focus groups). For example, residents reported having to provide the same paperwork multiple times. No instances in which residents were permanently involuntarily displaced were reported. One resident organization expressed concerns about fewer eviction protections and resident representation after RAD conversion. We spoke with 18 PHAs, some of which cited benefits as well as several challenges of RAD participation and some noted HUD responsiveness to their circumstances and concerns. According to many of the PHAs we spoke with, benefits of participating in the RAD program included reducing administrative requirements in Section 8 programs and opening avenues for additional sources of funding. In particular, many of the PHAs noted that RAD allowed them to access tax credit equity and other funding to complete the bulk of their repairs and renovations at once. Over half of the PHAs we spoke with also found HUD to be flexible and responsive to individual PHA circumstances. The majority of PHAs we spoke with indicated that remaining in the public housing program was not tenable because funding for the public housing program was not enough to meet their long-term capital needs. PHAs we contacted also noted several challenges of participating in RAD: financing constraints, timing challenges, and evolving requirements. Financing constraints. Some PHAs noted that program rent requirements can limit PHA participation in RAD. Each year, HUD calculates a contract rent—the total rent for a unit, including operating subsidy and resident contribution. PHAs must use the contract rent to calculate Section 8 subsidies for properties converting under RAD. According to HUD and several PHAs, contract rents for RAD-converted Section 8 units are lower than rents in traditional Section 8 assisted units, and are almost always lower than market-rate rents. Several PHAs and HUD officials have described the difficulty of converting units from the public housing program with this rent limitation. For example, when the cost of needed rehabilitation or construction is high, low allowable contract rents might not be sufficient to access appropriate capital for the conversion. In certain localities, PHAs have found solutions to augment rents and have used RAD flexibilities to allow them to convert and plan for operating expenses. For example, the PHA in Tacoma, Washington, used the Moving to Work program flexibilities to increase contract rents and housing officials in San Francisco used an allowable procedure to transfer RAD assistance from converted buildings to properties throughout its portfolio (each is a blend of traditional project-based vouchers with higher contract rents and RAD assistance). In Montgomery County, Maryland, the PHA similarly included RAD assistance in some mixed-finance properties that contain other high-rent subsidies and market-rate rents. Timing challenges. Some PHAs said they faced major challenges in coordinating RAD timelines with HUD, lenders, or other parties or with the requirements of the LIHTC process. HUD officials acknowledged that PHAs with more complex transactions, including those involved in the LIHTC process, struggle to implement their conversion plans within RAD time frames. HUD officials noted that because there is a statutory cap on the number of units that can be converted under RAD, they have established time frames to stay under the cap and ensure that PHAs that are planning to convert are ready to participate in the program. Additionally, according to HUD, it has made technical assistance available to all PHAs that receive a Commitment to enter into a Housing Assistance Payment contract during the RAD process to help ensure their readiness for RAD closing and to meet remaining conversion deadlines. On the other hand, some PHAs expressed concern to us about delays in the conversion process that put them at risk for missing state LIHTC deadlines. HUD officials described putting conversions on a fast-track on a case-by-case basis to meet LIHTC deadlines. For example, in one case a PHA relocated residents before closing and without HUD approval. HUD required the PHA to fund an escrow account until it was able to determine any payments that might need to be made to residents and any other necessary corrective action. This was done so that HUD could look into the issue while mitigating additional harm to the residents and continuing to move the PHA toward closing and aligned with tax credit application deadlines. The timing of conversion can also create gaps in the payment of Section 8 funds to PHAs. Section 8 funding should begin in January of the year following conversion. PHAs rely on annual public housing subsidies for the conversion year—public housing program funds are paid to PHAs annually and are not recaptured by HUD following RAD conversion. However, according to some PHAs we interviewed, Section 8 funding did not begin on time. For example, in Baltimore, Maryland, subsidy flow after conversion had not begun as of June of the following year. HUD officials told us inadequate guidance from HUD and confusion from PHAs regarding the necessary steps to request payment in a timely manner have been the major cause of the problems. HUD has tried to remedy delays and updated its notice to provide clearer guidance on the timing of subsidy flow around the time of conversion to Section 8. Moreover, HUD officials indicated that there has been confusion among PHAs on how to request funds, so HUD is currently revising and updating the guidance on steps PHAs must take to request payment under the PBRA program. HUD officials also indicated that it has begun monitoring whether new participants are taking the steps needed well before their first request for funding. Some PHAs we contacted also mentioned difficulty in coordinating with HUD on fulfilling internal RAD requirements and reviews. According to some, the different offices involved in RAD conversions within HUD were not well aligned and had different interpretations of the rules. For example, some RAD conversions require a civil rights review by HUD’s Office of Fair Housing and Equal Opportunity Office, including those transactions that require new construction or resident relocations. Some PHAs indicated that such reviews occurred too late in the conversion process even after other HUD offices had approved the conversion. HUD officials acknowledge that different HUD offices have different objectives in the RAD process. HUD officials indicated that the agency is trying to coordinate more effectively among these offices and streamline the conversion process as much as possible. Evolving requirements. While the majority of PHAs with which we spoke said that HUD provided clear, sufficient, and timely information, some PHAs noted that it also was challenging to adapt to evolving requirements. Some PHAs noted that as HUD identified problems in the early years of the program, it would change the guidance in response. For example, HUD officials explained that it had clarified fair housing review requirements in response to PHA concerns that the fair housing review occurred too late in the process and could affect successful conversion of projects. The most recent RAD notice (effective January 2017) is the third version since 2013 and revisions have involved substantial changes. For example, this notice provided PHAs with greater flexibilities on the funding sources they can use to raise initial contract rents and the ways they can demonstrate ownership and control of a converted property. In addition, HUD introduced a notice in November 2016 to strengthen resident protections. Some PHAs told us they found the pace or timing of the evolving requirements difficult to manage and also noted confusion about conversion instructions and guidance due to changing requirements. For example, one PHA indicated that the agency had problems reporting information into a new RAD data field in HUD’s Voucher Management System because there was no guidance at the time on how to complete this field. However, HUD has since included additional instructions in the user’s manual that became effective in April 2017. The Committee has included language to establish procedures that will ensure that public housing remains a public asset in the that event that the project experiences problems, such as default or foreclosure. In each RAD conversion, HUD and the property owner execute a use agreement, which specifies affordability and use restrictions for the property. The use agreement generally exists concurrently with the HAP contract, which is executed to govern the provision of either the PBRA or PBV subsidy for the unit. The use agreement must be recorded in a superior position to new or existing financing or other encumbrances on the converted property. Under a Section 8 HAP contract, residents pay 30 percent of adjusted household income. In the absence of the HAP contract, the use agreement is set up to control the amount paid: If the HAP contract is removed due to breach, noncompliance, or insufficiency of appropriations, under the use agreement new households in all units previously covered under the HAP contract must have incomes at or below 80 percent of the area median income for households of the size occupying an appropriately sized unit for their family size at the time of admission, and rents may not exceed 30 percent of 80 percent of area median income for the remainder of the term of the use agreement. For new residents at or below 80 percent of the area median income, under the use agreement the resident rent contribution without a HAP contract generally would be higher than that paid under a HAP contract, which is based on household income instead of the universally determined area median income. Although the use agreement maintains some level of affordability, the owner receives no subsidy under PBRA or PBV without a HAP contract and resident rent contribution is not tied to individual household income but rather based on a universal area income calculation (see fig. 3). According to HUD officials, other program requirements support the goal of long-term preservation: HAP contracts are executed for 20 years for PBRA or 15–20 years for PBV properties and compliance with all affordability requirements in the HAP and statute and regulation governing the PBRA and PBV programs must be maintained while the contract is in force. According to the authorizing statute, PHAs (for PBV contracts) and HUD (for PBRA contracts) shall offer and project owners shall accept a renewal contract at the expiration of the initial HAP contract and at each subsequent renewal. Each renewal contract will be subject to a RAD use agreement, governing the use of the property consistent with HUD requirements. According to the RAD notice, the project owner also is to establish and maintain a replacement reserve to aid in funding extraordinary maintenance and repair and replacement of capital items. The reserve account must be built up to and maintained at a level determined by HUD to be sufficient to meet projected requirements. According to HUD officials, during the conversion, HUD staff review each capital needs assessment to try to determine whether a property’s capital needs can be addressed over the forthcoming 20-year period. We reviewed 31 completed conversion files, the set of documentation required by HUD to enable a PHA to convert units from public housing to a Section 8 subsidy, and associated RAD contracts. In each file, key contractual protections appeared consistent with program requirements. Specifically, in all cases executed use agreements (which included requirements to limit residency eligibility to households making less than 80 percent of area median income) were included and not altered from the HUD template. In most files we reviewed, we found foreclosure riders were included and that they stated that use agreements would survive foreclosure, meaning that any new owners would take ownership subject to the agreements. Executed HAP contracts, requiring that residents’ contributions be set at 30 percent of adjusted household income, also were present in all files we reviewed. According to HUD officials, PHAs, and two housing groups we spoke with, provisions in the RAD use agreement to keep units affordable appear to be strong, with use and affordability protections designed to survive foreclosure, but the strength of provisions cannot yet be fully determined because the provisions have not yet been tested in foreclosure proceedings or in courts. According to HUD officials, as of October 2017 no RAD properties had entered foreclosure. The RAD authorizing statute requires that ownership be transferred to a capable public entity or, if not one, a capable entity as determined by HUD, or if necessary to fulfill LIHTC requirements for the property, to a HUD-approved for-profit entity (provided the PHA retained sufficient interest in the property). HUD also subjects any subsequent transfer of the property to HUD review and requires the successor ownership to meet these same requirements. As stated in the use agreement, a lien holder must give HUD notice prior to declaring a default and provide HUD concurrent notice with any written filing of foreclosure (providing that the foreclosure sale must not be sooner than 60 days after the notice), but the use agreement does not prohibit a lien holder from foreclosing on the lien or accepting a deed in lieu of foreclosure. The RAD use agreement, which is recorded superior to other liens and places use and affordability restrictions on the property, survives foreclosure. With or without a HAP contract in place, the lender or new owner must maintain the units for low- income households according to the terms of the use agreement. Therefore, according to HUD officials, the lender or new owner has an incentive to identify an appropriate owner and secure HUD approval to avoid a default under the HAP contract, which provides a Section 8 subsidy to the owner. That is, if no HAP contract were in place, the owner would collect only the tenant rent contribution (30 percent of 80 percent of area median income), rather than the tenant rent contribution plus the subsidy. HUD has discretion to enforce or waive certain use and affordability protections. According to the authorizing statute, in the case of foreclosure, bankruptcy, or termination and transfer of assistance for material violation or substantial default, the priority for ownership or control must be provided to a capable public entity, or, if no such entity can be found, to a capable entity as determined by the Secretary of HUD. Additionally, the statute allows the transfer of property to for-profit entities to facilitate the use of LIHTC financing, with requirements to maintain the PHA’s interest, which was discussed above. As of September 30, 2017, about 40 percent of RAD conversions involved LIHTC financing. According to the RAD notice, in the event of a default of a property’s use agreement or HAP contract, HUD may terminate the HAP contract and transfer assistance to another location to retain affordable units. HUD will determine the appropriate location and owner entity for the transferred assistance consistent with statutory goals and requirements for RAD. The RAD use agreement will remain in effect even in the case of abatement or termination of the HAP contract for the term the contract would have run, unless HUD agreed differently in writing. In this case, the RAD notice limits HUD discretion to terminate the use agreement to only cases involving a transfer of assistance to another property. HUD has not yet developed procedures to monitor RAD projects for risks to long-term affordability of units, including default or foreclosure. HUD officials described an ongoing effort to develop oversight procedures it would need to reasonably ensure compliance with RAD agreements and avoid risks to long-term affordability once conversions closed and units moved to Section 8 but, as previously discussed, the agency has not yet completed this effort or fully implemented a monitoring system. HUD officials told us they also planned to develop protocols to more closely monitor properties at risk of foreclosure, including developing indicators, procedures, roles, and responsibilities within HUD, but they have not finalized the design of procedures or fully implemented them. To develop protocols, HUD created an asset management working group in September 2016. The officials also stressed that no one can take possession of or foreclose on a property without HUD involvement and approval. For example, HUD officials said they expect few foreclosures among RAD-converted properties because lenders tend to communicate with the agency early so that it can become involved to prevent foreclosure. HUD officials pointed to a robust structure to oversee program properties in the PBRA program, but stated PBV property oversight continues to be developed by the Office of Public and Indian Housing. According to Standards for Internal Control in the Federal Government, agencies should design procedures to achieve goals and objectives, such as the preservation of unit affordability, and respond to risks, in this case the risk of default or foreclosure or noncompliance with program requirements. Additionally, management should identify, analyze, and respond to risks related to achieving its goals and objectives. According to HUD officials, the agency had not yet fully developed and implemented oversight procedures for postconversion monitoring because since 2012, the agency has focused on RAD start-up and review and oversight procedures for the conversion process. HUD officials also said that many projects would receive ongoing monitoring from other parties, which also could serve as a safeguard for unit affordability and help ensure the appropriate financial and physical condition of the property after RAD conversion. For example, just under half of all RAD properties use LIHTC financing as part of financing packages, which can also include local and state bonds. According to HUD officials, oversight by tax credit allocating agencies, investors, and lenders, while not alone sufficient, helps secure affordable units in a property for the long-term. However, tax credit allocating agencies, investors, and lenders are not signatories to the HAP contract or use agreement and have no formal role in reasonably ensuring that properties meet requirements exclusive to RAD. Although other entities may exercise some oversight of properties, by not developing and implementing procedures for ongoing oversight, HUD in its role as program administrator will not be able to reasonably ensure that properties adhere to requirements or meet basic program goals. Furthermore, without such monitoring HUD would be limited in its ability to identify and assist with properties at risk of foreclosure. RAD was created to demonstrate the feasibility of converting public housing units to other rental assistance programs to help preserve affordable rental units and address the significant backlog of capital needs in the public housing program. However, demonstrating the feasibility of RAD conversion is contingent on collecting and assessing quality information about the conversion projects. HUD has an opportunity to improve the demonstration’s metrics. For instance, implementing robust postclosing oversight and collecting information on financial outcomes upon completion of construction would not only improve HUD’s oversight capabilities but also allow it to report quality information. Moreover, limitations in HUD’s methodology for calculating leverage ratios for RAD may obscure the effect of funding sources used to help fund RAD conversions, potentially under- or over-reporting the program’s capital leveraging. By collecting comprehensive information on final (postcompletion) financing sources and costs and developing quality metrics, HUD would be better positioned to more accurately report the results of the demonstration program. Additionally, a focus on the conversion process itself (and less on its results), and limitations in HUD’s data have contributed to limited monitoring by HUD in other areas. Specifically, by not developing and implementing monitoring procedures to assess the effect of RAD on residents HUD cannot ensure compliance with resident safeguards. Further, HUD collects and maintains household data for the public housing and Section 8 programs, yet it does not systematically use this information to ensure that resident safeguards are in place. Finally, HUD could benefit from additional procedures to assess RAD properties for risks to long-term preservation to be able to respond to property default or foreclosure. We are making the following five recommendations to HUD: HUD’s Assistant Secretary for Housing should include provisions in its postclosing monitoring procedures to collect comprehensive high quality data on financial outcomes upon completion of construction, which could include requiring third-party certification of and collecting supporting documentation for all financing sources and costs. (Recommendation 1) HUD’s Assistant Secretary for Housing should improve the accuracy of RAD leverage metrics—such as better selecting inputs to the leverage ratio calculation and clearly identifying what the leverage ratio measures—and calculate a private-sector leverage ratio. (Recommendation 2) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of monitoring procedures to ensure that resident safeguards are implemented. (Recommendation 3) HUD’s Assistant Secretary for Housing should determine how it can use available program-wide data from public housing and Section 8 databases, in addition to resident logs, for analysis of the use and enforcement of RAD resident protections. (Recommendation 4) HUD’s Assistant Secretary for Housing should prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability. (Recommendation 5) We provided a draft of this report to HUD for comment. HUD provided written comments on the draft report, which are summarized below and reproduced in appendix IV. HUD also provided technical comments, which we incorporated as appropriate. In its comment letter, HUD stated that it agreed with our findings that HUD can improve metrics used to assess program impact and build on existing oversight structures. HUD described actions it intends to take to implement our recommendations to the extent possible and consistent with resource limitations. More specifically, HUD agreed with our first recommendation to ensure it collects comprehensive quality data on financial outcomes in its postclosing monitoring procedures (which could include supporting documentation for all financing sources and costs). HUD agreed it should routinely collect an updated list of funding sources and uses and related documentation when projects had cost overruns or other significant changes. HUD intends to review and revise, as appropriate, required postcompletion certifications. HUD added that in most cases, funding sources and uses do not materially change between closing and construction completion. HUD stated that securing the postclosing information in such cases might be of minimal benefit relative to the additional reporting burden. However, it is not clear how HUD would determine if projects had significant changes in costs or uses because HUD lacks postcompletion information that would show the magnitude of changes. In relation to reporting burden, HUD already has implemented procedures to collect limited financial information following the completion of construction in October 2017. We believe any additional reporting would not be disproportionate to the benefits of improving HUD's oversight capabilities through project completion and enhancing its reporting to more accurately reflect the results of the demonstration program. For our second recommendation to improve the accuracy of RAD leverage metrics and calculate a private-sector leverage ratio, HUD agreed that RAD leverage metrics can be improved. HUD will ensure that the private-sector leverage ratio required by statute is clearly identified and included in its RAD evaluation. HUD also intends to identify a small number of relevant leverage ratios with distinct methodologies and will routinely publish these ratios with clear identification and explanations. In relation to our finding of misidentified funding sources, HUD plans to re- examine its chart of accounts and review prior transaction records to address errors and properly classify transaction sources. In response to our third recommendation to prioritize the development and implementation of monitoring procedures for resident safeguards, HUD agreed that it is important to better document and expedite development and implementation of monitoring procedures. HUD also agreed that additional monitoring was needed to ensure the right of residents to request and move with a tenant-based voucher after a period of residency (choice-mobility). HUD noted that its Office of Policy Development and Research is seeking funding for additional research on RAD with a focus on the use and effect of choice-mobility options, which would inform HUD's monitoring efforts. Finally, while HUD said that we did not find the safeguards to be weak or inadequate, we did not perform an audit designed to assess the safeguards and therefore cannot opine on their adequacy. On the basis of our findings, we found that HUD’s implementation of these safeguards could be strengthened. Regarding our fourth recommendation that HUD determine how it can use available program-wide data and resident logs for analysis of RAD resident protections, HUD agreed to examine how it could use its existing data systems to further enhance its monitoring efforts. HUD added that the systems have limitations, so that the agency also uses other mechanisms to track and monitor implementation of resident protections. For our fifth recommendation to prioritize the development and implementation of procedures to assess risks to the preservation of unit affordability, HUD agreed that it is important to assess and mitigate risks to unit affordability. HUD stated that it employs robust underwriting standards prior to permitting conversion, and relies on existing procedures to conduct ongoing oversight of Project-Based Rental Assistance (PBRA) properties, which we discussed in the draft. However, as we noted, HUD has not yet developed procedures to more closely monitor RAD properties at risk of foreclosure, though it plans to establish indicators of foreclosure risk and oversight roles and responsibilities within HUD. HUD said that since the summer of 2017, it has been evaluating what additional oversight procedures might be needed for RAD Project-Based Voucher properties. HUD also described plans to augment its existing oversight procedures to preserve affordable units in the event of foreclosure by developing protocols in the following areas: transfer of property ownership to a capable entity, transfer of the rental assistance to another site, and protection of residents in the event a Housing Assistance Payment contract was terminated. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Housing and Urban Development and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are listed on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV. This report examines aspects of the Department of Housing and Urban Development’s (HUD) Rental Assistance Demonstration (RAD) program. More specifically, this report addresses (1) HUD’s assessment of the physical and financial outcomes of RAD conversion to date; (2) how RAD conversions affected residents and what safeguards were in place to protect them, including while temporarily relocated and during conversion; (3) what challenges, if any, public housing agencies (PHA) faced in implementing RAD; and (4) the extent to which RAD provisions are designed to help preserve the long-term affordability of units. To address all four objectives, we analyzed agency documentation and interviewed officials from HUD. The documentation we reviewed included policies and procedures for RAD; manuals describing HUD data systems; draft policies and procedures for implementing postclosing oversight; and reports on RAD performance. We interviewed HUD headquarters officials from the Office of Recapitalization within the Office of Housing, which oversees the administration of RAD, and the Office of Policy Development and Research (PD&R). We also interviewed PHA officials and developers involved in RAD transactions, as well as selected experts and other stakeholders to obtain their perspectives on RAD. Additionally, we conducted a literature search to identify publications related to RAD. We visited a nonprobability sample of eight PHAs in Maricopa County, Arizona; Alameda County, California; Montgomery County, Maryland; and in the cities of San Francisco, California; Baltimore, Maryland; New Bern, North Carolina; El Paso, Texas; and Tacoma, Washington, to observe housing units before, during, or after renovation when possible as well as common areas that had planned or undergone renovation. We selected sites to include varying PHA sizes, RAD subsidy types, planned rehabilitation and resident relocation, numbers and sizes of RAD transactions, closing dates, constructions costs, and geographic locations across the United States. At each site, we conducted semistructured interviews with PHA officials and, when available, developers (5 sites). We also conducted one or two focus-group interviews with groups of 6– 15 residents who lived at the converted properties to obtain their perspectives and experiences. In each location, we asked the PHAs to invite residents to participate in the focus groups based on their availability. We also met with the Resident Advisory Board in each location that had one. For 7 of 8 site visits, we selected two RAD properties to conduct resident focus groups (in Alameda County, California we held one focus group). We conducted a content analysis based on resident focus group interviews to describe resident experiences and the RAD program’s effects on residents. Utilizing the selection criteria noted above, we conducted semistructured telephonic interviews with an additional nonprobability sample of 10 PHAs in Fresno, California; Fort Collins, Colorado; Dekalb County, Georgia; Chicago, Illinois; Ypsilanti, Michigan; Cuyahoga County, Ohio; Philadelphia; Pennsylvania; Spartanburg, South Carolina; McKinney, Texas; and Yakima, Washington. Because we selected a non-probability sample of PHAs to visit and interview, the information we obtained cannot be generalized more broadly to all PHAs. However, it provides context on RAD particularly on implementation challenges and perspectives on physical and financial impacts, long-term affordability, and resident protections. We also selected the following 11 individuals and organizations as experts and stakeholders: 1. Council of Large Public Housing Authorities 2. National Association of Housing and Redevelopment Officials 3. Center on Budget and Policy Priorities 4. Public Housing Authorities Directors Association 5. National Housing Law Project 6. Community Legal Services of Philadelphia 7. Maryland Legal Aid 8. Disability Rights Maryland 9. Jaime Alison Lee, Associate Professor of Law and Director, Community Development Clinic, University of Baltimore School of Law 10. Yumiko Aratani, Assistant Professor, Columbia University Mailman 11. University of California, Berkeley, Terner Center for Housing We interviewed experts and stakeholders on resident impacts and implementation challenges associated with RAD. The entities may not represent all views on these topics, but their views provide insights on RAD. To select these individuals and groups, we met with three major PHA associations and two resident advocacy groups, and asked for referrals for organizations or individuals with expertise in RAD. We also selected a nonprobability, random sample of 31 RAD conversion files to review. Utilizing HUD RAD Resource Desk data, we randomly selected 31 RAD files for properties that had closed conversion as of June 30, 2017 and that planned to incur construction costs. We used the files to help us determine physical changes to RAD conversions and the impacts of RAD on residents through, for example, relocation. We excluded RAD conversions with no construction costs from the random sample because they would not have physical changes and no resident relocation would occur before or during our review. To address our first objective on the physical and financial outcomes of RAD conversion to date and how HUD measured these outcomes, we first obtained and analyzed HUD data on RAD conversions since RAD’s authorization (from fiscal years 2013 through 2017). We assessed the reliability of these data by reviewing system documentation, interviewing knowledgeable officials about system controls, and conducting electronic testing. We determined that the data were sufficiently reliable for the purposes of describing rehabilitation and new construction in RAD projects and evaluating RAD leveraging metrics. We included in our analysis all RAD conversions that were active or closed. We used these data to determine the number of closed RAD conversions, associated financial sources and uses, subsidy types, and type of construction (rehabilitation, new construction, and no rehabilitation or new construction). In addition, during our interviews with PHAs and developers, we obtained their perspectives on potential contributing factors to financial decisions and type of construction pursued through RAD conversion. As noted earlier, we also reviewed 31 randomly selected files of converted properties with construction costs to describe property physical changes in RAD conversions. Furthermore, we reviewed HUD documents, such as HUD and PD&R evaluations, publications, and policies and procedures to gain additional context for how HUD measures RAD outcomes. We also interviewed HUD officials, including PD&R and Office of Recapitalization officials, on RAD data and metrics, as well as other performance monitoring activities. We further analyzed data from the HUD RAD Resource Desk to determine how these data support HUD’s metrics and performance monitoring activities. As previously mentioned, we determined that these HUD data were sufficiently reliable for the purposes of this report. Specifically, we assessed and calculated RAD leverage ratio and construction activity. We assessed HUD’s performance monitoring activities and reporting against the RAD authorizing statute, Standards for Internal Control in the Federal Government. To recalculate estimates of the RAD leverage metric, we obtained documentation from the Office of Recapitalization to review the methodology used to calculate their most recent leverage ratio. We aligned the methodology they provided with RAD Resource Desk Transaction Log data that was downloaded on August 7, 2017. We replicated HUD’s methodology and matched the data utilized with the descriptors from the Transaction Log. To isolate financial sources and manually adjust the “other source” data, we compiled matched descriptors and funding amounts and categorized each observation based on the funding source description, as a federal source, state/county/city source, or PHA source, among others. For additional information and results, see appendix II. To determine how RAD affected residents in converted units, we analyzed HUD public housing and Section 8 household data before and after conversion (demographic characteristics of residents and changes in rent, income, and location). Specifically, we examined data from 2013— when the first transactions closed—through June 30, 2017. HUD compiled and provided custom extracts of data on households in RAD- converted properties from the Inventory Management System/Public and Indian Housing Information Center (IMS/PIC) (public housing and Section 8 PBV) and Tenant Rental Assistance Certification System (Section 8 PBRA). We assessed the reliability of the data extracts provided by HUD by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined the data on PBV households were sufficiently reliable for the purposes of our reporting objectives, but that the data on PBRA households was not sufficiently reliable for purposes of describing some characteristics of RAD households. For example, in trying to determine participation in the RAD program by year, we received several thousand PBRA entries that preceded the establishment of the RAD program. Moreover, as we previously mentioned, the postconversion household data for PBRA conversions is in a separate data system, so some variables, such as those related to race, ethnicity, rent, and income, differ from the other household data for that program. Because of these limitations, the data for PBRA households were not reliable for purposes of comparing RAD household characteristics before and after conversion as we had intended. To describe safeguards for residents and help ascertain how HUD implemented protections, we reviewed legal protections and requirements in HUD notices, reviewed selected conversion files, and interviewed HUD officials about monitoring and compliance processes. Finally, as previously described, we held focus groups with residents to better understand any effects on their living conditions and quality of life. To determine challenges PHAs faced in implementing RAD, we reviewed HUD guidance and related documents for PHAs in the program. We also interviewed eight PHAs during our site visits and spoke with another 10 PHAs by telephone about the benefits and challenges of participating in the RAD program. To examine provisions designed to help preserve long-term affordability of units, we reviewed the RAD authorizing statute and amendments and HUD notices and interviewed HUD staff to verify our understanding of agency affordability protections. For a sample of 31 randomly selected properties, we examined templates for contractual agreements for RAD closings and analyzed closing documents and contracts to determine if agreements matched program requirements. We interviewed HUD staff and staff of 18 PHAs to obtain viewpoints on the potential strengths or weaknesses of preservation in the case of default or foreclosure. We conducted this performance audit from February 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The Department of Housing and Urban Development’s (HUD) Office of Recapitalization collects financial sources and use data from Rental Assistance Demonstration (RAD) participants. Table 2 lists the financial source fields collected by HUD. Table 3 lists the financial cost fields collected by HUD. Table 4 provides additional financial source detail pertaining to HUD’s leverage ratio calculation. Table 5 and Table 6 show the total financial source amounts collected by HUD. Specifically, Table 5 shows total financial source amounts prior to recategorization, while Table 6 shows total financial source amounts after manual adjustments. Manual adjustments included isolating funding source observations in “other funding” fields 1-6 and incorporating them into existing fields, as appropriate. Table 7 replicates HUD’s methodology for calculating the RAD leverage metrics after manual adjustments in HUD data. See Table 4, above, to compare changes in each category. Table 8 recalculates the leverage ratio by deducting federal sources as leveraged sources. Table 9 recalculates the leverage ratio by deducting public sources as leveraged sources (compare to Table 8 above). The Rental Assistance Demonstration (RAD) program has numerous requirements intended to ensure residents whose units are converted through RAD receive certain protections. The following is a description of these safeguards and their reporting and monitoring requirements. The Government Accountability Office, the audit, evaluation, and investigative arm of Congress, exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people. GAO examines the use of public funds; evaluates federal programs and policies; and provides analyses, recommendations, and other assistance to help Congress make informed oversight, policy, and funding decisions. GAO’s commitment to good government is reflected in its core values of accountability, integrity, and reliability. The fastest and easiest way to obtain copies of GAO documents at no cost is through GAO’s website (https://www.gao.gov). Each weekday afternoon, GAO posts on its website newly released reports, testimony, and correspondence. To have GAO e-mail you a list of newly posted products, go to https://www.gao.gov and select “E-mail Updates.” The price of each GAO publication reflects GAO’s actual cost of production and distribution and depends on the number of pages in the publication and whether the publication is printed in color or black and white. Pricing and ordering information is posted on GAO’s website, https://www.gao.gov/ordering.htm. Place orders by calling (202) 512-6000, toll free (866) 801-7077, or TDD (202) 512-2537. Orders may be paid for using American Express, Discover Card, MasterCard, Visa, check, or money order. Call for additional information. Connect with GAO on Facebook, Flickr, Twitter, and YouTube. Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. Visit GAO on the web at https://www.gao.gov. James-Christian Blockwood, Managing Director, spel@gao.gov, (202) 512-4707 U.S. Government Accountability Office, 441 G Street NW, Room 7814, Washington, DC 20548 Please Print on Recycled Paper. In addition to the individual named above, Paul Schmidt (Assistant Director), Julie Trinder-Clements (Analyst in Charge), Meghana Acharya, Enyinnaya David Aja, Alyssia Borsella, Juan J. Garcia, Ron La Due Lake, Amanda Miller, Marc Molino, Barbara Roesmann, Jessica Sandler, MaryLynn Sergent, Rachel Stoiko, and William Woods made major contributions to this report.	[ "HUD administers the Public Housing program, which provides federally assisted rental units to low-income households through PHAs. In 2010, HUD estimated its aging public housing stock had $25.6 billion in unmet capital needs. To help address these needs, the RAD program was authorized in fiscal year 2012. RAD allows PHAs to move (convert) properties in the public housing program to Section 8 rental assistance programs, and retain property ownership or transfer it to other entities. The conversion enables PHAs to access additional funding, including investor equity, generally not available for public housing properties. GAO was asked to review public housing conversions under RAD and any impact on residents. This report addresses, among other objectives, HUD's (1) assessment of conversion outcomes; (2) oversight of resident safeguards; and (3) provisions to help preserve the long-term affordability of units. GAO analyzed data on RAD conversions through fiscal year 2017; reviewed a sample of randomly selected, nongeneralizable RAD property files; and interviewed HUD officials, PHAs, developers, academics, and affected residents. The Department of Housing and Urban Development (HUD) put procedures in place to evaluate and monitor the impact of conversion of public housing properties under the Rental Assistance Demonstration (RAD) program. RAD's authorizing legislation requires HUD to assess and publish findings about the amount of private-sector leveraging. HUD uses a variety of metrics to measure conversion outcomes. But, the metric HUD uses to measure private-sector leveraging—the share of private versus public funding for construction or rehabilitation of assisted housing—has limitations. For example, HUD's leveraging ratio counts some public resources as leveraged private-sector investment and does not use final (post-completion) data. As a result, HUD's ability to accurately assess private-sector leveraging is limited. HUD does not systematically use its data systems to track effects of RAD conversions on resident households (such as changes in rent and income, or relocation) or monitor use of all resident safeguards. Rather, since 2016, HUD has required public housing agencies (PHA) or other post-conversion owners to maintain resident logs and collect such information. But the resident logs do not contain historical program information. HUD has not developed a process for systematically reviewing information from its data systems and resident logs on an ongoing basis. HUD has been developing procedures to monitor compliance with some resident safeguards—such as the right to return to a converted property—and begun a limited review of compliance with these safeguards. However, HUD has not yet developed a process for monitoring other safeguards—such as access to other housing voucher options. Federal internal control standards require agencies to use quality information to achieve objectives, and obtain and evaluate relevant and reliable data in a timely manner for use in effective monitoring. Without a comprehensive review of household information and procedures for fully monitoring all resident safeguards, HUD cannot fully assess the effects of RAD on residents. RAD authorizing legislation and the program's use agreements (contracts with property owners) contain provisions intended to help ensure the long-term availability of affordable units, but the provisions have not been tested in situations such as foreclosure. For example, use agreements between HUD and property owners specify affordability and use restrictions that according to the contract would survive a default or foreclosure. HUD officials stated that HUD intends to develop procedures to identify and respond to risks to long-term affordability, including default or foreclosure in RAD properties. However, HUD has not yet done so. According to federal internal control standards, agencies should identify, analyze, and respond to risks related to achieving goals and objectives. Procedures that address oversight of affordability requirements would better position HUD to help ensure RAD conversions comply with program requirements, detect potential foreclosure and other risks, and take corrective actions. GAO makes five recommendations to HUD intended to improve leveraging metrics, monitoring of the use and enforcement of resident safeguards, and compliance with RAD requirements. HUD agreed with our recommendations to improve metrics and build on existing oversight." ]	12,616	gov_report	en	null	cb5aaab1a10d7734da9f3f8aeec55f2679a1261cae6dee7a
Agencies generally acquire equipment from commercial vendors and through GSA, which contracts for the equipment from commercial vendors. In acquiring heavy equipment from a commercial vendor or GSA, agencies can purchase or lease the equipment. Generally, agencies use the term “lease” to refer to acquisitions that are time-limited and therefore distinct from purchases. The term “lease” is used to refer to both long-term and short-term leases. For example, the three agencies we reviewed in-depth use the term “rental” to refer to short-term leases of varying time periods. According to Air Force officials, they define rentals as leases that are less than 120 days while FWS and NPS officials said they generally use the term rental to refer to leases that are a year or less. For the purposes of this report, we use the term “rental” to refer to short-term leases defined as rentals by the agency and “long-term lease” to refer to a lease that is not considered a rental by the agency. (See fig. 1.) In 2013, GSA began offering heavy equipment through its Short-Term Rental program, which had previously been limited to passenger vehicles, in part to eliminate ownership and maintenance cost for infrequently used heavy equipment. Under this program, agencies can request a short-term equipment rental (less than a year) from GSA, and GSA will work with a network of commercial vendors to provide the requested heavy equipment. Unlike for some other types of federal property, there are no central reporting requirements for agencies’ inventories of heavy equipment. However, each federal agency is required to maintain inventory controls for its property, which includes heavy equipment. Agencies maintain inventory data through the use of agency-specific databases, and each agency can set its own requirements for what data are required and how these data are maintained. For example, while an agency may choose to maintain data in a headquarters database, it could also choose to maintain data at the local level. As another example, an agency may decide to track and maintain data on the utilization of its heavy equipment (such as the hours used) or may choose not to have such data or require any particular utilization levels. The Federal Acquisition Regulation (FAR) governs the acquisition process of executive branch agencies when acquiring certain goods and services, including heavy equipment. Under the FAR, agencies should consider whether to lease equipment instead of purchasing it based on several factors. Specifically, the FAR provides that agency officials should evaluate cost and other factors by conducting a “lease-versus-purchase” analysis before acquiring heavy equipment. Additionally, DOD’s regulations require its component agencies to prepare a justification supporting lease-versus-purchase decisions if the equipment is to be leased for more than 60 days. Twenty agencies reported data on their owned heavy equipment, including the (1) number, (2) types, (3) acquisition year, and (4) location of agencies’ owned heavy equipment in their inventories as of June 2017. The 20 agencies reported owning over 136,000 heavy equipment items. DOD reported owning most of this heavy equipment—over 100,000 items, about 74 percent. (See app. I for more information on agencies’ ownership of these items.) The Department of Agriculture reported owning the second highest number of heavy equipment items—almost 9,000 items, about 6 percent. (See fig. 2.) Four agencies—the Nuclear Regulatory Commission, the Department of Housing and Urban Development, the Office of Personnel Management, and the Agency for International Development—reported owning five or fewer heavy equipment items each. The 20 agencies reported owning various types of heavy equipment, such as cranes, backhoes, and road maintenance equipment in five categories: (1) construction, mining, excavating, and highway maintenance equipment; (2) airfield-specialized trucks and trailers; (3) self-propelled warehouse trucks and tractors; (4) tractors; and (5) soil preparation and harvesting equipment. Thirty-eight percent (almost 52,000 items) were in the construction, mining, excavating, and highway maintenance category (see fig. 3). Fifteen of the 20 agencies reported owning at least some items in this category. Twenty-four percent (over 33,000 items) were in the airfield- specialized trucks and trailers category, generally used to service and re-position aircraft on runways. DOD reported owning 99 percent (over 32,000) of these items, while 9 other agencies, including the Department of Labor and the National Aeronautics and Space Administration, reported owning the other one percent (317 items). Twenty-two percent (over 29,000 items) were in the self-propelled warehouse trucks and tractors category, which includes equipment such as forklift trucks. All 20 agencies reported owning at least one item in this category, and five agencies—the Agency for International Development, Department of Housing and Urban Development, the Environmental Protection Agency, the Nuclear Regulatory Commission, and the Office of Personnel Management—reported owning only items in this category. (For additional information on agencies’ ownership of heavy equipment in various categories, see app. I.) The twenty agencies reported acquiring their owned heavy equipment between 1944 and 2017, with an average of about 13 years since acquisition (see fig. 4). One heavy equipment manager we interviewed reported that a dump truck can last 10 to 15 years, whereas other types of equipment can last for decades if regularly used and well-maintained. The 20 agencies reported that over 117,000 heavy equipment items (86 percent) were located within the United States or its territories. Of these, about one-fifth (over 26,000) were located in California and Virginia, the two states with the most heavy equipment (see fig. 5). Of the equipment located outside of the United States and its territories, 94 percent was owned by the Department of Defense. The rest was owned by the Department of State (714 items in 141 countries from Afghanistan to Zimbabwe) and the National Science Foundation (237 items in areas such as Antarctica). The twenty agencies reported spending over $7.4 billion in 2016 dollars to acquire the heavy equipment they own (see table 1). However, actual spending was higher because this inflation-adjusted figure excludes over 37,000 heavy equipment items for which the agencies did not report acquisition cost or acquisition year, or both. Without this information, we could not determine the inflation-adjusted cost and therefore did not include the cost of these items in our calculation. The Army owns almost all of these items, having not reported acquisition cost or acquisition year, or both, for 36,589 heavy equipment items because, according to Army officials, the data were not available centrally but may have been available at individual Army units and would have been resource- intensive to obtain. The heavy equipment items reported by the 20 agencies ranged in acquisition cost from zero dollars to over $2 million in 2016 dollars, with an average acquisition cost in 2016 dollars of about $78,000, excluding assets with a reported acquisition cost of $0. Of the items which we adjusted to 2016 dollars and for which non-zero acquisition costs were provided: 94 percent cost less than $250,000 and accounted for 57 percent of the total adjusted acquisition costs (See fig. 6.) 6 percent of items cost more than $250,000 and accounted for 43 percent of the adjusted acquisition costs. (See fig. 6.) High-cost items included a $779,000 hydraulic crane acquired by the National Aeronautics and Space Administration in 1997 ($1.2 million in 2016 dollars), a $1.4 million ultra-deep drilling simulator acquired by the Department of Energy in 2009 ($1.6 million in 2016 dollars), and several $2.2 million well-drilling machines acquired by the Air Force in 2013 ($2.3 million in 2016 dollars). In calendar years 2012 through 2016, the Air Force, FWS, and NPS purchased almost 3,500 pieces of heavy equipment through GSA and private vendors at a total cost of about $360 million to support mission needs. (See table 2.) These agencies also spent over $5 million on long- term leases and rentals during this time period. The Air Force spent over $300 million to purchase over 2,600 heavy equipment assets in calendar years 2012 through 2016 that were used to support and maintain its bases globally. For example, according to Air Force officials, heavy equipment is often used to maintain runways and service and reposition aircraft on runways. While the majority of Air Force heavy equipment purchased in this time period is located in the United States, 41 percent of this heavy equipment is located outside the United States and its territories in 17 foreign countries to support global military bases. The Air Force could not provide complete information on its heavy equipment leases for fiscal years 2012 through 2016. Specifically, the Air Force provided data on 33 commercial heavy equipment leases that were ongoing as of August 2017 but could not provide cost data for these leases because this information is not tracked centrally. Additionally, the Air Force could not provide any data on leases that occurred previously because, according to Air Force officials, lease records are removed from the Air Force database upon termination of the lease. Officials said that rentals are generally handled locally and obtaining complete data would require a data call to over 300 base contracting offices. Air Force officials stated that rentals are generally used in unique situations involving short- term needs such as responding to natural disasters. For example, following Hurricane Sandy, staff at Langley Air Force Base in Virginia used rental equipment to clean up and repair the base. Although Air Force did not provide complete information on rentals, data we obtained from GSA’s Short-Term Rental program indicated that Air Force rented heavy equipment in 46 transactions not reflected in the Air Force data we received totaling over $3.7 million since GSA began offering heavy equipment through its Short-Term Rental program, which had previously been limited to passenger vehicles, in part program in 2013. FWS spent over $32 million to purchase 348 heavy equipment assets from calendar years 2012 through 2016. FWS used its heavy equipment to maintain refuge areas throughout the United States and its territories, including maintaining roads and nature trails. FWS also used heavy equipment to respond to inclement weather and natural disasters. Most of the heavy equipment items purchased by FWS were in the construction, mining, excavating, and highway maintenance equipment category and include items such as excavators, which were used for moving soil, supplies, and other resources. FWS officials reported that they did not have any long-term leases for any heavy equipment in fiscal years 2012 through 2016 because they encourage equipment sharing and rentals to avoid long-term leases whenever possible. FWS officials provided data on 228 rentals for this time period with a total cost of over $1 million. Information regarding these rentals is contained in an Interior-wide property management system, the Financial Business Management System (FBMS). FWS officials told us that they have not rented heavy equipment through GSA’s program because they have found lower prices through local equipment rental companies. NPS spent over $27 million to purchase 471 heavy equipment assets from calendar years 2012 through 2016. NPS uses heavy equipment— located throughout the United States and its territories—to maintain national parks and respond to inclement weather and natural disasters. For example, NPS used heavy equipment such as dump trucks, snow plows, road graders, and wheel loaders to clear and salt the George Washington Memorial Parkway in Washington, D.C., following snow and ice storms. Most of the heavy equipment items purchased by NPS were in the construction, mining, excavating, and highway maintenance equipment category and include items such as excavators, which are used for moving soil, supplies, and other resources. NPS reported spending about $360,000 on 230 long-term leases and rentals in fiscal years 2012 through 2016, not including rentals through GSA’s Short-Term Rental program, which had previously been limited to passenger vehicles, in part program. As with FWS, NPS leases and rentals are contained in FBMS, which is Interior’s property management system. Data we obtained from GSA’s Short-Term Rental program, which had previously been limited to passenger vehicles, in part program indicated that NPS rented heavy equipment in 26 transactions totaling over $200,000 since GSA began offering heavy equipment through its Short-Term Rental program, which had previously been limited to passenger vehicles, in part program in 2013, for a potential total cost of over $560,000 for these long-term leases and rentals. As mentioned earlier, the FAR provides that executive branch agencies seeking to acquire equipment should consider whether it is more economical to lease equipment rather than purchase it and identifies factors agencies should consider in this analysis, such as estimated length of the period that the equipment is to be used, the extent of use in that time period, and maintenance costs. This analysis is commonly referred to as a lease-versus-purchase analysis. While the FAR does not specifically require that agencies document their lease-versus-purchase analyses, according to federal internal control standards, management should clearly document all transactions and other significant events in a manner that allows the documentation to be readily available for examination and also communicate quality information to enable staff to complete their responsibilities. As discussed below, we found that most acquisitions we reviewed from FWS, NPS, and the Air Force did not contain any documentation of a lease-versus-purchase analysis. Specifically, officials were unable to provide documentation of a lease-versus-purchase analysis for six of the eight acquisitions we reviewed. FWS officials were able to provide documentation for the other two. Officials told us that a lease-versus- purchase analysis was not conducted for five of the six acquisitions and did not know if such analysis was conducted for the other acquisition. According to agency officials, the main reason why analyses were not conducted or documented for these six acquisitions is that the circumstances in which such analyses were to be performed or documented were not always clear to FWS, NPS, and Air Force officials. In addition to the FAR, Interior has agency guidance stating that bureaus should conduct and document lease-versus-purchase analyses. This July 2013 guidance—that FWS and NPS are to follow—states that requesters of equipment valued at $15,000 or greater should perform a lease-versus- purchase analysis when requesting heavy equipment. According to the guidance, this analysis should address criteria in the FAR and include a discussion of the financial and operating advantages of alternate approaches that would help contracting officials determine the final appropriate acquisition method. At the time the guidance was issued, Interior also provided a lease-versus-purchase analysis tool to aid officials in conducting this analysis. Additionally, in April 2016, Interior issued a policy to implement the July 2013 guidance. The 2016 policy clarifies that program offices are required to complete Interior’s lease-versus-purchase analysis tool and provide the completed analysis to the relevant contracting officer. Within Interior, bureaus are responsible for ensuring that procurement requirements are met, including the requirements and directives outlined in Interior’s 2013 guidance and 2016 policy on lease-versus-purchase analyses, according to agency officials. Within FWS, local procurement specialists prepare procurement requests and ensure that procurement requirements are met and that all viable options have been considered. Regional equipment managers review these procurement requests, decide whether to purchase or lease the requested equipment, and prepare the lease-versus-purchase analysis tool if the procurement specialist has indicated that it is required. Within NPS, local procurement specialists are responsible for ensuring that all procurements adhere to relevant requirements and directives, including documenting the lease- versus-purchase analysis. Of the three FWS heavy equipment acquisitions we reviewed for which the 2013 Interior guidance was applicable, one included a completed lease-versus-purchase analysis tool; one documented the rationale for purchasing rather than leasing, although it did not include Interior’s lease- versus-purchase analysis tool; and one did not include any documentation related to a lease-versus-purchase analysis. (See table 3.) Regarding the acquisition for which no documentation of a lease-versus- purchase analysis was provided—a 12-month lease of an excavator and associated labor costs for over $19,000—FWS officials initially told us that a lease-versus-purchase analysis was not required because the equipment lease was less than $15,000, and Interior’s guidance required a lease-versus-purchase analysis for procurements of equipment valued at $15,000 or greater. However, we found the guidance did not specify whether the $15,000 threshold includes the cost of labor. We also found that Interior’s guidance did not specify if a lease-versus-purchase analysis was required if the total cost of a rental is less than the purchase price. FWS officials acknowledged that Interior guidance is not clear and that it would be helpful for Interior to clarify whether these leases require a lease-versus-purchase analysis. NPS officials were unable to provide documentation of a lease-versus- purchase analysis for the single heavy equipment acquisition we reviewed—the purchase of a wheeled tractor in 2015 for $43,177. According to these officials, they could not do so because of personnel turnover in the contracting office that would have documented the analysis. In addition, they told us that they believe that such analyses are not always completed for heavy equipment acquisitions because responsibility for completing these analyses is unclear. Specifically, they told us that it was unclear whether the responsibility lies with the official requesting the equipment, the contracting personnel who facilitate the acquisition, or the property personnel who manage inventory data. However, when we discussed our findings with Interior and NPS officials, NPS officials were made aware of the 2016 Interior policy that specifically requires program offices—the officials requesting the equipment—to complete the lease-versus-purchase analysis and provide documentation of this analysis to the contracting officer. As a result, NPS officials told us at the end of our review that program office officials will now be required to complete the lease-versus-purchase analysis tool and document this analysis. According to Air Force officials responsible for managing heavy equipment, financial or budget personnel at individual bases are responsible for conducting lease-versus-purchase analyses, also called economic analyses, to support purchase and lease requests. Air Force fleet officials told us that they then review these requests from a fleet perspective, considering factors such as whether the cost information provided in the request is from a reputable source, expected maintenance costs, and whether a requesting base has the capability to maintain the requested equipment. However, they said they do not check to ensure that a lease-versus-purchase analysis was completed or review the analysis. Equipment rentals can be approved at individual bases. In our review of four Air Force heavy equipment acquisitions, we found no instances in which Air Force officials documented a lease-versus- purchase analysis (see table 4). For the acquisitions that we reviewed, Air Force officials told us they did not believe a lease-versus-purchase analysis was required because the new equipment was either replacing old equipment that was previously approved or could be deployed. Accordingly, the Air Force purchased two forklifts in 2013 without conducting lease-versus-purchase analyses because the forklifts were replacing old forklifts that were authorized in 1997 and 2005. Furthermore, Air Force officials told us that both of these forklifts could be deployed and indicated that lease-versus-purchase analyses are not required for deployable equipment. However, the Air Force does not have guidance that describes the circumstances that require either a lease-versus-purchase analysis or documentation of the rationale for not completing such analysis. Although we identified several instances in which officials in the three selected agencies did not document lease-versus-purchase analyses, officials from these agencies stated that they consider mission needs and equipment availability, among other factors, when making these decisions. For example, Air Force officials told us following Hurricane Sandy, staff at Langley Air Force Base in Virginia used rental equipment to clean and repair the base because the equipment was needed immediately to ensure the base could meet its mission. Moreover, availability of heavy equipment for lease or rental, which can be affected by factors such as geography and competition for equipment, is a key consideration. For example, FWS officials told us that the specialized heavy equipment sometimes needed may not be available for long-term lease or rent in remote areas such as Alaska and the Midway Islands, so the agency purchases the equipment. In addition, some agency officials told us that they may purchase heavy equipment even if that equipment is needed only sporadically if there is likely to be high demand for rental equipment. For example, following inclement weather or a natural disaster, demand for certain heavy equipment rentals can be high and equipment may not be available to rent when it is needed. While we recognize that mission needs and other factors are important considerations, without greater clarity regarding when to conduct or document lease-versus-purchase analyses, officials at FWS, NPS, and Air Force may not be conducting such analyses when appropriate and may not always make the best acquisition decisions. These agencies could be overspending on leased equipment that would be more cost- effective if purchased or overspending to purchase equipment when it would be more cost-effective to lease or rent. Moreover, without documenting decisions on whether to purchase or lease equipment, they lack information that could be used to inform future acquisition decisions for similar types of equipment or projects. Air Force guidance requires that fleet managers collect utilization data for both vehicles and heavy equipment items, such as the number of hours used, miles traveled, and maintenance costs. The Air Force provided us with utilization data for over 18,000 heavy equipment items and uses such data to inform periodic base validations. Specifically, Air Force officials said that every 3 to 5 years each Air Force base reviews the on- base equipment to ensure that the installation has the appropriate heavy equipment to complete its mission and reviews utilization data to identify items that are underutilized. If heavy equipment is considered underutilized, the equipment is relocated—either moved to another location or sent to the Defense Logistics Agency for reuse or transfer to another agency. According to Air Force officials the Air Force has relocated over 700 heavy equipment items based on the results of the validation process and other factors such as replacing older items and agency needs since 2014. Similarly, FWS guidance for managing heavy equipment utilization sets forth minimum utilization hours for certain types of heavy equipment and describes requirements for reporting utilization data. FWS provided us with utilization data on over 3,000 heavy equipment items. According to officials, condition assessments of heavy equipment are required by FWS guidance every 3 to 5 years. According to FWS officials, condition assessments inform regional-level decision making about whether to move equipment to another FWS location or dispose of the equipment. In contrast, NPS does not require the collection of utilization data to evaluate heavy equipment use and does not have guidance for managing heavy equipment utilization. However, NPS officials told us that they recognize the need for such guidance. NPS officials shared with us draft guidance that they have developed, which would require collection of utilization data for heavy equipment such as hours or days of usage each month. According to NPS officials, they plan to send the guidance to the NPS policy office for final review in March 2018. Until this guidance is completed and published, NPS is taking interim actions to manage the utilization of its heavy equipment. For example, NPS officials stated that they have asked NPS locations to collect and post monthly utilization data, discussed the collection of utilization data at fleet meetings, and distributed job aids to support this effort. During the course of our review, NPS officials provided us with some utilization data for about 1,400 of the more than 2,400 NPS heavy equipment items. Specifically, for the 1,459 heavy equipment items for which NPS provided utilization data, 541 items had utilization data for each month. For the remaining 918 items, utilization data were reported for some, but not all months. The federal government has spent billions of dollars to acquire heavy equipment. There is no requirement that agencies report on the inventory of this equipment, as there is no standard definition of heavy equipment. When deciding how to acquire this equipment, agencies’ should conduct a lease-versus-purchase analysis as provided in the FAR, which is a critical mechanism to ensure agencies are acquiring the equipment in the most cost-effective manner. Because FWS, NPS and the Air Force were unclear when such an analysis was required, they did not consistently conduct or document analyses of whether it was more economical to purchase or lease heavy equipment. In the absence of clarity on the circumstances in which lease-versus-purchase analyses for heavy equipment acquisitions are to be conducted and documented, the agencies may not be spending funds on heavy equipment cost- effectively. We are making two recommendations—one to the Air Force and one to the Department of the Interior. The Secretary of the Air Force should develop guidance to clarify the circumstances in which lease-versus-purchase analyses for heavy equipment acquisitions are to be conducted and documented. (Recommendation 1) The Secretary of the Interior should further clarify in guidance the circumstances in which lease-versus-purchase analyses for heavy equipment acquisitions are to be conducted and documented. (Recommendation 2) We provided a draft of this report to the Departments of Agriculture, Defense, Energy, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, and Veterans Affairs; General Services Administration; National Aeronautics and Space Administration; National Science Foundation; Nuclear Regulatory Commission; Office of Personnel Management; and U.S. Agency for International Development. The departments of Agriculture, Energy, Homeland Security, Housing and Urban Development, Justice, State and Veterans Affairs, as well as the General Services Administration, National Aeronautics and Space Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management; and U.S. Agency for International Development did not have comments. The Department of Labor provided technical comments, which we incorporated as appropriate. In written comments, reproduced in appendix III, the Department of Defense stated that it concurred with our recommendation and plans to issue a bulletin to Air Force contracting officials. In written comments, reproduced in appendix IV, the Department of the Interior stated that it concurred with our recommendation and plans to implement it. If you or members of your staff have any questions about this report, please contact me at (202) 512-2834 or RectanusL@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Major contributors to this report are listed in appendix V. Specialized Trucks and Trailers 37 . Self-Propelled Warehouse Trucks and Tractors 1,733 3 . . . . . . . . . . . . . . . . . . . Specialized Trucks and Trailers 7 . Self-Propelled Warehouse Trucks and Tractors 2,925 134 . . . . . . . . . . . . . . . . . . Specialized Trucks and Trailers . Self-Propelled Warehouse Trucks and Tractors 146 . . . . . . 7 . . . - 109 . . . Self-Propelled Warehouse Trucks and Tractors 575 64 40 . . . . . . . . . . . 4 . . . . . . . . . Nuclear Regulatory Commission Office of Personnel Management Social Security Administration United States Agency for International Development Grand Total . . . . This report addresses: (1) the number, type, and cost of heavy equipment items that are owned by the 24 CFO Act agencies; (2) the heavy equipment items selected agencies have recently acquired and how selected agencies decided to purchase or lease this equipment; and (3) how selected agencies manage the utilization of their heavy equipment. To identify the number, type, and cost of heavy equipment owned by federal agencies, we first interviewed officials at the General Services Administration to determine whether there were government-wide reporting requirements for owned heavy equipment and learned that there are no such requirements. We then obtained and analyzed data on agencies’ spending on equipment purchases and leases from the Federal Procurement Data System–Next Generation (FPDS-NG), which contains government-wide data on agencies’ contracts. However, in reviewing the data available and identifying issues with the reliability of the data, we determined that data on contracts would not be sufficient to answer the question of what heavy equipment the 24 CFO Act agencies own. We therefore conducted a data collection effort to obtain heavy equipment inventory information from the 24 CFO Act agencies, which are the Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Justice, Labor, State, Transportation, the Treasury, and Veterans Affairs; Environmental Protection Agency; General Services Administration; National Aeronautics and Space Administration; National Science Foundation; Nuclear Regulatory Commission; Office of Personnel Management; Small Business Administration; Social Security Administration; and Agency for International Development. Because there is no generally accepted definition of heavy equipment, we identified 12 federal supply classes in which the majority of items are self- propelled equipment but not passenger vehicles or items that are specific to combat and tactical purposes, as these items are generally not considered to be heavy equipment. (See table 5.) We then vetted the appropriateness of these selected supply classes with Interior, FWS, NPS, and Air Force agency officials, as well as with representatives from a fleet management consultancy and a rental company, and they generally agreed that items in selected federal supply classes are considered heavy equipment. Federal supply classes are used in FPDS- NG and are widely used in agencies’ inventory systems. Overall, about 90 percent of the heavy equipment items that agencies reported were assigned a federal supply class in the agency’s inventory data. In discussing heavy equipment categories in the report, we use the category titles below. To identify points of contact at the 24 CFO Act agencies, we obtained GSA’s list of contact information for agencies’ national utilization officers, who are agency property officers who coordinate with GSA. As a preliminary step, we contacted these individuals at each of the 24 CFO Act agencies and asked them to either confirm that they were the appropriate contacts or provide contact information for the appropriate contact and to inform us if they do not own heavy equipment. Officials at 4 agencies—Department of Education, Department of the Treasury, General Services Administration, and Small Business Administration— indicated that the agency did not own any items in the relevant federal supply classes. Officials at 16 of these agencies indicated that they would be able to respond on a departmental level because the relevant inventory data are maintained centrally, while officials at 4 agencies indicated that we would need to obtain responses from officials at some other level because the relevant inventory data are not maintained centrally. (See table 7 for a list of organizations within the 20 CFO Act agencies that indicated they own relevant equipment and responded to our data collection effort.) After identifying contacts responsible for agencies’ heavy-equipment inventory data, we prepared data collection instruments for requesting information on heavy equipment and tested these documents with representatives from 4 of the 20 CFO Act agencies that indicated they own heavy equipment to ensure that the documents were clear and logical and that respondents would be able to provide the requested data and answer the questions without undue burden. These agency representatives were selected to provide a variety of spending on federal supply group 38 equipment as reported in FPDS-NG, civilian and military agencies, and different levels at which the agency would be responding to the data collection effort (e.g., at the departmental level or at a sub- departmental level). Our data collection instrument requested the following data on respondent organizations’ owned assets in 12 federal supply classes as of June 2017: Respondents provided data on original acquisition costs in nominal terms, with some acquisitions occurring over 50 years ago. In order to provide a fixed point of reference for appropriate comparison, we present in our report inflation-adjusted acquisition costs using calendar year 2016 as the reference. To adjust these dollar amounts for inflation, we used the Bureau of Labor Statistic’s Producer Price Index by Commodity for Machinery and Equipment: Construction Machinery and Equipment (WPU112), compiled by the Federal Reserve Bank of St. Louis. We conducted the data collection effort from July 2017 through October 2017 and received responses from all 20 agencies that indicated they own heavy equipment. In order to assess the reliability of agencies’ reported data, we collected and reviewed agencies’ responses regarding descriptions of their inventory systems, frequency of data entry, agency uses of the data, and agencies’ opinions on potential limitations of the use of their data in our analysis. We conducted some data cleaning, which included examining the data for obvious errors and eliminating outliers. We did not verify the data or responses received; the results of our data collection effort are used only for descriptive purposes and are not generalizable beyond the 24 CFO Act agencies. Based on the steps we took, we found these data to be sufficiently reliable for our purposes. To determine the heavy equipment items that selected agencies recently acquired and how these agencies decided whether to purchase or lease this equipment, we first used data from the FPDS-NG to identify agencies that appeared to have the highest obligations for construction or heavy equipment, or both, and used this information, along with other factors, to select DOD and Interior. At the time, in the absence of a generally accepted definition of heavy equipment, we reviewed data related to federal supply group 38—construction, mining, excavating, and highway maintenance equipment—because (1) we had not yet defined heavy equipment for the purposes of our review; (2) agency officials had told us that most of what could be considered heavy equipment was in this federal supply group; and (3) our analysis of data from usaspending.gov showed that about 80 percent of spending on items that may be considered heavy equipment were in this federal supply group. In meeting with officials at these departments, we learned that agencies within each department manage heavy equipment independently, so we requested current inventory data for Interior bureaus and the DOD military departments and selected three agencies that had among the largest inventories of construction and/or heavy equipment at the time, among other criteria: the U.S. Air Force (Air Force); the Fish and Wildlife Service (FWS); and the National Park Service (NPS). We then used information from our data collection effort—which included the number, type, cost, acquisition year and other data elements—to determine heavy equipment items that these agencies acquired during 2012 through 2016. We interviewed agency officials to determine what lease data were available from the three selected agencies. We assessed the reliability of these data with agency official interviews and reviewed the data for completeness and potential outliers. We determined that the data provided were sufficiently reliable for the purposes of documenting leased and rental heavy equipment. We also obtained data from GSA’s Short- Term Rental program, which had previously been limited to passenger vehicles, in part program for August 2012, when the first item was rented under this program, to February 2017, when GSA provided the data. We used these data to identify selected agencies’ rentals of heavy equipment through GSA’s Short-Term Rental program, which had previously been limited to passenger vehicles, in part program and associated costs. We interviewed officials from GSA’s Short-Term Rental program to discuss the program history as well as the reliability of their data on these rented heavy equipment items. We determined that the data were sufficiently reliable for our purposes. To determine how the three selected agencies decide whether to purchase or lease heavy equipment, we interviewed fleet and property managers at these selected agencies and asked them to describe their process for making these decisions as well as to identify relevant federal and agency regulations and guidance. We reviewed relevant federal and agency regulations and guidance regarding how agencies should make these decisions, including: Federal Acquisition Regulation, Office of Management Budget’s A-94, Guidelines and Discount Rates for Benefit- Cost Analysis of Federal Programs, Defense Federal Acquisition Regulation Supplement, Air Force Manual 65-506, Air Force Guidance Memorandum to Air Force Instruction 65-501, and Interior’s Guidance On Lease Versus Purchase Analysis and Capital Lease Determination for Equipment Leases. We also reviewed the Standards for Internal Control in the Federal Government for guidance on documentation as well as past GAO work that reviewed agencies’ lease-versus-purchase analyses. To determine whether the three selected federal agencies documented lease-versus-purchase decisions for selected acquisitions and adhered to relevant agency guidance, we selected and reviewed a non-generalizable sample of 10 heavy equipment acquisitions—two purchases each from the Air Force, FWS, and NPS, and two leases each from the Air Force and FWS. Specifically, we used inventory data obtained through our data collection effort, described above, to randomly select two heavy equipment purchases from each selected agency using the following criteria: calendar years 2012 through 2016; the two federal supply classes most prevalent in each selected agency’s heavy equipment inventory, as determined by the data collection effort described above; and for NPS and FWS, acquisition costs of over $15,000. In addition, we used lease data provided by the Air Force and FWS to randomly selected two heavy equipment leases per agency. Because NPS could not provide data on heavy equipment leases, we did not select or review any NPS lease decisions. To select the Air Force and FWS leases we used the following criteria: fiscal years 2012 through 2016; for the Air Force, which included federal supply classes in the lease data provided, the two federal supply classes most prevalent in the lease data and for FWS, which did not include federal supply class in the lease data provided, the two federal supply classes most prevalent in the purchase data; and for FWS, leases over $15,000. After selecting these acquisitions, we determined that one FWS lease and one NPS purchase we selected pre-dated Interior’s 2013 guidance on lease-versus-purchase analysis and excluded these acquisitions from our analysis for a total of eight acquisitions. In reviewing agencies’ documentation related to these acquisitions, we developed a data collection instrument to assess the extent to which agencies documented lease-versus-purchase analyses and, in the case of FWS and NPS, adhered to relevant Interior guidance. We supplemented our review of these acquisition decisions with additional information by interviewing officials at the three selected agencies and requesting additional information to understand specific circumstances surrounding each procurement. Our findings are not generalizable across the federal government or within each selected department. To determine how selected agencies manage heavy equipment utilization, we interviewed officials at the three selected agencies to identify departmental and agency-specific guidance and policies and to determine whether utilization requirements exist. We reviewed guidance identified by these officials, including Interior and Air Force vehicle guidance, both of which apply to heavy equipment, and FWS’s Heavy Equipment Utilization and Replacement Handbook. We also compared their practices to relevant Standards for Internal Control in the Federal Government. For the selected agencies with guidance for managing heavy equipment—Air Force and FWS—we reviewed the guidance to determine if and how selected agencies measured and documented heavy equipment utilization. For example, we reviewed whether selected agencies developed reports for managing heavy equipment utilization such as Air Force validation reports and FWS conditional assessment reports. We also reviewed Air Force, FWS, and NPS utilization data for heavy equipment but we did not independently calculate or verify the utilization rate for individual heavy equipment items because each heavy equipment item (backhoe, forklift, tractor, etc.,) has different utilization requirements depending on various factors such as the brand, model, or age of equipment. However, we did request information about agency procedures to develop and verify utilization rates. We assessed the reliability of the utilization data with agency official interviews and a review of the data for completeness and potential outliers. We determined that the data were sufficiently reliable for the purposes of providing evidence of utilization data collection for heavy equipment assets. We also visited the NPS George Washington Memorial Parkway to interview equipment maintenance officials regarding the procurement and management of heavy equipment and to document photos of heavy equipment. We selected this site because of its range of heavy equipment and close proximity to the Capital region. We conducted this performance audit from October 2016 to February 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the individual named above, John W. Shumann (Assistant Director), Rebecca Rygg (Analyst in Charge), Nelsie Alcoser, Melissa Bodeau, Terence Lam, Ying Long, Josh Ormond, Kelly Rubin, Crystal Wesco, and Elizabeth Wood made key contributions to this report.	[ "Federal agencies use heavy equipment such as cranes and forklifts to carry out their missions, but there is no government-wide data on federal agencies' acquisition or management of this equipment. GAO was asked to review federal agencies' management of heavy equipment. This report, among other objectives, examines: (1) the number, type, and costs of heavy equipment items that are owned by 20 federal agencies and (2) the heavy equipment that selected agencies recently acquired as well as how they decided whether to purchase or lease this equipment. GAO collected heavy equipment inventory data as of June 2017 from the 24 agencies that have chief financial officers responsible for overseeing financial management. GAO also selected three agencies (using factors such as the heavy equipment fleet's size) and reviewed their acquisitions of and guidance on heavy equipment. These agencies' practices are not generalizable to all acquisitions but provide insight into what efforts these agencies take to acquire thousands of heavy equipment items. GAO also interviewed officials at the three selected agencies. Of the 24 agencies GAO reviewed, 20 reported owning over 136,000 heavy equipment items such as cranes, backhoes, and forklifts, and spending over $7.4 billion (in 2016 dollars) to acquire this equipment. The remaining 4 agencies reported that they do not own any heavy equipment. The three selected agencies GAO reviewed in-depth—the Air Force within the Department of Defense (DOD), and the Fish and Wildlife Service and the National Park Service within the Department of the Interior (Interior)—spent about $360 million to purchase about 3,500 heavy equipment assets in calendar years 2012 through 2016 and over $5 million to lease heavy equipment from fiscal years 2012 through 2016. Officials from all three agencies stated that they consider mission needs and the availability of equipment leases when deciding whether to lease or purchase heavy equipment. Federal regulations provide that agencies should consider whether it is more economical to lease or purchase equipment when acquiring heavy equipment, and federal internal control standards require that management clearly document all transactions in a manner that allows the documentation to be readily available for examination. However, in reviewing selected leases and purchases of heavy equipment from these three agencies, GAO found that officials did not consistently conduct or document lease-versus-purchase analyses. Officials at the Air Force and Interior said that there was a lack of clarity in agency policies about when they were required to conduct and document such analyses. Without greater clarity on when lease-versus-purchase analyses should be conducted and documented, these agencies may not be spending funds on heavy equipment effectively. The Department of the Interior and the Air Force should clarify the circumstances in which lease-versus-purchases analyses for heavy equipment acquisitions are to be conducted and documented. The Departments of the Interior and Defense concurred with these recommendations." ]	6,750	gov_report	en	null	ad1e97265c4148aa84685bcfffe30b9009fb9f1788a0b7ff
Since 2001, DOD’s total workforce has changed in size and composition. DOD’s military, civilian, and contractor workforces peaked around 2011 and have since decreased in size, as shown in figure 1. Several factors have contributed to changes in the size of the workforces including varying levels of U.S. involvement in the conflicts in Iraq and Afghanistan, military to civilian and contractor conversions, contractor insourcing, and the growth in certain workforces such as acquisition and cyber. DOD’s management of its workforce is governed by several workforce management statutes, including sections 129, 129a, and 2463 of Title 10 of the United States Code. Section 129 directs that DOD civilian personnel be managed each fiscal year on the basis of, and consistent with, total-force management policies and procedures established under section 129a, the workload required to carry out the functions and activities of the department, and the funds made available to the department each fiscal year. Section 129a directs the Secretary of Defense to establish policies and procedures for determining the most appropriate and cost-efficient mix of military, civilian, and contracted services to perform the mission of the department. Finally, Section 2463 directs the Under Secretary of Defense for Personnel and Readiness to devise and implement guidelines and procedures to ensure that consideration is given to using, on a regular basis, DOD civilian employees to perform new functions and functions performed by contractors that could be performed by DOD civilian employees. DOD Instruction 1100.22, Policy and Procedures for Determining Workforce Mix (April 12, 2010) (Change 1, Dec. 1, 2017) establishes policy, assigns responsibilities, and prescribes procedures for determining the appropriate workforce mix of the military, civilian, and contracted services. The instruction provides criteria for workforce-mix decisions and directs DOD components to conduct a cost comparison to determine the low-cost provider for all new or expanding mission requirements and for functions that have been contracted but could be performed by DOD civilian employees. In addition, over the past 10 years DOD has taken steps to better understand the costs associated with its workforces. For example, we found in September 2013 that DOD had improved its methodology for estimating and comparing the full cost of work performed by military and civilian personnel and contractor support, but the methodology continued to have certain limitations, such as the lack of guidance for certain cost elements related to overhead. We made five recommendations, including for DOD to assess the advantages and disadvantages of allowing the continued use of different cost-estimation tools across the department or directing department-wide application of one tool, and revise its guidance in accordance with the findings of its assessment. DOD implemented this recommendation but has not yet implemented the other four recommendations although it concurred or generally concurred with them. DOD’s Cost-Comparison Report addressed three elements and partially addressed one element concerning the accounting for the fully-burdened, or full, cost of federal civilian and service contractor personnel performing functions at the selected installations, as shown in table 1. DOD concluded that for the 21,000 federal civilians and service contractors compared, neither federal civilians nor service contractors were predominately more or less expensive, with the costs being dependent upon the function being performed, location, and level of expertise. DOD noted that the results were not generalizable across the department. Each of the elements and our assessment are discussed below. We believe that DOD addressed the reporting element to assess performance of functions performed by civilian and contractor personnel by developing a methodology to assess performance of functions performed by federal civilians and service contractors at organizations within nine geographic regions including two locations outside the continental United States. Organizations included in DOD’s methodology include the following: Fort Belvoir Community Hospital Defense Threat Reduction Agency US Army Intelligence and Security Command Aviation and Missile Research, Development, and Engineering Center Naval Medical Center San Diego Space and Naval Warfare Systems Command Ogden Air Logistics Complex 75th Air Base Wing Naval Facilities Engineering Command Tripler Army Medical Center DOD’s methodology included the following: Selecting installations and organizations: DOD used data from the Defense Civilian Personnel Data System to identify military installations with large reported numbers of federal civilians. According to DOD officials, they eliminated from consideration those installations that had no reported contractors. From this subset of installations, DOD selected organizations to represent all three military departments and diverse geographical locations, to include two locations outside the continental United States. Assessing the functions performed by civilians and contractors to identify federal civilians and service contractors performing similar functions: DOD assessed the performance of functions at these selected locations to identify federal civilians and service contractors performing similar functions as there is no direct mapping or perfect match between existing taxonomies used to quantify federal civilian positions and contracted services. Further, DOD reported that the day-to-day functions performed by federal civilian employees do not always directly correlate to the designated occupational series or the job title for their position. For example, an individual with an occupational series assigned as an accountant may actually perform work more consistent with that of a financial analyst. According to DOD’s Cost-Comparison Report, DOD did not rely on occupational series names or job titles alone to determine the actual work being performed by federal civilians. Specifically, DOD conducted site visits with each organization and relied on local managers’ direct knowledge of the actual tasks that their federal civilians and service contractor personnel performed. According to DOD’s Cost-Comparison Report, DOD determined that personnel need to perform at least 80 percent common tasks to be able to make a comparison. For the organizations selected, DOD compared the costs of all federal civilians and service contractors identified as performing similar functions. The challenges DOD identified in DOD’s Cost-Comparison Report on determining the functions performed by contractor personnel are similar to those we encountered in our prior work on DOD’s efforts to compile and review of an inventory of contracted services. Section 2330a of Title 10 of the U.S. Code directs the Secretary of Defense to annually prepare an inventory of activities performed during the preceding fiscal year pursuant to staff augmentation contracts. Section 2330a also directs the secretary of each military department and head of each defense agency responsible for activities in the inventory to, within 90 days after the Secretary of Defense submits the inventory, review the contracts and activities in the inventory for which that secretary or agency head is responsible, in part to identify activities that should be considered for conversion. Our prior work has identified, among other issues, that the absence of a complete and accurate inventory of contracted services hinders DOD’s management of these services. According to DOD officials, the Office of the Under Secretary of Defense (Personnel and Readiness) has also recognized the challenges associated with the various taxonomies and lexicons associated with articulating the size and composition of federal civilian, military, and contracted services workforces, and has efforts underway with the goal of better aligning those to enable more holistic total force management of all sources of labor. According to DOD officials, by improving available workforce data, DOD can support better-informed leadership decisions, improve accuracy of analyses, and provide consistent explanations of the department’s workforce resources. DOD officials told us that this effort has an estimated completion of December 2018. We believe that DOD partially addressed the reporting element to account for the full cost of civilian and contractor personnel by providing an accounting of the labor costs of selected federal civilian and service contractor full-time equivalents for personnel performing similar functions at government-owned facilities during calendar year 2015, but excluding certain non-labor costs from its cost calculations. According to DOD officials, 2015 was the last year for which complete data were available. DOD developed a methodology for identifying labor costs associated with federal civilian and service contractor full-time equivalents during calendar year 2015 at government-owned facilities for its cost comparisons. Based on reviews of applicable guidance and consultations with the Office of the Under Secretary of Defense – Comptroller, DOD included numerous federal civilian costs collected from several sources in DOD’s Cost Comparison Report, as shown in table 2. In addition, to assure data quality, DOD officials told us that they took steps to identify data errors in the data collected including identifying missing data fields and data entries that might indicate data errors. For example, DOD officials told us that they verified that they had pay records for every pay period in calendar year 2015 by identifying potential errors and outliers and sharing these with the Defense Finance and Accounting Service and the selected DOD organizations for review. Officials also stated that DOD sent its complete calculated data sets to each organization for review against their own pay records and that all errors were corrected or outliers were explained. Additionally, according to our analysis, DOD excluded overtime from its costs related to federal civilians in accordance with Office of Management and Budget Circular A-11. However, DOD included overtime pay in its report separately for context and noted that overtime pay is a significant part of civilian compensation for some organizations. Officials noted that those funded via a working capital fund arrangements, such as depots, use overtime to handle surges in demand throughout the year. DOD noted in its report that selected service contracts at government facilities and developed three methodologies to identify labor costs associated with service contractor full-time equivalents during calendar year 2015, as shown in table 3. DOD stated in its report that identifying service contractor full-time equivalents is a significant challenge because the level of detail available in each contract varied such that DOD could not employ a single methodology, and unlike federal civilian pay data, there is no centralized database on service-contractor pay. DOD reported that contracts are rarely written to address the cost-per-contractor as a full-time equivalent, and some contracts do not differentiate between labor and non-labor costs. DOD noted in its report that the negotiated price of the contract includes direct costs, including labor and non-labor costs, and indirect costs such as overhead. Further, the contract costs include service contractor profit. Based on our review of DOD’s Cost-Comparison Report, DOD used non- excludable contract costs as a basis in two of its methodologies. These costs to DOD are associated with labor, and include pay and benefits provided to service contractor personnel, contractor profit, and overhead the contractor included in the cost of the contract. When the number of service contractor full-time equivalents and full costs for a contract was known, DOD used the first method, dividing contract costs by the number of service contractor full-time equivalents to arrive at the cost per service contractor full-time equivalent. When the number of billable hours was known, DOD used the second method, multiplying the ratio of contract costs divided by billable hours by a standard number of annual billable hours. For contracts in which the labor rate was known but costs could not be disaggregated, DOD multiplied the labor rate by a standard 1,880 annual billable hours unless a contract specified the labor rate as a number of annual billable hours. For example, Defense Logistics Agency contractor-labor rates for wage grade equivalent contractor full-time equivalents are based on 2,080 annual labor hours. We assessed DOD’s report as partially addressing the reporting element to account for the full cost of federal civilian and contractor personnel because DOD excluded certain non-labor costs from its costs calculations—(1) direct non-labor costs for government owned facilities and government provided supplies, (2) indirect costs for general and administrative and overhead for civilians, and (3) costs to manage contracts—from its costs calculations. Senate Report 114-49 stated that DOD is to include an accounting of the full cost of DOD federal civilian and service contractors performing similar functions, including facility overhead. DOD stated in its report that the methodology utilized to compare the costs of federal civilian and service contractor full-time equivalents was consistent with DOD Instruction (DODI) 7041.04, Estimating and Comparing the Full Costs of Civilian and Active Duty Military Manpower and Contract Support (July 3, 2013), hereafter referred to DODI 7041.04. However, DODI 7041.04 states that the full cost of personnel should include direct and indirect non-labor costs, such as those referenced previously. DOD officials stated that they considered including non-labor costs in their calculations but did not because they believe these costs would add approximately the same to both federal civilian and service contractor costs. DODI 7041.04 instructs that if a function is performed on government property, the costs of goods, services, and benefits that are common costs may be excluded provided the number of government and contactor personnel is equivalent. DODI 7041.04 further instructs that when the number of government and contractor personnel differs, adjustments must be made to the cost estimates to account for the difference in number of government and contractor personnel. While there were some instances where it was the case that DOD’s cost estimates involved an equal number of civilian and contractor personnel performing functions on government property, there were many instances in where the personnel numbers differed and common costs should not have been excluded. For example, in DOD’s comparisons of federal civilians and service contractors at Fort Belvoir Community Hospital, DOD conducted comparisons of 19 functions where 2 functions had equal numbers of federal civilian and service contractors and 17 functions had differing numbers of federal civilian and service contractors. In one comparison, the number of contractors was over three times the number of civilians. DOD officials also stated that they believe their methodology is in accordance with DODI 7041.04 because DODI 7041.04 states that the cost elements in the instruction can be modified or augmented in each specific case as necessary, but DOD components should be prepared to support such decisions with sufficient justification. We acknowledge that DODI 7041.04 states that the cost elements can be modified, but by excluding non-labor costs in its cost comparisons, DOD did not account for the full cost of federal civilians and service contractors as requested in the mandate. We believe that DOD addressed the reporting element to compare costs by comparing its calculated costs of selected federal civilians and service contractors performing similar functions at selected installations. DOD reported that its results represent selected personnel performing functions within selected organizations and are not generalizable across the department. DOD concluded that for the federal civilian and contractor full-time equivalents included in the study, the costs varied by organization, location, and function being performed. DOD presented comparisons of federal civilian and service contractor full-time equivalents costs and expressed these results as a cost ratio. However, it is not clear how the results would be different if all costs that encompass full costs of personnel would have been included in DOD’s comparisons. See tables 4 and 5 below for examples of greater costs for the performance of functions by federal civilians or service contractors at Fort Belvoir Community Hospital in Fort Belvoir, Virginia. We believe that DOD addressed the reporting element by assessing the flexible employment authorities for the employment and retention of federal civilian employees at the same 17 organizations used for the cost comparison. Specifically, DOD sent questionnaires to DOD hiring officials and human resource professionals to collect information on flexible employment authorities. DOD included a broad spectrum of organizational missions in its query of management and human resource officials regarding the use and availability of flexible hiring authorities. Noting that this assessment is more subjective than the others in DOD’s Cost-Comparison Report, DOD queried senior leaders, middle managers, front-line supervisors and human resource professionals regarding which authorities are being used and the effectiveness of each. According to DOD’s report, in this way, DOD was able to gauge the extent to which each type of authority was used as well as the satisfaction with and effectiveness of each. DOD’s Cost-Comparison Report made several conclusions regarding flexible hiring authorities and made one recommendation. The findings included that there was a variance in the authorities used between organizations, management unfamiliarity with all available authorities, and a belief among managers that expanded use of some authorities is needed to produce more quality hires. DOD’s Cost- Comparison Report recommended DOD and OPM should explore opportunities to refine, consolidate, or reduce unused, inefficient, or cumbersome hiring authorities. We provided a draft of this report to DOD for review and comment. In written comments, DOD non-concurred with our assessment that DOD partially addressed the mandated reporting element to provide an accounting of the fully-burdened cost of federal civilian and service contractor personnel performing functions at the selected installations to include training, benefits, reimbursable costs, and facility overhead. DOD’s comments are reproduced in their entirely in appendix I. DOD also provided technical comments, which we incorporated as appropriate. DOD stated that we presented the three reporting elements identified in the congressional mandate absent the full context and congressional intent. Specifically, DOD stated that in the congressional mandate, the list of elements to be included in the report is not a stand-alone list and DOD stated that we present the elements as a stand-alone list. DOD further stated that the list of elements in the mandate is preceded by a paragraph that we did not reproduce in our report, but which provides context and congressional intent for the reporting elements. We do not believe that the language omitted from our report changes the meaning of the reporting elements to be included in DOD’s cost comparison report because the paragraph omitted clearly states that the purpose of the report is to provide the results of a study that includes a comparison of the fully-burdened cost of the performance of functions by DOD civilian personnel with the fully-burdened cost of the performance by DOD contractors. The paragraph preceding the reporting elements and the elements reads as follows: The committee directs the Secretary of Defense to submit to the Committees on Armed Services of the Senate and the House of Representatives, and to the Comptroller General of the United States, a report setting forth the results of a study, conducted by the Secretary for the purposes of the report, of a comparison of the fully-burdened cost of performance of functions by Department of Defense (DOD) civilian personnel with the fully-burdened cost of the performance of functions by DOD contractors by no later the February 1, 2016. The study shall include: (1) An assessment of performance of such functions at six DOD installations selected by the Secretary for purposes of the study from among DOD installations at which functions are performed by an appropriate mix of civilian personnel and contractors, with four such installations to be located in the continental United States and two such installations to be located outside the continental United States; (2) An accounting of the fully-burdened cost of DOD civilian personnel and contractors performing functions for DOD (including costs associated with training, benefits, reimbursable costs under chapter 43 of title 41, United States Code, and facility overhead) in order to permit a direct comparison between the cost of performance of functions by DOD civilian personnel and the cost of the performance of functions by contractors; (3) A comparison of the cost of performance of the full range of functions, required expertise, and managerial qualities required to adequately perform the function to be compared, including: a. Secretarial, clerical, or administrative duties, including data entry; b. Mid-level managers and other personnel possessing special expertise or professional qualifications; c. Managers and other leadership; and d. Personnel responsible for producing congressionally-directed reports. The committee recommends that, in conducting the study, the Secretary should take into account the policy that inherently governmental functions vital to the national security of the United States may not be performed by contractor personnel. The report required shall include an assessment of the flexible employment authorities available to the Secretary for the employment and retention of civilian employees of the DOD, including an identification of such additional flexible employment authorities as the Secretary considers appropriate to shape the civilian personnel workforce of the DOD. Not later than 120 days after receipt of such report, the Comptroller General shall submit to Congress a report that includes an assessment of the adequacy and sufficiency of the report submitted by the Secretary, including any recommendations for policy or statutory change as the Comptroller deems appropriate. As we reported, DOD noted in its cost comparison report that it identified labor costs used in its comparisons. However, DOD did not include direct and indirect non-labor costs and DODI 7041.04 states that the full cost of personnel should include these non-labor costs as we discussed earlier in the report. Therefore, DOD only partially addressed the reporting provision. In addition, DOD stated that we omit relevant language related to congressional intent for the second reporting element (i.e., an accounting of the fully-burdened cost of DOD civilian personnel and contractors). DOD stated that the text, “. . . in order to permit a direct comparison between the cost of performance of functions by DOD civilian personnel and the cost of the performance of the function by contractors,” conveys the congressional intent that the study is for comparison and our exclusion of the text in our restatement of the element omitted language indicating relevant Congressional intent. We do not believe that the language omitted in our report changed the meaning of the reporting element, which is that DOD was to include an accounting of the fully- burdened costs of federal civilians and service contractors in its cost comparisons. DOD further stated that we did not assess the second reporting element (i.e., an accounting of the fully-burdened cost of DOD civilian personnel and contractors) as it is directly stated but rather that we assessed the element by redefining it and then asserting that DOD partially addressed it. DOD noted that the direct language of the second reporting element is for DOD to include an “accounting” of the fully burdened cost of DOD civilian personnel and contractors. DOD asserted that we misinterpreted the meaning of “accounting” when we determined that DOD partially addressed the mandate because it did not “calculate” certain non-labor costs. We disagree. As we discuss in our report, DOD did account for the labor costs associated with federal civilian and service contractors by gathering labor cost data from several sources, but it did not include non- labor costs in its cost calculations. In order to account for the fully burdened costs of federal civilians and service contractors, as directed to do so by the preamble to the reporting elements, as well as the second reporting element, DOD should have included all labor and non-labor costs in the cost calculations. DOD also stated that our assessment incorrectly implies that to “account” for costs is equivalent to “calculating” costs as evidenced by the following quote from our draft report, "We acknowledge that DODI 7041.04 states that the cost elements can be modified, but by excluding non-labor costs in its cost comparisons, DOD did not account for the full cost of federal civilians and service contractors as requested in the mandate." DOD stated that although DOD did not “calculate” some non-labor costs, they did “account” for them in accordance with DODI 7041.04 and as directed in the congressional mandate. DOD asserted that in multiple places, DODI 7041.04 states that common costs "are excluded" and "may be excluded" from cost comparisons. DOD provided facility costs as an example of non-labor costs accounted for but not calculated in its cost comparisons. DOD stated that in its report, all of the civilian positions and contractor functions are performed at government-owned facilities. Thus, facility costs are common costs and may be excluded. DOD stated that their report accounted for facility costs by recognizing that such costs exist and are common costs, thus, DOD properly excluded such costs in accordance with DODI 7041.04, and their report satisfied the Congressional mandate. We disagree. As mentioned above, the preamble to the mandated reporting elements and the second reporting element specifically directed that DOD account for the fully-burdened cost of DOD civilian and contractor personnel. Because there are multiple costs associated with civilian and contractor personnel, calculations are necessary in order to account for the full cost of these workforces. DODI 7041.04 instructs that if a function is performed on government property, the costs of goods, services, and benefits that are common costs may be excluded provided the number of government and contactor personnel is equivalent. While there were some instances where it was the case that DOD’s cost estimates involved an equal number of civilian and contractor personnel performing functions on government property, there were many instances where the personnel numbers differed and common costs should not have been excluded. For example, in DOD’s comparisons of federal civilians and service contractors at Fort Belvoir Community Hospital, DOD conducted comparisons of 19 functions where 2 functions had equal numbers of federal civilian and service contractors and 17 functions had differing numbers of federal civilian and service contractors. In one comparison, the number of contractors was over three times the number of civilians. DODI 7041.04 further instructs that when the number of government and contractor personnel differs, adjustments must be made to the cost estimates to account for the difference in number of government and contractor personnel. DOD did not make these adjustments in is calculations and as result non-labor costs should not have been excluded; therefore, DOD did not account for the fully- burdened costs, as directed by Congress. We are sending copies of this report to the appropriate congressional committees. We are also sending copies to the Secretary of Defense, the Director of the Office of Cost assessment and Program Evaluation and other interested parties. This report will also be available at no charge on our Web site at http://www.gao.gov. Should you or your staff have any questions concerning this report, please contact Brenda S. Farrell at (202) 512-3604 or farrellb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. In addition to the contact named above, Vincent Balloon, Assistant Director; Timothy Carr, Felicia Lopez, Clarice Ransom, Michael Silver, and Norris “Traye” Smith made key contributions to this report. Department of Defense: Actions Needed to Address Five Key Mission Challenges, GAO-17-369 (Washington, D.C.: June 13, 2017) DOD Civilian and Contractor Workforces: Additional Cost Savings Data and Efficiencies Plan Are Needed, GAO-17-128 (Washington, D.C.: October 12, 2016) Federal Hiring: OPM Needs to Improve Management and Oversight of Hiring Authorities, GAO-16-521 (Washington, D.C.: August 2, 2016) DOD Service Acquisition: Improved Use of Available Data Needed to Better Manage and Forecast Service Contract Requirements, GAO-16-119 (Washington, D.C.: February 18, 2016) Civilian and Contractor Workforces: Complete Information Needed to Assess DOD’s Progress for Reductions and Associated Savings, GAO-16-172 (Washington, D.C.: December 23, 2015) DOD Inventory of Contracted Services: Actions Needed to Help Ensure Inventory Data Are Complete and Accurate, GAO-16-46 (Washington, D.C.: November 18, 2015) Sequestration: Comprehensive and Updated Cost Savings Would Better Inform DOD Decision Makers if Future Civilian Furloughs Occur, GAO-14-529 (Washington, D.C.: June 17, 2014) Human Capital: Opportunities Exist to Further Improve DOD’s Methodology for Estimating the Costs of Its Workforces, GAO-13-792 (Washington, D.C.: September 25, 2013) Human Capital: Additional Steps Needed to Help Determine the Right Size and Composition of DOD’s Total Workforce, GAO-13-470 (Washington, D.C.: May 29, 2013) Defense Outsourcing: Better Data Needed to Support Overhead Rates for A-76 Studies, GAO/NSIAD-98-62 (Washington, D.C.: Feb. 27, 1998)	[ "In addition to more than 2.2 million active duty and reserve personnel, DOD employs about 760,000 federal civilians and more than 560,000 contractors. In the Senate Report 114-49 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2016 included a provision for DOD to issue a report (1) assessing functions performed by federal civilian and service contractor personnel, (2) accounting for the full costs of federal civilian and service contractor personnel performing these functions, (3) comparing these costs, and (4) assessing available hiring and retention authorities for federal civilians. The Senate report also included a provision for GAO to assess DOD's report, which DOD submitted to Congress in April 2017. This report examines the extent to which DOD's report addressed the prescribed congressional elements. GAO reviewed DOD's report and compared it to the prescribed elements, examined documents relevant to DOD's cost estimating and comparison methodology, and interviewed DOD officials, including those in its Office of Cost Assessment and Program Evaluation responsible for the calculations in DOD's report. In response to Congressional direction, the Department of Defense (DOD) issued a report in April 2017 comparing the costs of federal civilian and service contractor personnel at select installations. The report addressed three out of four provision elements and partially addressed one, as discussed below. DOD concluded that neither federal civilians nor service contractors were predominately more or less expensive, with costs being dependent on position, location, and level of seniority. DOD noted that it used a non-probability based sample of personnel for its report, and the results are not generalizable. An assessment of performance of functions being performed by federal civilian and service contractor personnel at six military installations, with four being in the continental United States and two being outside the continental United States. GAO believes that DOD addressed this requirement because it developed a methodology to assess performance of functions performed by federal civilians and service contractors at 17 organizations within nine geographic regions including two locations outside the continental United States. DOD used data from the Defense Civilian Personnel Data System to identify military installations with large reported numbers of federal civilians. DOD determined that personnel need to perform at least 80 percent common tasks to be able to make a comparison. An accounting of the fully-burdened, or full, cost of federal civilian and service contractor personnel performing functions at the selected installations including training, benefits, reimbursable costs, and facility overhead. GAO believes that DOD partially addressed this requirement because while it calculated the labor costs of selected federal civilian and service contractor full-time equivalents performing similar functions for organizations at government-owned facilities, it excluded certain non-labor costs from its calculations. A comparison of the costs of performance of these functions by federal civilians and service contractor personnel at the selected installations. GAO believes that DOD addressed this requirement because it compared calculated costs for selected federal civilians and service contractors performing similar functions at selected installations and included those comparisons in its report. An assessment of the flexible employment authorities for the employment and retention of federal civilian employees. GAO believes that DOD addressed this requirement because it sent questionnaires to DOD hiring officials and human resource professionals to collect information on flexible employment authorities and conducted interviews with these and human resource professionals at the same 17 organizations used for the cost comparison. Based on an analysis of the information collected, DOD's report included several conclusions regarding flexible hiring authorities and made one recommendation. GAO is not making any recommendations; however, DOD non-concurred with GAO's assessment that DOD partially addressed the element to account for the full cost of personnel. GAO believes the assessment is correct as discussed in the report." ]	4,582	gov_report	en	null	f5f68ded1b0f845b033d85fd29a0180cc1d1a25fd2b57916
To help manage its multi-billion dollar acquisition investments, DHS has established policies and processes for acquisition management, requirements development, test and evaluation, and resource allocation. The department uses these policies and processes to deliver systems that are intended to close critical capability gaps, helping enable DHS to execute its missions and achieve its goals. DHS policies and processes for managing its major acquisition programs are primarily set forth in its Acquisition Management Directive 102-01 and Acquisition Management Instruction 102-01-001. DHS issued the initial version of this directive in November 2008 in an effort to establish an acquisition management system that effectively provides required capability to operators in support of the department’s missions. DHS’s Under Secretary for Management is currently designated as the department’s Chief Acquisition Officer and, as such, is responsible for managing the implementation of the department’s acquisition policies. DHS’s Under Secretary for Management serves as the acquisition decision authority for the department’s largest acquisition programs, those with LCCEs of $1 billion or greater. Component Acquisition Executives—the most senior acquisition management officials within each of DHS’s components—may be delegated acquisition decision authority for programs with cost estimates between $300 million and less than $1 billion. Table 1 identifies how DHS has categorized the 28 major acquisition programs we review in this report, and table 7 in appendix III specifically identifies the programs within each level. DHS acquisition management policy establishes that a major acquisition program’s decision authority shall review the program at a series of predetermined acquisition decision events to assess whether the major program is ready to proceed through the acquisition life-cycle phases. Depending on the program, these events can occur within months of each other, or be spread over several years. Figure 1 depicts the acquisition life cycle established in DHS acquisition management policy. An important aspect of an acquisition decision event is the decision authority’s review and approval of key acquisition documents. See table 2 for a description of the type of key acquisition documents requiring department-level approval before a program moves to the next acquisition phase. DHS acquisition management policy establishes that the APB is the agreement between program, component, and department-level officials establishing how systems will perform, when they will be delivered, and what they will cost. Specifically, the APB establishes a program’s schedule, costs, and key performance parameters. DHS defines key performance parameters as a program’s most important and non- negotiable requirements that a system must meet to fulfill its fundamental purpose. For example, a key performance parameter for an aircraft may be airspeed and a key performance parameter for a surveillance system may be detection range. The APB schedule, costs, and key performance parameters are defined in terms of an objective and minimum threshold value. According to DHS policy, if a program fails to meet any schedule, cost, or performance threshold approved in the APB, it is considered to be in breach. Programs in breach are required to notify their acquisition decision authority and develop a remediation plan that outlines a time frame for the program to return to its APB parameters, re-baseline—that is, establish new schedule, cost, or performance goals—or have a DHS-led program review that results in recommendations for a revised baseline. In addition to the acquisition decision authority, other bodies and senior officials support DHS’s acquisition management function: The Acquisition Review Board reviews major acquisition programs for proper management, oversight, accountability, and alignment with the department’s strategic functions at acquisition decision events and other meetings as needed. The board is chaired by the acquisition decision authority or a designee and consists of individuals who manage DHS’s mission objectives, resources, and contracts. The Office of Program Accountability and Risk Management (PARM) is responsible for DHS’s overall acquisition governance process, supports the Acquisition Review Board, and reports directly to the Under Secretary for Management. PARM develops and updates program management policies and practices, reviews major programs, provides guidance for workforce planning activities, provides support to program managers, and collects program performance data. Components, such as U.S. Customs and Border Protection, the Transportation Security Administration, and the U.S. Coast Guard sponsor specific acquisition programs. The head of each component is responsible for oversight of major acquisition programs once the programs complete delivery of all planned capabilities to end users. Component Acquisition Executives within the components are responsible for overseeing the execution of their respective portfolios. Program management offices, also within the components, are responsible for planning and executing DHS’s individual programs. They are expected to do so within the cost, schedule, and performance parameters established in their APBs. If they cannot do so, programs are considered to be in breach and must take specific steps, as noted above. Figure 2 depicts the relationship between acquisition managers at the department, component, and program level. DHS established a Joint Requirements Council (JRC) to develop and lead a component-driven joint requirements process for the department. The JRC has issued policies outlining a process for analyzing and validating capability gaps, needs, and requirements. The JRC consists of a chair and 14 members who are senior executives or officers that represent key DHS headquarters offices and seven of the department’s operational components. The JRC chair rotates annually among the seven operational components. JRC members represent the views of their components or office leadership, endorse and prioritize validated capability needs and operational requirements (user-defined performance parameters outlining what a system must do), and make recommendations that are supported by analytical rigor. Figure 3 depicts the current headquarters and component members of the JRC. The JRC provides input to two senior-level entities: The Acquisition Review Board—as a member, the JRC chair advises the board on capability gaps, needs, and requirements at key milestones in the acquisition life cycle. The Deputy’s Management Action Group, which the Secretary established in April 2014, is a decision-making body that is chaired by the Deputy Secretary. Its membership consists of the DHS Chief of Staff, DHS Under Secretaries, senior operational component deputies and select support component deputies, and the Chief Financial Officer. The group provides recommendations to the Deputy Secretary for consideration in the annual resource allocation process that reflects DHS’s investment priorities. The group reviews JRC- validated capability needs and recommendations, provides direction and guidance to the JRC, and endorses or directs related follow-on JRC activities. The JRC is responsible for validating proposed capability needs and requirements for all major acquisitions, as well as for programs that are joint or of interest to the Deputy’s Management Action Group, regardless of level. See table 3 for a description of the key requirements documents requiring JRC validation. In general, the DHS requirements development process moves from broad mission needs and capability gaps to operational requirements. See figure 4. In May 2009, DHS established policies that describe processes for testing the capabilities delivered by the department’s major acquisition programs. The primary purpose of test and evaluation is to provide timely, accurate information to managers, decision makers, and other stakeholders to reduce programmatic, financial, schedule, and performance risks. We provide an overview of each of the 28 programs’ test activities in the individual program assessments presented in appendix I. DHS testing policy assigns specific responsibilities to particular individuals and entities throughout the department: Program managers have overall responsibility for planning and executing their programs’ testing strategies, including scheduling and funding test activities and delivering systems for testing. They are also responsible for controlling developmental testing, which is used to assist in the development and maturation of products, manufacturing, or support processes. Developmental testing includes engineering- type tests used to verify that design risks are minimized, substantiate achievement of contract technical performance, and certify readiness for operational testing. Operational test agents are responsible for planning, conducting, and reporting on operational test and evaluation, which is intended to identify whether a system can meet its key performance parameters and provide an evaluation of the operational effectiveness, suitability, and cybersecurity of a system in a realistic environment. Operational effectiveness refers to the overall ability of a system to provide a desired capability when used by representative personnel. Operational suitability refers to the degree to which a system can be placed into field use and sustained satisfactorily. The operational test agents may be organic to the component, another government agency, or a contractor, but must be independent of the developer in order to present credible, objective, and unbiased conclusions. The Director, Office of Test and Evaluation is responsible for approving major acquisition programs’ operational test agent and test and evaluation master plans, among other things. A program’s test and evaluation master plan must describe the developmental and operational testing needed to determine technical performance and operational effectiveness, suitability, and cybersecurity. As appropriate, the Director is also responsible for observing operational tests, reviewing operational test agents’ reports, and assessing the reports. Prior to a program’s acquisition decision event 3, the Director provides the program’s acquisition decision authority a letter of assessment that includes an appraisal of the program’s operational test, a concurrence or non-concurrence with the operational test agent’s evaluation, and any further independent analysis. As an acquisition program proceeds through its life cycle, the testing emphasis moves gradually from developmental testing to operational testing. See figure 5. DHS has established a planning, programming, budgeting, and execution process to allocate resources to acquisition programs and other entities throughout the department. DHS uses this process to produce the department’s annual budget request and multi-year funding plans presented in the FYHSP, a database that contains, among other things, 5-year funding plans for DHS’s major acquisition programs. According to DHS guidance, the 5-year plans should allow the department to achieve its goals more efficiently than an incremental approach based on 1-year plans. DHS guidance also states that the FYHSP articulates how the department will achieve its strategic goals within fiscal constraints. At the outset of the annual resource allocation process, the department’s Offices of Policy and Chief Financial Officer provide planning and fiscal guidance, respectively, to the department’s components. In accordance with this guidance, the components should submit 5-year funding plans to the Chief Financial Officer. These plans are subsequently reviewed by DHS’s senior leaders, including the DHS Secretary and Deputy Secretary. DHS’s senior leaders are expected to modify the plans in accordance with their priorities and assessments, and they document their decisions in formal resource allocation decision memorandums. DHS submits the revised funding plans to the Office of Management and Budget, which uses them to inform the President’s annual budget request—a document sent to Congress requesting new budget authority for federal programs, among other things. In some cases, the funding appropriated to certain accounts in a given fiscal year can be carried over to subsequent fiscal years. Figure 6 depicts DHS’s annual resource allocation process. Federal law requires DHS to submit an annual FYHSP report to Congress at or about the same time as the President’s budget request. This report presents the 5-year funding plans in the FYHSP database at that time. Two offices within DHS’s Office of the Chief Financial Officer support the annual resource allocation process: The Office of Program Analysis and Evaluation (PA&E) is responsible for establishing policies for the annual resource allocation process and overseeing the development of the FYHSP. In this role, PA&E develops the Chief Financial Officer’s planning and fiscal guidance, reviews the components’ 5-year funding plans, advises DHS’s senior leaders on resource allocation issues, maintains the FYHSP database, and submits the annual FYHSP report to Congress. The Cost Analysis Division is responsible for reviewing, analyzing, and evaluating acquisition programs’ LCCEs to ensure the cost of DHS programs are presented accurately and completely, in support of resource requests. This division also supports affordability assessments of the department’s budget, in coordination with PA&E, and develops independent cost estimates for major acquisition programs upon request by DHS’s Under Secretary for Management or Chief Financial Officer. Of the 24 programs we assessed with approved schedule and cost goals, 10 were on track to meet those goals during 2017. The other 14 programs were not on track because they changed or breached their schedule goals, cost goals, or both. We found that most programs updated their cost estimates in response to requirements DHS established in January 2016 that are intended to provide decision makers with more timely information. These actions are in accordance with GAO’s best practice to regularly update cost estimates and we plan to use these updated estimates to measure programs’ cost changes going forward. Based on our April 2014 recommendation, DHS revised the format of its fiscal year 2018–2022 FYHSP report to Congress to include acquisition affordability tables for select major acquisition programs. However, the report shows—and our analysis of programs’ current cost estimates confirms— that some programs face acquisition funding gaps in fiscal year 2018. We also reviewed 4 programs that were early in the acquisition process and planned to establish department-approved schedule and cost goals in calendar year 2017. However, these programs were delayed in getting department approval for their initial APBs for various reasons and, therefore, we excluded them from our assessment of whether programs were on track to meet their schedule and cost goals during 2017. DHS leadership subsequently approved initial APBs for 2 particularly complex and costly programs—a border wall system along the southwest U.S. border and the Coast Guard’s Heavy Polar Icebreaker—in January 2018. We plan to assess these programs in next year’s review, but provide more details on all 4 additional programs we reviewed in the individual assessments in appendix I. Table 4 summarizes our findings and we present more detailed information after the table. From January 2017 to January 2018, 10 of the 24 programs we assessed with department-approved APBs were on track to meet their schedule and cost goals. This is fewer than our last annual review in which we found that 17 of the 26 programs we assessed were on track during 2016. Three of the 10 programs on track during 2017 were on track against initial schedule and cost goals; that is, the schedule and cost estimates in the baseline DHS leadership initially approved after the department’s acquisition management policy went into effect in November 2008. The other 7 programs had re-baselined prior to January 2017 and were on track against revised schedules and cost estimates that reflected past schedule slips, cost growth, or both. However, some of the programs on track in 2017 identified risks that may lead to schedule slips or cost growth in the future. For example, officials from the Technology Infrastructure Modernization program told us that staffing challenges may impede their ability to execute the program in accordance with its current APB. We also identified 2 programs that are in the process of re-baselining or plan to re-baseline in the near future to account for significant program changes or to add capabilities. For example, the Next Generation Networks Priority Services program plans to update its APB to establish schedule, cost, and performance goals for the next increment, which is intended to address landline capabilities for providing government officials emergency telecommunication services. During 2017, 14 of the 24 programs we assessed with department- approved APBs were not on track. Twelve of these programs had at least one major acquisition milestone that slipped, including 6 of these programs that also changed or breached their cost goals. Two additional programs changed or breached only their cost goals. As of January 2018, 6 of the 12 programs that experienced a schedule slip were in breach and had not yet revised their goals. Therefore, the magnitude of the schedule slips is unknown. For the remaining 6 programs, the change in schedule during 2017 ranged from a delay of 6 months to 66 months. Figure 7 identifies the programs that experienced schedule slips and the extent to which their major milestones slipped in 2017, as well as—for additional context—in prior years. While there are various reasons for schedule delays, the result is that end users may not get needed capabilities when they originally anticipated. Examples of the reasons why these key milestones slipped in 2017 include the following: New requirements: For example, the Passenger Screening Program re-baselined in May 2017 for the fifth time since its initial APB was approved in January 2012. This latest re-baseline was to remediate a 17-month breach caused by delays in incorporating new cybersecurity requirements in one of the program’s transportation security equipment technologies, known as the Credential Authentication Technology. The program now plans to achieve full operational capability for this system by December 2023—more than 9 years later than it initially planned. In another example, the Tactical Communications Modernization program re-baselined in November 2017—4 months after the program notified DHS leadership that it would not achieve full operational capability as planned. The reason for this re-baseline was to resolve issues related to federal information security requirements. The program now plans to achieve this milestone by March 2019, which is more than a year later than its initial APB threshold. Technical challenges: For example, the Continuous Diagnostics and Mitigation program re-baselined in June 2017 to account for significant coverage gaps identified during the deployment of phase 1 sensors and to establish cost, schedule, and performance goals for phase 3 tools. The program’s full operational capability date slipped almost 4 years after this milestone was redefined as the point in time at which phase 1–3 tools are available to all participating civilian agencies. Additionally, the Automated Commercial Environment program declared a schedule breach in April 2017—its second in less than a year—after encountering difficulties developing its remaining functionality. These difficulties have caused further delays to the program’s final acquisition milestone decision. External factors: Officials from the Logistics Supply Chain Management System program notified DHS leadership in September 2017 that the program would not complete all required activities to achieve acquisition decision event 3 and subsequent events, including full operational capability. The primary reason for the delay was because program staff were deployed to support response and recovery efforts during the 2017 hurricane season. Additionally, the Medium Lift Helicopter program experienced delays in getting key acquisition documents approved in time to achieve its acquisition decision event 3. These delays were attributed, in part, to DHS leadership directing Customs and Border Protection to develop a comprehensive border plan that included the helicopter’s capabilities. We elaborate on the reasons for all 12 programs’ schedule slips in the individual assessments in appendix I. Of the 14 programs not on track during 2017, 8 revised or breached their established cost goals. Four of these 8 programs revised their cost goals when they re-baselined to address new requirements and technical challenges, among other things. When the Passenger Screening Program re-baselined in May 2017, the program’s APB threshold for its life-cycle costs increased $418 million (8 percent) over its previous APB. However, the revised threshold is $1 billion below the threshold established in the program’s initial APB, which was approved in January 2012. From 2012 to 2015, the program’s scope was reduced in response to funding constraints. However, emerging threats drove the program to increase capability requirements, which has subsequently increased costs. When the Continuous Diagnostics and Mitigation program re- baselined in June 2017, the APB threshold for life-cycle costs decreased by $15 million (1 percent). However, the program shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new common appropriations structure. This, in addition to other changes, increased the APB threshold for O&M by $631 million (3,712 percent). When the National Security Cutter program re-baselined in November 2017 to account for a ninth ship—as directed by Congress—the APB cost thresholds for acquisition and O&M increased by $453 million (8 percent) and $123 million (1 percent), respectively. When the Immigration and Customs Enforcement’s TECS Modernization program re-baselined in November 2017 in preparation for acquisition decision event 3, the APB cost thresholds increased overall. Specifically, the acquisition cost threshold decreased by $14 million (6 percent) when the program included actual costs through fiscal year 2016, among other things, and the O&M cost threshold increased by $147 million (92 percent) when the program extended the estimate by 4 years and included support costs for an additional 11 years. The other 4 programs breached their established cost goals during 2017. The Medium Lift Helicopter and Electronic Baggage Screening programs breached certain APB cost thresholds when they shifted costs between categories, such as O&M to acquisitions or vice versa, to be consistent with DHS’s new common appropriations structure. The Tactical Communications Modernization program experienced a cost breach primarily because of increases in costs for contractor labor and support for facilities and infrastructure. The program’s APB cost threshold for O&M increased by $110 million (23 percent) when it re-baselined in November 2017. The Automated Commercial Environment program experienced a cost breach because it had to extend its contracts to address the development difficulties discussed above. The magnitude of the program’s cost goal changes is not yet known because the program does not plan to revise its APB until August 2018. We elaborate on the reasons for all 8 programs’ cost goal changes or breaches in the individual program assessments in appendix I. In January 2016, based on several of our past recommendations, DHS required major acquisition programs to begin submitting to headquarters (1) detailed data on program affordability, such as updates to the program’s LCCE and funding source information, to help inform the department’s annual resource allocation process, and (2) an annual LCCE update. These requirements are intended to provide more timely information that may improve DHS’s efforts to address acquisition program affordability issues, as well as internal and external oversight of programs’ progress against its cost goals. These actions are in accordance with GAO’s cost estimating best practices, which state that cost estimates should be updated with actual costs so that they are always relevant and current. As a result, we have used these sources to provide the programs’ current estimate in the individual assessments in appendix I, as appropriate, and plan to use these data sources to measure programs’ cost changes going forward. According to officials from the Cost Analysis Division, a program’s annual LCCE update should inform the affordability submission to support the annual resource allocation process and can be completed at any point during the fiscal year leading up to this process. We examined documentation to ascertain whether the programs we reviewed complied with the two requirements. For the 24 programs we assessed with department-approved APBs, we found the following: All 24 programs submitted the detailed data on program affordability to headquarters by June 2017 to inform the fiscal year 2019 resource allocation cycle. Most programs’ submissions accounted for changes since the program’s last LCCE was approved by DHS’s Chief Financial Officer, except three. For example, the Long Range Surveillance Aircraft program’s submission reflected no updates from its November 2011 LCCE because the program was in the process of re-baselining to account for significant changes. The program began re-baselining nearly 3 years ago and has been delayed for various reasons, including challenges with the vendor hired to complete a revision of the program’s LCCE. Eighteen of the 24 programs submitted annual LCCE updates. Three programs—Automated Commercial Environment, H-65, and Transformation—did not submit an annual LCCE update because they were in breach. The other 3 programs—all within the Coast Guard—did not submit an annual LCCE because, according to Coast Guard officials, they have limited internal cost estimating capability and rely on outside sources for this service, which led to delays in completing the annual LCCEs for these programs. Coast Guard officials said they are reviewing options to resolve these delays and improve the Coast Guard’s cost estimating capability. Cost Analysis Division officials anticipate the Coast Guard will increase compliance with the annual LCCE requirement in fiscal year 2018. They also plan to update the annual LCCE template to include additional information, such as comparisons of the updated estimates to the program’s APB cost goals and projected funding. In addition, DHS revised the format of its FYHSP report to Congress, improving insight into major programs’ acquisition funding, but decreasing insight into O&M funding. In April 2014, we found that DHS could better communicate its funding needs for acquisition programs to Congress and recommended that DHS enhance the content for future FYHSP reports by presenting programs’ annual cost estimates and any anticipated funding gaps, among other things. DHS concurred with the recommendation and, for the first time, included acquisition affordability tables that presented programs’ annual acquisition cost estimates compared to projected acquisition funding for select major acquisition programs in its FYHSP report for fiscal years 2018–2022. However, DHS no longer reported O&M funding for individual programs. DHS reported in the FYHSP that it focused on acquisition information because O&M funding estimates are generally stable year-to-year and components manage O&M in various ways, such as by individual program or across a portfolio of programs. By removing O&M funding information in the FYHSP for all programs, DHS presents an incomplete picture of programs’ full funding needs and affordability. In April 2018, we assessed the extent to which DHS had accounted for O&M costs and funding in greater detail and recommended that DHS reverse the exclusion of O&M funding at the acquisition program level in its FYHSP report to Congress for all components. DHS officials stated that they plan to re-introduce O&M funding for major acquisition programs in the FYHSP report for fiscal years 2019–2023 based on multiple internal discussions about the best way to present a more comprehensive view of programs’ total costs and feedback from key stakeholders, such as the Office of Management and Budget. Based on the information presented in the FYHSP report for fiscal years 2018–2022, DHS’s acquisition portfolio is not affordable over the next 5 years. For example, the report contained acquisition affordability tables for 18 of the 24 programs we assessed that have approved APBs. Of these 18 programs, 9 were projected to have an acquisition affordability gap in fiscal year 2018. However, some of these projections are outdated since the FYHSP report—which was issued in September 2017—relied on cost information as of April 2016. Therefore, we updated these tables using the programs’ current acquisition cost estimate presented in the individual assessments in appendix I. Based on our assessment of programs’ current cost estimates, we also found that a total of 9 programs are projected to have an acquisition affordability gap in fiscal year 2018. However, 3 of these 9 programs were different programs than those identified based on the FYHSP report. Of the 9 programs we identified with a projected acquisition affordability gap in fiscal year 2018, we found the following: Five programs identified other funding, such as funding from previous fiscal years that remained available for obligation—known as carryover funding—which would address their projected acquisition funding gap. For example, in the FYHSP report, DHS projected allocating approximately $16 million in funding for the Technology Infrastructure Modernization program in fiscal year 2018 to cover an estimated $16 million in acquisition costs. However, in its November 2017 annual LCCE update, this program’s acquisition cost increased to almost $30 million, resulting in a projected acquisition affordability gap of almost 45 percent. The program plans to realign $57 million in O&M carryover funding to cover this and any future acquisition shortfalls. Four programs did not identify other funding that would address their projected acquisition funding gap, which increases the likelihood that they will cost more and take longer to deliver capabilities to end users than expected. For example, in the FYHSP report, DHS projected allocating $109 million in funding for the Non-Intrusive Inspection Systems program in fiscal year 2018 to cover an estimated $103 million in acquisition costs. However, in its April 2017 annual LCCE update, this program’s acquisition costs increased to nearly $186 million, resulting in a projected acquisition affordability gap of 41 percent. The program identified only $2.5 million in fiscal year 2017 acquisition carryover funding. Further, 5 of the 24 programs we assessed were not included in the fiscal years 2018–2022 FYHSP report because they were no longer expected to receive acquisition funding. Officials from 3 of these 5 programs projected funding gaps that could cause future program execution challenges, such as schedule slips or cost growth. For example, the National Bio and Agro-Defense Facility anticipates a projected funding shortfall of approximately $90 million over the next 5 years, which officials said could delay a number of activities to make the facility operational. We elaborate on programs’ affordability over the next 5 years in the individual program assessments in appendix I. We assessed DHS’s policies outlining the department’s processes for acquisition management, resource allocation, and requirements and found that, when considered collectively, they generally reflect key portfolio management practices. In March 2007, we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources when making investments. This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated. With this perspective, companies can effectively (1) identify and prioritize opportunities, and (2) allocate available resources to support the highest priority—or most promising—opportunities. Based on this and other work, we identified four key practice areas for portfolio management in September 2012. We previously assessed DHS’s acquisition management and resource allocation policies against our key portfolio management practices in September 2012 and April 2014, respectively. We found that the policies in place at the time of our reviews did not fully reflect all of the key portfolio management practices and recommended that DHS revise its policies to do so. DHS concurred with our recommendations and subsequently took actions to mature and solidify the department’s portfolio management processes and policies. In April 2014, the Secretary of Homeland Security issued a memorandum titled Strengthening Departmental Unity of Effort, which aimed to strengthen DHS’s structures and processes to improve departmental cohesiveness and operational effectiveness, among other things. The memorandum identified several initial focus areas intended to build organizational capacity, one of which centered on improving and integrating the department’s processes for acquisition oversight, resource allocation, and joint requirements analysis. To improve these processes, the memorandum directed senior DHS leaders to update the existing acquisition management and resource allocation processes, as well as lead an expedited review to provide alternatives for developing and facilitating a component-driven joint requirements process, which ultimately led to the re-establishment of the JRC. In response to our recommendations and the Unity of Effort memorandum, DHS issued new policies outlining the acquisition management, resource allocation, and requirements processes in 2016. We assessed these policies and found that, when considered collectively, they generally reflect the key portfolio management practices, as shown in table 5. Because DHS’s new policies were issued in 2016, we did not specifically assess DHS’s implementation of them. However, we did review documentation resulting from the acquisition management, resource allocation, and requirements processes since January 2016 to get a sense of how the department began implementation. Examples of how DHS’s policies reflect the key portfolio management practices and their implementation status are outlined below. Clearly define and empower leadership: the policies identify the roles and responsibilities for decision makers in the acquisition management, resource allocation, and requirements processes, as well as establish cross-functional teams to support those decision makers. For example, to fulfill the role of acquisition decision authority, the Under Secretary for Management is supported by the Acquisition Review Board, which consists of key DHS senior leaders responsible for managing the department’s finances, contracts, and testing, among other things. We reviewed the memorandums issued since January 2016 that document Acquisition Review Board decisions and found that, through this group, DHS has taken steps to manage across programs through its acquisition management process. For example, after reviewing the status of several individual Customs and Border Protection programs in 2016, the Acquisition Review Board identified the need for a comprehensive border plan that depicts the component’s current land, maritime, and air domain awareness capabilities. In October 2016, the Deputy Under Secretary for Management—who was serving as acquisition decision authority at the time—directed Customs and Border Protection to develop such a plan. The plan is to consist of separate analyses for each of the three domains—starting with land— that reflect end users’ capability requirements for systems, such as Integrated Fixed Towers, Multi-Role Enforcement Aircraft, and Medium Lift Helicopter, that address relevant domain threats. As of February 2018, Customs and Border Protection had not yet completed the analysis for land domain awareness capabilities. Establish standard assessment criteria and demonstrate comprehensive knowledge of the portfolio: the policies establish standard criteria for assessing major acquisition programs through the acquisition management, resource allocation, and requirements processes. For example, the updated resource allocation handbook established that PA&E conduct annual assessments of all major investments using standard criteria in five main categories— contribution to DHS’s mission, program health, risk, resources, and governance—to assess the portfolio of investments and present alternatives for leadership decision. PA&E officials told us they used these criteria when assessing components’ resource allocation requests during development of the President’s fiscal year 2018 budget to develop funding options for the Deputy’s Management Action Group, which is responsible for making resource allocation recommendations for the Secretary’s approval. PA&E presented its funding options by DHS mission, which, according to officials associated with the Deputy’s Management Action Group, allowed the group to make cross-component allocation decisions that directly aligned with the department’s strategic goals. We could not verify these officials’ assertions based on the documentation we were provided, but will continue to monitor PA&E’s assessment of major acquisition programs against the standard criteria as the department’s implementation of its resource allocation policies matures. In addition, PARM formally established its Acquisition Program Health Assessments in October 2016 after more than a year of development and pilot efforts. These assessments are intended to monitor major acquisition programs quarterly (both on an individual program level and in aggregate) by rating programs against standard criteria in several categories—such as program management, financial management, and human capital—that DHS deemed important for successful program execution. We reviewed the quarterly reports issued from January 2016 to April 2017 and found that they primarily focused on individual programs. The portfolio-level information contained in these reports was limited to program results grouped in various categories, such as by component, by acquisition life-cycle phase, and by investment type (e.g., information technology). PARM officials said they plan to use the health assessments as a portfolio management tool in the future and are working to determine how to best to analyze and present portfolio-level data. We will continue to track PARM’s implementation of the health assessment process moving forward through GAO’s High Risk work to determine DHS’s progress in demonstrating that major acquisition programs are on track to achieve their established goals. Prioritize investments by integrating the requirements, acquisition, and budget processes: the policies identify areas where DHS’s requirements, acquisition management, and resource allocation processes are integrated and establish processes for prioritizing investments. For example, the updated resource allocation policies require reviews of DHS’s major acquisition portfolio during this annual process. When the portfolio faces a funding gap, programs are to be returned to their respective components for scope or funding adjustments, or prioritized by department leadership to identify an affordable set of programs. For the fiscal year 2018 resource allocation cycle, PA&E officials provided an example where DHS leadership directed components to identify funding from alternative sources to fund specific purposes related to DHS’s mission to prevent terrorism and enhance security. However, as previously discussed, the resulting FYHSP report for fiscal years 2018–2022 showed that DHS’s portfolio of major acquisition programs is not affordable over the next 5 years. In addition, the requirements policies established the Joint Assessment of Requirements, an annual process to prioritize emerging and existing requirements to inform the department’s resource allocation decisions. As we found in October 2016, the JRC plans to implement the Joint Assessment of Requirements through a 3-year phased approach that is expected to be fully implemented in time to inform DHS’s fiscal year 2021 budget request. In fiscal year 2016, the JRC completed the first phase, which included (1) developing initial criteria to evaluate emerging requirements, and (2) evaluating and prioritizing a sample of those requirements against the initial criteria. Based on these results, JRC officials told us in September 2017 that they are working to develop assessment metrics for the criteria as part of the next phase. We will continue to track the JRC’s progress through GAO’s High Risk work to determine DHS’s progress to effectively operate the JRC. Continually make go/no go decisions to rebalance the portfolio: the requirements policies outlining the Joint Assessment of Requirements process also reflected the key practices to conduct reviews (1) annually to make requirement scoping adjustments as priorities change and (2) when new investments are identified. However, as previously discussed, the JRC is still in the process of implementing this process. We consider this overall key practice area to be partially met because DHS’s policies do not reflect the key practice (3) to reassess programs that breach established thresholds within the context of the portfolio to determine if the program remains relevant and affordable. PARM officials told us that—in practice—DHS reassesses programs in the context of their component’s overall acquisition portfolio based on a certification of funds memorandum submitted to DHS’s Chief Financial Officer when programs re-baseline as a result of a cost, schedule, or performance breach. The memorandum is intended to enable the Acquisition Review Board to discuss affordability by certifying a program’s funding levels and identifying trade-offs necessary to address any projected funding gaps. We previously found that the certification of funds memorandum was an effective tool for DHS leadership to assess program affordability. However, DHS’s acquisition management policy requires components to submit this memorandum prior to most acquisition decision events, but not when a program re-baselines as a result of a cost, schedule, or performance breach. During our review of programs’ progress against schedule and cost goals in 2017, we found one instance where a component did not follow the practice to submit this memorandum when one of its programs re-baselined as a result of a breach. Specifically, Customs and Border Protection did not submit a certification of funds memorandum when the Tactical Communications Modernization program re-baselined in November 2017 as a result of a schedule and cost breach. Nevertheless, DHS leadership approved the program’s revised APB and removed it from breach status, even though DHS’s Chief Financial Officer identified that the program’s revised LCCE was not affordable. PARM officials stated that this instance was an oversight because, at the time, the department was still determining when certification of funds memorandums should be submitted. According to the federal standards for internal control, documentation of internal control practices is necessary so that they can be implemented effectively. By amending its acquisition management policy to require a certification when a program re-baselines as a result of a cost, schedule, or performance breach, DHS can ensure that leadership receives the necessary information to reassess that program’s affordability in the context of a larger portfolio. PARM officials stated that, moving forward, components will be required to submit a certification of funds memorandum for each program when a new APB is submitted for DHS leadership approval. In contrast, the acquisition management policy does reflect the key practice (4) to use information gathered from post-implementation reviews to fine tune investment processes and the portfolio to achieve strategic outcomes. For example, DHS’s acquisition management policy requires programs to conduct post-implementation reviews 6 to 18 months after initial operational capability to identify and document any deployment or implementation and coordination issues, how they were resolved, and how they could be prevented in the future. These reviews are intended to help identify capability gaps that may inform future acquisitions, among other things. However, PARM officials said that they do not consider the results of the post-implementation reviews when managing the department’s current acquisition portfolio because these reviews are typically conducted after program oversight shifts from PARM to the component. While post-implementation reviews are conducted later in the acquisition life cycle, the insights they provide could be leveraged by other programs in the acquisition portfolio, not just the program under review. For example, the Integrated Fixed Towers program completed a post-implementation review in June 2016 after its initial deployment of capabilities to the Arizona border. The review found that changes in illegal traffic patterns as a result of the program’s deployment may be predicted, and other technologies may be able to compensate for changes in these patterns. This information could help other programs under development plan for similar outcomes or enable DHS to change deployment plans for existing programs to address changes in threats. PARM has an opportunity to use the results from programs’ post- implementation reviews since it is responsible for overseeing the department’s acquisition portfolio by monitoring each investment’s cost, schedule, and performance against established baselines. Federal standards for internal control state that management should obtain data on a timely basis so that they can be used for effective monitoring and that separate evaluations may provide feedback on the effectiveness of ongoing monitoring. By leveraging the results from post-implementation reviews in its monitoring efforts, PARM may be better able to ensure that programs in the current acquisition portfolio achieve their baselines. PARM officials stated they have generally focused on leveraging information gathered from canceled acquisition programs, such as where and why plans went wrong. However, they agreed that they could better leverage post- implementation review information gathered from programs that complete planned capability deployments. DHS’s mission to safeguard the American people and homeland requires a broad portfolio of acquisitions. However, the performance of DHS’s major acquisition portfolio during 2017 did not improve compared to our last review because we found that more programs will require more time and may require more money to complete than initially planned. DHS is collecting more timely cost estimate information on its acquisition programs to make more informed investment decisions. Yet DHS continues to face challenges in funding its acquisition portfolio, which highlights the need for disciplined policies that reflect best practices to ensure that the department does not pursue more programs than it can afford. DHS leadership has taken positive steps in recent years by strengthening its policies for acquisition management and resource allocation, and establishing policies related to requirements. Collectively, these policies reflect an integrated approach to managing investments. However, opportunities remain to further strengthen the acquisition management policy by documenting DHS’s current practice to reassess programs that breach their established cost, schedule, or performance thresholds to ensure they are still worth pursuing within the context of the portfolio. Additionally, leveraging information learned once programs complete deployment across the acquisition portfolio could help ensure that programs stay on track against their baselines in the first place. This is particularly relevant because DHS is initiating a number of complex and costly acquisition programs, such as development of a wall system along the southwest border and the Coast Guard’s Heavy Polar Icebreaker, which could benefit from this type of information. We are making the following two recommendations to DHS: The Under Secretary for Management should update DHS’s acquisition management policy to require components to submit a certification of funds memorandum when a major acquisition program re-baselines in response to a breach. (Recommendation 1) The Under Secretary for Management should require PARM to assess the results of major acquisition programs’ post-implementation reviews and identify opportunities to improve performance across the acquisition portfolio. (Recommendation 2) We provided a draft of this report to DHS for review and comment. In its comments, reproduced in appendix IV, DHS concurred with both of our recommendations and identified actions it planned to take to address them. DHS also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees and the Secretary of Homeland Security. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or makm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. This appendix presents individual assessments for each of the 28 programs we reviewed. Each assessment presents information current as of January 2018. They include standard elements, such as an image, a program description, and summaries of the program’s progress in meeting cost and schedule goals, performance and testing activities, and program management-related issues, such as staffing. Each assessment also includes the following figures: Fiscal Years 2018–2022 Affordability. This figure compares the funding plan presented in the Future Years Homeland Security Program report to Congress for fiscal years 2018–2022 to the program’s current cost estimate. We use this funding plan because the data are approved by the Department of Homeland Security (DHS) and Office of Management and Budget, and was submitted to Congress to inform the fiscal year 2018 budget process. The figure only presents acquisition funding because DHS did not report operations and maintenance (O&M) funding for individual programs in its funding plan to Congress. In addition, the data do not account for other potential funding sources, such as carryover. Acquisition Program Baseline (APB) vs. Current Estimate. This figure compares the program’s cost thresholds from the initial APB approved after DHS’s acquisition management policy went into effect in November 2008 and the program’s current DHS-approved APB to the program’s expected costs as of January 2018. The source for the current estimate is the most recent cost data we collected (i.e., a department-approved life-cycle cost estimate, updated life-cycle cost estimates submitted during the resource allocation process to inform the fiscal year 2019 budget request, or a fiscal year 2017 annual life- cycle cost estimate update). Schedule Changes. This figure consists of two timelines that identify key milestones for the program. The first timeline is based on the initial APB DHS leadership approved after the department’s current acquisition management policy went into effect. The second timeline identifies when the program expected to reach its major milestones as of January 2018 and includes milestones introduced after the program’s initial APB. Dates shown are based on the program’s APB threshold dates or updates provided by the program office. Test Status. This table identifies key recent and upcoming test events. It also includes DHS’s Director, Office of Test and Evaluation’s assessment of programs’ test results, if an assessment was conducted. Staffing Profile. This figure identifies the total number of staff a program needs (measured in full time equivalents) including how many are considered critical and how many staff the program actually has. Lastly, each program assessment summarizes comments provided by the program office and identifies whether the program provided technical comments. AUTOMATED COMMERCIAL ENVIRONMENT (ACE) CUSTOMS AND BORDER PROTECTION (CBP) The ACE program is developing software that will electronically collect and process information submitted by the international trade community. ACE is intended to provide private and public sector stakeholders access to information, enhance the government’s ability to determine whether cargo should be admitted into the United States, and increase the efficiency of operations at U.S. ports by eliminating manual and duplicative trade processes, and enabling faster decision making. Final deployment and operational testing of ACE functionality delayed. Program plans to identify an approach to address collections functionality in March 2018. We last reported on this program in March 2018 and April 2017 (GAO-18-271, GAO-17-346SP). CBP declared a cost and schedule breach in April 2017—5 months after re-baselining the program in response to a prior breach—because of difficulties developing the collections aspect of ACE’s remaining functionality, which collects and processes duties owed on imported goods. CBP reported that its officials were not versed in the complexities of collections in the legacy system and underestimated the level of effort required to integrate collections capabilities into ACE. As a result, the program delayed final deployment of ACE functionality several times and missed the deadlines for completing the remaining milestones in its current acquisition program baseline (APB), including achieving acquisition decision event (ADE) 3 and full operational capability (FOC) by the revised dates of June 2017 and September 2017, respectively. Additional coding and testing to complete ACE development also required contract extensions that exceeded the current APB cost thresholds. The program subsequently decoupled collections from ACE’s remaining functionality to permit deployment of the other post-release capabilities—such as liquidations and reconciliation—using a phased approach between September 2017 and February 2018. In November 2017, CBP officials estimated that efforts to decouple collections from post-release functionality would be an additional $32 million in acquisition costs. CBP officials plan to cover these costs with $18 million in fiscal year 2017 carryover funding and by reprogramming $14 million from ACE disaster recovery funding. CBP is in the process of determining a path forward for collections, which is due to Department of Homeland Security (DHS) leadership by the end of March 2018. CBP then plans to update the program’s acquisition documentation, including APB and life- cycle cost estimate, by August 2018. Until then, the time frame for completing ACE’s remaining milestones and true cost of the program, including the cost to complete collections development is unknown. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $535 million in O&M funding over this 5-year period. Customs and Border Protection (CBP) AUTOMATED COMMERCIAL ENVIRONMENT (ACE) When DHS leadership re-baselined ACE’s cost, schedule, and performance parameters in 2013, the program adopted an agile software development methodology to accelerate software creation and increase flexibility in the development process. As of October 2017, the ACE program office oversees 11 agile teams that conduct development and O&M activities. CBP officials said they extended the program’s agile development contracts in 2017 to permit further development of the collections function. In identifying a path forward for collections, CBP officials stated there are three main options: 1. leave collections in the legacy system, 2. continue to pursue development and deployment in ACE, or 3. move collections to a different program altogether. The program previously experienced a schedule breach in June 2016 because it delayed events to address external stakeholders’ concerns about transitioning to ACE. According to CBP officials, CBP has signed a memorandum of understanding with each of the 22 partner agencies responsible for clearing or licensing cargo that provides access to ACE. As of February 2018, 21 of the partner agencies had transitioned to ACE and the program was piloting a solution for the remaining partner. In September 2017, CBP reported that ACE continued to lack a director of testing and evaluation. CBP officials said they do not plan to fill this vacancy despite plans to conduct further testing because existing staff have successfully covered the workload and a large portion of testing has already been completed. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The Biometric Entry-Exit Program is developing capabilities to enhance traveler identification upon departure from the U.S. at air, land, and sea ports of entries by collecting biometric data, such as fingerprints and facial recognition. The program plans to match this data to biometric data obtained from travelers upon their arrival into the U.S. to identify foreign nationals that stay in the U.S. beyond their authorized periods of admission and verify the identities of travelers leaving the U.S. CBP completed four biometric pilot programs and selected a solution for development. DHS has explored biometric exit capabilities since 2009, but was directed to expedite implementation in March 2017. GAO last reported on this program in February 2017 (GAO- 17-170). In June 2017, the Department of Homeland Security’s (DHS) Under Secretary for Management (USM) granted the Biometric Entry-Exit Program acquisition decision event (ADE) 1 approval after CBP completed several pilot initiatives to study the feasibility of proposed biometric exit solutions at air and land ports of entry. The USM also authorized the program to continue testing a pilot exit solution at Hartsfield-Jackson Atlanta International Airport and conduct technology demonstrations as needed, but directed the program to achieve ADE 2A prior to deploying a solution to the 20 U.S. airports with the most international flights. CBP officials initially planned to achieve ADE 2A approval in September 2017—the point at which the program would establish cost, schedule, and performance goals in a DHS-approved acquisition program baseline (APB)—and pursue separate ADE 2B decisions to initiate development of a biometric solution for each type of port of entry, starting with air. As of December 2017, the program had yet to conduct its ADE 2A because CBP officials have had to resolve several issues identified by the Joint Requirements Council that has delayed approval of the program’s operational requirements document (ORD). In January 2018, CBP officials said the program plans to conduct ADE 2A in February or March 2018 and is aiming for ADE 2B for the biometric air solution in December 2018. In December 2015, Congress established an account to be used for the development and implementation of the biometric entry-exit system starting in 2017. Specifically, Congress provided that half the amount collected from fee increases for certain visa applications from fiscal years 2016 through 2025—up to $1 billion—would be available to DHS until expended. In February 2017, DHS leadership approved the program to use about $73 million of this funding in fiscal year 2017 for information technology investments and programmatic and operational support, among other things. In September 2017, DHS’s Chief Financial Officer approved the program’s life-cycle cost estimate (LCCE), which CBP expects to refine as the program progresses to meet the fee-funding limit. According to CBP officials, the current funding structure poses challenges because the fees will fluctuate based on immigration rates. Customs and Border Protection (CBP) of a traveler to different sources—one technology compared the photo to the traveler’s passport upon entrance to the U.S.; the other technology compared the photo to a gallery of photos based on the outbound flight manifest during an airline’s boarding process. According to CBP officials, the facial recognition technology that matched photos during an airline’s boarding process was the most viable approach and served as the foundation for its development of the ADE 2A acquisition documents. Officials stated a similar approach may be feasible for land border crossings, but will require further planning. In January 2018, CBP officials stated they were developing a test and evaluation master plan—which will outline the developmental and operational test approach—for the biometric exit air solution. DHS’s Director, Office of Test and Evaluation will need to review and approve this plan prior to the program’s ADE 2B. Since 1996, several federal statutes have required development of an entry and exit system for foreign nationals. DHS has been exploring biometric exit capabilities since 2009 and an Executive Order issued in March 2017 directed DHS to expedite the implementation of the biometric entry-exit system. The Biometric Entry-Exit Program plans to develop a capability to match a traveler’s biometric data against data contained in existing DHS biometric data repositories— primarily the National Protection and Program Directorate’s IDENT system. DHS is in the process of replacing and modernizing IDENT through the Homeland Advanced Recognition Technology (HART) program because IDENT is at risk of failure. However, HART has experienced delays, which could affect the Biometric Entry-Exit Program’s development progress. For the air biometric solution, CBP plans to pursue a public/private partnership in which airlines and airports invest in the equipment to collect biometric data. According to CBP officials, this approach could reduce program costs and improve the passenger boarding process. In August 2017, CBP officials told GAO that several airlines have expressed interest in partnering with the program, including one that expanded CBP’s pilot of facial recognition matching for outbound flights to additional gates at the Hartsfield-Jackson Atlanta International Airport. CBP officials reported a staffing gap of 14 full time equivalent staff which the program plans to fill once partnerships with airlines are established. CBP officials stated that authorized funds are collected from visa fee increases that expire in fiscal year 2025. Beyond 2025, officials stated that additional funding will need to be appropriated or the fee increases extended to continue the program. They added that fee collections are currently below forecasted levels and may come under the current $1 billion limit. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The border wall system is intended to prevent the illegal entry of people, drugs, and other contraband by enhancing and adding to the 654 miles of existing barriers along the U.S. southwest border. CBP plans to create a border enforcement zone between a primary barrier—such as a fence—and a secondary barrier. To establish the enforcement zone, the wall system may also include detection technology, surveillance cameras, lighting, and roads for maintenance and patrolling. CBP has evaluated prototypes for new barrier designs, but risks with planned detection technologies exist. CBP is leveraging staff and the contracting strategy from prior border fencing programs. GAO last reported on the existing Southwest border barriers in February 2017 (GAO-17-331). In April 2017, Department of Homeland Security (DHS) leadership granted CBP permission to procure barrier prototypes to inform new design standards and approved the construction of the first segment of the wall system. CBP subsequently awarded 8 task orders with a total value of over $3 million for the development of prototypes and selected San Diego as the first segment. CBP plans to replace an existing 14 miles of primary and secondary barriers in San Diego. DHS plans to use fiscal year 2017 funding for the replacement of the primary barrier, which it plans to rebuild to existing design standards. DHS has requested funding for replacement of the secondary barrier beginning in fiscal year 2018 that it plans to rebuild to new design standards once established. DHS leadership plans to approve acquisition documentation—including an acquisition program baseline (APB) and a life-cycle cost estimate (LCCE)—for each segment to determine affordability prior to authorizing construction. However, CBP officials said they do not plan to develop an APB for the San Diego segment because DHS already approved construction. In January 2018, DHS leadership approved an APB establishing cost, schedule, and performance goals for a second segment in the Rio Grande Valley (RGV), which will extend an existing barrier by 60 miles. To inform leadership’s decision, DHS headquarters conducted an independent cost estimate, which CBP adopted as the program’s LCCE. The LCCE includes costs for both the San Diego and RGV segments. However, DHS officials stated that the amounts in the LCCE are not releasable until CBP evaluates the prototypes, determines, and designs a final solution for the San Diego secondary barrier, and updates the LCCE—which is not expected to be complete until June 2018. The costs presented here are only for the RGV segment. CBP reported that construction of the RGV segment would be sufficiently funded if it receives $1.3 billion of acquisition funding in fiscal year 2018. However, CBP identified a shortfall in operations and maintenance (O&M) funding from fiscal years 2019 to 2022 that it plans to cover with existing funding from the Tactical Infrastructure program, which will be responsible for maintenance of the wall system as segments are complete. If funded, the program expects to achieve full operational capability for the RGV segment in March 2023. Customs and Border Protection (CBP) The Border Wall System Program was initiated in response to an Executive Order issued in January 2017 stating that the executive branch is to secure the southern border through the immediate construction of a physical wall on the southern border of the U.S. To expedite the acquisition planning process, CBP officials said they leveraged expertise from staff that worked on previous border fencing programs and were familiar with implementation challenges, such as land access. CBP intends to prioritize segments based on threat levels, land ownership, and geography, among other things. From fiscal years 2007 to 2015, CBP spent approximately $2.3 billion to construct pedestrian and vehicle fencing along the southwest border. CBP’s Tactical Infrastructure program is responsible for sustaining this fencing and other infrastructure—such as gates, roads, and bridges— over its lifetime. CBP plans to continue coordinating with the U.S. Army Corps of Engineers (USACE) for engineering support and for awarding and oversight of construction contracts. CBP anticipates that all contract awards issued by USACE in support of the RGV segment will be firm fixed price. If appropriations are received, the program plans to award construction contracts for the first portion of RGV in May 2018 and for the secondary barrier in San Diego in August 2018. In February 2018, CBP officials stated that staffing the program office is a challenge because funding has not yet been received. CBP officials said that existing work for the program is being handled by current CBP staff. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. INTEGRATED FIXED TOWERS (IFT) CUSTOMS AND BORDER PROTECTION (CBP) The IFT program helps the Border Patrol detect, track, identify, and classify illegal entries in remote areas. IFT consists of fixed surveillance tower systems equipped with ground surveillance radar, daylight and infrared cameras, and communications systems linking the towers to command and control centers. CBP plans to deliver or upgrade approximately 53 IFT systems across six areas of responsibility (AoR) in Arizona: Nogales, Douglas, Sonoita, Ajo, Tucson, and Casa Grande. System acceptance test completed in Douglas AoR and requirements were met. Program is adequately staffed, but simultaneous deployments in the future may have a negative impact. GAO last reported on this program in November and April 2017 (GAO-18-119, GAO-17-346SP). In December 2017, CBP declared a schedule breach of the IFT program’s current acquisition program baseline (APB) because the program did not receive the funding needed to complete planned deployments on time to achieve its full operational capability (FOC) date of September 2020. The program’s FOC date previously slipped 5 years because of delays in the initial contract award process and funding shortfalls. CBP completed IFT deployments to the Douglas AoR in June 2017 and anticipates completing deployments to the Sonoita AoR in December 2017, as scheduled. However, in September 2017, CBP officials stated that they requested—but did not receive—additional funding from the Department of Homeland Security (DHS) to address new IFT requirements, including camera upgrades and replacement of existing tower systems deployed under a legacy program. In January 2015, Border Patrol requested the program prioritize replacement of the legacy systems in the Tucson and Ajo AoRs because the technology was obsolete and more expensive to maintain than the IFT technology planned for deployment in other AoRs. Without additional funding, CBP officials stated that they would be unable to exercise the contract options for the remaining AoRs on time. In June 2017, the program updated its life-cycle cost estimate (LCCE), which is slightly less than its current APB cost thresholds. This LCCE update includes estimated costs for the new requirements. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. CBP identified $8 million in acquisition carryover funding for fiscal year 2018 and officials anticipate receiving $126 million in O&M funding to cover $100 million in O&M costs over the next 5 years. The program plans to submit a revised APB to DHS leadership by June 2018. However, the FOC date may be further delayed because of land access issues. CBP officials told GAO that they have not yet reached an agreement with the Tohono O’odham Nation—a sovereign Native American Nation—to access tribal lands, which these officials said is necessary for the construction of IFTs in the Ajo and Casa Grande AoRs. 10/15 Initial operational capability (Nogales) Customs and Border Protection (CBP) INTEGRATED FIXED TOWERS (IFT) When CBP initiated the IFT program, it decided to procure a non-developmental system, and it required that prospective contractors demonstrate their systems prior to CBP awarding the contract. The program awarded the contract to EFW, Inc. in February 2014, but the award was protested. GAO sustained the protest and CBP had to reevaluate the offerors’ proposals before it again decided to award the contract to EFW, Inc. As a result, EFW, Inc. could not initiate work at the deployment sites until fiscal year 2015. According to CBP officials, the number of IFT systems deployed to a single AoR is subject to change based on assessments by the Border Patrol. DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes IFT capabilities and—when preparing for the last budget cycle—the program estimated costs for expansion to the southwest border beginning in fiscal year 2019. In September 2017, CBP officials told GAO that they did not have any current staffing gaps. However, CBP officials added that if the program receives full funding and reaches an agreement with the Tohono O’odham Nation to initiate IFT deployments to the Ajo and Casa Grande AoRs, while concurrently deploying capability to the Sonoita and Tucson sectors, they will be short on government and contracted staff. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. MEDIUM LIFT HELICOPTER (UH-60) CUSTOMS AND BORDER PROTECTION (CBP) UH-60 is a medium-lift helicopter that CBP uses for law enforcement and border security operations, air and mobility support and transport, search and rescue, and other missions. CBP’s UH-60 fleet consists of 20 aircraft acquired from the U.S. Army in three different models. CBP previously acquired 4 modern UH-60M aircraft and converted 6 of its older 16 UH-60A aircraft into more capable UH-60L models. CBP is replacing the remaining 10 UH-60A with reconfigured Army HH-60L aircraft. CBP test agent and the Army completed testing of reconfigured HH-60L prototype. CBP has initiated efforts to acquire additional converted HH-60L aircraft from the Army. GAO last reported on this program in April 2017 (GAO-17-346SP). The program breached the cost and schedule goals in its acquisition program baseline (APB) and, as of December 2017, CBP officials stated they were in the process of developing the breach notification required under the Department of Homeland Security’s (DHS) acquisition policy. In its annual life-cycle cost estimate (LCCE) update, the program shifted some operations and maintenance (O&M) costs to acquisitions to be consistent with DHS’s new appropriation structure. For example, the program shifted costs for recurring upgrades from O&M to acquisition because these upgrades require development and production. As a result, the program’s updated acquisition cost estimate exceeded the APB acquisition cost threshold, which constitutes a cost breach under DHS’s acquisition policy. CBP officials stated that they did not initially declare a cost breach because the program’s total LCCE was within the APB threshold. The program also did not hold its acquisition decision event (ADE) 3 by the APB deadline of September 2017. The ADE 3 is intended to approve the transfer of CBP’s remaining UH-60A aircraft for reconfigured Army HH60-L aircraft based on an evaluation of a reconfigured prototype. According to CBP officials, the program did not complete the required acquisition documentation by the ADE 3 deadline, in part, because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes UH-60 capabilities. It is unclear when the ADE 3 will occur because, as of December 2017, several documents were pending validation by the Joint Requirements Council. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. In addition, CBP officials previously told GAO that UH-60 O&M is funded through a separate, central funding account for all of CBP’s air and marine assets. CBP officials stated that the projected acquisition funding gap in fiscal years 2019 and 2020 is primarily for replacing obsolete parts that were previously considered O&M. According to these officials, the Army conducts an annual obsolescence study that will help CBP identify and prioritize replacements across the UH-60 fleet based on available funding levels. Customs and Border Protection (CBP) MEDIUM LIFT HELICOPTER (UH-60) CBP previously acquired UH-60 as a part of its Strategic Air and Marine Program (StAMP). In July 2016, DHS leadership designated UH-60 as a separate and distinct major acquisition program. CBP initially planned to convert all 16 of its UH-60A aircraft into UH-60L models, but changed its strategy once it learned the Army planned to divest several HH-60L aircraft that could more easily be converted into UH-60L aircraft for CBP missions. CBP officials anticipated the new strategy could reduce the program’s costs by an estimated $70 million, accelerate its schedule, and result in newer aircraft since the Army’s HH-60L airframes had fewer operating hours than CBP’s existing UH-60A aircraft. In September 2017, CBP officials told GAO they had initiated efforts to acquire additional HH-60L aircraft by conducting a study of current capability gaps and drafting a mission need statement. As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including the UH-60. However, these officials stated that they plan to realign staff to a dedicated asset over time. Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets. CBP officials reiterated that the changes in acquisition costs were primarily a result of cost realignment and that the program’s total life-cycle cost is still within the initial APB LCCE goals. CBP officials also stated that—to supplement Army test data—the program’s OTA participated in the flight tests and will provide a formal report on the results. MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) CUSTOMS AND BORDER PROTECTION (CBP) MEA are fixed-wing, multi-engine aircraft that can be configured to perform multiple missions including maritime, air, and land interdiction, as well as signals detection to support law enforcement. The current MEA configuration is equipped with marine search radar and an electro-optical/infrared sensor to support maritime and land surveillance and airborne tracking missions. MEA will replace CBP’s fleet of aging C-12, PA-42, and BE-20 aircraft. Testing of new configuration planned for May 2018, but requirements not yet defined. Began retrofitting accepted MEA with new mission system in fiscal year 2017. GAO last reported on this program in April 2017 (GAO-17- 346SP). According to CBP officials, the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB) for 16 maritime interdiction MEA and is actively pursuing additional aircraft. In April 2016, CBP developed a report that identified capability needs in three mission areas and proposed increasing the program’s total to 38 aircraft by adding 13 air and 6 land interdiction MEA, and 3 signals detection MEA. The Joint Requirements Council endorsed CBP’s findings, but recommended CBP develop a number of requirements documents—including an operational requirements document—to fully validate the findings. As of September 2017, CBP officials told GAO they were in the process of updating these documents to focus on air interdiction capabilities—the next MEA configuration. These officials stated that completing these documents has been delayed, in part, because Department of Homeland Security (DHS) leadership directed CBP to develop a comprehensive border plan in October 2016 that includes MEA capabilities. Despite not yet completing all the updated documents, DHS leadership approved CBP’s request to procure MEA 17 in September 2017 after the congressional conferees agreed to an additional aircraft beyond DHS’s budget request. CBP anticipates delivery of MEA 17 by September 2018, which is within the program’s full operational capability (FOC) date. However, if the program receives approval to acquire additional aircraft, the FOC date will be extended. The program completed an annual life-cycle cost estimate update, which exceeds the program’s current APB cost thresholds, because it reflects costs for all 38 aircraft, among other reasons. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. In addition, CBP officials previously told GAO that MEA’s O&M is funded through a separate, central funding account for all of CBP’s air and marine assets. In September 2017, CBP officials said that the program was fully funded for 17 aircraft but had some affordability challenges with spare parts, which they are working with CBP and DHS headquarters to address. Customs and Border Protection (CBP) MULTI-ROLE ENFORCEMENT AIRCRAFT (MEA) CBP is replacing the mission system processor on the MEA with a system used by the U.S. Navy and U.S. Coast Guard that is intended to enhance operator interface and sensor management, as well as replace obsolete equipment. CBP’s OTA tested a prototype of the processor during an operational assessment in July 2015. The OTA found that the MEA had resolved issues found during prior testing, but also made 29 additional recommendations and findings to improve the aircraft and new mission system’s effectiveness. DHS’s Director, Office of Test and Evaluation (DOT&E) concurred with the OTA’s findings. CBP previously acquired MEA as a part of its Strategic Air and Marine Program (StAMP). In July 2016, DHS leadership designated MEA as a separate and distinct major acquisition program. CBP initially planned to procure 50 MEA and awarded the first production contract in September 2009. However, the aircraft did not perform well during testing. In October 2014, DHS leadership said CBP could not procure or accept transfer of additional MEA without approval. CBP procured 12 aircraft under the initial contract and—with DHS approval—CBP awarded a new indefinite delivery, indefinite quantity contract in September 2016 for 1 base year and four 1-year options to support procurement of additional aircraft. In December 2017, CBP officials said the program had received 12 aircraft and awarded contracts for 5 more. According to program officials, MEA 13-16 will be delivered with the new mission system and CBP began retrofitting previously delivered aircraft in fiscal year 2017. As of September 2017, program officials confirmed that they maintain a consolidated program office where the same staff from StAMP continue to support all remaining acquisitions, including MEA. However, these officials stated that they plan to re-align staff to a dedicated asset over time. Program officials also stated that the program has hired a dedicated cost estimator and would like to hire additional staff to focus on procuring spare parts and common component issues, such as radio replacements, for CBP’s air and marine assets. CBP officials stated that delays in receiving approval of the program’s requirements documents may pose a risk to exercising options for additional MEA on an existing contract, which could stop production and increase contract costs associated with procuring future aircraft. CBP officials added that air and marine requirements officers continue to produce documentation requested by the Joint Requirements Council to provide sufficient context for the mission need and border security. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The NII Systems Program supports CBP’s interdiction of weapons of mass destruction, contraband such as narcotics, and illegal aliens being smuggled into the United States, while facilitating the flow of legitimate commerce. CBP officers use large- and small-scale NII systems at air, sea, and land ports of entry; border checkpoints; and international mail facilities to examine the contents of containers, railcars, vehicles, baggage, and mail. CBP initiated efforts for future NII requirements and procurements. 66 percent staffing gap contributed to delays in NII deployments. GAO last reported on this program in April 2017 (GAO-17-346SP). The NII Systems Program is on track to meet its approved schedule and cost goals. The estimates in the program’s annual life-cycle cost estimate (LCCE) update continued to decrease overall compared to its approved acquisition program baseline (APB) cost thresholds. Specifically, compared to the prior year’s estimate, the program’s acquisition costs decreased by $96 million and operations and maintenance (O&M) costs increased by $22 million. However, the LCCE update only estimated costs through fiscal year 2026—9 years short of the program’s final year. The LCCE primarily decreased because of a reduction of 1,977 planned additional and replacement NII systems. CBP officials said fewer large- and small-scale systems are needed because some systems have longer estimated lives than expected, and systems procured have better capability. CBP officials do not anticipate that the reduction in quantities will have an adverse effect on operations because they stated that the new systems can provide dual purpose capabilities (i.e., one system can replace multiple separate systems). The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. CBP officials anticipate receiving approximately $605 million of O&M funding over this 5-year period to cover about $626 million in estimated O&M costs, which includes $100 million to operate and maintain radiation detection equipment acquired by the Domestic Nuclear Detection Office. These officials also identified $37 million in carryover funding to cover the remaining $21 million of O&M estimated costs. However, the program is projected to have a $266 million acquisition funding gap from fiscal years 2018 to 2022.The program has a plan to address funding shortfalls but, according to CBP officials, it has not yet needed to implement the strategies in this plan because of several factors, including cost reductions achieved through combined life-cycle contracts and lower-than-expected actual technology costs in fiscal year 2016. Customs and Border Protection (CBP) trucks as they are driven through the inspection portals—low dose X-ray to inspect the truck cab and high dose X-ray to inspect the cargo trailer. In March 2017, the Joint Requirements Council validated a capability analysis report that assessed current capability gaps in NII operations to assist with identifying potential upgrades to existing systems and developing requirements for future systems. According to program officials, CBP plans to review and update, as necessary, the mission need statement in fiscal year 2018. Additionally, program officials are preparing a consolidated acquisition plan for future procurements. These officials said CBP has not yet determined whether future procurements would be included into the current NII Systems Program of record or constitute a new acquisition program. CBP’s ability to successfully execute the existing NII Systems Program and plan for future efforts may be at risk because of understaffing. As of January 2018, the NII Systems Program continued to face a staffing gap of approximately 66 percent, including critical vacancies such as the acquisition program manager and a logistics program manager. Officials also noted that a lack of adequate personnel to procure, test, and deploy NII systems forces the program to prioritize its acquisitions, which can result in delays of NII deployments and testing efforts. For example, one manufacturer increased its output rate of NII systems, but the program did not have the staff to accept the systems at the increased rate. Officials anticipate the program may remain understaffed until CBP completes a reorganization that started more than a year ago, in which acquisition programs are realigned from a mission-support office to their operational entity. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) CUSTOMS AND BORDER PROTECTION (CBP) The RVSS program helps the Border Patrol detect, track, identify and classify illegal entries across U.S borders. RVSS consists of daylight and infrared video cameras mounted on fixed towers and buildings with communications systems that link to command and control centers. From 1995 to 2005, CBP deployed approximately 310 RVSS towers along the U.S. northern and southern borders, and initiated efforts to upgrade legacy RVSS towers in Arizona in 2011. Program does not plan to conduct additional operational testing on future deployments. Once funded, program plans to award a new contract for deployments in sectors along the southwest border. GAO last reported on this program in November 2017 (GAO-18-119). In April 2016, Department of Homeland Security (DHS) leadership elevated RVSS from a level 3 program—which focused on upgrading legacy RVSS in Arizona—to a level 1 program after approving CBP’s plan to expand deployments to the Rio Grande Valley (RGV) sector and adding an additional 6 sectors along the southwest border. At this time, DHS leadership approved the program to move forward with deployments to two RGV stations, which can be completed as options under the program’s existing contract. However, the program was required to re-baseline to account for its expanded scope and conduct an acquisition decision event (ADE) to obtain approval for additional deployments. As of January 2018, the program had not yet conducted its ADE or obtained DHS approval for an acquisition program baseline (APB) that established cost, schedule, and performance goals for the expanded program. In September 2017, CBP officials told us that they had drafted the APB and other required documentation, such as a life-cycle cost estimate (LCCE), but were unsure when the ADE would occur because the program had not received funding for the additional deployments. In addition, the ADE may have been delayed because DHS leadership directed CBP to develop a comprehensive border plan in October 2016 that includes RVSS capabilities. In September 2017, DHS leadership approved the RVSS’s revised LCCE which totaled nearly $4 billion for all program costs from fiscal years 2011 through 2042, including expansion along the southwest border and new initiatives such as a pilot for relocatable RVSS towers. DHS conducted an independent cost estimate for the program, which DHS cost estimating officials stated was within 2 percent of the program’s LCCE. RVSS was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because it had not yet been elevated to a level 1 program at the time the plan was developed. CBP officials stated that the program has received acquisition funding to cover the approved RGV deployments. However, CBP officials told GAO that the program may also assume responsibility for maintaining all legacy RVSS, but has not received adequate operations and maintenance funding to do so. Customs and Border Protection (CBP) REMOTE VIDEO SURVEILLANCE SYSTEM (RVSS) In July 2013, CBP awarded a firm fixed-price contract for a commercially available, non-developmental system. This contract covered the program’s initial scope to deploy upgraded RVSS in Arizona and two stations within the RGV sector, which can be completed as options. According to CBP officials, the program will need to award a new contract to cover expansion to the remaining six sectors along the southwest border. In September 2017, CBP officials said that the request for proposals for the new contract had been drafted but it cannot be released until the program receives funding. CBP officials told GAO that RVSS is coordinating with CBP’s Border Wall System Program on some planned deployments within the RGV sector. For example, CBP is considering moving 2 of the planned RVSS towers to be co-located with the planned barrier, which officials stated may provide better surveillance. If the Border Wall System Program does not receive funding, CBP officials said the towers will be placed in the originally planned locations. CBP officials stated that the RVSS program requires additional staff for contracting activities, maintenance activities for legacy RVSS, and for relocatable tower pilot deployments. To mitigate the staffing gap, CBP officials said they prioritize responsibilities of current personnel to meet program execution needs. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) The TACCOM program is intended to upgrade land mobile radio infrastructure and equipment to support approximately 95,000 users at CBP and other federal agencies. It is replacing obsolete radio systems with modern digital systems across various sectors located in 19 different service areas, linking these service areas to one another through a nationwide network, and building new communications towers to expand coverage in 5 of the 19 service areas. Issues related to security requirements have delayed full operational capability by more than a year. Program is being re-organized under Border Patrol, but still faces staffing challenges. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, Department of Homeland Security (DHS) leadership re-baselined the TACCOM program, removing it from breach status after the program experienced a schedule slip and cost growth. In July 2017, CBP officials notified DHS leadership that the program would not achieve full operational capability (FOC) as planned due to issues related to federal information security requirements. The program now plans to achieve FOC by March 2019—more than a year later than its initial acquisition program baseline (APB) deadline. According to CBP officials, FOC will include planned upgrades to the San Diego system, which requires transitioning management of the legacy system from the Department of Justice to DHS. In August 2017, CBP officials stated that both agencies were reviewing an agreement with plans to complete the transition in fiscal year 2018. CBP officials stated that the program realized it would exceed its initial APB cost thresholds as it was developing its annual life-cycle cost estimate (LCCE) update and subsequently submitted a revised LCCE for DHS leadership approval. The program’s costs primarily grew because of increases in costs for contractor labor and support for facilities and infrastructure. CBP officials said the program’s initial estimates were immature; however, DHS leadership approved the initial LCCE in December 2015—4 years after the program began sustaining capabilities. DHS’s Chief Financial Officer (CFO) approved the program’s revised LCCE in November 2017, but noted that the program’s estimate exceeded its available funding and requested that the program address the affordability gap before it was re-baselined. CBP officials said that they are conducting an affordability analysis, which they anticipate will be completed by March 2018. Nevertheless, DHS leadership approved the program’s re-baseline in November 2017. CBP officials subsequently identified errors in the approved APB cost threshold tables and provided revised amounts, which are presented here. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $120 million in O&M funding over this 5-year period. Customs and Border Protection (CBP) CBP officials told GAO that in January 2018, the program will move from a mission support office to a joint program office under Border Patrol as a part of CBP’s reorganization that started more than a year ago. The goal of this move is to make CBP land mobile radio capabilities seamless by combining the mission critical voice functions of Air and Marine Operations, the Border Patrol, and the Office of Field Operations—the TACCOM program’s primary customers—under one organizational leader, the Border Patrol Chief. CBP officials anticipate that the current TACCOM program structure will remain in place after this move with the exception of the program’s engineers, which will move to CBP’s Office of Information and Technology but be assigned to support TACCOM full time. In August 2017, CBP officials told GAO they were in the process of hiring staff to fill the program’s vacant positions. They added that the fiscal year 2019 budget contains plans for additional infrastructure enhancements, which will require technical staff to assist in the planning and execution of these efforts and may put additional strain on the program’s limited government technical staff. They noted that the hiring and retention of qualified land mobile radio engineers and information technology technical staff is a challenge because of competition with the private sector, among other factors. In addition to maintenance of the CBP Land Mobile Radio System that provides critical communication needs for CBP agents and officers protecting U.S. borders, CBP officials stated the TACCOM program is providing infrastructure, such as building an engineering lab to facilitate design, development, test, and evaluation activities, to support improvements in CBP’s current and future Land Mobile Radio Systems. CBP officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CUSTOMS AND BORDER PROTECTION (CBP) TECS (not an acronym) is a law-enforcement information system that has been in place since the 1980s and helps CBP officials determine the admissibility of persons entering the United States at border crossings, ports of entry, and prescreening sites located abroad. CBP initiated efforts to modernize TECS to provide users with enhanced capabilities for accessing and managing data. Immigration and Customs Enforcement has a separate TECS Modernization program. System operationally effective and suitable, but cybersecurity testing needed. CBP working to address and prevent major system outages. GAO last reported on this program in April 2017 (GAO-17-346SP). In July 2017, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 3 approval, but required CBP to conduct follow-on operational test and evaluation (OT&E) before declaring full operational capability (FOC). This is more than a 2-year delay from CBP’s initial FOC date and a 9-month delay from its most recent revised FOC date. DHS approved the fourth version of the program’s acquisition program baseline (APB) in July 2016. In this APB, CBP split FOC into two separate operational capability milestones at its data centers to better reflect the program’s activities. CBP delivered operational capability at the primary data center in Decemberas scheduled—which provides redundant TECS access to minimize downtime during system maintenance or unscheduled outages. However, not all test results were available in time for the program’s ADE 3 decision, which contributed to DHS leadership’s decision to delay declaring FOC. 2016, which included transitioning all TECS users to the modernized system. CBP delivered operational capability at the secondary data center in June 2017—The program updated its life-cycle cost estimate (LCCE) for ADE 3, which is within its current APB cost thresholds. However, the LCCE only included costs through fiscal year 2021—7 years short of DHS’s guidance that states program cost estimates should cover at least 10 years from the FOC date. Nevertheless, DHS granted the program ADE 3 approval without an understanding of the program’s full life-cycle costs, as required by its acquisition policy. CBP officials plan to update the LCCE by the end of calendar year 2018 to include costs for future years and other items, such as costs associated with follow-on OT&E and moving the data centers to a cloud environment—a CBP-wide initiative. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. CBP officials anticipate receiving approximately $205 million in O&M funding over the next 4 years and have identified carryover for each year. However, CBP officials said there may be a small funding gap starting in fiscal year 2020, but they expect to achieve savings by migrating the data centers to a cloud environment. Customs and Border Protection (CBP) Since the program has completed development, CBP is focused on ensuring that the modernized TECS system works as intended by addressing operational issues as they are identified. For example, on January 2, 2017, a primary TECS Modernization application experienced a major outage that resulted in long airport delays. In August 2017, CBP officials said they continually monitor system health through a 24/7 operations center and have established a group dedicated to addressing the issues related to the January 2, 2017, outage. In September 2017, DHS’s Office of Inspector General (OIG) found that nearly 100 outages, periods of latency, or degraded service were reported for three TECS Modernization applications between June 2016 and March 2017. The OIG also found that CBP’s monthly reports on TECS system availability did not include periods of slowness or service interruptions that were caused by external factors. For example, the January 2, 2017, incident was identified in CBP outage reports, but was not captured in the monthly report because it was caused by a change to an external feed to the TECS system. CBP officials clarified that the monthly reports only account for interruptions that result in a full loss of operations for all TECS system users. The OIG recommended that CBP develop a plan to address factors that contributed to challenges regarding availability of primary traveler screening applications, among other things. CBP concurred with the recommendations. On January 1, 2018, the TECS system experienced another major outage that caused long airport delays; CBP officials said this incident is under review. CBP officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) FEDERAL EMERGENCY MANAGEMENT AGENCY (FEMA) LSCMS is a computer-based tracking system that FEMA officials use to track shipments during disaster-response efforts. It is largely based on commercial-off-the- shelf software. FEMA initially deployed LSCMS in 2005, and initiated efforts to enhance the system in 2009. According to FEMA officials, LSCMS can identify when a shipment leaves a warehouse and the location of a shipment after it reaches a FEMA staging area near a disaster location. FEMA now anticipates reaching full operational capability by June 2019, up to 6 months late. Recent testing shows progress, but additional operational testing delayed to May 2018. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB) after the LSCMS program experienced a schedule breach. In September 2017, FEMA officials notified DHS leadership that it would not complete all required activities—including follow-on operational test and evaluation (OT&E)—to achieve acquisition decision event (ADE) 3 and full operational capability (FOC) by its initial APB dates of September 2018 and December 2018, respectively. According to FEMA officials, the delay was primarily caused by the need to deploy LSCMS program personnel in support of response and recovery efforts during the 2017 hurricane season. The program now plans to achieve FOC by June 2019—up to 6 months later than initially planned. DHS leadership authorized LSCMS to resume all development and acquisition efforts in March 2016 after a nearly 2-year program pause following program management issues. In October 2017, FEMA officials told GAO that they had completed several development efforts—such as integration with DHS’s asset management system—and were in the process of adding Electronic Data Interchange (EDI) to allow LSCMS to interface with its partners’ information systems. The program’s annual life-cycle cost estimate (LCCE) update continued to be within its APB cost thresholds. However, the program’s APB thresholds are not adjusted to account for risk, which increases the chance that the program could experience a cost breach. As of November 2017, FEMA officials did not anticipate that its schedule delays would lead to a cost breach. Federal Emergency Management Agency (FEMA) LOGISTICS SUPPLY CHAIN MANAGEMENT SYSTEM (LSCMS) The LSCMS program previously experienced significant execution challenges because of poor governance. FEMA initially deployed the enhanced LSCMS in 2013 without DHS leadership approval, a DOT&E letter of assessment, or a DHS-approved APB documenting the program’s costs, schedule, and performance parameters, as required by DHS’s acquisition policy. DHS’s Office of Inspector General also found that neither DHS nor FEMA leadership ensured the program office identified all mission needs before selecting a solution. In response, DHS leadership paused all LSCMS development efforts in April 2014 until the program addressed these issues, among others. FEMA subsequently completed an analysis of alternatives and developed an APB based on this assessment. DHS leadership approved the APB in December 2015 and authorized FEMA to resume all LSCMS development and acquisition efforts in March 2016. In October 2017, FEMA officials told GAO that the LSCMS program had minimal staffing shortages and was working to recruit additional staff. Officials previously attributed the program’s governance and testing challenges, in part, to staffing shortages and we previously found that it only had 7 of the 22.5 full time equivalents it needed in fiscal year 2014. Although the program has obtained more staff since then, FEMA officials noted in October 2017 that during disasters—such as 2017 hurricanes Harvey, Irma, and Maria—LSCMS program personnel are deployed to support response and recovery efforts, which leave program positions vacant for the duration of the deployment. FEMA officials stated that during the response to hurricanes Harvey, Irma and Maria in 2017, LSCMS processed supply chain transactions that exceeded the total number of transactions from the preceding 12 years—which includes the response to Hurricane Katrina. They added that the program provided support for nearly 130 million meals in 2017 compared to a total of approximately 84 million from the 12 previous years. FEMA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE) Since the 1980s, TECS (not an acronym) has provided case management, intelligence reporting, and information sharing capabilities to support ICE’s mission to investigate and enforce border control, customs, and immigration laws. ICE initiated efforts to modernize TECS in 2009 to replace aging functionality and provide end users with additional functionality to meet mission needs. Customs and Border Protection (CBP) executes a separate TECS Modernization program. Conducted additional testing of a revised key performance parameter and cybersecurity. Program has improved integration with external systems. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, Department of Homeland Security (DHS) leadership approved a revised life-cycle cost estimate (LCCE) and acquisition program baseline (APB) in preparation for the program’s acquisition decision event (ADE) 3 following deployment of final functionality. According to ICE officials, the program completed deployment of full operational capability (FOC) functionality in August 2017—4 months earlier than initially planned. FOC functionality included enhancements to case management capabilities, such as improved system search capabilities. The functionality was deployed in conjunction with enhancements and fixes for initial operational capability (IOC) functionality. The program achieved IOC in June 2016, which entailed delivering 80 percent of the modernized TECS functionality and successfully transitioning ICE off the legacy system. The overall cost thresholds in the current APB increased compared to the program’s prior APB from July 2016. Specifically, the acquisition cost threshold decreased by $14 million and the operations and maintenance (O&M) cost threshold increased by $147 million. These costs changed for various reasons, such as the following: The acquisition cost threshold decreased when ICE included actual costs through fiscal year 2016 and accounted for funding shortfalls. ICE officials told GAO that the program experienced a funding shortfall in fiscal year 2017 that led it to adjust spending under multiple contracts and shift some costs to fiscal year 2018. The O&M cost threshold increased when ICE extended the estimate from fiscal years 2024 to 2028 and continued contractor and systems engineering support for an additional 11 years. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. ICE officials anticipate receiving approximately $94 million in O&M funding to cover an estimated $105 million in O&M costs over this 5-year period. ICE officials said that they are pursuing strategies to reduce future O&M costs, such as awarding a competitive contract in March 2018 for O&M activities and any future enhancements. ICE officials continue to work closely with CBP to provide users access to various systems through the modernized TECS system. The program previously worked to resolve technical problems with CBP support services that emerged during final integration testing of the ICE and CBP modernized TECS systems, which contributed to a 3-month delay in achieving IOC. Users reported during initial OT&E that the modernized ICE TECS system was an improvement over the legacy system but they requested better integration with external systems, such as CBP’s Seized Assets and Case Tracking System (SEACATS), which they use to determine the disposition of seized assets for case management and reporting purposes. According to ICE officials, CBP subsequently decided to modernize SEACATS. ICE officials stated that they have coordinated closely with CBP to integrate the two modernized systems and ensure un-interrupted access to SEACATS for TECS users. For example, ICE developed a workaround so that TECS users maintain access to the latest seizure data available from the modernized SEACATS. ICE officials added that they continue to make improvements in interfaces with other external systems as prioritized by end users. In July 2017, ICE reported that the program was fully staffed. ICE officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) The CDM program aims to strengthen the cybersecurity of the federal government’s networks at more than 65 participating civilian agencies by providing tools and dashboards that continually monitor and report on network vulnerabilities. Tools are delivered in four phases: phase 1 and 2 tools report vulnerabilities in hardware and software, and user access controls, respectively; phase 3 tools will report on efforts to prevent attacks; and phase 4 tools will provide encryption to protect network data. Program revised its key performance parameters and test and evaluation master plan as a part of its rebaseline. Program plans to change its acquisition strategy and continues to face workforce challenges. GAO last reported on this program in April 2017 (GAO-17-346SP). In June 2017, Department of Homeland Security (DHS) leadership re-baselined the CDM program for the third time to approve initiating development of phase 3 and to address challenges encountered during phase 1. Specifically, contractors previously found large gaps—ranging from 19 to 384 percent—in the actual number of devices needing phase 1 tools than what was originally reported by 12 agencies. The operations and maintenance (O&M) cost thresholds increased by $631 million when the program shifted some potential acquisition costs to beThe program’s new acquisition program baseline (APB) modified the program’s cost, schedule, and performance parameters. For example: consistent with DHS’s new appropriation structure, among other things. The O&M cost thresholds previously decreased by $1.2 billion, in part, because DHS leadership determined the program would only fund CDM tools for the first 2 years after deployment. The acquisition costs did not increase despite phase 1 challenges, in part, because coverage for the U.S. Postal Service— The program’s full operational capability (FOC) date slipped almost 4 years after which had the largest gap in estimated devices—will no longer be funded by the CDM program. it was redefined from deployment of phase 1-3 tools at 5 agencies to the availability of these tools to all participating agencies. However, the program’s costs will increase and its FOC date may slip further once the program establishes goals for phase 4. NPPD officials said they were unable to complete planning efforts for phase 4 in time to incorporate it into the most recent APB revision and, therefore, plan to re-baseline the CDM program again in 2018. The CDM program identified a potential acquisition affordability gap in fiscal year 2018 based on its revised life-cycle cost estimate, which it addressed by adjusting the phase 3 schedule to shift some acquisition costs out to fiscal year 2020. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. However, the program anticipates receiving approximately $281 million in O&M funding over the 5-year period. 12/16 Phase 1 initial operational capability (IOC) National Protection and Programs Directorate (NPPD) CONTINUOUS DIAGNOSTICS AND MITIGATION (CDM) The CDM program updated its acquisition plan as a part of its re-baselining efforts, which reflects a change in strategy for procuring CDM tools and integration services for participating agencies through the General Services Administration (GSA). Previously, the CDM program issued task orders for these tools and services through blanket purchase agreements established under vendors’ GSA Federal Supply Schedule contracts. These agreements are set to expire in August 2018. Going forward, the program plans to use an existing GSA government-wide acquisition contract—known as Alliant—to obtain CDM tools and services. According to NPPD officials, the new acquisition strategy is intended to provide greater flexibility in contracting for current capabilities and to support future capabilities. It will also allow participating agencies to order additional CDM-approved products or services from GSA’s schedule for information technology equipment, software, and services; however, as of September 2017, NPPD officials stated they were in the process of determining how this process will work. NPPD officials said that the program continues to face workforce challenges related to managing the program’s change in contracts and planning for phase 4. In February 2018, NPPD officials stated that they had on-boarded 5 staff to help address the program’s reported fiscal year 2017 gap of 16 full time equivalents. They noted that another 5 candidates were in the hiring process and that NPPD continues to work with officials from DHS’s Office of the Chief Security Officer to reduce continued challenges in onboarding new staff due to the lengthy security clearance process. In addition to activities outlined in this assessment, NPPD officials stated that the CDM program continues to manage its budget to ensure program costs match available funding, and is leveraging the collective buying power of federal agencies and strategic sourcing to achieve government cost savings on CDM products. NPPD officials also stated that, as of December 2017, CDM has deployed agency dashboards to 23 agencies and was conducting and testing information exchanges of data between agency dashboards and the federal dashboard. HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) HART will replace and modernize the Department of Homeland Security’s (DHS) legacy biometric identification system—known as IDENT—which shares information on foreign nationals with U.S. government and foreign partners to facilitate legitimate travel, trade, and immigration. NPPD plans to develop HART in four increments: increments 1 and 2 will replace and enhance IDENT functionality; increments 3 and 4 will provide additional biometric services, as well as a web portal and new tools for analysis and reporting. Key performance parameters will be demonstrated as capability is developed. Program has developed mitigation plans to address workforce risks. GAO last reported on this program in April 2017 (GAO-17-346SP). In June 2017, NPPD declared a schedule breach when it determined the HART program would not be able to meet its initial acquisition program baseline (APB) milestones. DHS leadership approved the program’s APB in April 2016 and authorized the program to initiate development efforts for increments 1 and 2 in October 2016. NPPD officials attribute the schedule slip to multiple delays in awarding the contract for increments 1 and 2 as a result of issues with the request for proposals (RFP). The program released the RFP in February 2017 and awarded the contract in September 2017—approximately 9 months later than NPPD officials had planned. However, the program experienced additional delays after a bid protest to the contract award was filed with GAO in October 2017. GAO subsequently denied the protest and NPPD officials said the program plans to initiate work with the contractor in March 2018. HART initially planned to achieve initial operational capability (IOC) with the deployment of increment 1 in December 2018, at which point program officials anticipated beginning to transition users from IDENT to HART. However, it is unclear when this will now occur, which is a significant challenge because IDENT is at risk of failure and may be unable to fully support requirements related to new programs— such as Customs and Border Protection’s Biometric Entry-Exit. As a result, delays in HART could contribute to delays in other DHS acquisition programs. The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process. This LCCE is within its current APB cost thresholds, but does not account for the contractor’s solution. The program plans to update its LCCE and other acquisition documentation, such as its APB, after initiating work with the contractor. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. However, the program anticipates receiving approximately $1.3 billion in O&M funding to cover $1.5 billion in O&M costs. NPPD officials explained that the current O&M cost estimate includes costs for maintaining IDENT. Future LCCE updates will reflect delivery of services through HART, which NPPD officials anticipate will be more cost effective. National Protection and Programs Directorate (NPPD) HOMELAND ADVANCED RECOGNITION TECHNOLOGY (HART) NPPD officials told GAO they are currently planning for increments 3 and 4 and plan to refine the cost, schedule, and performance goals for these increments in its next APB. NPPD plans to pursue a separate contract for the development and delivery of increments 3 and 4. However, the program will require DHS leadership approval prior to initiating these development efforts. In September 2017, NPPD officials told GAO they had hired two staff and planned to hire additional staff to address the program’s staffing gap of 5.5 full time equivalents. In response to DHS leadership’s direction, the program coordinated with DHS’s Chief Technology Officer to assess the skills and functions of staff necessary to execute the program and to develop the HART staffing plan. In its June 2017 staffing plan, the program identified workforce risks, including the potential for experiencing insufficient technical skillsets and inadequate resources to simultaneously execute development of HART and operate IDENT. To mitigate these risks, the program plans to develop a training plan to address the gap in skills, leverage support within the program by cross- training staff, and issue contracts for additional support as needed, among other things. However, if the program does not have adequate staff to complete these efforts, it may experience further schedule delays. NPPD officials stated that the program’s schedule delays pose a challenge because IDENT remains at risk of failure despite incremental improvements to extend its service life and may be unable to fully support new customer requirements or requirements related to new programs. They added that the program has a risk management process, which it is using to manage a variety of identified risks—including several related to workforce. They noted that these risks have not yet materialized. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NCPS is intended to defend the federal civilian government from cyber threats. NCPS develops and delivers capabilities through a series of “blocks.” Blocks 1.0, 2.0, and 2.1 are fully deployed and provide intrusion-detection and analytic capabilities across the government. The NCPS program is currently deploying EINSTEIN 3 Accelerated (EA) to provide intrusion-prevention capabilities and plans to deliver block 2.2 to improve information sharing across agencies. A at 95 percent of agencies and departments. GAO last reported on this program in April 2017 (GAO-17-346SP). NPPD officials said the program is on track to meet the schedule and cost goals in its current acquisition program baseline (APB), which reflected changes resulting from the adoption of some of the Department of Homeland Security’s (DHS) Homeland Security Information Network (HSIN) capabilities for block 2.2 rather than developing custom solutions. However, challenges in completing test plans delayed testing: Initial operational test and evaluation (OT&E) for EA transition to sustainment— slipped from September 2016 to May 2017. The initial test event for block 2.2—intended to inform the ADE 2C for deploying additional block 2.2 capabilities—slipped from March 2017 to September 2017. As of August 2017, NPPD officials said NCPS had adopted all planned HSIN capabilities but one because of security concerns, which HSIN is addressing by piloting a new tool. The program updated its life-cycle cost estimate (LCCE) in June 2017 to inform the budget process, which is within its current APB cost thresholds. However, the program plans to update the LCCE again to support the EA, and costs through fiscal year 2022. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan no longer contained O&M funding for individual programs. NPPD officials anticipate receiving $1.8 billion in O&M funding over this 5-year period. The program is also projected to have an $83 million surplus in acquisition funding over this 5-year period, which NPPD officials anticipate will be less once the LCCE revision is complete. National Protection and Programs Directorate (NPPD) NATIONAL CYBERSECURITY PROTECTION SYSTEM (NCPS) A intrusion-prevention capabilities have been primarily provided through sole source contracts with internet service providers (ISP) and a contract to provide basic intrusion-prevention services. In December 2015, Congress required DHS to make available for use by federal agencies, certain capabilities, such as those provided by NCPS’s EA at approximately 93 percent of civilian federal agencies and departments and, in January 2018, NPPD officials said NCPS was up to 95 percent. According to NPPD officials, the program first focused on integrating EA for individual agencies and departments, but stated that they continue to work with all agencies and departments to provide EA services and approximately 95 percent of the federal civilian .gov user population is protected by at least one EA and an OA of NCPS block 2.2 information sharing capabilities in 2017. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NATIONAL PROTECTION AND PROGRAMS DIRECTORATE (NPPD) NGN-PS is intended to address an emerging capability gap in the government’s emergency telecommunications service, which prioritizes select officials’ phone calls when networks are overwhelmed. NPPD executes NGN-PS through commercial telecommunications service providers, which addresses the government’s requirements as they modernize their own networks. NPPD is executing NGN-PS in two phases—(1) voice and (2) data and video. Initial operational capability for voice phase wireless capabilities achieved in August 2017. Acquisition of data and video phase capabilities to begin in September 2021. GAO last reported on this program in April 2017 (GAO-17-346SP). In November 2017, the Department of Homeland Security’s (DHS) Chief Financial Officer approved a revised life-cycle cost estimate (LCCE) for NGN-PS, which includes costs for the entire program’s voice phase and eliminates operations and maintenance (O&M) costs. The program removed O&M costs because capabilities acquired through NGN-PS are transferred to and funded through NPPD’s Priority Telecommunications Service (PTS) once they become operational. NGN-PS is currently focused on delivering its voice phase, which is divided into three increments: Increment 1 maintains current priority service on long distance calls as commercial service providers update their networks; Increment 2 delivers wireless capabilities; and Increment 3 is intended to address landline capabilities. The program’s previous LCCE and current acquisition program baseline (APB) only include costs associated with increments 1 and 2. NPPD officials told GAO they plan to update the program’s APB in January 2018 to include costs, schedule, and performance goals for increment 3 and expect to receive DHS leadership approval to initiate development by August 2018. NGN-PS remains on track to meet its cost and schedule goals for the first two increments of the voice phase. The program’s full operational capability (FOC) for increment 1 previously slipped from June 2017 to March 2019, which NPPD officials attributed to funding shortfalls. NGN-PS achieved initial operational capability (IOC) for increment 2 wireless capabilities in August 2017 when priority service via cellular towers was demonstrated by the program’s largest service provider. The program projects an acquisition affordability gap of $92 million from fiscal years 2018 to 2022. However, DHS’s current funding plan does not include funding for increment 3, which accounts for the funding shortfall in fiscal years 2021 and 2022. NPPD officials said they anticipate receiving an additional $79 million in acquisition funding over this 2-year period, but will continue to prioritize capabilities if additional funding is not provided. These officials also said the program has achieved cost savings on increments 1 and 2 that will mitigate some of the projected shortfall in fiscal years 2018 and 2019. National Protection and Programs Directorate (NPPD) NEXT GENERATION NETWORKS PRIORITY SERVICES (NGN-PS) NGN-PS was established in response to an Executive Order requiring the federal government to have the ability to communicate at all times during all circumstances to ensure national security and manage emergencies. A Presidential Policy Directive issued in July 2016 superseded previous directives requiring continuous communication services for select government officials. According to NPPD officials, the new directive validates the program’s requirements for the voice phase and was used to develop requirements for the video and data phase. The program expects to begin the acquisition of the phase 2 for video and data in September 2021. In July 2017, NPPD reported that the program needed a systems engineer and was mitigating the vacancy with contracted support staff. The program also identified a need for an additional systems engineer and program support staff starting in fiscal year 2019 to support the start of increment 3. In August 2017, NPPD officials told GAO they continue to face challenges hiring and retaining engineers with adequate experience because of competition with the private sector. The program has historically mitigated staffing gaps by leveraging support from contracted and PTS program staff, as needed. In addition to activities identified in this assessment, NPPD officials stated that the program has received Joint Requirements Council validation of the phase 2 concept of operations and DHS leadership approval of the phase 2 operational requirements document. As of January 2018, the updated APB was in the approval process. NPPD officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) SCIENCE AND TECHNOLOGY DIRECTORATE (S&T) The NBAF program is constructing a state-of-the-art laboratory in Manhattan, Kansas to replace the Plum Island Animal Disease Center. The facility will enable the Department of Homeland Security (DHS) and the Department of Agriculture (USDA) to conduct research, develop vaccines, and provide enhanced diagnostic capabilities to protect against foreign animal, emerging, and zoonotic diseases that threaten the nation’s food supply, agricultural economy, and public health. Commissioning process underway, but performance will not be demonstrated until construction is complete. NBAF adequately staffed, but staffing needs will change as operational stand-up activities begin. GAO last reported on this program in April 2017 (GAO-17-346SP). The program’s annual life-cycle cost estimate (LCCE) update is within its current acquisition program baseline (APB) cost thresholds and, according to NBAF officials, the program remains on track to meet its schedule goals. In August 2017, NBAF officials said that construction activities thus far—such as pouring concrete for the main laboratory and steel framing—have proceeded as anticipated and will continue through December 2020. NBAF officials told GAO the program has already received full acquisition funding for facility construction efforts through federal appropriations and gift funds from the state of Kansas. As construction continues, the program plans to begin operational stand-up activities for the facility. However, a potential affordability gap may delay the program’s ability to complete these stand-up activities, which are needed to begin conducting laboratory operations. The program was not included in DHS’s funding plan to Congress for fiscal years 2018 to 2022 because DHS did not report operations and maintenance (O&M) funding for individual programs. However, NBAF officials anticipate receiving only $149 million in O&M funding to cover an estimated $239 million in O&M costs over the next 5 years, resulting in a projected shortfall of approximately $90 million. NBAF officials stated the O&M funding gap could delay a number of operational stand-up activities, including plans to award a management operations and research support contract in October 2018, the purchase of laboratory and information technology equipment, and hiring of operations management staff. According to NBAF officials, if operational stand-up activities are delayed, there is a risk the facility will not be fully operational by December 2022, as is currently planned. This may delay the transition from the Plum Island Animal Disease Center, which is nearing the end of its useful life. NBAF officials reported that S&T plans to communicate the program’s future funding needs to DHS leadership through the annual budget process. If the program does not receive the funding it requests, these officials stated that S&T will prioritize the operational stand-up activities that best reduce the risk of schedule delays. Science and Technology Directorate (S&T) NATIONAL BIO AND AGRO-DEFENSE FACILITY (NBAF) NBAF officials reported that they coordinate regularly with key stakeholders. For example, they hold regular coordination meetings with USDA officials to discuss NBAF operations, including operational stand-up activities and future procurement. The NBAF program office has also begun outreach to the federal regulators responsible for awarding the registrations needed for NBAF to conduct laboratory operations to begin planning for this authorization process. The NBAF program office is currently fully staffed. However, NBAF officials reported the program’s staffing needs will change in the coming years, as the program progresses through construction and begins operational stand-up of the facility. For example, over the next 5 years, the program will need to hire an operations director, bio-risk manager, chief information officer, and facility manager, among others, for NBAF operations management. However, the projected O&M funding shortfall during this same period could affect the program’s ability to hire new staff when needed and complete operational stand-up activities on time. NBAF officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) Established in response to the terrorist attacks of September 11, 2001, EBSP tests, procures, and deploys transportation security equipment, such as explosives trace detectors and explosives detection systems, across approximately 440 U.S. airports to ensure 100 percent of checked baggage is screened for explosives. EBSP is primarily focused on delivering new systems with enhanced screening capabilities and developing software upgrades for existing systems. Program is incorporating requirements to address cybersecurity risk for existing systems. EBSP plans to pursue a new procurement approach in 2018, and staffing challenges exist. GAO last reported on this program in April 2017 (GAO-17-346SP). In the program’s annual life-cycle cost estimate update, its operations and maintenance (O&M) costs exceeded the acquisition program baseline (APB) cost threshold, which constitutes a breach under the Department of Homeland Security’s (DHS) acquisition policy. The O&M costs increased when TSA accounted for updated maintenance costs and quantities, and shifted salaries from acquisition to O&M to align with DHS’s new appropriation structure. TSA officials said they did not submit a breach notification because they considered the movement of salaries to be an administrative change. The program plans to update its APB in calendar year 2018 to reflect a new plan for procuring equipment under its current acquisition strategy. TSA officials said this APB will also reflect the cost changes. In May 2016, DHS leadership approved a revised APB for EBSP, which reflects its current acquisition strategy to competitively procure systems on an ongoing basis using qualified product lists. The program’s revised APB cost thresholds decreased compared to its initial APB, which TSA officials attributed to various reasons, including shortening the program’s end date by 3 years and lower than anticipated actual costs, among other things. TSA officials told GAO that one of their primary challenges is funding, and the program is projected to face a $72 million acquisition funding shortfall in fiscal year 2018. TSA identified $70 million in carryover funding to address this gap. To mitigate anticipated funding gaps in future years, TSA officials said they may shift projects from one fiscal year to another or cancel them altogether, which may result in the delay or elimination of screening capabilities. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. TSA anticipates receiving $980 million in O&M funding over this 5-year period to cover $1 billion in O&M costs. TSA officials anticipate achieving the program’s final APB milestone—initial operational capability (IOC) for systems that detect additional materials and provide an advanced threat detection algorithm—by its revised threshold date. Previously, EBSP planned to award contracts for these systems in September 2015 and September 2018, respectively. Transportation Security Administration (TSA) ELECTRONIC BAGGAGE SCREENING PROGRAM (EBSP) As of December 2017, EBSP had deployed 1,664 explosives detection systems and 2,638 explosives trace detectors nationwide. In 2018, EBSP plans to pursue a new competitive procurement approach to replace and update existing systems that will include: New contract vehicles to better align EBSP procurement activities with the program’s strategic roadmap. Updates to EBSP’s vendor qualification process to allow for vendor collaboration before testing. Transitioning from procuring systems with different sizes and speeds to two types: (1) inline systems that integrate with a baggage handling system and are linked through a network and (2) standalone systems that may be integrated with a baggage handling system, but not linked to a network. The program is in the process of updating its acquisition documentation to reflect this new procurement approach and TSA officials anticipate opening a qualified products list for new systems starting in June 2018. TSA officials said that staffing remains a challenge for the program because of cuts in government and contracted mission support staff and critical vacancies, including a division director. In September 2017, TSA reported that existing personnel across the program have assumed responsibilities of these positions, but workloads are unsustainable at current staffing levels. TSA officials stated that EBSP continues to procure, test, and deploy equipment and capabilities to recapitalize older equipment, improve security screening capability at airports, and enhance the detection capabilities of the fleet. They added that TSA employs extensive testing to verify the suitability and effectiveness of equipment to meet requirements. Moving forward, EBSP intends to establish IOC milestones for new technologies and capabilities, while allowing TSA the flexibility to make risk-based decisions. TSA officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. PASSENGER SCREENING PROGRAM (PSP) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The Department of Homeland Security (DHS) established PSP in response to the terrorist attacks of September 11, 2001. PSP identifies, tests, procures, deploys, and sustains transportation security equipment across approximately 440 U.S. airports to help TSA officers identify threats concealed on people and in their carryon items. The program aims to increase threat detection capabilities, improve the efficiency of passenger screening, and balance passenger privacy and security. Started testing on the Credential Authentication Technology in TSA Precheck lanes during 2017. Critical staffing vacancies persist and may delay followon acquisition planning efforts. GAO last reported on this program in April 2017 (GAO-17-346SP). In May 2017, the DHS Under Secretary for Management (USM) approved the sixth version of the PSP acquisition program baseline (APB) and subsequently removed the program from breach status. In January 2016, TSA declared a schedule breach of a key milestone—acquisition decision event (ADE) 3—for the Credential Authentication Technology (CAT) because of delays in incorporating new cybersecurity requirements. Consistent with previous versions of the program’s APB, the new baseline modified the program’s cost, schedule, and performance parameters. For example, the program established the following: Separate CAT milestone dates for TSA Precheck and standard lanes. TSA officials stated there is no capability difference between screening lanes, but an initial focus on TSA Precheck lanes will assist with demonstrating CAT requirements and resolving past testing issues that contributed to an initial 4-year delay to CAT’s full operational capability (FOC) date. PSP now plans to reach FOC for CAT more than 5 years later than its revised target of June 2018 and more than 9 years later than initially planned. New FOC dates for other technologies, which TSA officials said are expected to be more realistic about delivery dates and account for changes in some FOC quantities. For example, TSA requested and received approval in September 2017 to increase FOC quantities for second generation Advanced Technology (AT-2) TierI systems to meet increasing passenger volume and expected airport growth. In May 2017, the USM also directed the program to revise its life-cycle cost estimate (LCCE) in response to less-than-expected funding levels. The new LCCE also shifted some acquisition costs to operations and maintenance (O&M) to be consistent with DHS’s new appropriation structure. TSA officials believe the new funding profile will be sufficient to sustain legacy PSP equipment, but will significantly limit the program’s ability to enhance existing equipment capabilities and support operational needs. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained O&M funding for individual programs. TSA anticipates receiving $906 million in O&M funding over this 5-year period to cover $923 million in O&M costs. 05/17 APB version 6.0 approved 03/20 CAT ADE 3 (precheck lanes) 09/21 CAT ADE 3 (standard lanes) 12/21 CAT FOC (precheck lanes) 12/23 CAT FOC (standard lanes) Transportation Security Administration (TSA) PASSENGER SCREENING PROGRAM (PSP) Automated screening lanes operational utility assessment AT-2 tier II follow-on operational test & evaluation (OT&E) TSA employs two acquisition strategies to acquire PSP systems: Qualified Product List (QPL) approach—used for proven technologies when capability requirements are rigid and contractors’ systems are mature. Any contractors’ systems that demonstrate they meet the capability requirements are added to the QPL. TSA has used this approach to acquire the second generation AT-2 systems, Bottled Liquid Scanners, and Explosive Trace Detectors. Low Rate Initial Production (LRIP) approach—used when capability requirements are flexible and contractors’ systems are evolving. Under this approach, PSP uses a series of development contracts to enhance systems’ capabilities over time. PSP is currently using this approach to acquire CAT. TSA planned to initiate new acquisition programs starting in fiscal year 2018 that will replace PSP, but this effort may be at risk because of understaffing. In August 2017, TSA reported that its checkpoint screening division—whose staff is concurrently responsible for PSP and its follow-on programs—continued to have staffing vacancies, including project managers, analysts, and a deputy program manager. TSA is mitigating these gaps with existing staff and, according to TSA officials, the staffing challenges may decrease because the new programs may be delayed in response to funding cuts. TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) TRANSPORTATION SECURITY ADMINISTRATION (TSA) The TIM program was initiated to address shortfalls in TSA’s threat assessment screening and vetting functions by providing a modern and centralized end-to-end credentialing system. The TIM system will manage credential applications and the review process for millions of transportation workers and travelers across three segment populations: maritime, surface, and aviation. It will support large programs, such as TSA Precheck and the Transportation Worker Identification Credential. Operational testing identified limitations with the system; cybersecurity has not been assessed. Staffing gaps in key areas, such as systems engineering and testing, are a significant program risk. GAO last reported on this program in October and April 2017 (GAO-18-46, GAO-17- 346SP). The TIM program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB). In September 2016, the Department of Homeland Security’s (DHS) Under Secretary for Management approved the TIM program’s revised APB—which reflected a new technical approach to deploy capabilities using an agile development methodology—and subsequently removed the program from breach status, authorizing TSA to resume new development after a nearly 22-month pause. DHS leadership paused new development in January 2015 after the program breached its initial APB goals for various reasons, including technical challenges, insufficient contractor performance, and the addition of new requirements after DHS leadership had approved the program’s initial acquisition strategy. The program now plans to achieve full operational capability (FOC) in March 2022 and its life-cycle cost estimate (LCCE) increased to account for this 6-year schedule slip and integration with the Transportation Vetting System, among other things. Since the program’s re-baseline, it has been developing and deploying capabilities in 2-month incremental agile releases, such as functionality to transition TSA Precheck program to the TIM system. The program updated its LCCE in November 2017 to inform a program review with DHS leadership, which is within its current APB cost thresholds. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance (O&M) funding for individual programs. TSA officials anticipate receiving approximately $318 million in O&M funding over this 5-year period, which includes nearly $118 million in fees from vetting programs. TSA officials plan to realign $57 million to cover the projected acquisition shortfall, and said any additional surplus funding available in fiscal year 2022 would be used to implement new system requirements identified by the program’s customers. In November 2017, TSA officials identified several program and technical risks that could affect the program’s cost, schedule, and performance. These risks include an increase in new requirements and increased risk of system vulnerabilities and cyberattacks if the program does not identify a provider to perform software updates on open source code. TSA officials are working to mitigate these risks. Transportation Security Administration (TSA) TECHNOLOGY INFRASTRUCTURE MODERNIZATION (TIM) Under the program’s new technical approach, TSA plans to replace the TIM system’s existing commercial-off-the-shelf applications with open source applications—software that can be accessed, used, modified, and shared by anyone—and move to a new virtual environment. The program’s new agile development methodology develops, tests, and deploys capabilities using an iterative, rather than a sequential approach. Consistent with this strategy, TSA awarded task orders in 2016 and 2017 totaling $34.5 million to the program’s existing contractor for agile design and development services, and plans to competitively award a new contract by May 2018. In October 2017, GAO found that TSA had not fully implemented several leading practices to ensure successful agile adoption. GAO also found that TSA and DHS needed to conduct more effective oversight of the TIM program to reduce the risk of repeating past mistakes. DHS concurred with all 14 recommendations made by GAO to improve program execution and oversight, and identified actions DHS and TSA can take to address them. TSA reported that staffing challenges are a significant risk to the program’s success and identified gaps in key areas—such as systems engineering, testing, and agile development. Program officials told GAO these positions cannot be filled because of a hiring freeze within TSA, which the component has imposed to assess their current workforce and restructure, if necessary. Program officials told GAO they requested waivers from the hiring freeze and, as of January 2018, they had received approval to hire 4 additional staff. TSA officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. FAST RESPONSE CUTTER (FRC) UNITED STATES COAST GUARD (USCG) The USCG uses the FRC to conduct search and rescue, migrant and drug interdiction, and other law enforcement missions. The FRC carries one cutter boat on board and is able to conduct operations in moderate sea conditions. The FRC replaces the USCG’s Island Class patrol boat and provides improved fuel capacity, surveillance, and communications interoperability with other Department of Homeland Security (DHS) and Department of Defense assets. FRC found operationally effective and suitable, and all key performance parameters validated. Main diesel engine issues persist, which may require further retrofits. GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP). According to USCG officials, the FRC program is on track to meet its current cost and schedule goals. The USCG plans to acquire 58 FRCs and, as of September 2017, 25 had been delivered and 19 were on contract. To inform the budget process, the program updated its life-cycle cost estimate in June 2017, which is within its current acquisition program baseline (APB) cost thresholds. Previously, the program’s initial operational capability (IOC) date slipped after a bid protest related to the program’s initial contract award—now known as phase 1—and the need for structural modifications. USCG officials attributed the 5-year slip in the program’s full operational capability (FOC) date to a decrease in annual procurement quantities under the phase 1 contract. Specifically, in fiscal years 2010 and 2011, the quantities decreased from 6 FRCs per year to 4. In May 2014, the USCG determined that it would procure only 32 of the 58 FRCs through this contract and initiated efforts to conduct a full and open competition for the remaining 26 vessels—known as phase 2. In May 2016, the USCG awarded the phase 2 contract for the remaining 26 FRCs, which has a potential value of $1.42 billion. Under the phase 2 contract, the USCG can procure 4 to 6 FRCs per option period. The USCG ordered 6 FRCs at the time of the phase 2 award and, in June 2017, exercised an option for an additional 6 FRCs. The USCG has established that the annual procurement quantity will be dictated by funding levels, and funding shortfalls could cause further schedule delays. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving $1.6 billion in O&M funding over this 5-year period. USCG officials stated that they expect to exercise an option for 4 FRCs in fiscal year 2018 and that the USCG plans to prioritize acquisition funding in fiscal years 2019 and 2020 to procure the final 10 hulls and complete procurement of all 58 FRCs. United States Coast Guard (USCG) FAST RESPONSE CUTTER (FRC) The USCG continues to work with the contractor—Bollinger Shipyards, LLC—to address issues covered by the warranty and acceptance clauses for each ship. For example, 18 engines—9 operational engines and 9 spare engines—have been replaced under the program’s warranty. According to USCG documentation, 65 percent of the current issues with the engines have been resolved through retrofits; however, additional problems with the engines have been identified since our April 2017 review. For example, issues with water pump shafts are currently being examined through a root cause analysis and will be redesigned and are scheduled to undergo retrofits starting in December 2018. We previously found that the FRC’s warranty resulted in improved cost and quality by requiring the shipbuilder to pay for the repair of defects. As of September 2017, USCG officials said the replacements and retrofits completed under the program’s warranty allowed the USCG to avoid an estimated $104 million in potential unplanned costs—of which $63 million is related to the engines. The FRC program does not have any critical staffing vacancies, but the USCG identified insufficient staffing for shore-side support groups as a potential risk that could affect the asset’s operations. These groups provide maintenance to the FRCs while they are in port. In order to mitigate this staffing issue, the USCG is using commercial contracts for maintenance to supplement the capacity of the USCG’s maintenance staff. USCG officials stated that the FRC program is fully funded, executable, and on track to reach FOC by March of 2027. They added that FRCs were recently delivered to locations in Mississippi, Alaska, and Hawaii. USCG officials stated that FRCs are integral to USCG operations, such as providing critical support during the recent hurricane season, and that the program office continues to work with the contractor and stakeholders to quickly and properly address issues with FRCs as they are identified. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) UNITED STATES COAST GUARD (USCG) The H-65 aircraft is a short-range helicopter that the USCG uses to fulfill its missions, including search and rescue, ports and waterways security, marine safety, and defense readiness. The H-65 acquisition program increased the fleet’s size by 7 aircraft, added armament capabilities, upgraded navigation systems, and replaced each of the helicopters’ engines. The program is currently focused on upgrades to radar sensors, the automatic flight control system (AFCS), and avionics. Operational assessment of avionics upgrade planned to start in February 2018. Program fully staffed, but schedule slips raise risks with future staffing requirements. GAO last reported on this program in April 2017 (GAO-17-346SP). As of November 2017, the program remains in breach of its current acquisition program baseline (APB). In November 2016, the USCG notified Department of Homeland Security (DHS) leadership that it would not complete all activities required—including developmental testing and an operational assessment—to achieve acquisition decision event (ADE) 2C for low-rate initial production of the avionics and AFCS upgrades by its current APB threshold date of March 2017. USCG officials primarily attributed these delays to an underestimation of the technical effort necessary to meet the requirements and have subsequently worked with the contractor to continue development of avionic upgrades. In January 2017, DHS leadership directed the program to update its APB, life-cycle cost estimate (LCCE) and test and evaluation master plan by May 2017. However, the USCG did not meet this deadline, in part, because it decided to add a service life extension program (SLEP) to the H-65 program. The SLEP is expected to extend the current 20,000 flight hour service life of each aircraft by another 10,000 flight hours by replacing obsolete aircraft components. USCG officials stated that this will allow the USCG to delay purchasing new aircraft to prioritize funding for the Offshore Patrol Cutter. USCG officials plan to obtain approval for the SLEP when the program submits its revised APB for DHS approval, which is expected by March 2018. The program is revising its LCCE, but provided an update in June 2017 to inform the budget process. This update exceeds its current APB thresholds because it includes an initial estimate for the SLEP. The USCG estimates that the SLEP will cost $54 million for the entire fleet. USCG officials attributed the increase in operations and maintenance (O&M) costs to the additional extension of the aircraft’s operational life. The program’s O&M costs previously increased due to the USCG’s decision to extend the aircraft’s operational life from 2030 to 2039. The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs. USCG officials anticipate receiving $1.6 billion in O&M funding over this 5-year period. United States Coast Guard (USCG) H-65 CONVERSION/SUSTAINMENT PROGRAM (H-65) The USCG awarded new contracts to Rockwell Collins—the original equipment manufacturer of the legacy AFCS and avionics—to address the challenges encountered with development of the new upgrades. Specifically, the program awarded new contracts to support continued development of the AFCS and avionics upgrades in July 2016 and March 2017, respectively. As of September 2017, the combined value of both contracts totaled more than $15 million. The USCG cancelled development of a dedicated surface search radar capability for the H-65 in 2014, but USCG officials said a commercial off-the-shelf weather radar with surface search capability will be installed as part of the avionics upgrade. USCG officials said there is some risk involved with extending the aircrafts’ service life beyond 20,000 flight hours since it has never been done by other agencies that operate the H-65. However, USCG officials stated that the aircraft manufacturer, Airbus, assisted the USCG’s chief aeronautical engineer in identifying specific parts needing replacement and is providing support. In July 2017, the USCG reported that the program was fully staffed, but that the schedule slips have introduced potential risks with future staffing requirements. The program is mitigating these risks by extending some military personnel and ensuring rotating personnel are replaced by new staff with the expertise needed to complete the program’s planned activities, such as testing. USCG officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. UNITED STATES COAST GUARD (USCG) The program is intended to assist the USCG in maintaining the capability to access the Arctic and Antarctic polar regions. The USCG requires its icebreaking fleet to conduct multiple missions, including defense readiness; marine environmental protection; ports, waterway, and coastal security; and search and rescue. The USCG plans to acquire three heavy icebreakers to recapitalize the only existing operational heavy icebreaker, which is nearing the end of its service life. Program initiated model testing of hull and propulsion systems, which will inform design decisions. Program office integrates USCG and Navy personnel, but funding responsibilities may cause challenges. GAO last reported on this program in September 2017 (GAO-17-698R). In June 2014, Department of Homeland Security (DHS) leadership granted the program acquisition decision event (ADE) 1 approval. The Acting Under Secretary for Management also acknowledged the USCG’s need to accelerate the acquisition process to mitigate gaps in the heavy icebreaking capability because the service life of the USCG’s only heavy polar icebreaker, which had already been extended, could end as early as 2020. In January 2018, DHS leadership approved the program’s initial acquisition program baseline (APB) establishing cost, schedule, and performance goals. The USCG planned to achieve a combined ADE 2A and 2B by December 2017, which would authorize the initiation of development efforts. According to DHS officials, this milestone was delayed to February 2018 to allow for the completion of required acquisition documents to inform the decision, such as the program’s life-cycle cost estimate and APB. The USCG is partnering with the Navy to leverage shipbuilding expertise and engaging early with potential shipbuilders through industry studies to mitigate some risks associated with the program’s accelerated acquisition schedule. However, GAO previously found that the program faces challenges in implementing the accelerated schedule. For example, the first icebreaker—which is preliminarily estimated to cost about $750 million to design and construct—would need to be fully funded in fiscal year 2019 at the same time the USCG is expecting to prioritize funding for the Offshore Patrol Cutter. In fiscal year 2017, the Consolidated Appropriations Act or associated explanatory materials, reflected funding for the program, including $150 million for advance procurement of heavy polar icebreakers and $25 million to the USCG for programmatic costs, respectively. USCG officials stated that the Navy funding could cover most of the design costs but would not cover long lead items or construction costs for any of the ships. They further stated that uncertainties with the amount and source of future appropriations have made planning the icebreaker acquisition challenging. United States Coast Guard (USCG) DHS leadership approved four key performance parameters (KPP) related to the ship’s ability to independently break through ice, the ship’s operating duration, and communications. In May 2017, the USCG began model testing of potential hull designs and propulsion configurations. USCG officials explained that the hulls of icebreakers are unique from other ships because they must balance a hull design optimized for icebreaking, which are generally broad and blunt, against a hull design optimized for seakeeping, which are generally narrow and streamlined. USCG officials noted that the power demands and propulsion system for the ship are dependent on the hull design. USCG officials stated that maneuverability was identified as a challenge during model testing and explained that azimuthing propulsors—propellers that sit below the ship and can rotate 360 degrees—offered better maneuverability than traditional propulsion systems. USCG officials said these propulsors are widely used on commercial ships, but may need modification to meet the USCG’s requirements. USCG officials anticipate results from the model testing to be completed by March 2018 and plan to use these results to inform the final specifications for the ships. The USCG established an integrated heavy polar icebreaker program office with the Navy and in 2017, DHS, the USCG, and Navy entered into several agreements that outline oversight roles, among other things. For example, these agreements state that the program will follow DHS acquisition policies with DHS leadership serving as the acquisition decision authority for program milestones. However, the Navy will review and approve acquisition documents before the program seeks DHS approval. These agreements also state that the program’s contracting actions could be funded by either USCG or Navy appropriations, and the source of the appropriations will award the contract. The program plans to competitively award a contract, which would include options for the detail design and construction for all three ships to a single shipbuilder by June 2019. Program officials stated they plan to award the contract under full and open competition to obtain competitive prices and include the construction of the three ships as options to accommodate the program’s funding uncertainties. In February 2017, the USCG awarded contracts to five shipbuilders—valued at approximately $4 million each—for design studies which will inform program decisions. Program officials stated that under these design studies contracts, the shipbuilders developed several potential ship designs and preliminary costs, with a focus on alternative propulsion options and hull designs. In August 2017, USCG officials told GAO that the program’s staffing gap was not negatively impacting program efforts. USCG officials stated that the program office had completed requirements for ADE 2A and 2B, and is on track to release the request for proposals for the detail design and construction contract by March 2018. These officials added that, during 2017, the program office refined the program’s requirements, completed ice and open water model testing, and partnered with five industry teams to evaluate multiple design solutions. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-130H and HC-130J aircraft to conduct search and rescue missions, transport cargo and personnel, support law enforcement, and execute other operations. Both aircraft are quad-engine propeller-driven platforms. The HC-130J is a modernized version of the HC-130H, which has advanced engines, propellers, and equipment that provide enhanced speed, altitude, range, and surveillance capabilities. Performance testing of new mission system processor complete. Transfer of HC-130H aircraft to other agencies ongoing. GAO last reported on this program in April 2017 (GAO-17-346SP). During 2017, the USCG continued a nearly 3-year effort to re-baseline the program— which includes revisions to the program’s life-cycle cost estimate (LCCE) and acquisition program baseline (APB)—to account for significant changes. Specifically, the USCG decided to pursue an all HC-130J fleet and, in fiscal year 2014, Congress directed the transfer of 7 HC-130H aircraft to the U.S. Air Force. The USCG was in the process of upgrading these aircraft, but cancelled further HC-130H upgrades. In September 2017, Department of Homeland Security (DHS) leadership directed the USCG to submit the revised APB by January 2018. According to USCG officials, the re-baseline has been delayed, in part, because Congress also directed the USCG to conduct a multi-phased analysis of its mission needs. In November 2016, the USCG submitted the results of its analysis for fixed- wing aircraft, which confirmed the planned total quantity of 22 HC-130J aircraft and an annual flight-hour goal of 800 hours per aircraft. USCG officials said the results of the analysis will be reflected in the program’s revised LCCE and subsequent APB, but noted that challenges with the vendor hired to complete the LCCE revision have also contributed to delays. The program submitted cost information in June 2017 to inform the budget process, but it reflected no updates from the program’s November 2011 LCCE. USCG officials previously attributed the acquisition cost growth and schedule slip from the program’s initial APB to the increase in HC-130J quantities from 6 to 22. However, when the revised LCCE is complete, estimated costs may decrease since the HC-130J aircraft are less expensive to maintain. As of December 2017, USCG officials stated they had received 11 HC-130J aircraft and had awarded contracts for 3 more—some of which were not requested. USCG officials previously stated that the program needs to acquire 1-2 HC-130J aircraft per year to meet its full operational capability (FOC) date. However, it is unclear how the USCG will meet its FOC date because it only requested funding for 1 aircraft over the next 5 years. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving approximately $1.4 billion in O&M funding over this 5- year period. United States Coast Guard (USCG) LONG RANGE SURVEILLANCE AIRCRAFT (HC-130H/J) In December 2013, Congress directed the transfer of 7 HC-130H aircraft to the U.S. Air Force for modifications—which consists of upgrades and installing a fire retardant delivery system—and subsequent transfer to the U.S. Forest Service. This direction factored into the USCG’s decision to pursue an all HC-130J fleet. As of December 2017, the Forest Service had not yet received any modified aircraft primarily because of issues with contractors. According to USCG officials, the original contract the Air Force awarded to install the fire retardant delivery system in May 2016 was terminated 7 months later due to an unqualified vendor and a new contract has not yet been awarded. In the meantime, the Forest Service is using 2 of the 7 HC-130Hs. USCG officials said these aircraft are not modified, but outfitted with a less effective firefighting device. As of November 2017, the USCG plans to operate 14 of its HC-130H aircraft until the end of their service lives or until they can be replaced with new HC-130J aircraft. However, as previously discussed, the USCG has not requested funding for the additional HC-130J aircraft to support this plan. In October 2017, USCG officials reported that they were in the process of hiring staff to address the program’s staffing gap. USCG officials provided technical comments on a draft of this assessment, which GAO incorporated, as appropriate. MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/ C-27J) UNITED STATES COAST GUARD (USCG) The USCG uses HC-144A and C-27J aircraft to conduct all types of missions, including search and rescue and disaster response. All 32 aircraft—18 HC-144A aircraft and 14 C-27J aircraft—are twin-engine propeller driven platforms. The interior of both aircraft are able to be re-configured to accommodate cargo, personnel or medical transports. Developmental testing of new mission system processor is ongoing. Program continues to face challenges related to purchasing spare parts and accessing technical data. GAO last reported on this program in April 2017 and March 2015 (GAO-17-346SP, GAO-15-325). USCG officials said the program is on track to meet the cost and schedule goals in its current acquisition program baseline (APB), which Department of Homeland Security (DHS) leadership approved in August 2016 to reflect the restructuring of the HC-144A acquisition program. The USCG initially planned to procure a total of 36 HC-144A aircraft, but reduced that number to the 18 it had already procured after Congress directed the transfer of 14 C-27J aircraft from the U.S. Air Force to the USCG in fiscal year 2014. The program’s APB divides the program into two phases: phase 1 includes acceptance of the 18 HC-144A aircraft and upgrades to the aircraft’s mission and flight management systems, and phase 2 includes acceptance of and modifications to the C-27J aircraft to meet the USCG’s mission needs. In October 2017, USCG officials told GAO that the program had initiated phase 1 efforts to upgrade the first HC-144A aircraft. The USCG plans to complete upgrades on all HC-144As by the end of fiscal year 2021. For phase 2, the USCG has accepted all 14 C-27Js from the U.S. Air Force and plans to complete the modification of all C-27Js by March 2025 to achieve full operational capability (FOC). To inform the budget process, the program updated its life-cycle cost estimate (LCCE) in June 2017, which is within its current APB cost thresholds. This estimate includes C-27J modification costs, such as installation of a new sensor package and new mission system processor. The program’s LCCE for the 36 HC-144A aircraft previously increased to $28.7 billion in 2012 when the USCG accounted for 5 years of additional costs, among other things. The current LCCE represents a considerable decrease, but also reflects a reduction in the number of aircraft and planned flight hours. The affordability gap from fiscal years 2018 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not contain operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving nearly $1.7 billion in total funding over this 5-year period to cover nearly $1.8 billion in total costs. United States Coast Guard (USCG) MEDIUM RANGE SURVEILLANCE AIRCRAFT (HC-144A/C-27J) The USCG still faces challenges in transitioning the C-27J into the USCG fleet. In March 2015, GAO found that the successful and cost-effective fielding of the C-27J aircraft is contingent on the USCG’s ability to address risk areas including, purchasing spare parts and accessing technical data, among other issues. According to USCG officials, the program continues to face challenges purchasing spare parts and accessing technical data. The program is reliant on the aircraft original equipment manufacturer for about 35 percent of spare C-27J parts. For other parts, USCG officials said that the USCG continues to look for ways to provide the same or similar parts for the aircraft at a faster rate and the USCG plans to award contracts to two additional manufacturers in calendar year 2018. USCG officials stated that retrieving technical data for the C-27J aircraft remains a challenge, but the USCG is working with the Department of Defense to obtain rights to data currently owned by the original equipment manufacturer. Once the USCG receives appropriate rights to C-27J technical data, the USCG officials said they can begin modification of the aircraft. The USCG also plans to purchase the same surface search radar used on the HC-144A or the HC-130J for the C-27J, which will give the USCG some commonality in maintenance, logistics, and training for this aspect of the aircraft. In October 2017, USCG officials told GAO that the program’s staffing is adequate and the gap has not negatively affected the program. USCG officials stated that the program remains on track to meet the cost, schedule, and performance goals outlined in its current APB and that they monitor APB key parameters in accordance with DHS guidance. These officials added that market research continues to increase supply chain sources and to identify products for new mission systems. USCG officials also provided technical comments, which GAO incorporated as appropriate. NATIONAL SECURITY CUTTER (NSC) UNITED STATES COAST GUARD (USCG) The USCG uses the NSC to conduct search and rescue, migrant and drug interdiction, environmental protection, and other missions. The NSC replaces and provides improved capabilities over the USCG’s High Endurance Cutters. The NSC carries helicopters and cutter boats, provides an extended on-scene presence at forward deployed locations, and operates worldwide. Follow-on operational testing began in October 2017, but cybersecurity testing delayed. The USCG is conducting a study to determine root cause of propulsion system issues. GAO last reported on this program in March and April 2017 (GAO-17-218, GAO-17- 346SP). In November 2017, Department of Homeland Security (DHS) leadership approved a revised acquisition program baseline (APB), which accounted for the addition of a ninth NSC to the program of record. The USCG originally planned to acquire only eight NSCs; however, in the Consolidated Appropriations Act of 2016, Congress directed that not less than $640 million be immediately available and allotted to contract for the production of a ninth NSC. In December 2016, the USCG awarded a contract to produce the ninth NSC and, as of November 2017, six NSCs had been delivered and three were under construction. The USCG anticipates delivery of the ninth NSC in September 2020, which coincides with the program’s prior APB threshold date for full operational capability (FOC). However, the revised APB extends this date by 1 year to account for any risks in delivering the additional ship. The program’s FOC date previously slipped 4 years, which USCG officials attributed to funding shortfalls, among other things. The ninth NSC contributed to a $453 million and $123 million increase in the program’s APB cost thresholds for acquisition and operations and maintenance (O&M), respectively. However, the program’s revised life-cycle cost estimate (LCCE) is still lower than its initial estimate for eight ships, which USCG officials attribute to more accurate estimates. The revised LCCE also included costs for several design changes the USCG has had to implement on equipment with known issues. As of September 2017, 12 equipment systems required design changes, which totaled an estimated cost of over $260 million. This work includes structural enhancement work on the first two NSCs and the replacement of the gantry crane, which aids in the deployment of cutter boats. The affordability gap from fiscal years 2018 to 2022 may be overstated because— as we found in April 2015—DHS’s funding plan to Congress does not contain O&M funding for USCG programs. USCG officials anticipate receiving approximately $2.1 billion in O&M funding over this 5-year period to cover the NSC’s estimated $1.8 billion in O&M costs, but stated it will refine its annual budget request based on the program’s needs each year. The USCG also identified carryover funding to cover the projected acquisition funding shortfall in fiscal year 2018. United States Coast Guard (USCG) NATIONAL SECURITY CUTTER (NSC) The NSC program does not have any critical staffing vacancies. However, in July 2017, the program reported that the greatest staffing challenge is a potential extension to the program’s end date if the USCG acquires more than 9 NSCs. If this occurs, the program office must reassess future staffing requirements to ensure adequate program oversight continues until the last NSC completes post-delivery activities. In addition, the USCG has made changes to its staffing model for operating the NSCs. The USCG initially planned to implement a crew rotational concept in which crews would rotate while NSCs were underway to achieve a goal of 230 days away from the cutter’s homeport. In February 2018, USCG officials told GAO they abandoned the crew rotational concept because the concept did not provide the USCG with the expected return on investment. Instead, USCG officials said a new plan has been implemented that does not rotate crew and is anticipated to increase the days away from home port from the current capability of 185 days to 200 days. USCG officials stated that NSCs had a record year of narcotics seizures in 2017. In addition to the test activities identified in this assessment, USCG officials stated that the first follow-on OT&E event was completed in December 2017 and the first cybersecurity test event is scheduled for February 2018. They also noted that the shipbuilder continues to show improving cost performance and is completing construction within budget. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. OFFSHORE PATROL CUTTER (OPC) UNITED STATES COAST GUARD (USCG) The USCG plans to use the OPC to conduct patrols for homeland security, law enforcement, and search and rescue operations. The OPC is being designed for long-distance transit, extended on-scene presence, and operations with deployable aircraft and small boats. It is intended to replace the USCG’s aging Medium Endurance Cutters (MEC) and bridge the operational capabilities provided by the Fast Response Cutters and National Security Cutters (NSC). Program plans to refine the ship’s design, as needed, based on early operational assessment results. Program’s acquisition strategy incorporated some best practices. GAO last reported on this program in April and June 2017 (GAO-17-346SP, GAO-17-654T). According to USCG officials, the OPC program is on track to meet its cost and schedule goals. In September 2014, Department of Homeland Security (DHS) leadership approved the program’s current acquisition program baseline (APB), which accounts for schedule slips resulting from delays in awarding the program’s initial contracts and a subsequent bid protest. The USCG expects to start construction of the first OPC in fiscal year 2019 and procure a total of 25 ships. The USCG plans to initially fund one OPC per year and eventually two OPCs per year until all 25 OPCs are delivered. USCG officials have stated that additional OPC delays will decrease the USCG’s operational capacity because the MECs will likely require increased downtime for maintenance and other issues, reducing their availability. In January 2016, DHS leadership directed the USCG to revise the OPC life-cycle cost estimate (LCCE) and submit it for approval within 6 months of awarding the detailed design and construction contract for the ships—which the USCG subsequently awarded in September 2016. In June 2017, the program submitted an updated LCCE to inform the budget process that—while not approved by DHS leadership—accounts for the contract award and the program’s schedule slips. As of December 2017, the program’s revised LCCE still had not been approved. It is unclear whether it will address other issues, such as an increase in the estimated weight of each ship. The OPC’s initial LCCE was based in large part on the estimated weight of each ship. However, in November 2017, USCG officials said the ship is expected to weigh up to 35 percent more than originally estimated. Nevertheless, USCG officials expect to procure all 25 OPCs for the program’s APB objective cost of $10.5 billion because the contractor identified cost efficiencies to compensate for the increased weight. GAO previously raised questions about the OPC’s affordability and its effect on other USCG acquisition programs, such as the Heavy Polar Icebreaker. Specifically, GAO noted that the OPC procurement will consume about two-thirds of the USCG’s planned acquisition budget between fiscal years 2018 and 2032 based on recent funding history. The program’s affordability gap from fiscal years 2020 to 2022 may be overstated because—as we found in April 2015—DHS’s funding plan to Congress does not report operations and maintenance (O&M) funding for USCG programs. USCG officials anticipate receiving $103 million in O&M funding over this 5-year period. United States Coast Guard (USCG) OFFSHORE PATROL CUTTER (OPC) The USCG is in the process of completing the design of the OPC before starting construction, which is in-line with GAO shipbuilding best practices. In addition, USCG officials stated that the program is using state-of-the-market technology that has been proven on other ships as opposed to state-of-the-art technology, which lowers the risk of the program. The USCG used a two-phased down-select strategy to select a contractor to deliver the OPC. For phase 1, the USCG conducted a full and open competition and selected three contractors to perform preliminary design work. For phase 2, the USCG selected one of the phase 1 contractors—Eastern Shipbuilding—to develop a detailed design of the OPC and construct no more than the first 11 ships. The contract—worth approximately $110 million—includes separate options for each ship. The options for ships 10 and 11 were unpriced and included in the solicitation as an incentive to convert the contract type from fixed price incentive to firm fixed price. These options will be included in a repricing proposal submitted by the contractor for ships 6-9 after delivery of the first ship. USCG officials have stated the USCG will decide whether to exercise the option for ships 10 and 11 based on the contractor’s re-pricing proposal for ships 6-9. The USCG plans to re-compete the contract for the remaining 14-16 ships. The OPC program continued to increase its required staffing level and the USCG reported that adjustments to staffing will continue as the program matures. The program faces shortages including engineers, a logistics manager, and a technical director, but USCG officials said they are hiring staff to address these gaps. USCG officials stated that the OPC program is fully funded, executable, and on track to award construction for the first OPC in September 2018. These officials said design efforts are on track and the contractor is meeting the milestones to deliver the first OPC in 2021. USCG officials noted that they are continuing to increase staff at the contractor’s facility to prepare for the start of construction for the first OPC. USCG officials also provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. UNITED STATES CITIZENSHIP AND IMMIGRATION SERVICES (USCIS) The Transformation program was established in 2006 to transition USCIS from a fragmented, paper-based filing environment to a consolidated, paperless environment for processing immigration and citizenship applications. The program developed a new system architecture and delivers capability through releases that correspond to new product lines within four lines of business: Citizenship, Immigrant, Non-Immigrant, and Humanitarian. Revision of key performance parameters and test and evaluation master plan in progress. Program is reorganizing to leverage expertise within USCIS and revise its approach. GAO last reported on this program in April 2017 and July 2016 (GAO-17-346SP, GAO-16- 467). The program remains in breach of its current acquisition program baseline (APB). In September 2016, the Transformation program experienced a schedule breach when it failed to complete deployment of all the product lines associated with the Citizenship line of business. The deployment was delayed because of challenges processing new product lines on the new system architecture and other technical issues with the case management system. Prior to the breach, the program deployed six product lines, which supported approximately 24 percent of the total workload processed by USCIS in fiscal year 2016. Department of Homeland Security (DHS) leadership previously re- baselined the program in April 2015 after USCIS determined that it could not use any of the architecture delivered under its initial strategy, despite having invested more than $475 million in its development. In December 2016, DHS leadership directed USCIS to stop planning and development for new product lines, develop a breach remediation plan, and update its acquisition documentation. In February 2017, DHS leadership approved the program’s remediation plan and the program has since made progress in implementing this plan. However, DHS leadership elected to continue with the program’s pause in new development following program reviews in March 2017, July 2017, and October 2017. USCIS officials said they are revising the program’s acquisition documents—including its APB and life-cycle cost estimate (LCCE)—and plan to re-baseline by March 2018. The program updated the total costs in its LCCE to inform the budget process, but these costs do not reflect the program’s re-baselining plans. As a result, the status of the program against its cost and schedule goals is unclear. However, the program is more than 3 years past its original full operational capability (FOC) date. The affordability gap from fiscal years 2018 to 2022 may be overstated because DHS’s funding plan to Congress no longer contained operations and maintenance funding for individual programs. USCIS uses revenue from premium processing fees to fund the Transformation program and routinely collects more fees than the program’s estimated costs. USCIS officials told GAO that the program office underwent a reorganization in January 2017 to help address the program’s recent challenges. This effort included dismantling the program office and repositioning Transformation under the USCIS Office of Information Technology so the program could leverage expertise in areas such as engineering within USCIS. USCIS officials reported that the program no longer plans to deliver capability by product lines because this strategy focused too narrowly on the automation of forms associated with the lines of business. Going forward, USCIS officials said the program plans to develop capabilities that will address broader objectives, such as reducing the time it takes to process applications and decisions. The program previously made significant changes after it experienced a 5-month delay with its first release, which was deployed in May 2012. DHS attributed this delay to weak contractor performance and pursuing an unnecessarily complex system, among other things. To address these issues, the Office of Management and Budget, DHS, and USCIS determined the program should implement a new acquisition strategy, which allowed for an agile software development methodology and increased competition for development work. This strategy was reflected in the program’s April 2015 re-baseline. USCIS officials told GAO that they plan to address the Transformation program’s staffing gap now that the reorganization is complete. USCIS officials provided technical comments on a draft of this assessment, which GAO incorporated as appropriate. To help determine the extent to which the Department of Homeland Security (DHS) has taken actions to enhance its policies and processes to better reflect key portfolio management practices, we assessed the department’s requirements, acquisition management, and resource allocation policies using key practices we established in September 2012. These key practices are based on our past work, in which we examined the practices that private sector entities use to achieve a balanced mix of new projects and found that successful commercial companies use a disciplined and integrated approach to prioritize needs and allocate resources. As a result, these organizations can avoid pursuing more projects than their resources can support and better optimize the return on their investments. This approach, known as portfolio management, requires companies to view each of their investments as contributing to a collective whole, rather than as independent and unrelated. The objectives of this audit were designed to provide congressional committees insight into the Department of Homeland Security’s (DHS) major acquisition programs. We assessed the extent to which (1) DHS’s major acquisition programs are on track to meet their schedule and cost goals and (2) DHS has taken actions to enhance its policies and processes to better reflect key portfolio management practices. To answer these questions, we reviewed 28 of DHS’s 79 major acquisition programs. We reviewed all 16 of DHS’s Level 1 acquisition programs— those with life-cycle cost estimates (LCCE) of $1 billion or more—that had at least one project, increment, or segment in the Obtain phase—the stage in the acquisition life cycle when programs develop, test, and evaluate systems—at the initiation of our audit. Additionally, we reviewed 12 other major acquisition programs—including 8 Level 1 programs that either had not yet entered or were beyond the Obtain phase, and 4 Level 2 programs that have LCCEs between $300 million and less than $1 billion—that we identified were at risk of not meeting their cost estimates, schedules, or capability requirements based on our past work and discussions with DHS officials. Specifically, we met with representatives from DHS’s Office of Program Accountability and Risk Management (PARM)—DHS’s main body for acquisition oversight—as a part of our scoping effort to determine which programs (if any) were facing difficulties in meeting their cost estimates, schedules, or capability requirements. The 28 selected programs were sponsored by eight different components, and they are identified in table 7, along with our rationale for selecting them. To determine the extent to which DHS’s major acquisition programs are on track to meet their schedule and cost goals, we collected key acquisition documentation for each of the 28 programs, such as all LCCEs and acquisition program baselines (APB) approved at the department level since DHS’s current acquisition management policy went into effect in November 2008. DHS policy establishes that all major acquisition programs should have a department-approved APB, which establishes a program’s critical cost, schedule, and performance parameters, before they initiate efforts to obtain new capabilities. Twenty four of the 28 programs had one or more department-approved LCCEs and APBs between November 2008 and December 31, 2017. We used these APBs to establish the initial and current cost and schedule goals for the programs. We then developed a data collection instrument to help validate the information from the APBs and collect similar information from programs without department-approved APBs. Specifically, for each program, we pre-populated a data collection instrument to the extent possible with the schedule and cost information we had collected from the APBs and our 2017 assessment (if applicable) to identify schedule and cost goal changes, if any, since (a) the program’s initial baseline was approved and (b) January 2017—the data cut-off date of the report we issued in April 2017. We shared our data collection instruments with officials from the program offices to confirm or correct our initial analysis and to collect additional information to enhance the timeliness and comprehensiveness of our data sets. We then met with program officials to identify causes and effects associated with any identified schedule and cost goal changes. Subsequently, we drafted preliminary assessments for each of the 28 programs, shared them with program and component officials, and gave these officials an opportunity to submit comments to help us correct any inaccuracies, which we accounted for as appropriate (such as when new information was available). Additionally, in July 2017, we collected copies of the detailed data on affordability that programs submitted to inform the fiscal year 2019 resource allocation process. We also collected copies of any annual LCCE updates programs submitted in fiscal year 2017. For each of the 24 programs with a department-approved APB, we compared (a) the most recent cost data we collected (i.e., a department-approved LCCE, the detailed LCCE information submitted during the resource allocation process, a fiscal year 2017 annual LCCE update, or an update provided by the program office) to (b) DHS’s funding plan presented in the Future Years Homeland Security Program (FYHSP) report to Congress for fiscal years 2018–2022, which presents 5-year funding plans for DHS’s major acquisition programs, to assess the extent to which a program was projected to have an acquisition funding gap in fiscal year 2018. Through this process, we determined that our data elements were sufficiently reliable for the purpose of this engagement. The FYHSP reports information by the department’s new common appropriation structure, which created standard appropriation fund types including (1) procurement, construction, and improvements and (2) operations and support. We refer to these types of funding as (1) acquisition and (2) operations and maintenance throughout this report. which are listed in appendix II—and identified any significant shortfalls. Specifically, we assessed the joint requirements directives and instruction manual; DHS’s Acquisition Management Directive 102-01, Acquisition Management Instruction 102-01-001, and other related guidance; and DHS’s resource allocation directive, instruction, and handbook. First, we assessed each group of policies against the key practices using the following ratings: Met—the documents fully reflected the key practice. Partially met—the documents reflected some, but not all parts of the key practice. Not met—the documents did not reflect the key practice. We shared our preliminary analysis for each group of policies with the DHS officials responsible for implementing them—specifically, the Joint Requirements Council (JRC), PARM, and the Office of Program Analysis and Evaluation (PA&E)—to discuss our findings, identify relevant sections of the documents we had not yet accounted for, and solicit their thoughts on those key practices that were not reflected in the policies. Second, we used the scores for each group of policies to develop a department-wide rating for each key practice. When applicable, we weighted the department-wide rating based on the intent of the key practice. For example, the department-wide rating for the key practice related to resource allocation across the portfolio was based more heavily on the rating for the resource allocation policies, rather than the ratings for the requirements or acquisition management policies. Third, we rolled-up the ratings for all the key practices in a particular area—as identified in appendix II—to establish a department-wide overall rating for each key practice area. We concluded that a key practice area was met if all ratings for the individual key practices in that area were met; partially met if the ratings for the individual key practices in that area were all partially met or a mix of met and not met; or not met if the ratings for the individual key practices in that area were all not met. In addition, we reviewed documentation that resulted from DHS’s requirements, acquisition management, and resource allocation processes since January 2016 to get a sense of how the department has implemented its current policies. For example, we reviewed JRC- validated requirements documents; acquisition decision memorandums; Acquisition Program Health Assessment reports; and documentation related to the development of DHS’s fiscal year 2018 budget request and the fiscal year 2018–2022 FYHSP report, including resource allocation guidance, presentations to DHS leadership, and preliminary decisions. We also interviewed officials from the JRC, PARM, PA&E, and the Deputy’s Management Action Group to identify any current and planned initiatives to improve management of the department’s portfolio of major acquisition programs. We then compared our assessment of DHS’s current policies, practices, and planned initiatives to our previous findings and the Standards for Internal Control in the Federal Government. We conducted this performance audit from March 2017 through May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact listed above, Rick Cederholm (Assistant Director), Aryn Ehlow (Analyst-in-Charge), Pete Anderson, Lorraine Ettaro, Helena Johnson, TyAnn Lee, Alexis Olson, Sylvia Schatz, Roxanna Sun, and Lindsay Taylor made key contributions to this report. Other contributors included Mathew Bader, Carissa Bryant, Andrew Burton, Erin Butkowski, Lisa Canini, Jenny Chow, John Crawford, Lindsey Cross, Laurier R. Fish, Betsy Gregory-Hosler, Claire Li, Sarah Martin, Marycella Mierez, Erin O’Brien, Katherine Pfeiffer, John Rastler, Ashley Rawson, Andrew Redd, Jill Schofield, Charlie Shivers III, and Jeanne Sung. DHS Program Costs: Reporting Program-Level Operations and Support Costs to Congress Would Improve Oversight. GAO-18-344. Washington, D.C.: April 25, 2018. Homeland Security Acquisitions: Identifying All Non-Major Acquisitions Would Advance Ongoing Efforts to Improve Management. GAO-17-396. Washington, D.C.: April 13, 2017. Homeland Security Acquisitions: Earlier Requirements Definition and Clear Documentation of Key Decisions Could Facilitate Ongoing Progress. GAO-17-346SP. Washington, D.C.: April 6, 2017. Coast Guard Cutters: Depot Maintenance Is Affecting Operational Availability and Cost Estimates Should Reflect Actual Expenditures. GAO-17-218. Washington, D.C.: March 2, 2017. Homeland Security Acquisitions: Joint Requirements Council’s Initial Approach Is Generally Sound and It Is Developing a Process to Inform Investment Priorities. GAO-17-171. Washington, D.C.: October 24, 2016. Homeland Security Acquisitions: DHS Has Strengthened Management, but Execution and Affordability Concerns Endure. GAO-16-338SP. Washington, D.C.: March 31, 2016. National Security Cutter: Enhanced Oversight Needed to Ensure Problems Discovered during Testing and Operations Are Addressed. GAO-16-148. Washington, D.C.: January 12, 2016. TSA Acquisitions: Further Actions Needed to Improve Efficiency of Screening Technology Test and Evaluation. GAO-16-117. Washington, D.C.: December 17, 2015. Homeland Security Acquisitions: Major Program Assessments Reveal Actions Needed to Improve Accountability. GAO-15-171SP. Washington, D.C.: April 22, 2015. Coast Guard Aircraft: Transfer of Fixed-Wing C-27J Aircraft Is Complex and Further Fleet Purchases Should Coincide with Study Results. GAO-15-325. Washington, D.C.: March 26, 2015. Homeland Security Acquisitions: DHS Should Better Define Oversight Roles and Improve Program Reporting to Congress. GAO-15-292. Washington, D.C.: March 12, 2015. Coast Guard Acquisitions: Better Information on Performance and Funding Needed to Address Shortfalls. GAO-14-450. Washington, D.C.: June 5, 2014. Homeland Security Acquisitions: DHS Could Better Manage Its Portfolio to Address Funding Gaps and Improve Communications with Congress. GAO-14-332. Washington, D.C.: April 17, 2014. Homeland Security: DHS Requires More Disciplined Investment Management to Help Meet Mission Needs. GAO-12-833. Washington, D.C.: September 18, 2012. Department of Homeland Security: Assessments of Selected Complex Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010. Department of Homeland Security: Billions Invested in Major Programs Lack Appropriate Oversight. GAO-09-29. Washington, D.C.: November 18, 2008.	[ "Each year, the DHS invests billions of dollars in a diverse portfolio of major acquisition programs to help execute its many critical missions. DHS's acquisition activities are on GAO's High Risk List, in part, because of management and funding issues. The Explanatory Statement accompanying the DHS Appropriations Act, 2015 included a provision for GAO to review DHS's major acquisitions. This report, GAO's fourth annual review, assesses the extent to which: (1) DHS's major acquisition programs are on track to meet their schedule and cost goals, and (2) DHS has taken actions to enhance its policies and processes to better reflect key practices for effectively managing a portfolio of investments. GAO reviewed 28 acquisition programs, including DHS's largest programs that were in the process of obtaining new capabilities as of April 2017, and programs GAO or DHS identified as at risk of poor outcomes. GAO assessed cost and schedule progress against baselines, assessed DHS's policies and processes against GAO's key portfolio management practices, and met with relevant DHS officials. During 2017, 10 of the Department of Homeland Security (DHS) programs GAO assessed that had approved schedule and cost goals were on track to meet those goals. GAO reviewed 28 programs in total, 4 of which were new programs that GAO did not assess because they did not establish cost and schedule goals before the end of calendar year 2017 as planned. The table shows the status of the 24 programs GAO assessed. Reasons for schedule delays or cost increases included technical challenges, changes in requirements, and external factors. Recent enhancements to DHS's acquisition management, resource allocation, and requirements policies largely reflect key portfolio management practices (see table). However, DHS is in the early stages of implementing these policies. GAO identified two areas where DHS could strengthen its portfolio management policies and implementation efforts: DHS's policies do not reflect the key practice to reassess a program that breaches—or exceeds—its cost, schedule, or performance goals in the context of the portfolio to ensure it is still relevant or affordable. Acquisition management officials said that, in practice, they do so based on a certification of funds memorandum—a tool GAO has found to be effective for DHS leadership to assess program affordability—submitted by the component when one of its programs re-baselines in response to a breach. Documenting this practice in policy would help ensure DHS makes strategic investment decisions within its limited budget. DHS is not leveraging information gathered from reviews once programs complete implementation to manage its portfolio of active acquisition programs. DHS's acquisition policy requires programs to conduct post-implementation reviews after initial capabilities are deployed, which is in line with GAO's key practices. Acquisition management officials said they do not consider the results of these reviews in managing DHS's portfolio because the reviews are typically conducted after oversight for a program shifts to the components. Leveraging these results across DHS could enable DHS to address potential issues that may contribute to poor outcomes, such as schedule slips and cost growth, for other programs in its acquisition portfolio. GAO recommends DHS update its acquisition policy to require certification of fund memorandums when programs re-baseline as a result of a breach and assess programs' post-implementation reviews to improve performance across the acquisition portfolio. DHS concurred with GAO's recommendations." ]	30,427	gov_report	en	null	864c2b03ab84ceb4179238296a7e923b7b82da0708259071
We testified before the Senate Committee on Armed Services in September 2017 after four significant mishaps at sea resulted in the loss of 17 sailors’ lives and serious damage to Navy ships. We reported on some of the Navy’s challenges, including the degraded condition and expired training certifications of ships homeported overseas, reductions to ship crews that contributed to sailor overwork and safety risks, and an inability to complete maintenance on time. Since that time, the Navy has completed two internal reviews to address these and other challenges, identifying 111 recommendations to improve surface fleet readiness. The Navy formed an executive group to guide and closely track the implementation of recommendations, and its reform efforts are ongoing. As of November 2018, the Navy reported that it had implemented 78 (i.e., 70 percent) of these recommendations. Navy officials recognize that full implementation will take significant time and management attention to address the fundamental readiness challenges identified. In figure 1, we show photographs of two of the four Navy ships involved in significant mishaps that occurred in 2017. Both the USS Fitzgerald and the USS John S. McCain were involved in collisions that resulted in sailor fatalities. DOD has reported that more than a decade of conflict, budget uncertainty, and reductions in force structure have degraded its readiness; in response, the department has made rebuilding readiness a priority. The 2018 National Defense Strategy emphasizes that restoring and retaining readiness across the entire spectrum of conflict is critical to success in the emerging security environment. Nevertheless, DOD reported that readiness of the total military force remains low and has remained so since 2013. Our work has shown that the Navy has experienced increasing maintenance challenges as a high pace of operations has continued and maintenance has been deferred. Maintenance and personnel challenges also hinder readiness recovery of Navy aircraft. For the Marine Corps, our work has shown that ground force readiness has improved and remained stable in recent years, but acute readiness problems remain in aviation units. Over the past year, DOD has made department-wide progress in developing a plan to rebuild the readiness of the military force, with the military services providing regular input on the status of their readiness recovery efforts. In August 2018, we reported that the Office of the Secretary of Defense has developed a Readiness Recovery Framework that the department is using to guide the services’ efforts and plans to use to regularly assess, validate, and monitor readiness recovery. The Office of the Secretary of Defense and the services have recently revised readiness goals and accompanying recovery strategies, metrics, and milestones to align with the 2018 National Defense Strategy and Defense Planning Guidance. We have ongoing work assessing DOD’s progress in achieveing its overall readiness goals. DOD’s readiness rebuilding efforts are occurring in a challenging context that requires the department to make difficult decisions regarding how best to address continuing operational demands while preparing for future challenges. Our work has shown that an important aspect of this, across all of the services, is determining an appropriate balance between maintaining and upgrading legacy weapon systems currently in operational use and procuring new ones to overcome rapidly advancing future threats. Based on updated information we received in November 2018, the Navy has taken steps to provide dedicated training time so its surface forces may meet existing Navy training standards and their training is certified when they deploy. However, the Navy continues to struggle with rebuilding the readiness of the existing fleet due to enduring maintenance and manning challenges. As the Navy seeks to expand its fleet by 25 percent, these challenges will likely be further exacerbated and the Navy will likely face additional affordability challenges. After the collisions in 2017, the Navy focused on training surface ship crews to its existing standards. We testified in September 2017 that there were no dedicated training periods built into the operational schedules of the cruisers and destroyers based in Japan and 37 percent of training certifications for these surface ship crews had lapsed as of June 2017. Since that time, the Navy has worked to ensure surface ships are certified before they are deployed. For example, the Navy has established controls to limit waivers that allowed training lapses to worsen, now requiring multiple high-level approvals for ships to operate uncertified. Based on our analysis of updated data, the Navy has improved markedly in the percentage of cruisers and destroyers with lapsed certifications in Japan, from 41 percent of certifications expired in September 2017 to 9 percent as of November 2018, with less than 3 percent of certifications expired on ships in operational status. While the Navy has demonstrated its commitment to ensuring that crews are certified prior to deploying, training for amphibious operations and higher-level collective training may not be fully implemented for several years. In September 2017, we reported that some Marine Corps units were limited in their ability to complete training to conduct an amphibious operation—a military operation that is launched from the sea to introduce a landing force ashore—by several factors, including a decline in the number of amphibious ships from 62 in 1990 to 32 as of November 2018, access to range space, and a high pace of deployments, among others. We recommended that the Navy and the Marine Corps develop an approach to mitigate their amphibious operations training shortfalls as the services await the arrival of additional amphibious ships into the fleet. Marine Corps officials told us that the Marine Corps and the Navy are working together to maximize amphibious training opportunities. Additionally, the Navy has plans to phase in high-level collective training into the operational schedules of its ships homeported in Japan over the next several years. Previously, advanced and integrated training involving multiple ships was conducted ad hoc if at all for ships homeported in Japan. Such collective training is important because the 2018 National Defense Strategy states that the department’s principal priority is to prepare for threats from strategic competitors due to the magnitude of the threat they pose. However, in November 2018, officials from Fleet Forces Command told us that fully implementing its training approach to prepare for advanced adversaries would not be fully implemented across the fleet for several years. We have reported that the Navy faces persistent challenges in completing maintenance on time and providing sufficient manning to its ships. Unless these challenges are addressed, the Navy will be hampered in its ability to rebuild readiness and prepare for the future. Our work has found that the Navy has been unable to complete ship and submarine maintenance on time, resulting in continuing schedule delays that reduce time for training and operations and create costly inefficiencies in a resource constrained environment. The Navy’s readiness recovery is premised on the rigorous adherence to deployment, training, and maintenance schedules. However, we reported in May 2016 on the difficulty that both the public and private shipyards were having in completing maintenance on time. We reported that, from 2011 through 2014, about 28 percent of scheduled maintenance for surface combatants was completed on time and 11 percent was completed on time for aircraft carriers. We updated these data as of November 2018 to include maintenance periods completed through the end of fiscal year 2018 and found that the Navy continues to struggle to complete maintenance on time. For fiscal years 2012-2018, our analysis for key portions of the Navy fleet shows that 30 percent of Navy maintenance was completed on time, leading to more than 27,000 days in which ships were delayed and unavailable for training and operations as shown in figure 2 below. In addition to affecting training and operations, maintenance delays are costly. In November 2018, we examined attack submarine maintenance delays and reported that the Navy was incurring significant operating and support costs to crew, maintain, and support attack submarines that are delayed getting into and out of shipyard maintenance periods. We estimated that over the past 10 years the Navy has spent $1.5 billion in fiscal year 2018 constant dollars to support attack submarines that provide no operational capability—those sitting idle no longer certified to conduct normal operations—while waiting to enter the shipyards, and those delayed in completing their maintenance at the shipyards (see figure 3). We recommended that the Navy analyze how it allocates its maintenance workload across public and private shipyards. DOD concurred with our recommendation, stating that it has taken the first steps to take a more holistic view of submarine maintenance requirements and impacts across both the public and private shipyards. In an update provided in November 2018, the Navy told us that they are developing a contracting strategy to conduct two additional depot maintenance periods at private shipyards in the future. Our prior work has shown that three primary factors at the naval shipyards contribute to maintenance delays: Poor conditions and aging equipment limit the ability of the shipyards to meet current and future demands. We reported in September 2017 that facility and equipment limitations at the shipyards contributed to maintenance delays for the aircraft carriers and submarines, hindering the shipyards’ ability to support the Navy. Specifically, we found that the shipyards would be unable to support an estimated one-third of maintenance periods planned over the next 23 years. We recommended that the Navy take steps to improve its management of shipyard investments; the Navy concurred with this recommendation and we are encouraged by its response. For example, the Navy has developed a plan for the optimal placement of facilities and major equipment at each public shipyard, which the Navy estimates can ultimately increase its maintenance efficiency by reducing personnel and materiel travel by an average of 65 percent. This equates to recovering about 328,000 man days per year—an amount roughly equal to that of an aircraft carrier maintenance period. However, the Navy’s preliminary estimate —that this effort will require an estimated $21 billion and 20 years to address—is well beyond historical funding levels, and does not include some potentially significant costs (e.g., for utilities, roads, or environmental remediation). Shipyard workforce gaps and inexperience are limiting factors. The Navy has reported a variety of workforce challenges at the Navy’s four public shipyards such as hiring personnel in a timely manner and providing personnel with the training necessary to gain proficiency in critical skills. The Navy has noted that some occupations require years of training before workers become proficient. According to Navy officials, a large portion of its workforce is inexperienced. For example, 45 percent of the Puget Sound and 30 percent of the Portsmouth Naval Shipyards’ skilled workforce have fewer than 5 years of experience. According to DOD officials, workforce shortages and inexperience contribute to maintenance delays. For example, at Pearl Harbor Naval Shipyard, two submarines were delayed approximately 20 months, in part because of shortages in ship fitters and welders, among other skilled personnel. Most of DOD’s depots, which include the naval shipyards, have taken actions to maintain critical skills through retention incentives, bonuses, and awards. We plan to issue a report examining DOD’s depot skill gaps, including those at the naval shipyards, later this month. Depot supply support may not be cost-effective. In June 2016, we reported that the naval shipyards and other depots had not implemented actions that would likely improve the cost-effectiveness of their supply operations. Specifically, the Navy had not transferred certain functions to the Defense Logistics Agency (DLA) at the shipyards in the same manner as the Navy and Air Force did for their aviation depots. The Navy and Air Force aviation depots that transferred these functions to DLA had reaped a number of efficiencies in their supply operations, including a 10-percent reduction in backorders over a 5-year period. We recommended that the Navy analyze whether such a transfer of functions is warranted at the shipyards and the Navy concurred with the recommendation. However, as of October 2018, the Navy had not conducted a comprehensive analysis of transferring these functions and had provided no plans to do so. In May 2017, we reported that the Navy’s process for determining manpower requirements—the number and skill mix of sailors needed on the Navy’s ships—did not fully account for all ship workload. The Navy was using outdated standards to calculate the size of ship crews that may have been leading to overburdened crews working long hours. We recommended steps to help ensure the Navy’s manpower requirements meet the needs of the existing and future surface fleet, and the Navy has been studying ship workload and revising its guidance. As of November 2018, the Navy was continuing to analyze the manpower requirements of its ship classes to better size and compose ship crews, and the Navy was also working to improve shipboard manning. However, these efforts are not yet complete and it is too early to assess their effectiveness. Until manpower requirements are reassessed across the fleet, the Navy risks that ship crews will continue to be undersized and sailors will be overworked with potential negative effects on readiness and safety. Additionally, the Navy provided information in November 2018 that showed that it is taking steps to ensure that ships have a minimum percentage of crew assigned and with the appropriate skills. The Navy has prioritized manning its surface ships homeported overseas. The Navy established a minimum threshold of filling at least 95 percent of authorized billets in its ship crews with sailors (referred to as fill), with a minimum goal of 92 percent of those sailors having the right qualifications for the billet (known as fit). According to Navy officials, the Navy is for the most part meeting its fill goals Navy-wide, but has not consistently met its fit goals. However, during group discussions in November 2018 with ship crews and interviews with Navy officials in Japan, we learned that the Navy’s methods for tracking fit and fill do not account for sailor experience and may be inaccurately capturing the actual presence of sailors onboard and available for duty on its ships. Moreover, sailors consistently told us that ship workload has not decreased, and it is still extremely challenging to complete all required workload while getting enough sleep. Navy officials told us that manning challenges will continue through at least fiscal year 2021 as the Navy increases its end strength and trains its new sailors to gain the proper mix of skills to operate and maintain the fleet. To meet continued operational demands, the Navy is planning for the most significant fleet size increase in over 30 years. According to the Navy’s fiscal year 2019 shipbuilding plan, the Navy plans to build and maintain a fleet of 355 battle force ships—an increase of about 25 percent above the Navy’s current force of 287 ships. To reach its goal, the Navy plans to buy 301 ships through 2048 and extend the service life of its 66 Arleigh Burke class destroyers and up to 7 attack submarines. Together, the fiscal year 2019 shipbuilding plan and the service life extensions would allow the Navy to reach a 355-ship fleet by the 2030s. Congressional Budget Office reporting and our past work have shown that the Navy has consistently and significantly underestimated the cost and timeframes for delivering new ships to the fleet. For example, the Navy estimates that buying the new ships specified in the fiscal year 2019 plan would cost $631 billion over 30 years while the Congressional Budget Office has estimated that those new ships would cost $801 billion—a difference of 27 percent. We also reported in June 2018 that acquisition outcomes for ship classes built during the last 10 years have often not achieved cost, schedule, quality, or performance goals that were established. Furthermore, we have reported that: all 8 of the lead ships delivered over the past decade that we reviewed were provided to the fleet behind schedule, and more than half of those ships were delayed by more than 2 years, and six ships of different classes valued at $6.3 billion were delivered to the Navy with varying degrees of incomplete work and quality problems. As a result of past cost and schedule problems, our work has shown that the Navy has a less-capable and smaller fleet today than it planned over 10 years ago. The Navy has also received $24 billion more in funding than it originally planned in its 2007 long-range shipbuilding plan but has 50 fewer ships in its inventory today, as compared with the goals it first established. Therefore, we have reported that as the Navy moves forward in implementing its shipbuilding plan it will be paramount for the Navy to learn from and apply lessons learned from the past. In addition to the cost of buying the ships and submarines to expand fleet size, the Navy will likely face affordability challenges with regard to the manning of an expanded fleet with the right number of sailors with the right mix of skills. In May 2017, we reported that the personnel costs for surface ship classes in fiscal years 2000-2015 were the largest share of total operating and support costs and that careful planning will be needed as new ships are brought into the fleet. We also reported that crew sizes on recently inducted ship classes grew from original projections as the Navy gained experience operating them. For example, the total crew size of Littoral Combat Ships has grown from 75 in 2003 to 98 personnel in 2016, a 31-percent increase. Navy officials told us that they plan to better articulate the personnel and resources needed for a larger fleet after fully accounting for workload and right-sizing ship crews. The Navy’s end strength has since increased by over 11,000 personnel from fiscal year 2017 levels, which should help alleviate manning challenges as the fleet grows. In November 2018, officials from Fleet Forces Command provided us with projections of its manning shortfalls continuing through at least fiscal year 2021 and steps it was planning to take to mitigate them. Our work has shown that Navy and Marine Corps aircraft availability has been limited by aging aircraft, delayed maintenance, and insufficient supply support. Pilot and maintenance personnel shortfalls further limit readiness recovery across legacy air platforms. The growing F-35 program, which is meant to replace many aging aircraft, has presented additional operational and sustainment challenges, which will likely persist into the future if not corrected. DOD, the Navy, and the Marine Corps have emphasized mission capability of critical aviation platforms— including the Navy and Marine Corps F/A-18s and F-35s—and are taking steps to improve availability, but these efforts will take time to realize results. Navy and Marine Corps aircraft availability has been limited by challenges associated with aging aircraft fleets, depot maintenance, and supply support challenges that limit the services’ ability to keep aviation units ready. The Navy and Marine Corps spend billions of dollars each year on sustainment, such as for spare parts and depot maintenance, to meet aircraft availability goals. However, aircraft availability rates have generally declined since fiscal year 2011. While specific aircraft availability data are considered sensitive by the Navy and the Marine Corps, and cannot be discussed in detail, we found in September 2018 that the Navy and the Marine Corps generally did not meet aircraft availability goals in fiscal years 2011-2016 for the seven aircraft we reviewed. In updating data in November 2018, we found that none of the aircraft met aircraft availability goals for fiscal years 2017 and 2018. According to the Navy, the pace of operations has increased wear and tear on its aircraft and decreased the time available for maintenance and modernization—a necessity for an aging fleet. For example, the average age of a legacy F/A-18A-D Hornet is 26 years, of an AV-8B Harrier is 21 years, and of the C-2A Greyhound is 29 years. Both services expect these aircraft will continue to be used for the foreseeable future and in some cases into the 2030s. The Navy and the Marine Corps face delays in the arrival of the F-35 to replace their legacy F/A-18A-D Hornets and AV-8B Harriers. To compensate for the delay, the Navy and the Marine Corps are planning to procure additional aircraft, such as the F/A-18E-F Super Hornet, and extend the service life and upgrade the capabilities of their legacy aircraft. However, these efforts and the sustainment of the Navy and Marine Corps legacy aircraft fleet face key challenges as shown in figure 4. Specifically, our prior work has shown that the Navy and the Marine Corps are confronted with two sets of challenges in sustaining their aircraft: Depot maintenance complexities for aging aircraft and spare parts availability. Depot maintenance on aging weapon systems, including Navy and Marine Corps aircraft, becomes less predictable as structural fatigue occurs and parts that were not expected to be replaced begin to wear out. While the Navy and the Marine Corps reported that sustainment funding accounts, such as those for depot maintenance and spare parts, have been funded at increased levels in fiscal years 2017 and 2018, efforts to improve spare parts availability take time to produce results due to long lead times for acquiring some items. In addition, Navy and Marine Corps aircraft face challenges associated with diminishing manufacturing sources and parts obsolescence. DOD has a program intended to manage these risks, but we reported in September 2017 that its implementation varied across DOD weapon system program offices. We made recommendations to improve the program’s management; DOD concurred and has initiated improvement efforts. Maintenance personnel inexperience and retention. The Navy has had difficulty attracting and retaining skilled maintainers, such as sheet metal workers and machinists at its aviation depots (i.e., Fleet Readiness Centers), which directly affects its ability to complete planned maintenance. Some of the depots experienced challenges attracting and retaining skilled personnel due to competition with nearby contractors that are able to offer higher pay, according to Navy depot officials. Similar to the shipyards, the aviation depots also lack experienced personnel, affecting the efficiency and quality of maintenance. For example, 41 percent of the skilled workers at Fleet Readiness Center Southwest have 2 years or fewer of experience. Workforce inexperience and attrition of skilled personnel were some of the reasons cited for machining defects detected in the landing gear for F/A-18, E-2, and C-2A aircraft by a recent Navy report. All of the depots have undertaken retention efforts such as incentives, bonuses, and awards to address these issues. Until the Navy and Marine Corps address maintenance and supply challenges it will be difficult to meet Secretary of Defense-established mission capability goals. Specifically, in September 2018, the Secretary of Defense issued a memorandum emphasizing that a key component of implementing the 2018 National Defense Strategy is ensuring critical aviation platforms meet their mission capability targets by the end of fiscal year 2019. The memorandum established a goal of achieving a minimum of 80-percent mission capable rates for various aircraft, including for the Navy’s and Marine Corps’ F/A-18 inventories, by the end of fiscal year 2019 while also reducing operating and maintenance costs. To accomplish this, the Navy and the Marine Corps developed the Return to Readiness strategy in November 2018 that includes a broad array of actions to improve the availability of spare parts and evaluate the application of best commercial practices to naval aviation sustainment, among other actions. Office of the Secretary of Defense and Navy program officials told us, and based on our prior work we agree, that this goal will be challenging to achieve by the end of fiscal year 2019. We reported in April 2018 that fighter pilot shortages in the Navy and the Marine Corps have been worsening in recent years and shortfalls are projected to remain through at least fiscal year 2023. Our analysis of Navy and Marine Corps data showed that the Navy’s shortage of first operational tour fighter pilots more than doubled from 12 percent in fiscal year 2013 to 26 percent in fiscal year 2017. Similarly, the Marine Corps’ overall shortage of fighter pilots quadrupled from 6 percent in fiscal year 2006 to 24 percent in fiscal year 2017. Also, as we reported in April 2018, service officials attributed the pilot shortages to reduced training opportunities and increased attrition due to career dissatisfaction, among other factors. Officials from both services stated at the time that they have ensured that deploying squadrons have been fully staffed with fighter pilots by using various approaches including using senior pilots to staff junior positions and having pilots deploy more frequently and for longer periods. However, we reported that squadron leaders and fighter pilots said that these approaches had a negative impact on the fighter pilot training and retention and ultimately may be exacerbating the situation. Further compounding their pilot shortages, we also found that the services have not recently reevaluated squadron requirements to reflect an increased fighter pilot workload. As a result, the reported shortage actually could be greater. The services were taking actions, including increasing retention incentives for fighter pilots. To help determine the magnitude of the shortages and help target strategies to better meet their personnel needs, we recommended, and the Navy and Marine Corps agreed, to reevaluate fighter pilot squadron requirements. Sustainment challenges are not just an issue for older aircraft, but represent an enduring challenge for the F-35 Lightning II aircraft—a key component to the future of tactical aviation for the Navy and Marine Corps. The Navy and Marine Corps are both flying F-35s now as the program ramps up development, and they plan to procure nearly 700 aircraft over the coming decades. The sustainment costs of the F-35 fleet are projected to exceed $1 trillion over its 60-year life cycle. In October 2017, we reported that: F-35B aircraft (including Marine Corps aircraft) were available (i.e., the aircraft were safe to fly, available for use, and able to perform at least one tasked mission) about 52 percent of the time from March 2017 through June 2017, which fell short of the 65-percent goal established by the Marine Corps for non-deployed units and F-35B aircraft (including Marine Corps aircraft) were fully mission capable (i.e., the aircraft were capable of accomplishing all tasked missions) about 15 percent of the time from March 2017 through June 2017, which fell short of the 60-percent goal established by the Marine Corps for non-deployed units. We also reported on numerous sustainment challenges leading to less than desirable outcomes for F-35 warfighter readiness. For example, F-35 aircraft were unable to fly 22 percent of the time because of parts shortages from January 2017 through August 7, 2017. Additionally, DOD’s capabilities to repair F-35 parts at military depots were 6 years behind schedule, which resulted in average part repair times that are twice that of the program’s objective. As DOD gains experience with the F-35, our work has shown that the department has encountered additional challenges. In 2017, the Marine Corps became the first military service to station F-35 aircraft overseas, transferring aircraft to Iwakuni, Japan. While in the Pacific, DOD expects to disperse its F-35s into smaller detachments to outmaneuver the enemy and counter regional threats. However, in April 2018, we reported that this approach posed logistics and supply challenges. In June 2018, we reported that the F-35 program had not improved its reliability and maintainability over the past year and continued to fall short on half of its performance targets. Furthermore, we found that the program may not meet its required targets before each variant of the F-35 is expected to demonstrate maturity—the point at which the aircraft has flown enough hours to predictably determine reliability and maintainability over its lifespan. This means that the Navy and the Marine Corps may have to decide whether they are willing to accept less reliable and maintainable aircraft than originally planned. Among other outcomes, this could result in higher maintenance costs and lower aircraft availability than anticipated which also could pose readiness challenges in the future. As we reported in October 2017, the poor reliability of certain parts is already contributing to shortages of F-35 spare parts. Challenges posed by the F-35 program are largely the result of sustainment plans that do not fully include or consider key requirements. Our work has shown that planning for sustainment and aligning its funding are critical if DOD wants to meet its aircraft availability goals and effectively deploy to support operations. To address the challenges associated with F-35 sustainment and operational deployment, we recommended that DOD revise its sustainment plans, align associated funding, and mitigate the risks associated with key supply chain-related challenges for deployed F-35s in the Pacific, among others. DOD concurred with these recommendations and stated that it is taking steps to address them. Furthermore, as previously discussed, the Secretary of Defense has established an 80-percent mission capability goal for critical aviation assets, including the F-35. Due to current low availability and numerous sustainment issues, the F-35 fleet will be challenged in meeting the goal. In sum, the Navy’s and Marine Corps’ significant readiness challenges have developed over more than a decade of conflict, budget uncertainty, and reductions in force structure. Both services have made encouraging progress identifying the causes of their readiness decline and have begun efforts to arrest and reverse it; however, our prior work shows that fully addressing the persistent readiness challenges will require years of sustained management attention. Our work cited today contains 25 specific recommendations to the Navy and the Marine Corps and an additional 20 recommendations to various other DOD components to assist these services in rebuilding the readiness of their forces and in modernizing for the future. Attention to these recommendations can assist the Navy and the Marine Corps as they seek to rebuild the readiness of their forces. Chairmen Wicker and Sullivan, Ranking Members Hirono and Kaine, and Members of the Subcommittees, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff have questions about this testimony, please contact John H. Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Suzanne Wren, Assistant Director; Clarine Allen; Steven Banovac; John Bumgarner; Chris Cronin; Benjamin Emmel; Cynthia Grant; Mae Jones; Amie Lesser; Tobin McMurdie; Shahrzad Nikoo; Carol Petersen; Cody Raysinger; Michael Silver; John E. “Jet” Trubey; and Chris Watson. Over the past 4 years, we have issued a number of reports related to Navy and Marine Corps readiness and we used them to develop this statement. Table 1 summarizes the recommendations in these reports. The Department of Defense (DOD) concurred with most of the 45 recommendations and has many actions underway. However, DOD has not fully implemented any of the recommendations to date. For each of the reports, the specific recommendations and any progress made in implementing them are summarized in tables 2 through 16. Report numbers with a C or RC suffix are classified. Report numbers with a SU suffix are sensitive but unclassified. Classified and sensitive but unclassified reports are available to personnel with the proper clearances and need to know, upon request. Navy Readiness: Actions Needed to Address Costly Maintenance Delays Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.: November 19, 2018. Air Force Readiness: Actions Needed to Rebuild Readiness and Prepare for the Future. GAO-19-120T. Washington, D.C.: October 10, 2018. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need to Be Clarified. GAO-18-678. Washington, D.C.: September 10, 2018. Weapon System Sustainment: Selected Air Force and Navy Aircraft Generally Have Not Met Availability Goals, and DOD and Navy Guidance Need Clarification. GAO-18-146SU. Washington, D.C.: April 25, 2018. Military Readiness: Update on DOD’s Progress in Developing a Readiness Rebuilding Plan. GAO-18-441RC. Washington, D.C.: August 10, 2018. (SECRET) Military Personnel: Collecting Additional Data Could Enhance Pilot Retention Efforts. GAO-18-439. Washington, D.C.: June 21, 2018. F-35 Joint Strike Fighter: Development Is Nearly Complete, but Deficiencies Found in Testing Need to Be Resolved. GAO-18-321. Washington, D.C.: June 5, 2018. Warfighter Support: DOD Needs to Share F-35 Operational Lessons Across the Military Services. GAO-18-464R. Washington, D.C.: April 25, 2018. Military Readiness: Clear Policy and Reliable Data Would Help DOD Better Manage Service Members’ Time Away from Home. GAO-18-253. Washington, D.C.: April 25, 2018. Military Personnel: DOD Needs to Reevaluate Fighter Pilot Workforce Requirements. GAO-18-113. Washington, D.C.: April 11, 2018. Military Aircraft: F-35 Brings Increased Capabilities, but the Marine Corps Needs to Assess Challenges Associated with Operating in the Pacific. GAO-18-79C. Washington, D.C.: March 28, 2018. (SECRET) Navy and Marine Corps Training: Further Planning Needed for Amphibious Operations Training. GAO-18-212T. Washington, DC.: December 1, 2017. F-35 Aircraft Sustainment: DOD Needs to Address Challenges Affecting Readiness and Cost Transparency. GAO-18-75. Washington, D.C.: October 26, 2017. Defense Supply Chain: DOD Needs Complete Information on Single Sources of Supply to Proactively Manage the Risks. GAO-17-768. Washington, D.C.: September 28, 2017. Navy and Marine Corps Training: Further Planning Needed for Amphibious Operations Training. GAO-17-789. Washington, D.C.: September 26, 2017. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet. GAO-17-809T. Washington, D.C.: September 19, 2017. Naval Shipyards: Actions Needed to Improve Poor Conditions That Affect Operation. GAO-17-548. Washington, D.C.: September 12, 2017. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet. GAO-17-798T. Washington, D.C.: September 7, 2017. Navy Readiness: Actions Needed to Maintain Viable Surge Sealift and Combat Logistics Fleets GAO-17-503. Washington, D.C.: August 22, 2017 (reissued on Oct 31, 2017). Department of Defense: Actions Needed to Address Five Key Mission Challenges. GAO-17-369. Washington, D.C.: June 13, 2017. Military Readiness: Coastal Riverine Force Challenges. GAO-17-462C. Washington, D.C.: June 13, 2017. (SECRET) Navy Shipbuilding: Policy Changes Needed to Improve the Post-Delivery Process and Ship Quality. GAO-17-418. Washington, D.C.: July 13, 2017 Offshore Petroleum Discharge System: The Navy Has Not Mitigated Risk Associated with System Limitations. GAO-17-531C. Washington, D.C.: June 22, 2017. (SECRET) Navy Force Structure: Actions Needed to Ensure Proper Size and Composition of Ship Crews. GAO-17-413. Washington, D.C.: May 18, 2017. Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-841. Washington, D.C.: September 7, 2016. Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-534C. Washington, D.C.: June 30, 2016. (SECRET) Defense Inventory: Further Analysis and Enhanced Metrics Could Improve Service Supply and Depot Operations. GAO-16-450. Washington, D.C.: June 9, 2016. Navy and Marine Corps: Services Face Challenges to Rebuilding Readiness. GAO-16-481RC. Washington, D.C.: May 25, 2016. (SECRET//NOFORN) Military Readiness: Progress and Challenges in Implementing the Navy’s Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May 2, 2016. F-35 Sustainment: DOD Needs a Plan to Address Risks Related to Its Central Logistics System. GAO-16-439. Washington, D.C.: April 14, 2016. Navy Force Structure: Sustainable Plan and Comprehensive Assessment Needed to Mitigate Long-Term Risks to Ships Assigned to Overseas Homeports. GAO-15-329. Washington, D.C.: May 29, 2015. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "The 2018 National Defense Strategy emphasizes that restoring and retaining readiness is critical to success in the emerging security environment. The Navy and Marine Corps are working to rebuild the readiness of their forces while growing and modernizing their aging fleet of ships and aircraft. However, achieving readiness recovery goals will take years as both services continue to be challenged to rebuild readiness amid continued operational demands. This statement provides information on current and future readiness challenges facing (1) the Navy ship and submarine fleet and (2) Navy and Marine Corps aviation. GAO also discusses prior recommendations on Navy and Marine Corps readiness and progress to address them. This statement is based on previously published work since 2015 related to Navy and Marine Corps readiness challenges, including shipyard workforce and capital investment, ship crewing, weapon system sustainment, the fighter pilot workforce, and modernizing force structure. GAO conducted site visits to the Pacific fleet in November 2018 and analyzed updated data, as appropriate. The Navy has taken steps to address training shortfalls in the surface fleet, but faces persistent maintenance and personnel challenges as it seeks to rebuild ship and submarine readiness. While the Navy has corrective actions underway, they will take years to implement. Following ship collisions in 2017, the Navy has taken steps to ensure its crews are trained to standards prior to deployment and made significant progress in those efforts. However, the Navy has struggled to complete ship maintenance—with only 30 percent of maintenance completed on time since fiscal year 2012—leading to thousands of days that ships were unavailable for training and operations (see figure). Additionally, manning shortfalls and experience gaps continue to contribute to high sailor workload and are likely to continue through at least fiscal year 2021. The Navy has developed a plan to improve shipyards and is re-examining its ship manning, among other actions; however, these positive steps have not yet fully addressed GAO's recommendations. Looking to the future, the Navy has indicated that it wants to grow its fleet to meet demands. However, the costs of such growth are not yet known and would likely require resourcing well above currently planned levels. Navy and Marine Corps aircraft availability has been limited due to numerous challenges (see figure). Specifically, the seven aircraft GAO reviewed have generally experienced decreasing availability since fiscal year 2011 and did not meet availability goals in fiscal years 2017 and 2018. The F-35—the future of naval aviation—also has not met availability goals due to part shortages and poor sustainment planning. In September 2018, the Department of Defense established aggressive targets for aircraft availability. While the Navy and Marine Corps are taking actions to improve aircraft availability, including addressing GAO's recommendations, aviation readiness will take many years to recover. GAO has made a total of 45 recommendations in the prior work described in this statement. The Department of Defense concurred with most of them, and has many actions underway, but has not yet fully implemented any. Attention to these recommendations can assist the Navy and the Marine Corps as they seek to rebuild the readiness of their forces." ]	5,894	gov_report	en	null	b90ab633bbaa4cdfda68a50708893ed002d6501ee51935b2
The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans. If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes. FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure. To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria. FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). Of these federal mortgage insurance programs, FHA is the most broadly targeted. Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area. However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards. This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans. It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years. It does not go into detail on the financial status of the FHA mortgage insurance fund. For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry. Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less. Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated. During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due. Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling. Lenders became wary of the mortgage market. FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term. If borrowers defaulted, FHA insured that the lender would be fully repaid. By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy. Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments. Over time, 15- and 30-year mortgages have become standard mortgage products. When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD. Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market. Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened. For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available. Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage. Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all. This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages. FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default. FHA-insured loans have lower down payment requirements than most conventional mortgages. (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA. ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could. (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance. See the nearby text box on "FHA and Private Mortgage Insurance.") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans. This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so. FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities. For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers. Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year. Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages. Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages. However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry. For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization. (FHA mortgages can include adjustable interest rates.) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages. Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores. Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available. A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil. When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance. When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages. This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home. Single-family homes are defined as properties with one to four separate dwelling units. FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract. FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements. Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations. In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure. As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income. The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income. If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan. Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold. See the " Down Payment " section for more information on down payment requirements for FHA-insured loans. In general, borrowers must intend to occupy the property as a principal residence. FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA. FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance. FHA-insured mortgages may be obtained with loan terms of up to 30 years. The interest rate on an FHA-insured loan is negotiated between the borrower and lender. The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually. FHA requires a lower down payment than many other types of mortgages. Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289 ), borrowers are required to contribute at least 3.5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage. (Prior law had required borrowers to contribute at least 3% in cash or its equivalent.) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction. HUD has interpreted the 3.5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it. Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3.5%. FHA no longer insures loans made to borrowers with credit scores below 500. There is no income limit for borrowers seeking FHA-insured loans. However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law. The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices. Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties. The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling. In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability. New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008. The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits. However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013. Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels. For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit. For calendar year 2019, the floor is $314,827 and the ceiling is $726,525. (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country. In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas.) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1 . Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance. These premiums are set as a percentage of the loan amount. The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute. However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels. The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2.75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling. Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers. Since April 9, 2012, HUD has set the up-front premium at 1.75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling. This premium applies to most single-family mortgages. The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio. For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1.55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1.5% of the loan balance. FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans. However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans. For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0.85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0.80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below. This is a decrease from 1.35% and 1.30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015. These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances. Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015. In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA. The refund amount depended on when the mortgage closed and declined as the loan matured. The Consolidated Appropriations Act 2005 ( P.L. 108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans. After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds. The annual mortgage insurance premiums are not refundable. However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value. However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages. This change responded to concerns about the financial status of the FHA insurance fund. FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums. An FHA-insured mortgage is considered delinquent any time a payment is due and not paid. Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default. In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law. A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options. Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options. The options must be considered in a specific order, and specific eligibility criteria apply to each option. Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes. Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure. The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3 . Additional loss mitigation options are available for certain populations of borrowers. For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months. On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization. Certain loss mitigation options are also available in areas affected by presidentially declared major disasters. FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund). Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes. Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted. This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement. For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget. The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy. Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees. The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured. The MMI Fund does receive appropriations to cover salaries and administrative contract expenses. The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates. Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections. These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account. The Financing Account holds funds to cover expected future costs of FHA-insured loans. The Capital Reserve Account holds additional funds to cover any additional unexpected future costs. Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans. If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action. This occurred for the first time at the end of FY2013, when FHA received $1.7 billion from Treasury to make a required transfer of funds between the accounts. The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent. The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time. The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund. The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e.g., the amounts it expects to earn through premiums and lose through claims paid). It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures. In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward. Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level. The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2.07%. This represented an improvement from an estimated capital ratio of 0.41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012. The capital ratio has remained above 2% since that time, and was estimated to be 2.76% in FY2018. A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses. In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund. These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders. The number of new mortgages insured by FHA in a given year depends on a variety of factors. In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1.8 million mortgages in FY2009 before beginning to decrease somewhat. FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages. As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018. Together, these mortgages had an initial loan balance of $209 billion. About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage. The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1.25 million mortgages. Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers. Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers. Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers. As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1.2 trillion. Since it was first established in 1934, FHA has insured a total of over 47.5 million home loans. FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period. FHA's market share can be measured in a number of different ways. Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported. First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages. Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage). A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated. Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance. FHA's market share tends to fluctuate in response to economic conditions and other factors. Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages. However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market. Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009. In 2017, FHA insured 19.5% of new home purchase mortgages and about 16.7% of new mortgages overall, a small decrease compared to its market share in 2016. Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017. As described, FHA's market share can be measured in a number of different ways. The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages. FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages. For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix . The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time. Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages. Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure. Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas. More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s. A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages. While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers. It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U.S. housing finance system. Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year.	[ "The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans." ]	5,182	gov_report	en	null	38b8e4cacdb00469ee30fe44f4b285ce26e6d34d65883186
This report provides background information and potential oversight issues for Congress on the Gerald R. Ford (CVN-78) class aircraft carrier program. The Navy's proposed FY2019 budget requests a total of $2,347 million (i.e., about $2.3 billion) in procurement funding for the CVN-78 program. Congress's decisions on the CVN-78 program could substantially affect Navy capabilities and funding requirements and the shipbuilding industrial base. The Navy's FY2020 budget submission also proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. For additional discussion of this withdrawn budget proposal, see Appendix A . For an overview of the strategic and budgetary context in which the CVN-78 class program and other Navy shipbuilding programs may be considered, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress , by Ronald O'Rourke. The Navy's current aircraft carrier force consists of 11 nuclear-powered ships, including 10 Nimitz-class ships (CVNs 68 through 77) that entered service between 1975 and 2009, and one Gerald R. Ford (CVN-78) class ship that was commissioned into service on July 22, 2017. 10 U.S.C. 8062(b) requires the Navy to maintain a force of not less than 11 operational aircraft carriers. The requirement for the Navy to maintain not less than a certain number of operational aircraft carriers was established by Section 126 of the FY2006 National Defense Authorization Act ( H.R. 1815 / P.L. 109-163 of January 6, 2006), which set the number at 12 carriers. The requirement was changed from 12 carriers to 11 carriers by Section 1011(a) of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006). 10 U.S.C. 8062(e), which was added by Section 1042 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016), requires the Navy to maintain a minimum of nine carrier air wings. In December 2016, the Navy released a force-level goal for achieving and maintaining a fleet of 355 ships, including 12 aircraft carriers —one more than the minimum of 11 carriers required by 10 U.S.C. 8062(b). This was the first Navy force-level goal to call for 12 (rather than 11) carriers since a 2002-2004 Navy force-level goal for a fleet of 375 ships. Given the time needed to build a carrier and the projected retirement dates of existing carriers, increasing the carrier force from 11 ships to 12 ships on a sustained basis would take a number of years: Procuring carriers on 3-year centers—that is, procuring one carrier every three years—would achieve a 12-carrier force on a sustained basis by about 2030, unless the service lives of one or more existing carriers were substantially extended. Procuring carriers on 3.5-year centers (i.e., a combination of 3- and 4-year centers) would achieve a 12-carrier force on a sustained basis no earlier than about 2034, unless the service lives of one or more existing carriers were substantially extended. Procuring carriers on 4-year centers would achieve a 12-carrier force on a sustained basis by about 2063—almost 30 years later than under 3.5-year centers—unless the service lives of one or more existing carriers were substantially extended. Under the Navy's FY2020 30-year shipbuilding plan, as under the Navy's FY2019 30-year shipbuilding plan, carrier procurement would shift from 5-year centers to 4-year centers after the procurement of CVN-82 in FY2028, and a 12-carrier force would be achieved on a sustained basis in the 2060s. The projected size of the carrier force in the Navy's FY2020 30-year (FY2020-FY2049) shipbuilding plan reflected the Navy's now-withdrawn FY2020 budget proposal to not fund the RCOH for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024. With the withdrawal of this budget proposal, the projected size of the carrier force is now, for the period FY2022-FY2047, one ship higher than what is shown in the Navy's FY2020 budget submission. The newly adjusted force-level projection, reflecting the withdrawal of the proposal to retire CVN-75 around FY2024, is as follows: The force is projected to include 11 ships in FY2020-FY2021, 12 ships in FY2022-FY2024, 11 ships in FY2025-FY2026, 10 ships in FY2027, 11 ships in FY2028-FY2039, 10 ships in FY2040, 11 ships in FY2041, 10 ships in FY2042-FY2044, 11 ships in FY2045, 10 ships in FY2046-FY2047, 9 ships in FY2048, and 10 ships in FY2049. Under incremental funding, some of the funding needed to fully fund a ship is provided in one or more years after the year in which the ship is procured. In recent years, Congress has authorized DOD to use incremental funding for procuring certain Navy ships, most notably aircraft carriers: Section 121 of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVNs 78, 79, and 80. Under this authority, the Navy could fully fund each of these ships over a four-year period that includes the ship's year of procurement and three subsequent years. Section 124 of the FY2012 National Defense Authorization Act ( H.R. 1540 / P.L. 112-81 of December 31, 2011) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use five-year incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008-FY2011, the provision in practice applied to CVNs 79 and 80. Section 121 of the FY2013 National Defense Authorization Act ( H.R. 4310 / P.L. 112-239 of January 2, 2013) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use six-year incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008-FY2011, the provision in practice applies to CVNs 79 and 80. Section 121(c) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018) authorized incremental funding to be used for making payments under the two-ship block buy contract for the construction of CVN-80 and CVN-81. This provision does not limit the total number of years across which incremental funding may be used to procure either ship. All U.S. aircraft carriers procured since FY1958 have been built by Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS), of Newport News, VA. HII/NNS is the only U.S. shipyard that can build large-deck, nuclear-powered aircraft carriers. The aircraft carrier construction industrial base also includes roughly 2,000 supplier firms in 46 states. The Gerald R. Ford (CVN-78) class carrier design ( Figure 1 ) is the successor to the Nimitz -class carrier design. The Ford -class design uses the basic Nimitz -class hull form but incorporates several improvements, including features permitting the ship to generate more aircraft sorties per day, more electrical power for supporting ship systems, and features permitting the ship to be operated by several hundred fewer sailors than a Nimitz -class ship, reducing 50-year life-cycle operating and support (O&S) costs for each ship by about $4 billion compared to the Nimitz -class design, the Navy estimates. Navy plans call for procuring at least four Ford-class carriers—CVN-78, CVN-79, CVN-80, and CVN-81. CVN-78, which was named Gerald R. Ford in 2007, was procured in FY2008. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $13,084.0 million (i.e., about $13.1 billion) in then-year dollars. The ship received advance procurement (AP) funding in FY2001-FY2007 and was fully funded in FY2008-FY2011 using congressionally authorized four-year incremental funding. To help cover cost growth on the ship, the ship received an additional $1,394.9 million in FY2014-FY2016 and FY2018 cost-to-complete procurement funding. (This $1,394.9 million is included in the above-mentioned estimated procurement cost of $13,084.0 million.) The ship was delivered to the Navy on May 31, 2017, and was commissioned into service on July 22, 2017. The Navy is currently working to complete construction, testing, and certification of the ship's 11 weapons elevators. CVN-79, which was named John F. Kennedy on May 29, 2011, was procured in FY2013. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $11,327.4 million (i.e., about $11.3 billion) in then-year dollars. The ship received AP funding in FY2007-FY2012, and was fully funded in FY2013-FY2018 using congressionally authorized six-year incremental funding. The ship is being built with an improved shipyard fabrication and assembly process that incorporates lessons learned from the construction of CVN-78. A key aim of this improved process is to substantially reduce the real (i.e., inflation-adjusted) construction cost of CVN-79 compared to that of CVN-78. CVN-79 is scheduled for delivery to the Navy in September 2024. CVN-80 ( Enterprise ) and CVN-81 (not yet named) are being procured under a two-ship block buy contract that was authorized by Section 121(a)(2) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018). The provision permitted the Navy to add CVN-81 to the existing contract for building CVN-80 after the Department of Defense (DOD) made certain certifications to Congress. DOD made the certifications on December 31, 2018, and the Navy announced the award of the contract on January 31, 2019. Compared to the estimated procurement costs for CVN-80 and CVN-81 in the Navy's FY2019 budget submission, the Navy estimates under its FY2020 budget submission that the two-ship block buy contract will reduce the cost of CVN-80 by $246.6 million and the cost of CVN-81 by $2,637.3 million, for a combined reduction of $2,883.9 million (i.e., about $2.9 billion). (DOD characterizes the combined reduction as "nearly $3 billion." ) Using higher estimated baseline costs for CVN-80 and CVN-81 taken from a December 2017 Navy business case analysis, the Navy estimates under its FY2020 budget submission that the two-ship contract will reduce the cost of CVN-80 by $770.9 million and the cost of CVN-81 by $3,086.3 million, for a combined reduction of $3,857.2 million (i.e., about $3.9 billion). (DOD characterizes the combined reduction as $4 billion.) These figures are all expressed in then-year dollars, meaning dollars that are not adjusted for inflation. Regarding the difference between a savings of about $2.9 billion from the figures in the Navy's FY2019 budget submission and a savings of about $3.9 billion from the December 2017 Navy business case analysis, a February 5, 2019, press report quoted a Navy spokesman as stating that the Navy's FY2019 budget submission "already accounted for at least $1B [$1 billion] of potential savings, a two-CVN buy would save an additional $3B [$3 billion]." This suggests that the Navy, in preparing its FY2019 budget submission, may have anticipated that it would receive from Congress authority for implementing some kind of combined purchase (such as, perhaps, a combined purchase of materials) for CVN-80 and CVN-81. For additional background information on the two-ship block buy contract, see Appendix B . CVN-80, which was named Enterprise on December 1, 2012, was procured in FY2018. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $12,335.1 million (i.e., about $12.3 billion) in then-year dollars. The ship received AP funding in FY2016 and FY2017, and the Navy plans to fully fund the ship in FY2018-FY2025 using incremental funding authorized by Section 121(c) of P.L. 115-232 . The Navy's proposed FY2020 budget requests $1,062.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in March 2028. Prior to the awarding of the two-ship block buy contract, CVN-81, which has not yet been named, was scheduled to be procured in FY2023. Following the awarding of the two-ship block buy contract, the Navy has chosen to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020 (as opposed to a ship that was procured in FY2019). The Navy's FY2020 budget submission estimates the ship's procurement cost at $12,450.7 million (i.e., about $12.5 billion) in then-year dollars. The Navy plans to fully fund the ship beginning in FY2019 and extending beyond FY2026 using incremental funding authorized by Section 121(c) of P.L. 115-232 . The Navy's proposed FY2020 budget requests $1,285.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in February 2032. Table 1 shows procurement funding for CVNs 78, 79, 80, and 81 through FY2026+ (meaning FY2026 and some number of years after FY2026). Congress has established procurement cost caps for CVN-78 class aircraft carriers: Section 122 of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) established a procurement cost cap for CVN-78 of $10.5 billion, plus adjustments for inflation and other factors, and a procurement cost cap for subsequent Ford-class carriers of $8.1 billion each, plus adjustments for inflation and other factors. The conference report ( H.Rept. 109-702 of September 29, 2006) on P.L. 109-364 discusses Section 122 on pages 551-552. Section 121 of the FY2014 National Defense Authorization Act ( H.R. 3304 / P.L. 113-66 of December 26, 2013) amended the procurement cost cap for the CVN-78 program to provide a revised cap of $12,887.0 million for CVN-78 and a revised cap of $11,498.0 million for each follow-on ship in the program, plus adjustments for inflation and other factors (including an additional factor not included in original cost cap). Section 122 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) further amended the cost cap for the CVN-78 program to provide a revised cap of $11,398.0 million for each follow-on ship in the program, plus adjustment for inflation and other factors, and with a new provision stating that, if during construction of CVN-79, the Chief of Naval Operations determines that measures required to complete the ship within the revised cost cap shall result in an unacceptable reduction to the ship's operational capability, the Secretary of the Navy may increase the CVN-79 cost cap by up to $100 million (i.e., to $11.498 billion). If such an action is taken, the Navy is to adhere to the notification requirements specified in the cost cap legislation. Section 121(a) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017) further amended the cost cap for the CVN-78 program to provide a revised cap of $12,568.0 million for CVN-80 and subsequent ships in the program, plus adjustment for inflation and other factors. (The cap for CVN-79 was kept at $11,398.0 million, plus adjustment for inflation and other factors.) The provision also amended the basis for adjusting the caps for inflation, and excluded certain costs from being counted against the caps. In an August 2, 2017, letter to the congressional defense committees, then-Acting Secretary of the Navy Sean Stackley notified the committees that under subsection (b)(7) of Section 122 of P.L. 114-92 as amended by Section 121 of P.L. 113-66 —a subsection allowing increases to the cost cap for CVN-78 for "the amounts of increases or decreases in costs of that ship that are attributable solely to an urgent and unforeseen requirement identified as a result of the shipboard test program"—he had increased the cost cap for CVN-78 by $20 million, to $12,907.0 million. In a May 8, 2018, letter to the congressional defense committees, Secretary of the Navy Richard Spencer notified the committees that under subsections (b)(6) and (b)(7) of Section 122 of P.L. 114-92 as amended by Section 121 of P.L. 113-66 —subsections allowing increases to the cost cap for CVN-78 for "the amounts of increases or decreases to cost required to correct deficiencies that may affect the safety of the ship and personnel or otherwise preclude the ship from safe operation and crew certification" and for "the amounts of increases or decreases in costs of CVN 78 that are attributable solely to an urgent and unforeseen requirement identified as a result of the shipboard test program," respectively—he had increased the cost cap for CVN-78 by $120 million, to $13,027 million. Table 2 shows changes in the estimated procurement costs of CVNs 78, 79, 80, and 81 since the budget submission for FY2008—the year of procurement for CVN-78. The Navy's FY2020 budget submission proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. For additional discussion of this withdrawn budget proposal, see Appendix A . One issue for Congress concerns DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019. Grounds for showing CVN-81 as a ship that was procured in FY2019 would include the following: Within Section 121 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018)—the provision that authorized the two-ship block buy contract for CVN-80 and CVN-81—subsection (a)(1) specifically authorizes a contract for the procurement of CVN-81 "beginning with the fiscal year 2019 program year." The header for subsection (a)(1) is "Procurement Authorized." Consistent with Section 121(a)(1), the funding table for the Navy's shipbuilding account in the conference report ( H.Rept. 115-874 of July 25, 2018) on H.R. 5515 shows a quantity of "1" in line 002 of the FY2019 SCN (Shipbuilding and Conversion, Navy) appropriation account. Line 002 is the line item for procurement (not advance procurement [AP]) funding for the CVN-78 program. A notation in the table for line 002 states that the procurement funding authorized for this line item is for "Authorize CVN81—One ship." The funding table does not authorize any funding for line 003 of the FY2019 SCN account—the line item for AP funding for the CVN-78 program. (AP funding is funding for the procurement of a ship to be procured in a future fiscal year.) Consistent with the two above points, the paragraph in the FY2019 DOD appropriations act (Division A of H.R. 6157 / P.L. 115-245 of September 28, 2018) that makes appropriations for the SCN account makes procurement (not AP) appropriations for the CVN-78 program. This paragraph also states that "the funds made available by this Act for the Carrier Replacement Program (CVN-80) may be available to modify or enter into a new contract for the procurement of a Ford-class aircraft carrier designated CVN–81 pursuant to section 121 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019." Consistent with this bill language, the funding table for the SCN account in the joint explanatory statement for H.R. 6157 shows that this funding was provided for line 2 of the FY2019 SCN account (CVN-78 program procurement funding), not line 3 of the FY2019 SCN account (CVN-78 program AP funding). Consistent with all of the above points (and as reflected in Table 1 of this CRS report), the Navy's FY2020 budget submission shows the $618 million in FY2019 funding for CVN-81 as full funding (meaning funding for a procured ship), rather than AP funding (meaning funding for a ship to be procured in a future fiscal year). DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019, affects the comparison of numbers of ships procured in FY2019 and FY2020. If DOD had decided to show CVN-81 in its FY2020 budget submission as a ship that was procured in FY2019, then the total number of ships procured in FY2019 would be 14, and the total number requested for FY2020 would be 11—3 ships, or 21%, fewer than the FY2019 total of 14. Showing CVN-81 in the FY2020 budget submission as an FY2020 ship changes the FY2019 and FY2020 totals to 13 ships and 12 ships, respectively, making number FY2020 closer to the FY2019 number. DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019, also affects the aircraft carrier procurement profile shown in the Navy's FY2020 30-year (FY2020-FY2049) 30-year shipbuilding plan. If DOD had decided to show CVN-81 in its FY2020 budget submission as a ship that was procured in FY2019, the ship-procurement table in the 30-year plan would show the procurement of no carriers for the first eight years (FY2020-FY2027) of the 30-year period. Showing CVN-81 in the FY2020 budget submission as an FY2020 ship changes the presentation to show the procurement of an aircraft carrier in the first year of the 30-year period. Potential oversight questions for Congress include the following: Compliance with c ongressional intent . Is DOD's decision to show CVN-81 as a ship to be procured in FY2020, rather than as a ship that was procured in FY2019, consistent with congressional intent as shown in bill and report language for P.L. 115-232 and P.L. 115-245 ? Can DOD's decision be viewed as a challenge to Congress's Article 1 power to authorize and appropriate funds for the construction of Navy ships? If DOD's decision regarding the year of procurement for CVN-81 is accepted, would this set a precedent for the executive branch regarding its future compliance with Congressional decisions for authorizing and funding of other federal programs? Executability of FY2019 procurement funds for CVN-81. FY2019 SCN-account funding for the CVN-78 program was appropriated by Congress, and shows in the Navy's FY2020 budget-justification books, as procurement funding (meaning funding for one or more procured ships) rather than AP funding (meaning funding for one or more ships to be procured in a future fiscal year). If CVN-81 is accepted as a ship to be procured in FY2020, what implications, if any, might that have for the executability of the $618 million in FY2019 procurement (as opposed to AP) funds for CVN-81 shown in the Navy's FY2020 budget submission (as reflected in Table 1 of this CRS report)? Executability of CVN-81 during portion of FY2020 under a CR. Navy officials have testified that if the Navy operates under a continuing resolution (CR) for some part of FY2020, then absent a special legislative provision in the CR known as an anomaly, the Navy during that period likely would not be able to proceed with CVN-81, because CRs typically prevent year-to-year quantity increases in procurement programs, and treating CVN-81 as a ship to be procured in FY2020 would mean that the CVN-78 program would have a year-to-year quantity increase of zero ships in FY2019 followed by one ship in FY2020. If work on CVN-81 were to not proceed for some part of FY2020 because the Navy during that period were to operate under a CR, what impact would that have on the implementation and status of the two-ship contract for building CVN-80 and CVN-81? FY2019 and FY2020 numbers of ships procured and 30-year shipbuilding plan. What effect, if any, did considerations regarding the comparison of numbers of ships procured in FY2019 and FY2020 and the aircraft carrier procurement profile during the initial years of the 30-year shipbuilding plan have on DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019? Treatment in FY2020 legislation. Since P.L. 115-232 shows CVN-81 as authorized in FY2019, how should the House and Senate Armed Services committees act on the request in the Navy's FY2020 budget submission to authorize an aircraft carrier in FY2020? If the FY2020 national defense authorization act authorizes the procurement of an aircraft carrier in FY2020, and the authorization for the procurement of an aircraft carrier in FY2019 were not rescinded, would that create confusion as to whether the ship being authorized in FY2020 was CVN-81 or CVN-82, the latter being a ship currently planned for procurement in FY2028? If the FY2019 authorization for CVN-81 were rescinded, what implications, if any, would that have for the implementation of Section 121 of P.L. 115-232 , including the award of the two-carrier contract on January 31, 2019 (i.e., during FY2019)? Another issue for Congress concerns the Navy's decision, as part of its FY2020 budget submission, to not accelerate the scheduled procurement of CVN-82 from FY2028 to an earlier fiscal year. The Navy's FY2020 budget submission shows that, as a result of the two-carrier contract, the scheduled delivery date for CVN-81 has been accelerated by seven months, to February 2032, compared to September 2032 in the Navy's FY2019 budget submission. The scheduled year of procurement for CVN-82 has not been changed—in the Navy's FY2020 budget submission, it shows as a ship to be procured in FY2028, as it did in the Navy's FY2019 budget submission. The accelerated delivery date for CVN-81, combined with the unchanged year of procurement for CVN-82, suggests that the interval between the construction of CVN-81 and construction of CVN-82 has been increased by something like seven months. Other things held equal, this increased interval could result in increased loss of learning in shifting from construction of CVN-81 to construction of CVN-82, and possibly in reduced spreading of shipyard fixed overhead costs during the construction of CVN-82. Both of these effects could increase the procurement cost of CVN-82. Potential oversight questions for Congress include the following: What impact, if any, will the accelerated delivery of CVN-81 under the two-carrier contract, combined with the unchanged year of procurement for CVN-82, have on the procurement cost of CVN-82? How might the procurement cost of CVN-82 change in real (i.e., inflation-adjusted) terms if its year of procurement were accelerated to an earlier year, such as FY2027? Another issue for Congress is whether to approve, reject, or modify the Navy's FY2020 procurement funding requests for CVN-78 program. In assessing this question, Congress could consider various factors, including whether the Navy has properly scheduled and accurately priced the work it is proposing to do on the CVN-78 program in FY2020, particularly in the context of implementing the two-carrier contract for CVN-80 and CVN-81. Another issue for Congress concerns the date for achieving the Navy's 12-ship force-level goal for aircraft carriers. As noted earlier, under the Navy's FY2020 30-year shipbuilding plan, carrier procurement would shift from 5-year centers to 4-year centers after the procurement of CVN-82 in FY2028, and a 12-carrier force would be achieved on a sustained basis in the 2060s. As also noted earlier, shifting carrier procurement to 3- or 3.5-year centers could achieve a 12-carrier fleet as soon as the 2030s, unless the service lives of one or more existing carriers were substantially extended. Other things held equal, procuring carriers on 3- or 3.5-year centers rather than 4-year centers would increase Navy funding requirements during the period of the 30-year shipbuilding plan for procuring aircraft carriers and for operating and supporting a 12-carrier force rather than a force of 11 or fewer carriers. For the past several years, cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps have been continuing oversight issues for Congress on the CVN-78 program. As shown in Table 2 , the estimated procurement costs of CVN-78, CVN-79, and CVN-80 have grown 24.7%, 23.2%, and 15.1%, respectively, since the submission of the FY2008 budget. Cost growth on CVN-78 required the Navy to program $1,394.9 million in cost-to-complete procurement funding for the ship in FY2014-FY2016 and FY2018 (see Table 1 ). As also shown in Table 2 , however, cost growth on CVN-78, CVN-79, and CVN-80 more or less stopped in FY2013 and FY2014: while the estimated cost of CVN-78 grew considerably between the FY2008 budget (the budget in which CVN-78 was procured) and the FY2014 budget, since the FY2014 budget, it has grown by only a small amount (about 2%); while the estimated cost of CVN-79 grew considerably between the FY2008 budget and the FY2013 budget (in part because the procurement date for the ship was deferred by one year in the FY2010 budget), since the FY2013 budget it has declined by a small amount (less than 1%); and while the estimated cost of CVN-80 grew considerably between the FY2008 budget and the FY2013 budget (in part because the procurement date for the ship was deferred by two years in the FY2010 budget), since the FY2013 budget it has declined by about 11%. Section 128 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) states the following: SEC. 128. Limitation on availability of funds for U.S.S. John F. Kennedy (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the U.S.S. John F. Kennedy (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b)(1) or the notification under paragraph (2) of such subsection, as the case may be, and the reports under subsections (c) and (d).... (c) Report on costs relating to CVN–79 and CVN–80.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a report that evaluates cost issues related to the U.S.S. John F. Kennedy (CVN–79) and the U.S.S. Enterprise (CVN–80). (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) Options to achieve ship end cost of no more than $10,000,000,000. (B) Options to freeze the design of CVN–79 for CVN–80, with exceptions only for changes due to full ship shock trials or other significant test and evaluation results. (C) Options to reduce the plans cost for CVN–80 to less than 50 percent of the CVN–79 plans cost. (D) Options to transition all non-nuclear Government-furnished equipment, including launch and arresting equipment, to contractor-furnished equipment. (E) Options to build the ships at the most economic pace, such as four years between ships. (F) A business case analysis for the Enterprise Air Search Radar modification to CVN–79 and CVN–80. (G) A business case analysis for the two-phase CVN–79 delivery proposal and impact on fleet deployments. Section 126 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016) states the following: SEC. 126. Limitation on availability of funds for procurement of U.S.S. Enterprise (CVN–80). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2017 for advance procurement or procurement for the U.S.S. Enterprise (CVN–80), not more than 25 percent may be obligated or expended until the date on which the Secretary of the Navy and the Chief of Naval Operations jointly submit to the congressional defense committees the report under subsection (b). (b) Initial report on CVN–79 and CVN–80.—Not later than December 1, 2016, the Secretary of the Navy and the Chief of Naval Operations shall jointly submit to the congressional defense committees a report that includes a description of actions that may be carried out (including de-scoping requirements, if necessary) to achieve a ship end cost of— (1) not more than $12,000,000,000 for the CVN–80; and (2) not more than $11,000,000,000 for the U.S.S. John F. Kennedy (CVN–79). (c) Annual report on CVN–79 and CVN–80.— (1) IN GENERAL.—Together with the budget of the President for each fiscal year through fiscal year 2021 (as submitted to Congress under section 1105(a) of title 31, United States Code) the Secretary of the Navy and the Chief of Naval Operations shall submit a report on the efforts of the Navy to achieve the ship end costs described in subsection (b) for the CVN–79 and CVN–80. (2) ELEMENTS.—The report under paragraph (1) shall include, with respect to the procurement of the CVN–79 and the CVN–80, the following: (A) A description of the progress made toward achieving the ship end costs described in subsection (b), including realized cost savings. (B) A description of low value-added or unnecessary elements of program cost that have been reduced or eliminated. (C) Cost savings estimates for current and planned initiatives. (D) A schedule that includes— (i) a plan for spending with phasing of key obligations and outlays; (ii) decision points describing when savings may be realized; and (iii) key events that must occur to execute initiatives and achieve savings. (E) Instances of lower Government estimates used in contract negotiations. (F) A description of risks that may result from achieving the procurement end costs specified in subsection (b). (G) A description of incentives or rewards provided or planned to be provided to prime contractors for meeting the procurement end costs specified in subsection (b). Section 121(b) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017) states the following: SEC. 121. Aircraft carriers. ... (b) Waiver on limitation of availability of funds for CVN–79.—The Secretary of Defense may waive subsections (a) and (b) of section 128 of the National Defense Authorization Act for Fiscal Year 2016 (Public Law 114–92; 129 Stat. 751) after a period of 60 days has elapsed following the date on which the Secretary submits to the congressional defense committees a written notification of the intent of the Secretary to issue such a waiver. The Secretary shall include in any such notification the following: (1) The rationale of the Secretary for issuing the waiver. (2) The revised test and evaluation master plan that describes when full ship shock trials will be held on Ford-class aircraft carriers. (3) A certification that the Secretary has analyzed and accepted the operational risk of the U.S.S. Gerald R. Ford deploying without having conducted full ship shock trials, and that the Secretary has not delegated the decision to issue such waiver. Sources of risk of cost growth on CVN-78 included, among other things, certain new systems to be installed on CVN-78 whose development, if delayed, could delay the completion of the ship. These systems included a new type of aircraft catapult called the Electromagnetic Launch System (EMALS), a new aircraft arresting system called the Advanced Arresting Gear (AAG), and the ship's primary radar, called the Dual Band Radar (DBR). Congress has followed these and other sources of risk of cost growth for years. In July 2016, the DOD Inspector General issued a report critical of the Navy's management of the AAG development effort. In January 2017, it was reported that after conducting a review of potential alternative systems, the Navy had decided to continue stay with its plan to install EMALs and AAG on the first three Ford-class carriers. Section 125 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016) limited the availability of funds for the AAG program until certain conditions are met. Navy officials have stated that they are working to control the cost of CVN-79 by equipping the ship with a less expensive primary radar, by turning down opportunities to add features to the ship that would have made the ship more capable than CVN-78 but would also have increased CVN-79's cost, and by using a build strategy for the ship that incorporates improvements over the build strategy that was used for CVN-78. These build-strategy improvements, Navy officials have said, include the following items, among others: achieving a higher percentage of outfitting of ship modules before modules are stacked together to form the ship; achieving "learning inside the ship," which means producing similar-looking ship modules in an assembly line-like series, so as to achieve improved production learning curve benefits in the production of these modules; and more economical ordering of parts and materials including greater use of batch ordering of parts and materials, as opposed to ordering parts and materials on an individual basis as each is needed. For additional background information on cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps, see Appendix C and Appendix D . Another oversight issue for Congress concerns Navy efforts to complete the construction, testing, and certification of the weapons elevators on CVN-78. (The ship's weapons elevators transport missiles and bombs from the ship's weapon magazines to the ship's flight deck, so that they can be loaded onto aircraft that are getting ready to take off from the ship.) A November 2, 2018, press report states the following: The $13 billion Gerald R. Ford aircraft carrier, the U.S. Navy's costliest warship, was delivered last year without elevators needed to lift bombs from below deck magazines for loading on fighter jets. Previously undisclosed problems with the 11 elevators for the ship built by Huntington Ingalls Industries Inc. add to long-standing reliability and technical problems with two other core systems—the electromagnetic system to launch planes and the arresting gear to catch them when they land. The Advanced Weapons Elevators, which are moved by magnets rather than cables, were supposed to be installed by the vessel's original delivery date in May 2017. Instead, final installation was delayed by problems including four instances of unsafe "uncommanded movements" since 2015, according to the Navy. While progress was being made on the carrier's other flawed systems, the elevator is "our Achilles heel," Navy Secretary Richard Spencer told reporters in August without providing details.... The Navy says that the first carrier will be fully combat-capable, including the elevators, by July—the end of its current 12-month pier-side shakedown period in Virginia. Navy weapons buyer James Geurts cited what he called "considerable progress" on the Ford, including on the elevators, in a July 6 memo to Pentagon acquisition head Ellen Lord. The Navy in May requested permission from Congress in May to increase the Ford's cost cap by $120 million, partly to fix elevator issues "to preclude any effect on the safety of the ship and personnel." The safety issues related to the uncommanded movements, the Navy said in an email.... Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said "all the elevators are installed." She said the weapons elevator is among "the most advanced technologies being incorporated into" the carrier and "its completion has been delayed due to a number of first-in-class issues," Brenton said. "We are committed to working through the remaining technical challenges," she said. William Couch, a spokesman for the Naval Sea Systems Command, said the elevators are "in varying levels of construction and testing." Six are far enough along to be operated by the shipbuilder, and testing has started on two of those, he said. All 11 "should have been completed and delivered with the ship delivery," according to Couch. He said the contractor has corrected "all issues," including the "four uncommanded movements over the last three years that were discovered during the building, operational grooming, or testing phases."... A November 2010 program on PBS's "Nova" science series extolled the "Elevator of Tomorrow" being developed by Federal Equipment Co., a Cincinnati-based subcontractor to Huntington Ingalls. Doug Ridenour, president of Federal Equipment Co., said the elevator's key technologies "have been consistently demonstrated for years" in a test unit in the company's plant and any programming or software-related issues have been fixed. But "shipboard integration involves many other technology insertions not controlled by" his company, he said. At a November 27, 2018, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the following exchange occurred: SENATOR TIM KAINE (continuing): There have been challenges with the advanced weapons elevators on the CVN, some of the technical difficult[ies] seem similar to those that were experienced earlier on both the [aircraft] launch and arresting systems. I think that the Navy put together independent review teams to tackle those issues and provide solutions. Are we at a point where that may be needed on the weapons elevators or are we in a position where we think the progress on the weapons elevators is satisfactory? JAMES F. GEURTS, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT AND ACQUISITION: Yes, sir. So there are 11 weapons elevators [and] each one of them we have to produce, test and then certify. The first two of those have been produced, the first one's been through test and certification. The second one is about 94 percent through test. We are making progress to get through all of the elevators during this availability. I am likely to do an independent review team not on the immediate construction for CVN-78 but looking at the longer-term sustainability, resilience, reliability to make sure we are in a position to support those elevators for the long term, that we've got all of the training and all of the reliability built into those. We've done so many independent reviews for the [CVN-]78 elevator design as they are so we won't do one on the current efforts on [CVN-]78. We've got a dedicated team working our way through those issues. KAINE: And is your timing on that testing and certification on [CVN-]78—you have this 12-month period where you are testing—[do] you think you will get through the testing and certification of all of the 11 elevators in that year one? GEURTS: My current assessment is we will get through all of the production and much of the testing. We may have some of the certification issues to go. I am watching it very closely and we will keep you and your staff informed on progress there. A December 5, 2018, press report stated the following: The Navy plans to complete installation and testing of the 11 elevators before the Ford completes its post-delivery shakedown phase in July, Captain Danny Hernandez, a Navy spokesman, said in an email. Six will also be certified for use by then, but five won't be completed until after July, he said. "A dedicated team is engaged on these efforts and will accelerate this certification work and schedule where feasible," he said. Huntington spokeswoman Beci Brenton said via email that company officials had a "very productive meeting" with Inhofe that included both the elevators and benefits of a two-carrier contract. The elevator's completion "has been delayed due to a number of first-in-class issues associated with the first-time installation, integration and test of this new technology," she said. "However, we are making substantial substantial progress in resolving the remaining technical challenges." A January 6, 2019, press report stated the following: The Navy Secretary has committed that the service and its industry partners will have working weapons elevators on aircraft carrier USS Gerald R. Ford (CVN-78) by the end of the summer—and the secretary's job is now on the line over that issue. The Navy accepted delivery of the first-in-class carrier and commissioned it into the fleet without any functioning weapons elevators. The carrier is now in its post-shakedown availability at builder Newport News Shipbuilding, after spending a year at sea running the ship to discover any potential flaws. Though the Navy already said the elevators would be addressed during this PSA period, the stakes are now higher: Navy Secretary Richard V. Spencer told President Donald Trump that the elevators would be installed and working by the time the carrier returns to sea, or else the president can use his famous "you're fired" line on the service secretary. Spencer said this morning at an event hosted by the Center for a New American Security that he spoke to Trump at length last month at the Army-Navy football game in Philadelphia. "I asked him to stick his hand out; he stuck his hand out. I said, let's do this like corporate America. I shook his hand and said, the elevators will be ready to go when she pulls out or you can fire me," Spencer said, adding that someone had to take accountability over the ongoing elevator challenges. "We're going to get it done. I know I'm going to get it done. I haven't been fired yet by anyone; being fired by the president really isn't on the top of my list."... The elevator issue has plagued the carrier for years, even if it garnered less attention than other high-profile new technologies on the carrier, such as the new Electromagnetic Aircraft Launch System (EMALS) and the Advanced Arresting Gear, both of which had their own fair share of technical problems. In 2016, the late Sen. John McCain (R-Ariz.), who then chaired the Senate Armed Services Committee, railed against the Ford-class program, noting that Ford was already overdue to be delivered to the Navy and still was facing ongoing technical difficulties. "The Navy's announcement of another two-month delay in the delivery of CVN-78 further demonstrates that key systems still have not demonstrated expected performance. The advanced arresting gear (AAG) cannot recover airplanes. Advanced weapons elevators cannot lift munitions. The dual-band radar cannot integrate two radar bands. Even if everything goes according to the Navy's plan, CVN-78 will be delivered with multiple systems unproven," McCain said in a July 2016 hearing. A month later the Pentagon announced a 60-day review of the Ford program, with a specific focus on five technology areas, including the elevators. Ford ultimately delivered to the Navy in June 2017 and commissioned a month later, still without working weapons elevators. In July 2018, when Ford entered PSA, the Navy said the maintenance availability had been extended from a planned eight months to a full year, to accommodate both the typical work that arises in PSA but also deferred work such as the construction and installation of weapons elevators and an upgrade to the AAG, whose technical challenges greatly contributed to the delayed delivery and commissioning of the ship. A January 16, 2019, press report stated the following: The Navy's newest aircraft carrier, USS Gerald R. Ford (CVN 78), closed out 2018 on a high note with the acceptance of the ship's first advanced weapons elevator (AWE), setting the tone for more positive developments in the year ahead. AWE Upper Stage #1 was turned over to the ship on Dec. 21, following testing and certification by engineers at Huntington Ingalls Industries-Newport News Shipbuilding, where the ship is currently working through its post-shakedown availability (PSA). The acceptance marks a major milestone for the ship and the Ford-class of aircraft carriers to follow.... Though the first elevator has been accepted, work still remains on the remaining 10. Currently, all shipboard installation and testing activities of the AWEs are due to be completed prior to the end of Ford's PSA, scheduled for July. However, some remaining certification documentation will be performed for five of the 11 elevators after PSA completion. A March 6, 2019, press report stated the following: Nearly one month following the acceptance of its first advanced weapons elevator (AWE), the Navy's newest aircraft carrier, USS Gerald R. Ford (CVN 78), has accepted its second. AWE Upper Stage #3 was turned over to the ship February 14, following testing and certification by engineers at Huntington Ingalls Industries-Newport News Shipbuilding (NNS), where the ship is currently working through its post-shakedown availability (PSA). According to Ford's Weapons Officer, Cmdr. Joe Thompson, acceptance of the second AWE offers an opportunity for Ford Sailors to become acquainted with the equipment during the PSA. "This gives us more time to learn and become subject matter experts," explained Thompson. "All of us are learning on brand new systems and brand new concepts. This acceptance gives us the opportunity to have that 'run time' on the physical aspects of the elevator, but also in evaluating the technical manuals, and learning the maintenance required to keep them operational." With two elevators in hand, Thompson explained that Sailors training on these new systems will be able to apply the lessons learned from the first elevator, Upper Stage #1, and apply them to Upper Stage #3, thereby streamlining the learning process and lessening the learning curve. "This is going to allow us to progress faster," he explained. "As we get smarter on one, we move on to the next and apply the lessons learned not only with regard to elevator operation, but also in the testing and certification, and maintenance processes."… Acceptance of the elevator was accelerated due to a merging of the test programs between NNS and the Naval Surface Warfare Center (NSWC), which removed redundant steps and moved certification up by 10 days. The team has identified other areas where redundancy can be removed to make the acceptance timelines more efficient. Another oversight issue for Congress concerns CVN-78 program issues raised in a December 2018 report from DOD's Director, Operational Test and Evaluation (DOT&E)—DOT&E's annual report for FY2018. Regarding the CVN-78 program, the report stated the following in part: Assessment • The delays in the ship development and initial trials pushed both phases of initial operational testing until FY21 and FY22. The delay in the ship's delivery and development added approximately 2 years to the timeline. As noted in previous annual reports, the CVN 78 test schedule has been aggressive, and the development of EMALS [Electromagnetic Aircraft Launch System], AAG [Advanced Arresting gear], AWE [Advanced Weapons Elevator], DBR [Dual Band Radar], and the Integrated Warfare System delayed the ship's first deployment to FY22. Reliability • Four of CVN 78's new systems stand out as being critical to flight operations: EMALS, AAG, DBR, and AWEs. Overall, the poor reliability demonstrated by AAG and EMALS and the uncertain reliability of DBR and AWEs could delay CVN 78 IOT&E [Initial Operational Test and Evaluation]. The Navy continues to test all four of these systems in their shipboard configurations aboard CVN 78. Reliability estimates derived from test data for EMALS and AAG are discussed in following subsections. For DBR and AWE, only engineering reliability estimates have been provided. EMALS • Testing to date involved 747 shipboard launches and demonstrated EMALS capability to launch aircraft planned for the CVN 78 Air Wing. • Through the first 747 shipboard launches, EMALS suffered 10 critical failures. This is well below the requirement of 4,166 Mean Cycles Between Critical Failures, where a cycle represents the launch of one aircraft. • The reliability concerns are exacerbated by the fact that the crew cannot readily electrically isolate EMALS components during flight operations due to the shared nature of the Energy Storage Groups and Power Conversion Subsystem inverters onboard CVN 78. The process for electrically isolating equipment is time-consuming; spinning down the EMALS motor/generators takes 1.5 hours by itself. The inability to readily electrically isolate equipment precludes EMALS maintenance during flight operations. AAG • Testing to date included 763 attempted shipboard landings and demonstrated AAG capability to recover aircraft planned for the CVN 78 air wing. • The Program Office redesigned major components that did not meet system specifications during land-based testing. Through the first 763 attempted shipboard landings, AAG suffered 10 operational mission failures (which includes one failure of the barricade system). This reliability estimate falls well below the re-baselined reliability growth curve and well below the requirement of 16,500 Mean Cycles Between Operational Mission Failures, where a cycle represents the recovery of one aircraft. • The reliability concerns are magnified by the current AAG design that does not allow electrical isolation of the Power Conditioning Subsystem equipment from high power buses, limiting corrective maintenance on below-deck equipment during flight operations. Combat System • Results of SBDT [sea-based developmental testing] events indicate good SSDS [ship self-defense system] performance in scheduling and launching simulated RAMs [Rolling Airframe Missiles] and ESSMs [Evolved Sea Sparrow Missiles], as well as scheduling DBR directives for ESSM acquisition and target illumination. Insufficient interoperability testing with a CEC [Cooperative Engagement Capability] network and Link 16 prevents an estimate of performance in this area. It is unknown if the integration problems between SSDS and Surface Electronic Warfare Improvement Program (SEWIP) Block 2 identified during engineering testing at Wallops Island have been resolved because SEWIP Block 2 was not installed on the ship during these SBDT events. • CVN 78's combat system testing on the SDTS [self-defense test ship] is at risk due to schedule constraints, lack of funding, and insufficient planned developmental testing. DBR • Throughout the five CVN 78 SBDTs, DBR was plagued by extraneous false and close-in dual tracks adversely affecting its performance. • Integration of the DBR electronic protection capabilities remains incomplete and unfunded. With modern threats, a lack of electronic protection places the ship in a high-risk scenario if deployed to combat. • The Navy analysis noted that DBR performance needs to be improved to support carrier air traffic control center certification. Sortie Generation Rate • CVN 78 is unlikely to achieve its SGR [sortie generation rate] requirement. The target threshold is based on unrealistic assumptions including fair weather and unlimited visibility, and that aircraft emergencies, failures of shipboard equipment, ship maneuvers, and manning shortfalls will not affect flight operations. During the 2013 operational assessment, DOT&E conducted an analysis of past aircraft carrier operations in major conflicts. The analysis concludes that the CVN 78 SGR requirement is well above historical levels. • DOT&E plans to assess CVN 78 performance during IOT&E by comparing it to the SGR requirement as well as to the demonstrated performance of the Nimitz-class carriers. • Poor reliability of key systems that support sortie generation on CVN 78 could cause a cascading series of delays during flight operations that would affect CVN 78's ability to generate sorties. The poor or unknown reliability of these critical subsystems represents the most risk to the successful completion of CVN 78 IOT&E. Manning • Based on current expected manning, the berthing capacity for officers and enlisted will be exceeded by approximately 100 personnel with some variability in the estimates. This also leaves no room for extra personnel during inspections, exercises, or routine face-to-face turnovers. • Planned ship manning requires filling 100 percent of the billets. This is not the Navy's standard practice on other ships, and the personnel and training systems may not be able to support 100 percent manning. Additionally, workload estimates for the many new technologies such as catapults, arresting gear, radar, and weapons and aircraft elevators are not yet well understood. Electromagnetic Compatibility • Developmental testing identified significant EMI [electromagnetic interference] and radiation hazard problems. The Navy continues to characterize and develop mitigation plans for the problems, but some operational limitations and restrictions are expected to persist into IOT&E and deployment. The Navy will need to develop capability assessments at differring levels of system utilization in order for commanders to make informed decisions on system employment. Live Fire Test & Evaluation • The vulnerability of CVN 78's many new critical systems to underwater threat-induced shock is unknown. The program plans to complete shock testing on EMALS, AAG, and the AWE components during CY19, but because of a scarcity of systems, shock testing of DBR components lags and will likely not be completed before the FSSTs [full ship shock trials]. • The Vulnerability Assessment Report provides an assessment of the ship's survivability to air-delivered threat engagements. The classified findings in the report identify the specific equipment that most frequently would lead to mission capability loss. In FY19, the Navy is scheduled to deliver additional report volumes that will assess vulnerability to underwater threats and compliance with Operational Requirements Document survivability criteria. Recommendations The Navy should: 1. Provide schedule, funding, and an execution strategy for assessing SGR. This strategy should specify which testing will be accomplished live, a process for accrediting the Seabasing/Seastrike Aviation Model for operational testing, and a method for comparing CVN 78 performance with that of the Nimitz class. 2. Continue to characterize the electromagnetic environment onboard CVN 78 and develop operating procedures to maximize system effectiveness and maintain safety. As applicable, the Navy should utilize the lessons learned from CVN 78 to inform design modifications for CVN 79 and future carriers. 3. Develop and implement DBR electronic protection to enhance ship survivability against modern threats. 4. Submit an updated TEMP. Another oversight issue for Congress concerns CVN-78 program issues raised in the 2019 edition of the Government Accountability Office's (GAO's) annual report surveying selected DOD weapon acquisition programs. Some of these issues raised by GAO overlap with issues discussed in previous sections of this CRS report. Regarding the CVN-78 program, the report stated the following: Technology Maturity, Design Stability, and Production Readiness The Navy accepted delivery of the lead ship, CVN 78, in May 2017 despite challenges related to immature technologies and struggles to demonstrate the reliability of mature systems. The Navy reports that 10 of the Ford Class's 12 critical technologies are fully mature—the advanced arresting gear (AAG) and one of the ship's missile systems are not yet mature. The advanced weapons elevators are among the systems deemed mature by the Navy; however, according to Navy officials, only 2 of the 11 elevators installed on the ship can bring munitions to the flight deck—a key element of operational flights. The shipbuilder is working to correct the system during its first post-delivery maintenance period, now scheduled to end in October 2019, and the Navy plans to create a land-based site to test the elevators, which will come at an additional cost. Shipboard testing is ongoing for several critical systems and could delay future operational testing. Those systems include the electromagnetic aircraft launch system (EMALS), AAG, and dual band radar (DBR). Although the Navy is testing EMALS and AAG on the ship with aircraft, the reliability of those systems remains a concern. If these systems cannot function safely, CVN 78 will not demonstrate it can rapidly deploy aircraft—a key requirement for these carriers. Recent shipboard testing revealed that the Navy is struggling to get DBR to operate as planned. Moreover, DBR poses a greater radiation hazard to personnel and systems on an aircraft carrier than the Navy anticipated, which could restrict certain types of flight operations. The remaining challenges the Navy faces in maturing CVN 78's critical technologies could lead to their redesign or replacement on later ships. This would include CVN 79, which is currently 55 percent complete, as well as the third and fourth ships, CVNs 80 and 81. CVN 79 repeats the CVN 78 design with some modifications and replaces DBR with the Enterprise Air Surveillance Radar (EASR), which is in development. The Navy does not identify this new system as a critical technology in the Ford Class program because it derives from the pre-existing Air and Missile Defense Radar (AMDR) program. However, EASR is a different size and performs a different mission than the AMDR systems, which are designed for destroyers. Therefore, EASR may still require design and development efforts to function on the carrier. The Navy plans to procure two EASR units for CVNs 79 and 80 and install the CVN 79 unit during that ship's second phase of delivery. CVNs 80 and 81 will repeat the design of CVN 79. Other Program Issues CVN 78's procurement costs increased by 23 percent over its initial cost cap and as a result of continuing technical deficiencies, the Navy may still require more funding to complete this ship. The Navy increased the current $12.9 billion cost cap for CVN 78 by $120 million in May 2018 to account for additional post-delivery work, but added work and cost changes may result in an additional cost increase. Costs for CVN 79 are also likely to increase as a result of optimistic cost and labor targets, putting the ship at risk of exceeding its $11.4 billion cost cap. The CVN 79 cost estimate assumes unprecedented construction efficiency—labor hours will be 18 percent lower than CVN 78. However, our analysis shows the shipbuilder is not meeting this goal and is unlikely to improve performance enough to meet cost and labor targets. Congress raised the cost cap for CVN 80 and later ships to $12.6 billion and approved the Navy's plans to buy two carriers—CVNs 80 and 81—at the same time, based on the shipbuilder's estimate that this strategy will save the Navy over $2 billion. However, it is unclear whether the Navy can meet this cost cap, even with the estimated savings from a two-ship buy, because it assumes further reductions in subsystem costs, construction change orders, and labor hours. The Navy projects a further reduction in labor hours compared to CVN 79—about 25 percent fewer labor hours than CVN 78—will contribute to cost savings for these ships. The program office indicated that it does not separately track or report information on software development to integrate the various subsystems of the ship. These subsystems include CVN 78's combat control systems, which rely on integrating systems through software intensive development. Program Office Comments We provided a draft of this assessment to the program office for review and comment. The program office provided technical comments, which we incorporated where appropriate. The program office stated that, in July 2018, CVN 78 entered a year-long maintenance period. It also said that, as of February 2019, two advanced weapons elevators are operating, and it continues to improve developmental system reliability. The program also stated that, with CVN 79 construction 55 percent complete, shipbuilder cost performance remains stable, but slightly below the level needed to achieve production labor hour reduction targets. The program stated that the shipbuilder continues to work through the effects of material shortfalls that disrupted performance. The program said that the Navy plans to deliver a complete, deployable ship as scheduled and within the cost cap to maintain an 11-carrier fleet. The program office also stated that the Navy awarded the CVN 80/81 procurement contract in January 2019 and expects to save $4 billion, compared to if it had purchased each ship individually. According to the program, the contract limits the Navy's liability and incentivizes the shipyard's best performance. Another oversight issue for Congress is whether the Navy should shift at some point from procuring large-deck, nuclear-powered carriers like the CVN-78 class to procuring smaller aircraft carriers. The issue has been studied periodically by the Navy and other observers over the years. To cite one example, the Navy studied the question in deciding on the aircraft carrier design that would follow the Nimitz (CVN-68) class. Advocates of smaller carriers argue that they are individually less expensive to procure, that the Navy might be able to employ competition between shipyards in their procurement (something that the Navy cannot do with large-deck, nuclear-powered carriers like the CVN-78 class, because only one U.S. shipyard, HII/NNS, can build aircraft carriers of that size), and that today's aircraft carriers concentrate much of the Navy's striking power into a relatively small number of expensive platforms that adversaries could focus on attacking in time of war. Supporters of large-deck, nuclear-powered carriers argue that smaller carriers, though individually less expensive to procure, are less cost-effective in terms of dollars spent per aircraft embarked or aircraft sorties that can be generated, that it might be possible to use competition in procuring certain materials and components for large-deck, nuclear-powered aircraft carriers, and that smaller carriers, though perhaps affordable in larger numbers, would be individually less survivable in time of war than large-deck, nuclear-powered carriers. At a March 18, 2015, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy testified that it had initiated a new study on the question. At the hearing, the following exchange occurred: SENATOR JOHN MCCAIN, CHAIRMAN, SENATE ARMED SERVICES COMMITTEE, ATTENDING EX OFFICIO: And you are looking at additional options to the large aircraft carrier as we know it. SEAN STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT,AND ACQUISITION: We've initiated a study and I think you've discussed this with the CNO [Chief of Naval Operations] and that's with the frontend of that study. Yes, sir. Later in the hearing, the following exchange occurred: SENATOR ROGER WICKER, CHAIRMAN, SEAPOWER SUBCOMMITTEE: Well, Senator McCain expressed concern about competition [in Navy shipbuilding programs]. And I think that was with, in regard to aircraft carriers. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT,AND ACQUISITION: Yes, Sir. WICKER: Would you care to respond to that? STACKLEY: He made a generic comment that we need competition to help control cost in our programs and we are absolutely in agreement there. With specific regards to the aircraft carrier, we have been asked and we are following suit to conduct a study to look at alternatives to the Nimitz and Ford class size and type of aircraft carriers, to see if it make sense. We've done this in the past. We're not going to simply break out prior studies, dust them off and resubmit it. We're taking a hard look to see is there—is there a sweet spot, something different other than today's 100,000 ton carrier that would make sense to provide the power projection that we need, that we get today from our aircraft carriers, but at the same time put us in a more affordable position for providing that capability. WICKER: OK. But right now, he's—he's made a correct factual statement with regard to the lack of competition. STACKLEY: Yes, Sir. There is—yes, there is no other shipyard in the world that has the ability to construct a Ford or a Nimitz nuclear aircraft carrier other than what we have in Newport News and the capital investment to do that is prohibitive to set up a second source, so obviously we are—we are content, not with the lack of competition, but we are content with knowing that we're only going to have one builder for our aircraft carriers. On March 20, 2015, the Navy provided the following additional statement to the press: As indicated in testimony, the Navy has an ongoing study to explore the possible composition of our future large deck aviation ship force, including carriers. There is a historical precedent for these type[s] of exploratory studies as we look for efficiencies and ways to improve our war fighting capabilities. This study will reflect our continued commitment to reducing costs across all platforms by matching capabilities to projected threats and Also [sic] seeks to identify acquisition strategies that promote competition in naval ship construction. While I can't comment on an ongoing study, what I can tell you is that the results will be used to inform future shipbuilding budget submissions and efforts, beyond what is currently planned. Section 128 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) states the following: SEC. 128. Limitation on availability of funds for U.S.S. John F. Kennedy (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the U.S.S. John F. Kennedy (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b)(1) or the notification under paragraph (2) of such subsection, as the case may be, and the reports under subsections (c) and (d).... (d) Report on future development.— (1) IN GENERAL.—Not later than April 1, 2016, the Secretary of the Navy shall submit to the congressional defense committees a report on potential requirements, capabilities, and alternatives for the future development of aircraft carriers that would replace or supplement the CVN–78 class aircraft carrier. (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) A description of fleet, sea-based tactical aviation capability requirements for a range of operational scenarios beginning in the 2025 timeframe. (B) A description of alternative aircraft carrier designs that meet the requirements described under subparagraph (A). (C) A description of nuclear and non-nuclear propulsion options. (D) A description of tonnage options ranging from less than 20,000 tons to greater than 100,000 tons. (E) Requirements for unmanned systems integration from inception. (F) Developmental, procurement, and lifecycle cost assessment of alternatives. (G) A notional acquisition strategy for the development and construction of alternatives. (H) A description of shipbuilding industrial base considerations and a plan to ensure opportunity for competition among alternatives. (I) A description of funding and timing considerations related to developing the Annual Long-Range Plan for Construction of Naval Vessels required under section 231 of title 10, United States Code. The report required by Section 128(d) of P.L. 114-92 , which was conducted for the Navy by the RAND Corporation, was delivered to the congressional defense committees in classified form in July 2016. An unclassified version of the report was then prepared and issued in 2017 as a publicly released RAND report. The executive summary of that report states the following (emphasis as in original): We analyzed the feasibility of adopting four aircraft carrier concept variants as follow-ons to the Ford-class carrier following USS Enterprise (CVN 80) or the as-yet-unnamed CVN 81. Among these options are two large-deck carrier platforms that would retain the capability to launch and recover fixed-wing aircraft using an on-deck catapult and arresting gear system and two smaller carrier platforms capable of supporting only short takeoff and vertical landing (STVOL) aircraft. Specifically, the four concept variants are as follows: • a follow-on variant continuing the current 100,000-ton Ford-class carrier but with two life-of-the-ship reactors and other equipment and system changes to reduce cost (we refer to this design concept as CVN 8X) • a 70,000-ton USS Forrestal–size carrier with an updated flight deck and hybrid nuclear-powered integrated propulsion plant with capability to embark the current large integrated air wing but with reduced sortie generation capability, survivability, and endurance compared with the Ford class (we refer to this design concept as CVN LX) • a 43,000-ton variant of the USS America–class, fossil fuel–powered and arranged to support only STOVL operations but at a higher tempo than the current LHA 6 (USS America) (we refer to this design concept as CV LX). This variant would incorporate the larger ship's beam excursion the Navy examined in the LHA 8–class flight 1 studies. • a 20,000-ton variant that will resemble escort carriers that some allied navies currently operate (we refer to this design concept as CV EX). Similar to the 43,000-ton variant, it will be conventionally powered and will operate STOVL aircraft.... Our analyses of the carrier variants illuminated capability shortfalls in some instances. Our overall findings are as follows: • The CVN 8X, the descoped Ford-class carrier, offers similar warfighting capability to that of the Ford-class carrier today. There might be opportunities to reduce costs by eliminating costly features that only marginally improve capability, but similar tradeoffs are likely to be made in the current program as well. • The CVN LX concept variant offers an integrated, current air wing with capabilities near current levels but with less organic mission endurance for weapons and aviation fuel. It will not generate the same SGR as the Ford-class carrier, but this is not a significant limitation for stressing warfighting scenarios. It will be less survivable in some environments and have less redundancy than the Ford program-of-record ship, and these factors might drive different operation concepts. Although we do not characterize the impact of decreased survivability, this is an important limitation that will have to be weighed against the potential cost savings. The major means of reducing cost is through engineering redundancy, speed, and air wing fuel capacity, and these could affect mobility and theater closure. • The concept variant CV LX, which is a version of the LHA 6 platforms, might be a low-risk, alternative pathway for the Navy to reduce carrier costs if such a variant were procured in greater numbers than the current carrier shipbuilding plan; our analysis suggests a two-to-one replacement. Over the long term, however, as the current carrier force is retired, the CV LX would not be a viable option for the eventual carrier force unless displaced capabilities were reassigned to new aircraft or platforms in the joint force, which would be costly. This platform would be feasible for a subset of carrier missions but, even for those missions, could require an increase in the number of platforms. This concept variant might, if procured in sufficient numbers, eventually enable the Navy to reduce the number of Ford-class carriers in the overall force structure, but more-extensive analysis of missions, operations, and basing of such a variant and the supported air combat element is required. • The smallest concept variants reviewed, the CV EX 20,000-ton sea-based platforms, do not provide either a significant capacity or an integrated air wing and, thus, force reliance on other legacy platforms or land-based assets to provide key elements of capability—in particular, AEW. As a result, this concept variant is not really a replacement for current aircraft carrier capability and would require other platforms, aircraft, weapons, and capabilities in the joint force. These platforms would be a viable pathway only in broad fleet architecture transformation providing a narrow mission set, perhaps regionally, and would require extensive analysis. Given that such a concept variant is not a viable replacement for an aircraft carrier, such analysis would be required to see whether any adjustment on the current aircraft carrier program would be feasible.... The overall results of our cost comparison are as follows: • The descoped Ford-class carrier, the CVN 8X, might generate fewer sorties than the current key performance parameter values for the Ford class and might have only incremental reduction in overall platform cost . The analysis examining cost reduction with transition to a life-of-the-ship reactor, such that being done on submarine programs, does not appear to be cost effective. Between the developmental costs and a reduced service life, there is little cost advantage in this variant. • The CVN LX concept would allow considerable savings across the ship's service life and appears to be a viable alternative to consider for further concept exploration . Construction costs would be lower; design changes and life-cycle costs would reflect the lessons already applied in the Ford class. The reliance on hybrid drive with fewer mechanical parts than legacy platforms is likely to further reduce maintenance cost. However, CVN LX would be a new design that would require a significant investment in nonrecurring engineering in the near term to allow timely delivery in the 2030s. • CV LX, although it requires a larger force structure to maintain air capabilities, might still reduce overall construction costs if large carrier numbers were reduced. But, as described in the report, reducing carrier numbers with the resulting loss of capability should not be pursued without extensive further analysis for all displaced missions in the joint force execution of warfighting scenarios and, potentially, regional basing and narrowly focused missions for these platforms. Any cost savings would likely be offset to an unknown degree by requirements for additional systems to mitigate loss of capability associated with this variant. • CV EX, the smallest variant, is not a practical variant at all without considerable revision of the Navy warfighting concept of operations. Although the same is to a degree true with CV LX, the impact of an even larger number of low-sortie ships with small and limited air wings is even more pronounced with this variant. CV EX has all of the shortfalls of CV LX and will pose even greater issues of mutual support and logistics sustainment.... Conclusions Our analysis points to potential options for replacing the Nimitz-class carrier as these ships reach expected service life that have lower procurement costs than the Ford-class carriers. However, most of these options come with reduced capability that might require changes in the concept of operations to deliver sea-based aircraft capability comparable to that of carriers in the fleet today. If a new platform is introduced in the mid-2030s, the Navy's force structure will still contain a large legacy force of Nimitz- and Ford-class carriers, at least until the mid-2050 time frame, which might lower the risks of introducing a new carrier for some period of time. But, ultimately, if a new carrier variant is selected, it will define the carrier force and constitute the supported capability available to the Navy. Capability shortfalls can be mitigated, to some degree, with changes in operational concepts or by adding additional platforms to the force structure—which introduces additional cost that might offset anticipated cost savings. In addition, if the Navy stops procuring large-deck nuclear carriers, the ability to reconstitute the industrial base at some time in the future comes with substantial risk. Although SGR [sortie generation rate] was a central variable in comparing the carrier variants, our analysis suggests that there is room to make trade-offs in aircraft sortie rate capacity between the Ford-class carrier and a lower-cost platform. However, it is important to consider that, whatever threats complicate carrier operations, they might even more significantly affect land-based tactical air operations. Carriers can move; have defensive support from escorts; can readily replenish; and might, in fact, be more survivable than their land-based counterparts. This is an important factor for Congress and the Department of Defense to consider before a trade-off is made to give up the supported air wing sortie generation capacity in the overall sea-based force. The question of whether to shift to smaller aircraft carriers was also addressed in three studies on future fleet architecture that were required by Section 1067 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015). These three studies are discussed in more detail in another CRS report. A February 15, 2019, press report stated the following: Under Secretary of the Navy Thomas Modly said now that the Navy found a way to build two new Gerald R. Ford-class aircraft carriers while saving money it is starting to look at future carrier procurement, which might be very different.… Modly said Secretary of the Navy Richard Spencer sees $13 billion carriers as not sustainable going forward and the service will be looking at ways to further reduce costs or keep the carrier capabilities more affordable in future ship procurements. "There was general conclusion that those two for sure would be built" and once that was determined "that was going to happen," Modly said during the AFCEA West 2019 conference here [in San Diego].… After the CVN-80 and -81 [procurement] decision was made, "I think a lot of derivative decisions still need to be made. So the secretary [Spencer] would like to take a look at 'O.K. now that we made that decision, and that second one that comes will be in quite a few years from now, we need to start thinking now about what's the next one look like.'" Modly told reporters they are asking questions like "Is it going to be advanced as this one? Or is it going to be smaller or are we going to buy two smaller ones or maybe shift air power to other forms of delivery. And we don't know the answers of that but we're looking at this." An earlier oversight issue for Congress for the CVN-78 program was whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class. For background information on that issue, see Appendix E . Table 3 summarizes congressional action on the FY2020 procurement funding request for the CVN-78 program. As shown in Table 1 , of the $2,347.0 million requested for FY2020, $1,062 million is for CVN-80 and $1,285 million is for CVN-81. Appendix A. Withdrawn Proposal to Not Fund CVN-75 RCOH The Navy's FY2020 budget submission proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. This appendix presents, for reference purposes, additional background information on this withdrawn budget proposal. Following the Administration's April 30 withdrawal of its proposal to not fund the CVN-75 RCOH, the Navy states that the CVN-75 RCOH can no longer begin in FY2024, as planned prior to the Navy's FY2020 budget submission, because the Navy spent the months prior to April 30 planning for the ship's deactivation rather than for giving it an RCOH. As a result, the Navy states, the CVN-75 will now begin a year later, in FY2025. As a consequence of this one-year shift in the schedule for the RCOH, the Navy states, the funding stream for the CVN-75 shown in Table A-1 will also now shift one year to the right, and the CVN-75 RCOH can be reinstated without any funding in FY2020, because FY2020 is now effectively the same as FY2019 in Table A-1 . Performing an RCOH on a carrier is needed for the carrier to be able to operate for the second half of its intended 50-year service life. Not performing an RCOH on CVN-75 would mean that, instead of remaining in service for the second half of its intended 50-year service life, the ship would be decommissioned, permanently removed from service, and eventually dismantled. (CVN-75 was commissioned into service on July 25, 1998, and will be 26 years old in 2024.) The Navy's FY2020 budget submission shows that, for the period FY2022-FY2047, this would have reduced the size of the carrier force by one ship compared to what it would otherwise be. More specifically, the Navy's FY2020 30-year (FY2020-FY2049) shipbuilding plan, reflecting the proposal to not fund the CVN-75 RCOH, projected that the carrier force would remain at 11 ships through FY2024, decline to 10 ships in FY2025, and remain at 10 ships for the remainder of the 30-year period, except for a few years (FY2027, FY2040, FY2042-FY2044, and FY2046-FY2048) when it would temporarily decline to 9 ships. Consequently, beginning in FY2025 and extending through the end of the 30-year period, the carrier force would not be in compliance with the requirement under 10 U.S.C. 8062(b) for the Navy to maintain a force of not less than 11 operational aircraft carriers. As an associated action, the Navy's FY2020 budget submission also proposed deactivating one of the Navy's carrier air wings around FY2024. This would reduce the number of carrier air wings from nine to eight, meaning that the Navy beginning around FY2024 would no longer be in compliance with the requirement under 10 U.S.C. 8062(e) to maintain a minimum of nine carrier air wings. Table A-1 shows funding for the CVN-75 RCOH in the Navy's FY2019 budget submission. As shown in the table, the estimated total cost of the CVN-75 RCOH in the FY2019 budget submission was $5,578 million (i.e., about $5.6 billion). The figure of about $5.6 billion shown in Table A-1 does not include the cost of the two nuclear fuel cores that would be installed as part of the RCOH. (CVN-75, like all Nimitz-class carriers, has two nuclear reactors, each of which would receive a new fuel core as part of an RCOH.) Fuel cores for aircraft carrier RCOHs are procured through the Other Procurement, Navy (OPN) appropriation account. The Navy states that it procured the cores for the CVN-75 RCOH—one of them in FY2008 and the other in FY2011—for a total cost of about $538 million. Adding this $538 million cost to the total cost shown in Table A-1 would increase the total estimated cost of the CVN-75 RCOH to about $6.1 billion. The fuel cores for the planned future RCOHs for CVN-76 and CVN-77 (the final two Nimitz-class carriers) have also been procured—the CVN-76 RCOH cores were funded in FY2012 and FY2013, and the CVN-77 RCOH cores were funded in FY2015 and FY2019. Thus, if CVN-75 were to not receive an RCOH, and if it were not possible or cost effective to rescind the funding for the core funded in FY2019, then two of the six Nimitz-class fuel cores that have been procured since FY2008 for anticipated use in RCOHs would not in the end be used in an RCOH and would in effect become surplus to the RCOH effort. The Navy indicated that if that were to occur, these two cores would be placed in storage for potential future use as emergency replacement cores for a Nimitz-class ship until all Nimitz-class ships complete their service lives. If CVN-75 were to not receive an RCOH and is instead be decommissioned, the savings from not funding the RCOH would be partially offset by the cost to deactivate and dismantle CVN-75. The Navy estimated the cost to deactivate and dismantle CVN-75 at about $1.5 billion. The initial increments of this approximate $1.5-billion cost would have occurred in FY2023 ($130.3 million) and FY2024 ($247.2 million). The estimated net savings from not funding the RCOH and instead deactivating and dismantling the ship would thus have been about $4.1 billion (i.e., about $5.6 billion less about $1.5 billion). The Navy stated that there would also be 20 to 25 years of additional annual savings of about $1 billion per year in the form of avoided annual operation and support (O&S) costs for CVN-75 and the deactivated carrier air wing. DOD officials reportedly wanted to redirect the estimated net RCOH-related savings of about $4.1 billion and the estimated recurring savings of about $1 billion per year to Navy investments for technologies that will add to future Navy capabilities. RCOHs are done primarily by Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS) in Newport News, VA, and form a significant part of HII/NNS's business base, along with construction of new nuclear-powered aircraft carriers and construction of new nuclear-powered submarines. RCOHs in recent years have been scheduled in a more-or-less heel-to-toe fashion at HII/NNS—when one RCOH is done, the next one is scheduled to begin soon thereafter. RCOHs are done in a particular dry dock at HII/NNS, so a carrier undergoing an RCOH in that dry dock must be ready to depart the dry dock before the following carrier can be moved into the dry dock for its RCOH. Until it was withdrawn, the proposal in the Navy's FY2020 budget submission to not fund CVN-75's RCOH and instead decommission the ship (and a carrier air wing) raised a number of potential oversight issues for Congress, including the following: Compliance with congressional direction. The central purposes of 10 U.S.C. 8062(b) and 8062(e) are to act as mandates to the executive branch to support a force of not less than 11 carriers and a minimum of 9 carrier air wings in executive branch planning. They represent directions from Congress for the Navy to provide the funding needed to maintain an 11-carrier, 9-carrier-air-wing force, regardless of limitations on the Navy's overall budget or other considerations. A proposed budget from the Navy that is inconsistent with these provisions might thus be viewed as a challenge to Congress's Article 1 power to set policy and to determine the composition of federal spending (i.e., Congress's constitutional power of the purse). If DOD were to treat the requirements in 10 U.S.C. 8062(b) and 8062(e) as optional matters rather than mandates, would this create a precedent for the executive branch to treat similar provisions in the U.S. Code as optional matters rather than mandates? For example, would it create a precedent for DOD, if it so desired, to begin treating as an optional matter the long-standing requirement in 10 U.S.C. 8063(a) that the Marine Corps "shall be so organized as to include not less than three combat divisions and three air wings, and such other land combat, aviation, and other services as may be organic therein?" If the executive branch were to begin treating statutory provisions like 10 U.S.C. 8062(b) and 8062(e) as optional matters rather than mandates, what implications might this have for policy and program execution, for Congress's power to legislatively establish policy and program goals, and for Congress's power of the purse? Alternative capabilities to be funded ; net impact on Navy capabilities . What were OSD's plans for redirecting the savings associated with deactivating CVN-75 and a carrier air wing around FY2024? What types of capabilities would have been created or maintained by these redirected funds? How would these capabilities compare in nature and timing to the capabilities that are to be provided by the continued operation of CVN-75 and the carrier air wing? Taking these factors into account, what would have been the net operational impact for the Navy of deactivating CVN-75 and a carrier air wing around FY2024 and redirecting the resulting savings toward these other investments? Requirement for 12-carrier force. The Navy's 2016 Force Structure Assessment (FSA) led to a Navy force-level requirement for a fleet of 355 ships that includes 12 aircraft carriers. OSD allowed the Navy to present that FSA to the Congress, and to program shipbuilding and other actions in support of achieving the 355-ship force-level goal. OSD did not publicly object to the FSA's 12-carrier requirement (or any other part of the 355-ship force-level goal). What was the analytical basis for an action that would reduce the size of the carrier from 11 to 10, instead of helping it to eventually increase from 11 to 12? Next Force Structure Assessment (FSA). The Navy states that it is currently conducting a new FSA as the successor to the 2016 FSA, and that this new FSA is to be completed by the end of 2019. This new FSA could change the 355-ship figure, the planned mix of ships, or both. Did the Navy's proposal to not fund the CVN-75 RCOH, and thereby reduce the carrier force from 11 ships to 10 ships, prejudge the outcome of the new FSA? Would the new FSA be tainted by the knowledge that the Navy had already proposed reducing the carrier force to 10 ships? How well could the analysts performing the new FSA have avoided being influenced by the Navy's proposed action? Was the Navy prepared to go ahead with the CVN-75 RCOH if the new FSA concludes that there is a requirement for 11 or more carriers? Likelihood of need for emergency replacement cores. How likely was it that the Nimitz-class program would need to use an emergency replacement set of fuel cores during the remainder of the Nimitz-class life cycle? What set of circumstances might lead to a need for an emergency replacement set of fuel cores? How often have such circumstances previously arisen for a nuclear-powered U.S. Navy ship whose fuel cores are intended to be sufficient for powering the ship for at least one-half of its expected service life? Given the assessed likelihood of the Nimitz-class program needing to use an emergency replacement set of fuel cores during the remainder of the Nimitz-class life cycle, what would have been the government's resulting return on investment of the several hundred million dollars used to procure the two fuel cores that would be placed in storage? Acting Secretary of Defense. The proposal to not fund the CVN-75 RCOH and to deactivate a carrier air wing represented a notable change from prior DOD force-structure planning and budgeting. Was it appropriate for such a change to be proposed by DOD during a time when DOD has an acting Secretary of Defense rather than a Secretary who was confirmed specifically for that position? Impact on industrial base and cost of other work. What would have been the impact on HII/NNS and the other parts of the aircraft carrier industrial base if CVN-75 were inactivated rather than given an RCOH? What impact, if any, would this have had on the cost of other work performed at HII/NNS and other parts of the aircraft carrier industrial base during these years, and on the eventual cost of the CVN-76 RCOH? For further reference, it can be noted that the Navy's FY2015 budget submission proposed not funding the RCOH for the aircraft carrier CVN-73 ( George Washington ). The proposal raised oversight issues for Congress broadly similar to those listed above. Congress, in acting on the Navy's proposed FY2015 budget, rejected the proposal to not fund CVN-73's RCOH. The RCOH was funded and is currently underway. Appendix B. Background Information on Two-Ship Block Buy for CVN-80 and CVN-81 This appendix presents additional background information on the two-ship block buy contract for CVN-80 and CVN-81. The option for procuring two CVN-78 class carriers under a two-ship block buy contract had been discussed in this CRS report since April 2012. In earlier years, the discussion focused on the option of using a block buy contract for procuring CVN-79 and CVN-80. In more recent years, interest among policymakers focused on the option of using a block buy contract for procuring CVN-80 and CVN-81. On March 19, 2018, the Navy released a request for proposal (RFP) to Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS) regarding a two-ship buy of some kind for CVN-80 and CVN-81. A March 20, 2018, Navy News Service report stated the following: The Navy released a CVN 80/81 two-ship buy Request for Proposal (RFP) to Huntington Ingalls Industries—Newport News Shipbuilding (HII-NNS) March 19 to further define the cost savings achievable with a two-ship buy. With lethality and affordability a top priority, the Navy has been working with HII-NNS over the last several months to estimate the total savings associated with procuring CVN 80 and CVN 81 as a two-ship buy. "In keeping with the National Defense Strategy, the Navy developed an acquisition strategy to combine the CVN 80 and CVN 81 procurements to better achieve the Department's objectives of building a more lethal force with greater performance and affordability," said James F. Geurts, Assistant Secretary of the Navy, Research Development and Acquisition. "This opportunity for a two-ship contract is dependent on significant savings that the shipbuilding industry and government must demonstrate. The Navy is requesting a proposal from HII-NNS in order to evaluate whether we can achieve significant savings." The two-ship buy is a contracting strategy the Navy has effectively used in the 1980s to procure Nimitz-class aircraft carriers and achieved significant acquisition cost savings compared to contracting for the ships individually. While the CVN 80/81 two-ship buy negotiations transpire, the Navy is pursuing contracting actions necessary to continue CVN 80 fabrication in fiscal year (FY) 2018 and preserve the current schedule. The Navy plans to award the CVN 80 construction contract in early FY 2019 as a two-ship buy pending Congressional approval and achieving significant savings. Section 121(a)(2) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018) permitted the Navy, after the Department of Defense (DOD) made certain certifications to Congress, to add CVN-81 to the existing contract for building CVN-80. DOD provided the required certification on December 31, 2018. On January 31, 2019, the Navy announced that it had awarded a two-ship fixed-price incentive (firm target) (FPIF) contract for CVN-80 and CVN-81 to HII/NNS. The two-ship contract for CVN-80 and CVN-81 can be viewed as a block buy contract because the two ships are being procured in different fiscal years (CVN-80 was procured in FY2018 and CVN-81 is shown in the Navy's FY2020 budget submission as a ship procured in FY2020). The Navy's previous two-ship aircraft carrier procurements occurred in FY1983 (for CVN-72 and CVN-73) and FY1988 (for CVN-74 and CVN-75). In each of those two earlier cases, however, the two ships were fully funded within a single fiscal year, making each of these cases a simple two-ship purchase (akin, for example, to procuring two Virginia-class attack submarines or two DDG-51 class destroyers in a given fiscal year) rather than a two-ship block buy (i.e., a contract spanning the procurement of end items procured across more than one fiscal year). Compared to DOD's estimate that the two-ship block buy contract for CVN-80 and CVN-81 would produce savings of $3.9 billion (as measured from estimated costs for the two ships in the December 2017 Navy business case analysis), DOD states that "the Department of Defense's Office of Cost Assessment and Program Evaluation (CAPE) developed an Independent Estimate of Savings for the two-ship procurement and forecast savings of $3.1 billion ([in] Then-Year [dollars]), or approximately 11 percent.... The primary differences between [the] CAPE and Navy estimates of savings are in Government Furnished Equipment and production change orders." Within the total estimated combined reduction in cost, HII/NNS reportedly expects to save up to $1.6 billion in contractor-furnished equipment. A November 2018 DOD report to Congress that was submitted as an attachment to DOD's December 31, 2018, certification stated the following regarding the sources of cost reduction for the two-ship contract: The CVN 80 and CVN 81 two-ship buy expands and improves upon the affordability initiatives identified in the Annual Report on Cost Reduction Efforts for JOHN F. KENNEDY (CVN 79) and ENTERPRISE (CVN 80) as required by section 126(c) of the National Defense Authorization Act for Fiscal Year 2017 ( P.L. 114-328 ). Production saving initiatives for single-ship buys included use of unit families in construction, pre-outfitting and complex assemblies which move work to a more efficient workspace environment, reduction in the number of superlifts, and facility investments which improve the shipbuilder trade effectiveness. A two-ship buy assumes four years between ship deliveries which allows more schedule overlap, and therefore more shop-level and assembly-level production efficiencies than two single-ship buys. Procuring two ships to a single technical baseline reduces the requirement for engineering labor hours when compared to single-ship estimates. The ability to rollover production support engineering and planning products maximizes savings while recognizing the minimum amount of engineering labor necessary to address obsolescence and regulatory changes on CVN 81. The two-ship agreement with the shipbuilder achieves a 55 percent reduction in construction support engineering hours on CVN 81 and greater than 18 percent reduction in production support and planning hours compared to single ship procurements. The two-ship procurement strategy allows for serial production opportunities that promote tangible learning and reduced shop and machine set-up times. It allows for efficient use of production facilities, re-use of production jigs and fixtures, and level loading of key trades. The continuity of work allows for reductions in supervision, services and support costs. The result of these efficiencies is a production man-hours step down that is equivalent to an 82 percent learning curve since CVN 79. Key to achieving these production efficiencies is Integrated Digital Shipbuilding (iDS). The Navy's Research, Development, Test, and Evaluation (RDT&E) and the shipbuilder's investment in iDS, totaling $631 million, will reduce the amount of production effort required to build FORD Class carriers. The two-ship buy will accelerate the benefits of this approach. The ability to immediately use the capability on CVN 81 would lead to a further reduction in touch labor and services in affected value streams. The two-ship agreement with the shipbuilder represents a production man-hours reduction of over seven percent based on iDS efficiencies. Contractual authority for two ships allows the shipbuilder to maximize economic order quantity material procurement. This allows more efficient ordering and scheduling of material deliveries and will promote efficiencies through earlier ordering, single negotiations, vendor quotes, and cross program purchase orders. These efficiencies are expected to reduce material costs by about six percent more when compared to single-ship estimates. Improved material management and flexibility will prevent costly production delays. Furthermore, this provides stability within the nuclear industrial base, de-risking the COLUMBIA and VIRGINIA Class programs. The two-ship buy would provide economic stability to approximately 130,000 workers across 46 States within the industrial base. Change order requirements are likewise reduced as Government Furnished Equipment (GFE) providers will employ planning and procurement strategies based on the common technical baseline that minimize configuration changes that must be incorporated on the follow ship. Change order budget allocations have been reduced over 25 percent based on two-ship strategies. In addition to the discrete savings achieved with the shipbuilder, the two-ship procurement authority provides our partner GFE providers a similar opportunity to negotiate economic order quantity savings and achieve cross program savings when compared to single-ship estimates. An April 16, 2018, press report stated the following: If the Navy decides to buy aircraft carriers CVN-80 and 81 together, Newport News Shipbuilding will be able to maintain a steady workload that supports between 23,000 and 25,000 workers at the Virginia yard for the next decade or so, the shipyard president told reporters last week. Part of the appeal of buying the two carriers together is that the Navy would also buy them a bit closer together: the ships would be centered about three-and-a-half or four years apart, instead of the five-year centers for recent carrier acquisition, Newport News Shipbuilding President Jennifer Boykin told reporters. Boykin said the closer ship construction centers would allow her to avoid a "labor valley" where the workforce levels would dip down after one ship and then have to come back up, which is disruptive for employees and costly for the company. If this two-carrier buy goes through, the company would avoid the labor valley altogether and ensure stability in its workforce, Boykin said in a company media briefing at the Navy League's Sea Air Space 2018 symposium. That workforce stability contributes to an expected $1.6 billion in savings on the two-carrier buy from Newport News Shipbuilding's portion of the work alone, not including government-furnished equipment.... Boykin said four main things contribute to the expected $1.6 billion in savings from the two-carrier buy. First, "if you don't have the workforce valley, there's a labor efficiency that represents savings." Second, "if you buy two at once, my engineering team doesn't have to produce two technical baselines, two sets of technical products; they only have to produce one, and the applicability is to both, so there's savings there. When we come through the planning, the build plan of how we plan to build the ship, the planning organization only has to put out one plan and the applicability is to both, so there's savings there." The third savings is a value of money over time issue, she said, and fourth is economic order quantity savings throughout the entire supply chain. Discussions of the option of using a block buy contract for procuring carriers have focused on using it to procure two carriers in part because carriers have been procured on five-year centers, meaning that two carriers could be included in a block-buy contract spanning six years—the same number of years originally planned for the two block buy contracts that were used to procure mnay of the Navy's Littoral Combat Ships. It can be noted, however, that there is no statutory limit on the number of years that a block buy contract can cover, and that the LCS block buy contracts were subsequently amended to cover LCSs procured in a seventh year. This, and the possibility of procuring carriers on 3- or 3.5-year centers, raises the possibility of using a block buy contract to procure three aircraft carriers: For example, if procurement of aircraft carriers were shifted to 3- or 3.5-year centers, a block buy contract for procuring CVN-80, CVN-81, and CVN-82 could span seven years (with the first ship procured in FY2018, and the third ship procured in FY2024) or eight years (with the first ship procured in FY2018 and the third ship procured in FY2025). The percentage cost reduction possible under a three-ship block buy contract could be greater than that possible under a two-ship block buy contract, but the offsetting issue of reducing congressional flexibility for changing aircraft carrier procurement plans in coming years in response to changing strategic or budgetary circumstances could also be greater. Appendix C. Cost Growth and Managing Costs Within Program Cost Caps This appendix presents additional background information on cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps. October 2018 CBO Report An October 2018 CBO report on the potential cost of the Navy's 30-year shipbuilding plan states the following regarding the CVN-78 program: The Navy's current estimate of the total cost of the Gerald R. Ford , the lead ship of the CVN-78 class, is $13.0 billion in nominal dollars appropriated over the period from 2001 to 2018, an amount that is equal to the cost cap set in law. CBO used the Navy's inflation index for naval shipbuilding to convert that figure to $15.5 billion in 2018 dollars, or 23 percent more than the corresponding estimate when the ship was first authorized in 2008. Neither the Navy's nor CBO's estimate includes the $5 billion in research and development costs that apply to the entire class. Because construction of the lead ship is finished, CBO used the Navy's estimate for that ship to estimate the cost of successive ships in the class. But not all of the cost risk has been eliminated; in particular, the ship's power systems and advanced arresting gear (the system used to recover fixed-wing aircraft landing on the ship) are not yet working properly. It is not clear how much those problems will cost to fix, but current Navy estimates suggest that it will be several tens of millions of dollars or more. CBO does not have enough information to estimate those final repair costs. The next carrier after the CVN-78 will be the CVN-79, the John F. Kennedy . Funding for that ship began in 2007, the Congress officially authorized its construction in 2013, and the planned appropriations for it were completed in 2018. The shipbuilder expects to complete construction of the CVN-79 in 2024 and deploy it for the first time in 2026. The Navy estimates that the ship will cost $11.3 billion in nominal dollars (or $11.6 billion in 2018 dollars). The Navy's selected acquisition report on the CVN-79 states that "the Navy and shipbuilder have made fundamental changes in the manner in which the CVN 79 will be built to incorporate lessons learned from CVN 78 and eliminate the key contributors to cost performance challenges realized in the construction of CVN 78." Nevertheless, the Navy informed CBO that there is a greater than 60 percent chance that the ship's final cost will be more than the current estimate. Although CBO expects the Navy to achieve a considerable cost reduction in the CVN-79 compared with the CVN-78, as is typical with the second ship of a class, CBO's estimate is higher than the Navy's. Specifically, CBO estimates that the ship will cost $11.7 billion in nominal dollars (or $12.0 billion in 2018 dollars), about 4 percent more than the Navy's estimate. In 2018, the Congress authorized the third carrier of the class, the Enterprise (CVN-80). Appropriations for that ship began in 2016 and are expected to be complete by 2023. The Navy estimates that the ship will cost $12.6 billion in nominal dollars (or $11.5 billion in 2018 dollars). However, as with CVN-79, the Navy told CBO that there is a greater than 60 percent chance that the ship's final cost will be more than the current estimate. CBO estimates that the ship will cost $13.0 billion in nominal dollars (or $11.8 billion in 2018 dollars), about 3 percent more than the Navy's estimate. The Navy estimates an average cost of $12.4 billion (in 2018 dollars) for the 7 carriers (CVN-81 through CVN-87) in the 2019 shipbuilding plan. CBO's estimate is $12.8 billion per ship.... The gap between the estimates has narrowed since the 2017 plan: The Navy's has increased by $500 million per ship, and CBO's has dropped by $200 million per ship. It is not clear why the Navy's estimates increased, but CBO's estimates fell mainly because the agency projects somewhat less growth in real costs of the shipbuilding industry in future years. August 2018 Press Report An August 17, 2018, press report states the following: Huntington Ingalls Industries Inc., the sole U.S. builder of aircraft carriers, continues to fall short of the Navy's demand to cut labor expenses to stay within an $11.39 billion cost cap mandated by Congress on the second in a new class of warships. With about 47 percent of construction complete on the USS John F. Kennedy, Navy figures show the contractor isn't yet meeting the goal it negotiated with the service: reducing labor hours by 18 percent from the first carrier, the USS Gerald Ford.... It took about 49 million hours of labor to build the Ford, according to the U.S. Government Accountability Office. The Navy's goal for the Kennedy is to reduce that to about 40 million hours. Huntington Ingalls's performance "remains stable at approximately 16 percent" less, William Couch, spokesman for the Naval Sea Systems Command, said in an email. He said "key production milestones and the ship's preliminary acceptance date remain on track" and there are "ample opportunities" for improvement "with nearly four years until contract delivery and over 70 percent of assembly work" remaining on the vessel's superstructure. But the Pentagon's naval warfare division, which reports to Ellen Lord, the Defense Department's chief weapons buyer, is less sanguine. It said in a July assessment that Huntington Ingalls "is unlikely to fully recover the needed 18 percent" reduction.... On the effort to meet the 18 percent labor-hour reduction for the Kennedy, the Navy's program manager "assesses that although difficult, the shipbuilder can still attain" it, Couch said. Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said "we are seeing the benefits associated with significant build strategy changes and incorporation of lessons learned" from the first vessel. Brenton said "the current production performance" is 16 percent less than the Ford's estimate at the time of contract award for the second vessel but the reduction is 17 percent when compared with the first vessel's current cost.... But Shelby Oakley, a director with the GAO who monitors Navy shipbuilding, said "with so much of the program underway, it is unlikely that the Navy will regain efficiency." In later phases of a shipbuilding contract, she said, "performance typically degrades, not improves." It's also "unclear how the lessons learned" from the first ship "could help regain efficiency when they are already baked in to the Navy's overly optimistic estimate for the program," she said. June 2018 Press Report A June 19, 2018, press report stated the following: Huntington Ingalls Industries Inc. is asking General Electric Co. to compensate it for damage caused by flawed workmanship during installation of propulsion system components on the U.S. Navy's $13 billion aircraft carrier Gerald R. Ford. The problem, which forced the most expensive U.S. warship back to port in January, has yet to be fully resolved although the carrier is once again at sea.... Huntington Ingalls, a shipbuilder based in Newport News, Virginia, "has notified the original manufacturer of the shipyard's intent to seek compensation," Naval Sea Systems Command spokesman William Couch said in an email. Beci Brenton, a spokeswoman for Huntington said, "We continue to work with appropriate stakeholders to support resolution of this situation." Perry Bradley, a spokesman for Boston-based GE, said "we're not going to comment on specifics other than to say" that "GE is working closely with" Huntington's Newport News Shipyard unit and "the U.S. Navy to resolve the issue."... The episode in January was the second failure in less than a year with a "main thrust bearing" that's part of the carrier's propulsion system. The first occurred in April 2017, during sea trials a month before the vessel's delivery. The ship has been sailing in a shakedown period to test systems and work out bugs. It's now scheduled to be ready for initial combat duty in 2022. The Navy's carrier program office said in an assessment that an inspection of the carrier's four main thrust bearings after the January failure revealed "machining errors" by GE workers at a Lynn, Massachusetts, facility during the original manufacturing as "the actual root cause." The bearing overheated, the Navy said in a March 8 memo to Congress, and "after securing the equipment to prevent damage, the ship safely returned to port." A failure review board is identifying "modifications required to preclude recurrence," it said. The bearing is one of four that transfers thrust from the ship's four propeller shafts. "The costs associated with repairing" the thrust bearings "are currently being assessed" and "this will include recovery of costs from the manufacturer of the Main Reduction Gear, General Electric (Lynn), as appropriate," the Navy said in the memo. Couch said the Navy doesn't expect similar propulsion problems with the next vessel in the class, the John F. Kennedy, because a different manufacturer made that carrier's propulsion train components. "Any propulsion train deficiencies identified" with the Ford "will be corrected and implemented" in "future ships of the class as necessary," he said. May 2018 Press Report A May 11, 2018, press report stated the following: The Navy's costliest vessel ever just got pricer, breaching a $12.9 billion cap set by Congress by $120 million, the service told lawmakers this week. The extra money for the U.S.S. Gerald R. Ford built by Huntington Ingalls Industries Inc. is needed to replace faulty propulsion components damaged in a January failure, extend the vessel's post-delivery repair phase to 12 months from the original eight months and correct deficiencies with the "Advanced Weapons Elevators" used to move munitions from deep in the ship to the deck. The elevators on the ship, designated CVN 78, need to be fixed "to preclude any effect on the safety of the ship and personnel," the Naval Sea Systems Command said in a statement to Bloomberg News on Friday. "Once the adjustment is executed, the cost for CVN 78 will stand at $13.027" billion, the Navy said. In addition to informing Congress that the spending lid has been breached, the Navy will have to let lawmakers know how it will shift funds to make up the difference. Navy officials didn't disclose the propulsion failure or elevator problems during budget hearings before Congress in recent weeks, and House and Senate lawmakers didn't ask about it.... The Ford's propulsion system and elevator flaws are separate from reliability issues on its troubled aircraft launch and recovery systems. After its delivery last May, the ship operated for 70 days and completed 747 shipboard aircraft launches and recoveries, exceeding the goal of about 400, the Navy said. None of the 11 weapons elevators are operational but at least two are being used for testing "to identify many of the remaining developmental issues for this first-of-class system," the Navy has said. The command said all 11 elevators "should have been complete and delivered with the ship delivery" in May 2017. April 2018 Press Report An April 16, 2018, press report stated the following: Huntington Ingalls Industries' Newport News Shipbuilding President Jennifer Boykin provided an update on the various stages of construction on several major Navy shipbuilding programs during the Navy League's Sea Air Space Expo last week. The future USS John F. Kennedy (CVN-79) is about 43 percent complete, with launch planned for the fourth quarter of 2019 and delivery set for 2022. Boykin said the company has achieved about 75 percent of the ship erected and they are on track for an 18 percent man-hour budget reduction. Boykin provided these updates during a press briefing at the conference. Boykin revealed that undocking of CVN-79 in the fourth quarter of 2019 will occur three months earlier than originally planned. September 2017 Press Report A September 26, 2017, press report states the following: Huntington Ingalls Industries Inc. is falling short of a U.S. Navy goal to reduce hours of labor on the second ship in the new Ford class of aircraft carriers in a drive to reduce costs, according to service documents. With 34 percent of construction complete on the USS John F. Kennedy, Huntington Ingalls estimates it will be able to reduce labor hours by 16 percent from the hours needed to construct the first vessel, the Gerald R. Ford. That's less than the 17 percent reduction reported at the end of last year and the 18 percent goal the Navy negotiated in the primary construction contract for the carrier. The "recent degradation in cost performance stems largely from the delayed availability of certain categories of material," such as pipe fittings, controllers, actuators and valves, according to the Navy's annual report on the program and updated figures obtained by Bloomberg News.... "We acknowledge that the cost reduction target for CVN-79," relative to the first carrier, "is challenging," Huntington Ingalls spokeswoman Beci Brenton said in an email, referring to the Kennedy by its Navy designation. "While it is still early in the ship's schedule, we are seeing positive results from" new initiatives to keep costs in check, she said.... Navy Secretary Richard Spencer told reporters last week that he will stay involved in monitoring the CVN-79's construction trends. "This is my personal approach—the CEO has to be involved." A close watch is required "because there are so many moving parts and so many opportunities to do things in a more efficient manner," Spencer said. The Navy has been working with the contractors "to mitigate technical risks and impacts of late material," Navy spokesman Victor Chen in an email. "The overall volume of late material items and associated impact to construction performance is declining. The Navy has hired third-party experts who are working collaboratively with the shipbuilder to identify manufacturing opportunities for efficiency gains" and to assist in implementing improvements.... The 18 percent reduction in labor hours was "quite optimistic" from the start, Michele Mackin, a Government Accountability Office director who oversees its shipbuilding assessments, said in an email. "Even based on that assumption, the $11.4 billion cost cap was unlikely to be met," she said. "If those labor-hour efficiencies are in fact not materializing, costs will go higher. Also, "with the ship being over 30 percent complete, it's unlikely the shipbuilder can get back enough efficiencies to further reduce labor hours—the more complicated work is yet to come," she said. June 2017 Navy Testimony At a June 15, 2017, hearing before the Senate Armed Services Committee on the Department of the Navy's proposed FY2018 budget, the following exchange occurred: SENATOR JOHN MCCAIN (CHAIRMAN) (continuing): Secretary Stackley, the Navy broached a cost cap for CVN-78. Do you believe that it has? SEAN STACKLEY, ACTING SECRETARY OF THE NAVY: Sir, right now our estimate for CVN-78, we're trying to hold it within the $12.887 billion number that was established several years ago. We have included a $20 million [procurement funding] request in this budget pending our determination regarding repairs that required for the... MCCAIN: Is that a breach of Nunn-McCurdy? STACKLEY: Not at this point in time, sir, we're continuing to evaluate whether that additional funding will be required. We're doing everything we can to stay within the existing cap and we'll keep Congress informed as we complete our post-delivery assessment. MCCAIN: Problem is we haven't been informed. So either you bust the cap and breach Nunn-McCurdy—Nunn-McCurdy or you notify us. You haven't done either one. STACKLEY: Sir, we've been submitting monthly reports regarding the carrier, we've alerted the concern regarding the repairs that are being required for the motor turbine generator set and we've acknowledged the risk associated with those repairs. However, what we're trying to do is not incur those costs, avoid cost by other means, and as of right now we're not ready to trip that cost cap. MCCAIN: Well, it's either not allowable or it's allowable. It's not allowable, then you take a certain course of action. If it's allowable then you're required to notify Congress. You have done neither. STACKLEY: If we need to incur those costs, they will be allowable costs. We're trying to avoid that at this stage of time, sir. MCCAIN: I agree, but we were supposed to be notified—OK. I can tell you that you are either in violation of Nunn-McCurdy or you are in violation of the requirement that we be notified. You have done neither. There's two scenarios. STACKLEY: Sir, we have not broached the cost cap. If it becomes apparent that we'll need to go above the cost cap, we will notify Congress within—within the terms that you all have established. MCCAIN: OK. Well, I'll get it to you in writing but you still haven't answered the question because when there's a $20 million cost overrun, it's either allowable and then we have to be notified in one way. If it's not allowable, Nunn-McCurdy is—is reached. But anyway, maybe you can give us a more satisfactory explanation in writing, Mr. Secretary. June 2017 GAO Report A June 2017 GAO report states the following: The cost estimate for the second Ford-Class aircraft carrier, CVN 79, is not reliable and does not address lessons learned from the performance of the lead ship, CVN 78. As a result, the estimate does not demonstrate that the program can meet its $11.4 billion cost cap. Cost growth for the lead ship was driven by challenges with technology development, design, and construction, compounded by an optimistic budget estimate. Instead of learning from the mistakes of CVN 78, the Navy developed an estimate for CVN 79 that assumes a reduction in labor hours needed to construct the ship that is unprecedented in the past 50 years of aircraft carrier construction.... After developing the program estimate, the Navy negotiated 18 percent fewer labor hours for CVN 79 than were required for CVN 78. CVN 79's estimate is optimistic compared to the labor hour reductions calculated in independent cost reviews conducted in 2015 by the Naval Center for Cost Analysis and the Office of Cost Assessment and Program Evaluation. Navy analysis shows that the CVN 79 cost estimate may not sufficiently account for program risks, with the current budget likely insufficient to complete ship construction. The Navy's current reporting mechanisms, such as budget requests and annual acquisition reports to Congress, provide limited insight into the overall Ford Class program and individual ship costs. For example, the program requests funding for each ship before that ship obtains an independent cost estimate. During an 11-year period prior to 2015, no independent cost estimate was conducted for any of the Ford class ships; however, the program received over $15 billion in funding. In addition, the program's Selected Acquisition Reports (SAR)—annual cost, status, and performance reports to Congress—provide only aggregate program cost for all three ships currently in the class, a practice that limits transparency into individual ship costs. As a result, Congress has diminished ability to oversee one of the most expensive programs in the defense portfolio. February 2016 Navy Testimony The Navy testified in 2016 that The Navy is committed to delivering the lead ship of the class, Gerald R Ford (CVN 78) within the $12.887 billion congressional cost cap. Sustained efforts to identify cost reductions and drive improved cost and schedule performance on this first-of-class aircraft carrier have resulted in highly stable cost performance since 2011. Based on lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review and the Navy and the shipbuilder have made significant changes on CVN 79 to reduce the cost to build the ship. The benefits of these changes in build strategy and resolution of first-of-class impacts experienced on CVN 78 are evident in early production labor metrics on CVN 79. These efforts are ongoing and additional process improvements continue to be identified. Alongside the Navy's efforts to reduce the cost to build CVN 79, the FY 2016 National Defense Authorization Act reduced the cost cap for follow ships in the CVN 78 class from $11,498 million to $11,398 million. To this end, the Navy has further emphasized stability in requirements, design, schedule, and budget, in order to drive further improvement to CVN 79 cost. The FY 2017 President's Budget requests funding for the most efficient build strategy for this ship and we look for Congress' full support of this request to enable CVN 79 procurement at the lowest possible cost.... ... The Navy will deliver the CVN 79 within the cost cap using a two-phased strategy wherein select ship systems and compartments that are more efficiently completed at a later stage of construction - to avoid obsolescence or to leverage competition or the use of experienced installation teams - will be scheduled for completion in the ship's second phase of production and test. Enterprise (CVN 80) began construction planning and long lead time material procurement in January 2016 and construction is scheduled to begin in 2018. The FY 2017 President's Budget request re-phases CVN 80 funding to support a more efficient production profile, critical to performance, below the cost cap. CVN 80 planning and construction will continue to leverage class lessons learned to achieve cost and risk reduction, including efforts to accelerate production work to earlier phases of construction, where work is more cost efficient. October 2015 Senate Armed Services Committee Hearing Cost growth and other issues in the CVN-78 program were reviewed at an October 1, 2015, hearing before the Senate Armed Services Committee. Below are excerpts from the prepared statements of the witnesses at the hearing. OSD ASD Testimony The prepared statement of the Assistant Secretary of Defense (Acquisition) within the Office of the Secretary of Defense (OSD) states the following in part: By 2000, the CVN(X) Acquisition Strategy that had been proposed by the Navy was an evolutionary, three-step development of the capabilities planned for the CVN. This evolutionary strategy intending to mature technology and align risk with affordability originally involved using the last ship of the CVN 68 NIMITZ Class, USS GEORGE H. W. BUSH (CVN 77), as the starting point for insertion of some near term technology improvements including information network technology and the new Dual Band Radar (DBR) system from the DD(X) (now DDG 1000) program, to create an integrated warfare system that combined the ship's combat system and air wing mission planning functions. However, the then incoming Secretary of Defense Donald Rumsfeld in 2002 directed re-examination of the CVN program, among others, to reduce the overall spend of the department and increase the speed of delivery to the warfighters. As a result of the SECDEF's direction, the Navy proposed to remove the evolutionary approach and included a new and enlarged flight deck, an increased allowance for future technologies (including electric weapons), and an additional manpower reduction of 500 to 800 fewer sailors to operate. On December 12, 2002, a Program Decision Memorandum approved by then Deputy Secretary of Defense Paul Wolfowitz codified this Navy proposal and gave this direction back to the DOD enterprise. The ship was renamed the CVN-21 to highlight these changes. By Milestone B in April 2004, the Navy had evaluated the technologies intended for three ships, removed some of them, and consolidated the remaining ones into a single step of capability improvement on the lead ship. The new plan acknowledged technological, cost, and schedule challenges were being put on a single ship, but assessed this was achievable. The Acting USD AT&L (Michael Wynne) at that milestone also directed the Navy to use a hybrid of the Service Cost Position and Independent Cost Estimate (ICE) to baseline the program funding in lieu of the ICE, (although one can easily argue even the ICE was optimistic given these imposed circumstances). By 2004, DOD and Congressional leadership had lost confidence in the acquisition system, and Deputy Secretary of Defense Gordon England established the Defense Acquisition Performance Assessment (DAPA) panel to conduct a sweeping and integrated assessment of "every aspect" of acquisition. The result was the discovery that the Industrial Base had consolidated, that excessive oversight and complex acquisition processes were cost and schedule drivers, and a focus on requirements stability was key to containing costs. From this, a review of the requirements of the CVN resulted in a revised and solidified "single ship" Operational Requirements Document (ORD) for the FORD Class as defined today, with the CVN 78 as lead ship. On the heels of a delay because of the budgetary constraints in 2006, the start of the construction of CVN 78 was delayed until 2008, but the schedule for delivery was held constant, further compounding risks and costs. The Navy's testimony covers these technical and schedule risks and concurrency challenges well. By 2009, this Committee had issued a floor statement in support of the Weapon Systems Acquisition Reform Act (WSARA). Congress was now united in its pursuit of acquisition reform and, in concert, USD AT&L re-issued and updated the Department of Defense's acquisition instruction (DoDI 5000.2) in 2008. WSARA included strengthening of the 'Nunn-McCurdy" process with requires DOD to report to Congress when cost growth on a major program breaches a critical cost growth threshold. This legislation required a root-cause assessment of the program and assumed program termination within 60 days of notification unless DOD certified in writing that the program remained essential to national security. WSARA had real impact on the CVN 78, as by 2008 and 2009 the results of all the previous decisions were instantiated in growth of cost and schedule. Then USD AT&L John Young required the Navy to provide a list of descoping efforts and directed the Navy to have an off-ramp back to steam catapults if the Electromagnetic Aircraft Launching System (EMALS) remained a problem for the program. He also directed an independent review of all of the CVN 78 technologies by a Defense Support Team (DST). Prior to the DST, the Navy had chartered a Program Assessment Review (PAR) with USD (AT&L) participation of EMALS/Advanced Arresting Gear (AAG) versus steam. One of the key PAR findings was converting the EMALS and AAG production contracts to firm, fixed price contracts to cap cost growth and imposed negative incentives for late delivery. The Dual Band Radar (DBR) cost and risk growth was a decision by-product of the DDG 1000 program Nunn-McCurdy critical unit cost breach in 2010. Faced with a need to reduce cost on the DDG 1000 program and the resultant curtailment of the program, the expectation of development costs being borne by the DDG 1000 program was no longer the case and all of the costs associated with the S-band element development and a higher share of the X-band element then had to be supported by the CVN 78 program. The design problems encountered with AAG development have had the most deleterious effects on CVN 78 construction of any of the three major advanced technologies including EMALS and DBR. Our view of AAG is that these engineering design problems are now in the past and although delivery of several critical components have been delayed, the system will achieve its needed capabilities before undergoing final operational testing prior to deployment of the ship. Again, reliability growth is a concern, but this cannot be improved until a fully functional system is installed and operating at the Lakehurst, New Jersey land based test site, and on board CVN 78. With the 2010 introduction by then USD AT&L Ashton Carter (now in its third iteration by under USD AT&L Frank Kendall) of the continuous process improvement initiative that was founded in best business practices and WSARA called "Better Buying Power," the CVN underwent affordability, "Should Cost," and requirements assessment. Navy's use of the "Gate" process has stabilized the cost growth and reset good business practices. However, there is still much to do. We are in the testing phase of program execution prior to deployment and we had been concerned about the timing of the Full Ship Shock Trial (FSST). After balancing the operational and technical risks, the Department decided to execute FSST on CVN 78 prior to deployment. EMALS and AAG are also a concern with regard to final operational testing stemming from the development difficulties that each experienced. The Navy still needs to complete a significant amount of land-based testing to enable certification of the systems to launch and recover the full range of aircraft that it is required to operate under both normal and emergency conditions. This land-based testing is planned to complete before the final at-sea operational testing for these systems begins.... USD AT&L continues to work with Navy to tailor the program and ensure appropriate oversight at both the Navy Staff level as well as OSD. Our review of the Navy's plan for maintaining control of the cost for CVN 79 included an understanding of the application of lessons learned from the construction of CVN 78 along with the application of a more efficient construction plan for the ship including introduction of competition where possible. We have established an excellent relationship with the Navy to work together to change process and policies that have impacted the ability of the program to succeed, to include revitalizing the acquisition workforce and their skills. We are confident in the Navy's plan for CVN 79 and CVN 80 and, as such, Under Secretary Kendall recently authorized the Navy to enter into the detail design and construction phase for CVN 79 and to enter into advanced procurement for long lead time materials for CVN 80 construction. OSD and the Navy are committed to delivering CVN 79 within the limits of the cost cap legislated for this ship. OSD DOT&E Testimony The prepared statement of the Director, Operational Test & Evaluation (DOT&E), within OSD states the following in part: The Navy intends to deliver CVN 78 early in calendar year 2016, and to begin initial operational test and evaluation (IOT&E) in late calendar year 2017. However, the Navy is in the process of developing a new schedule, so some dates may change. Based on the current schedule, between now and the beginning of IOT&E, the CVN 78 program is proceeding on an aggressive schedule to finish development, testing, troubleshooting, and correction of deficiencies for a number of new, complex systems critical to the warfighting capabilities of the ship. Low or unknown reliability and performance of the Advanced Arresting Gear (AAG), the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar (DBR), and the Advanced Weapons Elevators (AWE) are significant risks to a successful IOT&E and first deployment, as well as to achieving the life-cycle cost reductions the Navy has estimated will accrue for the Ford-class carriers. The maturity of these systems is generally not at the level that would be desired at this stage in the program; for example, the CVN 78 test program is revealing problems with the DBR typical of discoveries in early developmental testing. Nonetheless, AAG, EMALS, DBR, and AWE equipment is being installed on CVN 78, and in some cases, is undergoing shipboard checkout. Consequently, any significant issues that testing discovers before CVN 78's schedule-driven IOT&E and deployment will be difficult, or perhaps impossible, to address. Resolving the uncertainties in the reliability and performance of these systems is critical to CVN 78's primary function of conducting combat operations. CVN 78 has design features intended to enhance its ability to launch, recover, and service aircraft. EMALS and AAG are key systems planned to provide new capabilities for launching and recovering aircraft that are heavier and lighter than typically operated on Nimitz-class carriers. DBR is intended to enhance radar coverage on CVN 78 in support of air traffic control and ship self-defense. DBR is planned to reduce some of the known sensor limitations on Nimitz-class carriers that utilize legacy radars. The data currently available to my office indicate EMALS is unlikely to achieve the Navy's reliability requirements. (The Navy indicates EMALS reliability is above its current growth curve, which is true; however, that growth curve was revised in 2013, based on poor demonstrated performance, to achieve EMALS reliability on CVN 78 a factor of 15 below the Navy's goal.) I have no current data regarding DBR or AWE reliability, and data regarding the reliability of the re-designed AAG are also not available. (Poor AAG reliability in developmental testing led to the need to re-design components of that system.) In addition, performance problems with these systems are continuing to be discovered. If the current schedule for conducting the ship's IOT&E and first deployment remain unchanged, reliability and performance shortfalls could degrade CVN 78's ability to conduct flight operations. Due to known problems with current aircraft carrier combat systems, there is significant risk CVN 78 will not achieve its self-defense requirements. Although the CVN 78 design incorporates several combat system improvements relative to the Nimitz-class, these improvements (if achieved) are unlikely to correct all of the known shortfalls. Testing on other ships with similar combat systems has highlighted deficiencies in weapon employment timelines, sensor coverage, system track management, and deficiencies with the recommended engagement tactics. Most of these limitations are likely to affect CVN 78 and I continue to view this as a significant risk to the CVN 78's ability to defend itself against attacks by the challenging anti-ship cruise missile and other threats proliferating worldwide. The Navy's previous decision to renege on its original commitment to conduct the Full Ship Shock Trial (FSST) on CVN 78 before her first deployment would have put CVN 78 at risk in combat operations. This decision was reversed in August 2015 by the Deputy Secretary of Defense. Historically, FSSTs for new ship classes have identified for the first time numerous mission-critical failures the Navy had to address to ensure the new ships were survivable in combat. We can expect that CVN 78's FSST results will have significant and substantial implications on future carriers in the Ford-class and any subsequent new class of carriers. I also have concerns with manning and berthing on CVN 78. The Navy designed CVN 78 to have reduced manning to reduce life-cycle costs, but Navy analyses of manning on CVN 78 have identified problems in manning and berthing. These problems are similar to those seen on other recent ship classes such as DDG 1000 and the Littoral Combat Ship (LCS).... There are significant risks to the successful completion of the CVN 78 IOT&E and the ship's subsequent deployment due to known performance problems and the low or unknown reliability of key systems. For AAG, EMALS, AWE and DBR, systems that are essential to the primary missions of the ship, these problems, if uncorrected, are likely to affect CVN 78's ability to conduct effective flight operations and to defend itself in combat. The CVN 78 test schedule leaves little or no time to fix problems discovered in developmental testing before IOT&E begins that could cause program delays. In the current program schedule, major developmental test events overlap IOT&E. This overlap increases the likelihood problems will be discovered during CVN 78's IOT&E, with the attendant risk to the successful completion of that testing and to the ship's first deployment. The inevitable lessons we will learn from the CVN 78 FSST will have significant implications for CVN 78 combat operations, as well as for the construction of future carriers incorporating the ship's advanced systems; therefore, the FSST should be conducted on CVN 78 as soon as it is feasible to do so. Navy Testimony The prepared statement of the Navy witnesses at the hearing states the following in part: In June 2000, the Department of Defense (DOD) approved a three-ship evolutionary acquisition approach starting with the last NIMITZ Class carrier (CVN 77) and the next two carriers CVNX1 (later CVN 78) and CVNX2 (later CVN 79). This approach recognized the significant risk of concurrently developing and integrating new technologies into a new ship design incrementally as follows: • The design focus for the evolutionary CVN 77 was to combine information network technology with a new suite of multifunction radars from the DDG 1000 program to transform the ship's combat systems and the air wing's mission planning process into an integrated warfare system. • The design focus for the evolutionary CVNX1 (future CVN 78) was a new Hull, Mechanical and Electrical (HM&E) architecture within a NIMITZ Class hull that included a new reactor plant design, increased electrical generating capacity, new zonal electrical distribution, and new electrical systems to replace steam auxiliaries under a redesigned flight deck employing new Electromagnetic Aircraft Launch System (EMALS) catapults together with aircraft ordnance and fueling "pit-stops". Design goals for achieving reduced manning and improved maintainability were also defined. • The design focus for the evolutionary CVNX2 (future CVN 79) was a potential "clean-sheet" design to "open the aperture" for capturing new but immature technologies such as the Advanced Arresting Gear (AAG) and Advanced Weapons Elevators (AWE) that would be ready in time for the third ship in the series; and thereby permit the experience gained from design and construction of the first two ships (CVN 77 and CVN 78) to be applied to the third ship (CVN 79). Early in the last decade, however, a significant push was made within DOD for a more transformational approach to delivering warfighting capability. As a result, in 2002, DOD altered the program acquisition strategy by transitioning to the new aircraft carrier class in a single transformational leap vice an incremental three ship strategy. Under the revised strategy, CVN 77 reverted back to a "modified-repeat" NIMITZ Class design to minimize risk and construction costs, while delaying the integrated warfare system to CVN 78. Further, due to budget constraints, CVN 78 would start construction a year later (in 2007) with a NIMITZ Class hull form but would entail a major re-design to accommodate all the new technologies from the three ship evolutionary technology insertion plan. This leap ahead in a single ship was captured in a revised Operational Requirements Document (ORD) in 2004, which defined a new baseline that is the FORD Class today, with CVN 78 as the lead ship. The program entered system development and demonstration, containing the shift to a single ship acquisition strategy. The start of CVN 78 construction was then delayed by an additional year until 2008 due to budget constraints. As a result, the traditional serial evolution of technology development, ship concept design, detail design, and construction – including a total of 23 developmental systems incorporating new technologies originally planned across CVN 77, CVNX1, CVNX2 - were compressed and overlapped within the program baseline for the CVN 78. Today, the Navy is confronting the impacts of this compression and concurrency, as well as changes to assumptions made in the program planning more than a decade ago.... Given the lengthy design, development, and build span associated with major warships, there is a certain amount of overlap or concurrency that occurs between the development of new systems to be delivered with the first ship, the design information for those new systems, and actual construction. Since this overlap poses cost and schedule risk for the lead ship of the class, program management activities are directed at mitigating this overlap to the maximum extent practicable. In the case of the FORD Class, the incorporation of 23 developmental systems at various levels of technical maturity (including EMALS, AAG, DBR, AWE, new propulsion plant, integrated control systems) significantly compounded the inherent challenges associated with accomplishing the first new aircraft carrier design in 40-years. The cumulative impact of this high degree of concurrency significantly exceeded the risk attributed to any single new system or risk issue and ultimately manifested itself in terms of delay and cost growth in each element of program execution; development, design, material procurement (government and contractor), and construction.... Shipbuilder actions to resolve first-of-class issues retired much of the schedule risks to launch, but at an unstable cost. First-of-class construction and material delays led the Navy to revise the launch date in March 2013 from July 2013 to November 2013. Nevertheless, the four-month delay in launch allowed increased outfitting and ship construction that were most economically done prior to ship launch, such as completion of blasting and coating operations for all tanks and voids, installation of the six DBR arrays, and increased installations of cable piping, ventilation, electrical boxes, bulkheads and equipment foundations. As a result, CVN 78 launched at 70 percent complete and 77,000 tons displacement – the highest levels yet achieved in aircraft carrier construction. This high state of completion at launch enabled improved outfitting, compartment completion, an efficient transition into the shipboard test program, and the on-time completion of key milestones such as crew move aboard. With the advent of the shipboard test program, first time energization and grooming of new systems have required more time than originally planned. As a result, the Navy expects the sea trial schedule to be delayed about six to eight weeks. The exact impact on ship delivery will be determined based on the results of these trials. The Navy expects no schedule delays to CVN 78 operational testing and deployability due to the sea trials delay and is managing schedule delays within the $12.887 billion cost cap. Additionally, at delivery, AAG will not have completed its shipboard test program. The program has not been able to fully mitigate the effect of a two-year delay in AAG equipment deliveries to the ship. All AAG equipment has been delivered to the ship and will be fully installed on CVN 78 at delivery. The AAG shipboard test and certification program will complete in time to support aircraft launch and recovery operations in summer 2016.... The Navy, in coordination with the shipbuilder and major component providers, implemented a series of actions and initiatives in the management and oversight of CVN 78 that crossed the full span of contracting, design, material procurement, GFE, production planning, production management and oversight. The Secretary of the Navy directed a detailed review of the CVN 78 program build plan to improve end-to-end aircraft carrier design, material procurement, production planning, build and test, the results of which are providing benefit across all carriers. These corrective measures include: • CVN 78 design was converted from a 'level of effort, fixed fee' contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract change. • CVN 78 construction fee was reduced, consistent with contract provisions. However, the shipbuilder remains incentivized by the contract shareline to improve upon current cost performance. • Contract design changes are under strict control; authorized only for safety, damage control, and mission-degrading deficiencies. • Following a detailed "Nunn-McCurdy-like" review in 2008-2009, the Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to each system. • In 2011, Naval Sea Systems Command completed a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. Periodic reviews continue. Much of the impact to cost performance was attributable to shipbuilder and government material cost overruns. The Navy and shipbuilder have made significant improvements upon material ordering and delivery to the shipyard to mitigate the significant impact of material delays on production performance. These actions include: • The Navy and shipbuilder instituted optimal material procurement strategies and best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leveraging competitive opportunities) from outside supply chain management experts. • The shipbuilder assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard. • The shipbuilder inventoried all excess material procured on CVN 78 for transfer to CVN 79. • The Program Executive Officer (Carriers) has conducted quarterly Flag-level GFE summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The CVN 78 build plan, consistent with the NIMITZ Class, had focused foremost on completion of structural and critical path work to support launching the ship on-schedule. Achieving the program's cost improvement targets required that CVN 78 increase its level of completion at launch, from 60 percent to 70 percent. To achieve this and drive greater focus on system completion: • The Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance and identify fundamental changes that are yielding marked improvement. • The shipbuilder established specific launch metrics by system and increased staffing for waterfront engineering and material expediters to support meeting those metrics. This ultimately delayed launch, but drove up pre-outfitting to the highest levels for CVN new construction which has helped stabilize cost and improve test program and compartment completion performance relative to CVN 77. • The shipbuilder linked all of these processes within a detailed integrated master schedule that has provided greater visibility to performance and greater ability to control cost and schedule performance across the shipbuilding disciplines. These initiatives, which summarize a more detailed list of actions being implemented and tracked as a result of the end-to-end review, were accompanied by important management changes. • In 2011, the Navy assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new Program Executive Officer (PEO). • The new PEO established a separate Program Office, PMS 379, to focus exclusively on CVN 79 and CVN 80, which enables the lead ship Program Office, PMS 378, to focus on cost control, schedule performance and the delivery of CVN 78. • In 2012, the shipbuilder assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general ship foremen to strengthen CVN 78 performance. • The new PEO and shipyard president began conducting bi-weekly launch readiness reviews focused on cost performance, critical path issues and accomplishment of the targets for launch completion. These bi-weekly reviews will continue through delivery. • Assistant Secretary of the Navy (Research, Development, and Acquisition) (ASN (RD&A)) conducts quarterly reviews of program progress and performance with the PEO and shipbuilder to ensure that all that can be done to improve on cost performance is being done. The series of actions taken by the Navy and the shipbuilder are achieving the desired effect of arresting cost growth, establishing stability, and have resulted in no changes in the Government's estimate at completion over the past four years. The Department of the Navy is continuing efforts to identify cost reductions, drive improved cost and schedule performance, and manage change. The Navy has established a rigorous process with the shipbuilder that analyzes each contract change request to approve only those change categories allowed within the 2010 ASN(RD&A) change order management guidance. This guidance only allows changes for safety, contractual defects, testing and trial deficiencies, statutory and regulatory changes that are accompanied by funding and value engineering change proposals with instant contract savings. While the historical average for contractual change level is approximately 10 percent of the construction cost for the lead ship of a new class, CVN 78 has maintained a change order budget of less than four percent to date despite the high degree of concurrent design and development. Finally, the Navy has identified certain areas of the ship whose completion is not required for delivery, such as berthing spaces for the aviation detachment, and has removed this work from the shipbuilder's contract. This deferred work will be completed within the ship's budgeted end cost and is included within the $12,887 million cost estimate. By performing this deferred work in the post-delivery period using CVN 78 end cost funding, it can be competed and accomplished at lower cost and risk to the overall ship delivery schedule.... The CVN 79 cost cap was established in 2006 and adjusted by the Secretary of the Navy in 2013, primarily to address inflation between 2006 and 2013 plus $325 million of the allowed increase for non-recurring engineering to incorporate design improvements for the CVN 78 Class construction. The Navy and the shipbuilder conducted an extensive affordability review of carrier construction and made significant changes to deliver CVN 79 at the lowest possible cost. These changes are focused on eliminating the largest impacts to cost performance identified during the construction of CVN 78 as well as furthering improvements in future carrier construction. The Navy outlined cost savings initiatives in its Report to Congress in May, 2013, and is executing according to plan. Stability in requirements, design, schedule, and budget, are essential to controlling and improving CVN 79 cost, and therefore is of highest priority for the program. Requirements for CVN 79 were "locked down" prior to the commencement of CVN 79 construction. The technical baseline and allocated budget for these requirements were agreed to by the Chief of Naval Operations and ASN(RD&A) and further changes to the baseline require their approval, which ensures design stability and increases effectiveness during production. At the time of construction contract award, CVN 79 has 100 percent of the design product model complete (compared to 65 percent for CVN 78) and 80 percent of initial drawings released. Further, CVN 79 construction benefits from the maturation of virtually all new technologies inserted on CVN 78. In the case of EMALS and AAG, the system design and procurement costs are understood, and CVN 79 leverages CVN 78 lessons learned.... A completed FORD Class design enabled the shipbuilder to fully understand the "whole ship" bill of materials for CVN 79 construction and to more effectively manage the procurement of those materials with the knowledge of material lead times and qualified sources accrued from CVN 78 construction. The shipbuilder is able to order ship-set quantities of material, with attendant cost benefits, and to ensure CVN 79 material will arrive on time to support construction need. Extensive improvements have been put in place for CVN 79 material procurement to drive both cost reductions associated with more efficient procurement strategies and production labor improvements associated with improved material availability. Improved material availability is also a critical enabler to many construction efficiency improvements in CVN 79. The shipbuilder has developed an entirely new material procurement and management strategy for CVN 79. This new strategy consists of eight separate initiatives.... The shipbuilder and the Navy have performed a comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers as well as consulted with other Navy shipbuilders on best practices. As a result, the shipbuilder has identified and implemented a number of changes in the way they build aircraft carriers, with a dedicated focus on executing construction activities where they can most efficiently be performed. The CVN 79 build sequence installs 20 percent more parts in shop, and 30 percent more parts on the final assembly platen, as compared to CVN 78. This work will result in an increase in pre-outfitting and work being pulled to earlier stages in the construction process where it is most efficiently accomplished.... In conjunction with the Navy and the shipbuilder's comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers, a number of design changes were identified that would result in more affordable construction. Some of these design changes were derived from lessons learned in the construction of CVN 78 and others seek to further simplify the construction process and drive cost down.... In addition to the major focus discussed above, the shipbuilder continues to implement capital improvements to facilities that serve to reduce risk and improve productivity.... To enhance CVN 79 build efficiency and affordability, the Navy is implementing a two-phase delivery plan. The two-phase strategy will allow the basic ship to be constructed and tested in the most efficient manner by the shipbuilder (Phase I) while enabling select ship systems and compartments to be completed in Phase II, where the work can be completed more affordably through competition or the use of skilled installation teams.... The CVN 80 planning and construction will continue to leverage class lessons learned in the effort to achieve cost and risk reduction for remaining FORD Class ships. The CVN 80 strategy seeks to improve on CVN 79 efforts to frontload as much work as possible to the earliest phases of construction, where work is both predictable and more cost efficient.... While delivery of the first-of-class FORD has involved challenges, those challenges are being addressed and this aircraft carrier class will provide great value to our Nation with unprecedented and greatly needed warfighting capability at overall lower total ownership cost than a NIMITZ Class CVN. The Navy has taken major steps to stem the tide of increasing costs and drive affordability into carrier acquisition. GAO Testimony The prepared statement of the GAO witness at the hearing states the following in part: The Ford-class aircraft carrier's lead ship began construction with an unrealistic business case. A sound business case balances the necessary resources and knowledge needed to transform a chosen concept into a product. Yet in 2007, GAO found that CVN 78 costs were underestimated and critical technologies were immature—key risks that would impair delivering CVN 78 at cost, on-time, and with its planned capabilities. The ship and its business case were nonetheless approved. Over the past 8 years, the business case has predictably decayed in the form of cost growth, testing delays, and reduced capability—in essence, getting less for more. Today, CVN 78 is more than $2 billion over its initial budget. Land-based tests of key technologies have been deferred by years while the ship's construction schedule has largely held fast. The CVN 78 is unlikely to achieve promised aircraft launch and recovery rates as key systems are unreliable. The ship must complete its final, more complex, construction phase concurrent with key test events. While problems are likely to be encountered, there is no margin for the unexpected. Additional costs are likely. Similarly, the business case for CVN 79 is not realistic. The Navy recently awarded a construction contract for CVN 79 which it believes will allow the program to achieve the current $11.5 billion legislative cost cap. Clearly, CVN 79 should cost less than CVN 78, as it will incorporate lessons learned on construction sequencing and other efficiencies. While it may cost less than its predecessor, CVN 79 is likely to cost more than estimated. As GAO found in November 2014, the Navy's strategy to achieve the cost cap relies on optimistic assumptions of construction efficiencies and cost savings—including unprecedented reductions in labor hours, shifting work until after ship delivery, and delivering the ship with the same baseline capability as CVN 78 by postponing planned mission system upgrades and modernizations until future maintenance periods. Today, with CVN 78 over 92 percent complete as it reaches delivery in May 2016, and the CVN 79 on contract, the ability to exercise oversight and make course corrections is limited. Yet, it is not too late to examine the carrier's acquisition history to illustrate the dynamics of shipbuilding—and weapon system—acquisition and the challenges they pose to acquisition reform. The carrier's problems are by no means unique; rather, they are quite typical of weapon systems. Such outcomes persist despite acquisition reforms the Department of Defense and Congress have put forward—such as realistic estimating and "fly before buy." Competition with other programs for funding creates pressures to overpromise performance at unrealistic costs and schedules. These incentives are more powerful than policies to follow best acquisition practices and oversight tools. Moreover, the budget process provides incentives for programs to be funded before sufficient knowledge is available to make key decisions. Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. The decades-old culture of undue optimism when starting programs is not the consequence of a broken process, but rather of a process in equilibrium that rewards unrealistic business cases and, thus, devalues sound practices. July 2015 Press Report A July 2, 2015, press report states the following: The Navy plans to spend $25 million per year beginning in 2017 as a way to invest in lowering the cost of building the services' new Ford-class aircraft carriers, service officials said. "We will use this design for affordability to make new improvements in cost cutting technologies that will go into our ships," said Rear Adm. Michael Manazir, Director, Air Warfare.... "We just awarded a contract to buy long lead item materials [for CVN-79] and lay out an allocated budget for each of the components of that ship. We want to build the ship in the most efficient manner possible," Rear Adm. Thomas Moore, Program Executive Officer, Carriers, said. Navy leaders say the service is making positive strides regarding the cost of construction for the USS Kennedy and plans to stay within the congressional cost cap of $11.498 billion.... The $25 million design for affordability initiative is aimed at helping to uncover innovative shipbuilding techniques and strategies that will accomplish this and lower costs. Moore said the goal of the program is to, among other things, remove $500 million from the cost of the third Ford-class carrier, the USS Enterprise, CVN 80. "It is finding a million here and a million there and eventually that is how you get a billion dollars out of the ship from (CVN) 78 to (CVN) 79. The goal is to get another $500 million out of CVN 80. The $25 million dollars is a pretty prudent investment if we can continue to drive the cost of this class of ship down," Moore told reporters recently. Moore explained that part of the goal is to get to the point where a Ford-class carrier can be built for the same amount of man-hours it took to build their predecessor ships, the Nimitz-class carriers. "We want to get back to the goal of being able to build it for historical Nimitz class levels in terms of man hours for a ship that is significantly more capable and more complex to build," Moore added. The money will invest in new approaches and explore the processes that a shipyard can use to build the ship, Moore added. "They've made a significant investment in these new welding machines. These new welding machines allow the welder to use different configurations. This has significantly improved the throughput that the shipyard has," Moore said, citing an example of the kind of thing the funds would be used for. The funds will also look into whether new coatings for the ship or welding techniques can be used and whether millions of feet of electrical cabling can be installed in a more efficient manner, Moore added. Other cost saving efforts assisted by the funding include the increased use of complex assemblies, common integrated work packages, automated plate marking, weapons elevator door re-design and vertical build strategies, Navy officials said. Shipbuilders could also use a new strategy of having work crews stay on the same kind of work for several weeks at a time in order to increase efficiency, Moore said. Also, some of the construction work done on the USS Ford while it was in dry dock is now being done in workshops and other areas to improve the building process, he added. June 2015 Press Reports A June 29, 2015, press report states the following: Newport News Shipbuilding will see cost reduction on the order of 18 percent fewer man hours overall from the first Ford-class aircraft carrier to the second, according to a company representative. Ken Mahler, Newport News vice president of Navy programs, touted the shipyard's cost savings on the John F. Kennedy (CVN-79) during a June 15 interview with Inside the Navy . This reduction was facilitated by the investments the shipyard is making in carrier construction, as well as lessons learned from the first ship, the Gerald R. Ford (CVN-78), which will deliver next year. A June 23, 2015, press report states the following: The Pentagon's cost-assessment office now says the Navy's second aircraft carrier in a new class will exceed a congressionally mandated cost cap by $235 million. That's down from an April estimate that the USS John F. Kennedy, the second warship in the new Ford class, would bust a $11.498 billion cap set by lawmakers by $370 million. The Navy maintains that it can deliver the ship within the congressional limit. "The original figure was a draft based on preliminary information," Navy Commander Bill Urban, a spokesman for the Pentagon's Cost Assessment and Program Evaluation office, said in an e-mail. As better information, such as updated labor rates, became available, the office "revised its estimate to a more accurate number," he said. A June 15, 2015, press report states the following: [Rear Admiral Tom] Moore [program executive officer for aircraft carriers]. said the program would save a billion dollars by decreasing the man hours needed to construct the ship by 18 percent from CVN-78 to 79—down to about 44 million manhours. He said this reduction is only a first step in taking cost ouot of the carrier program. The future Enterprise (CVN-80) will take about 4 million manhours out, or another 10 percent reduction, for a savings of about $500 million. But beyond seeking ways to take cost out, the contract itself reduces the risk to the government, Moore said. "The main construction of the ship is now in a fixed price environment, so that switchover really limits the government's liability," he said. Without getting into specific dollar amounts due to business sensitivities, Moore explained that "this is the lowest target fee we've ever had on any CVN new construction. Look at tghe shape of the share [government-contractor cost] share lines, because the share lines at the end of the day are a measure of risk. So where we'd like to get quickly to [a] 50/50 [share line], in past carrier contracts we've been out at 85/15, 90/10—which basically means for every dollar over [the target cost figure, up to the ceiling cost figure], the government picks up 85 cents on the dollar. And this contract very quickly gets to 50/50. The other thing is ceiling price—on a fixed-price contract, the ceiling price is the government's maximum liability. And on this particular contract, again, it is the lowest ceiling price we've ever had [for a CVN]." February 2015 Navy Testimony At a February 25, 2015, hearing on Department of the Navy acquisition programs, Department of the Navy officials testified the following: The Navy is committed to delivering CVN 78 within the $12.887 billion Congressional cost cap. Sustained efforts to identify cost reductions and drive improved cost and schedule on this first-of-class aircraft carrier have resulted in highly stable performance since 2011. Parallel efforts by the Navy and shipbuilder are driving down and stabilizing aircraft carrier construction costs for the future John F Kennedy (CVN 79) and estimates for the future Enterprise (CVN 80). As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review. The Navy and the shipbuilder have made significant changes on CVN 79 to reduce the cost to build the ship as detailed in the 2013 CVN 79 report to Congress. The benefits of these changes in build strategy and resolution of first-of-class impacts on CVN 79 are evident in metrics showing significantly reduced man-hours for completed work from CVN 78. These efforts are ongoing and additional process improvements continue to be identified. The Navy extended the CVN 79 construction preparation contract into 2015 to enable continuation of ongoing planning, construction, and material procurement while capturing lessons learned associated with lead ship construction and early test results. The continued negotiations of the detail design and construction (DD&C) contract afford an opportunity to incorporate further construction process improvements and cost reduction efforts. Award of the DD&C contract is expected in third quarter FY 2015. This will be a fixed price-type contract. Additionally, the Navy will deliver the CVN 79 using a two-phased strategy. This enables select ship systems and compartments to be completed in a second phase, wherein the work can be completed more efficiently through competition or the use of skilled installation teams responsible for these activities. This approach, key to delivering CVN 79 at the lowest cost, also enables the Navy to procure and install shipboard electronic systems at the latest date possible. The FY 2014 NDAA adjusted the CVN 79 and follow ships cost cap to $11,498 million to account for economic inflation and non-recurring engineering for incorporation of lead ship lessons learned and design changes to improve affordability. In transitioning from first-of-class to first follow ships, the Navy has maintained Ford class requirements and the design is highly stable. Similarly, we have imposed strict interval controls to drive changes to the way we do business in order to ensure CVN 79 is delivered below the cost cap. To this same end, the FY 2016 President's Budget request aligns funding to the most efficient build strategy for this ship and we look for Congress' full support of this request to enable CVN 79 to be procured at the lowest possible cost. Enterprise (CVN 80) will begin long lead time material procurement in FY 2016. The FY 2016 request re-phases CVN 80 closer to the optimal profile, therefore reducing the overall ship cost. The Navy will continue to investigate and will incorporate further cost reduction initiatives, engineering efficiencies, and lessons learned from CVN 78 and CVN 79. Future cost estimates for CVN 80 will be updated for these future efficiencies as they are identified. May 2013 Navy Testimony In its prepared statement for a May 8, 2013, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy stated that In 2011, the Navy identified spiraling cost growth [on CVN-78] associated with first of class non-recurring design, contractor and government furnished equipment, and ship production issues on the lead ship. The Navy completed an end-to-end review of CVN 78 construction in December 2011 and, with the shipbuilder, implemented a series of corrective actions to stem, and to the extent possible, reverse these trends. While cost performance has stabilized, incurred cost growth is irreversible.... As a result of lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review; and the Navy and the shipbuilder have made significant changes on CVN 79 that will reduce the cost to build the ship. CVN 79 construction will start with a complete design, firm requirements, and material economically procured and on hand in support of production need. The ship's build schedule also provides for increased completion levels at each stage of construction with resulting improved production efficiencies.... Inarguably, this new class of aircraft carrier brings forward tremendous capability and life-cycle cost advantages compared to the NIMITZ-class it will replace. However, the design, development and construction efforts required to overcome the technical challenges inherent to these advanced capabilities have significantly impacted cost performance on the lead ship. The Navy continues implementing actions from the 2012 detailed review of the FORD-Class build plan to control cost and improve performance across lead and follow ship contracts. This effort, taken in conjunction with a series of corrective actions with the shipbuilder on the lead ship, will not recover costs to original targets for GERALD R. FORD [CVN-78], but should improve performance on the lead ship while fully benefitting CVN 79 and following ships of the class. In the discussion portion of the hearing, Sean Stackley, the Assistant Secretary of the Navy for Research, Development and Acquisition (i.e., the Navy's acquisition executive), testified that First, the cost growth on the CVN-78 is unacceptable. The cost growth dates back in time to the very basic concepts that went into take in the Nimitz-class and doing a total redesign of the Nimitz class to get to a level of capability and to reduce operating and support cost for the future carrier. Far too much risk was carried into the design of the first of the Ford-class. Cost growth stems to the design was moving at the time production started. The vendor base that was responsible for delivering new components and material to support the ship production was (inaudible) with new developments in the vendor base and production plan do not account for the material ordering difficulties, the material delivery difficulties and some of the challenges associated with building a whole new design compared to the Nimitz.... Sir, for CVN-79, we have—we have held up the expenditures on CVN-79 as we go through the details of—one, ensuring that the design of the 78 is complete and repeated for the 79s [sic] that we start with a clean design. Two, we're going through the material procurement. We brought a third party into assessment material-buying practices at Newport News to bring down the cost of material. And we're metering out the dollars for buying material until it hits the objectives that we're setting for CVN-79 through rewriting the build plan on CVN-79. If you take a look at how the 78 is being constructed, far too much work is being accomplished late in the build cycle. So we are rewriting the build plan for CVN-79, do more work in the shops where it's more efficient, more work in the buildings where it's more efficient, less work in the dry dock, less work on the water. And then we're going after the rates—the labor rates and the investments needed by the shipbuilder to achieve these efficiencies. Later in the hearing, Stackley testified that the history in shipbuilding is since you don't have a prototype for a new ship, the first of class referred to as the lead ship is your prototype. And so you carry a lot of risk into the construction of that first of class. Also, given the nature that there's a lengthy design development and build span associated with ships, so there is a certain amount of overlap or concurrency that occurs between the development of new systems that need to be delivered with the first ship, the incorporation of the design of those new systems and the actual construction. And so to the extent that there is change in a new ship class then the risk goes up accordingly. In the case of the CVN-78, the degree of change compared to the Nimitz was fairly extraordinary all for good reasons, good intentions, increased capability, increased survivability, significant reduction in operating and support costs. So there was a determination that will take on this risk in order to get those benefits, and the case of the CVN-78, those risks are driving a lot of the cost growth on the lead ship. When you think about the follow ships, now you've got a stable design, now your vendor base has got a production line going to support the production. Now you've got a build plan and a workforce that has climbed up on the learning curve to drive cost down. So you can look at—you can look at virtually every shipbuilding program and you'll see a significant drop-off in cost from that first of class to the follow ships. And then you look for a stable learning curve to take over in the longer term production of a ship class. Carriers are unique for a number of reasons, one of which we don't have an annual procurement of carriers. They're spread out over a five and, in fact, in the case of 78 as much as seven-year period. So in order to achieve that learning, there are additional challenges associated with achieving that learning. And so we're going at it very deliberately on the CVN-79 through the build plan with the shipbuilder to hit the line that we've got to have—the cost reductions that we've got to have on the follow ships of the class. March 2013 Navy Report A March 2013 report to Congress on the Navy's plan for building CVN-79 that was released to the public on May 16, 2013, states the following in its executive summary: As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review and the Navy and the shipbuilder have made significant changes on CVN 79 that will significantly reduce the cost to build the ship. These include four key construction areas: —CVN 79 construction will start with a complete design and a complete bill of material —CVN 79 construction will start with a firm set of stable requirements —CVN 79 construction will start with the development complete on a host of new technologies inserted on CVN 78 ranging from the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar, and the reactor plant, to key valves in systems throughout the ship —CVN 79 construction will start with an 'optimal build' plan that emphasizes the completion of work and ship outfitting as early as possible in the construction process to optimize cost and ultimately schedule performance. In addition to these fundamentals, the Navy and the shipbuilder are tackling cost through a series of other changes that when taken over the entire carrier will have a significant impact on construction costs. The Navy has also imposed cost targets and is aggressively pursuing cost reduction initiatives in its government furnished systems. A detailed accounting of these actions is included in this report. The actions discussed in this report are expected to reduce the material cost of CVN 79 by 10-20% in real terms from CVN 78, to reduce the number of man-hours required to build the CVN 79 by 15-25% from CVN 78, and to reduce the cost of government furnished systems by 5-10% in real terms from CVN 78. For the full text of the Navy's report, see the Appendix D . March 2012 Navy Letter to Senator McCain Secretary of the Navy Ray Mabus, in a letter with attachment sent in late March 2012 to Senator John McCain on controlling cost growth in CVN-78, stated the following: Dear Senator McCain: Thank you for your letter of March 21, 2012, regarding the first-of-class aircraft carrier, GERALD R. FORD (CVN 78). Few major programs carry greater importance or greater impact on national security, and no other major program comprises greater scale and complexity than the Navy's nuclear aircraft carrier program. Accordingly, successful execution of this program carries the highest priority within the Department of the Navy. I have shared in the past my concern when I took office and learned the full magnitude of new technologies and design change being brought to the FORD. Requirements drawn up more than a decade prior for this capital ship drove development of a new reactor plant, propulsion system, electric plant and power distribution system, first of kind electromagnetic aircraft launching system, advanced arresting gear, integrated warfare system including a new radar and communications suite, air conditioning plant, weapons elevators, topside design, survivability improvements, and all new interior arrangements. CVN 78 is a near-total redesign of the NIMITZ Class she replaces. Further, these major developments, which were to be incrementally introduced in the program, were directed in 2002 to be integrated into CVN 78 in a single step. Today we are confronting the cost impacts of these decisions made more than a decade ago. In my August 29, 2011 letter, I provided details regarding these cost impacts. At that time, I reported the current estimate for the Navy's share of the shipbuilder's construction overrun, $690 million, and described that I had directed an end-to-end review to identify the changes necessary to improve cost for carrier design, material procurement, planning, build and test. The attached white paper provides the findings of that review and the steps we are taking to drive affordability into the remaining CVN 78 construction effort. Pending the results of these efforts, the Navy has included the 'fact of life' portion of the stated overrun in the Fiscal Year 2013 President's Budget request. The review also highlighted the compounding effects of applying traditional carrier build planning to a radically new design; the challenges inherent to low-rate, sole-source carrier procurement; and the impact of external economic factors accrued over 15 years of CVN 78 procurement—all within the framework of cost-plus contracts. The outlined approach for ensuring CVN 79 and follow ship affordability focuses equally upon tackling these issues while applying the many lessons learned in the course of CVN 78 procurement. As always, if I may be of further assistance, please let me know. Sincerely, [signed] Ray Mabus Attachment: As stated Copy to: The Honorable Carl Levin, Chairman [Attachment] Improving Cost Performance on CVN 78 CVN 78 is nearing 40 percent completion. Cost growth to-date is attributable to increases in design, contractor furnished material, government furnished material (notably, the Electromagnetic Aircraft Launching System (EMALS), Advanced Arresting Gear (AAG), and the Dual Band Radar (DBR)), and production labor performance. To achieve the best case outcome, the program must execute with zero additional cost growth in design and material procurement, and must improve production performance. The Navy and the shipbuilder have implemented a series of actions and initiatives in the management and oversight of CVN 78 that cross the full span of contracting, design, material procurement, government furnished equipment, production planning, production, management and oversight. CVN 78 is being procured within a framework of cost-plus contracts. Within this framework, however, the recent series of action taken by the Navy to improve contract effectiveness are achieving the desired effect of incentivizing improved cost performance and reducing government exposure to further cost growth. CVN 78 design has been converted from a 'level of effort, fixed fee' contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract was changed. CVN 78 construction fee has been retracted, consistent with contract performance. However, the shipbuilder is incentivized by the contract shareline to improve upon current performance to meet agreed-to cost goals. Contract design changes are under strict control; authorized only for safety, damage control, mission-degrading deficiencies, or similar. Adjudicated changes have been contained to less than 1 percent of contract target price. The Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to that system and imposing negative incentives for late delivery. Naval Sea Systems Command is performing a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. The single largest impact to cost performance to-date has been contractor and government material cost overruns. These issues trace to lead ship complexity and CVN 78 concurrency, but they also point to inadequate accountability for carrier material procurement, primarily during the ship's advance procurement period (2002-2008). These effects cannot be reversed on CVN 78, but it is essential to improve upon material delivery to the shipyard to mitigate the significant impact of material delays on production performance. Equally important, the systemic material procurement deficiencies must be corrected for CVN 79. To this end, the Navy and shipbuilder have taken the following actions. The Navy has employed outside supply chain management experts to develop optimal material procurement strategies. The Navy and the shipbuilder are reviewing remaining material requirements to employ these best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leverage competitive opportunities, etc.). The shipbuilder has assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard. The shipbuilder is inventorying all excess material procured on CVN 78 for transfer to CVN 79 (cost reduction to CVN 78), as applicable. The Program Executive Officer (Carriers) is conducting quarterly flag-level government furnished equipment summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The most important finding regarding CVN 78 remaining cost is that the CVN 78 build plan, consistent with the NIMITZ class, focuses foremost on completion of structural and critical path work to support launching the ship on-schedule. This emphasis on structure comes at the expense of completing ship systems, outfitting, and furnishing early in the build process and results in costly, labor-intensive system completion activity during later; more costly stages of production. Achieving the program's cost improvement targets will require that CVN 78 increase its level of completion at launch, from current estimate of 60 percent to no less than 65 percent. To achieve this goal and drive greater focus on system completion: the Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance arid identify fundamental changes that would yield marked improvement; the shipbuilder has established specific launch metrics by system (foundations, machinery, piping, power panels, vent duct, lighting, etc.) and increased staffing for waterfront engineering and material expediters to support meeting these metrics; the shipbuilder has linked all of these processes within a detailed integrated master schedule, providing greater visibility to current performance and greater ability to control future cost and schedule performance across the shipbuilding disciplines; the Navy and shipbuilder are conducting Unit Readiness Reviews of CVN 78 erection units to ensure that the outfitted condition of each hull unit being lifted into the dry-dock contains the proper level of outfitting. These initiatives, which summarize a more detailed list of actions being implemented and tracked as result of the end-to-end review, are accompanied by important management changes. The shipbuilder has assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general shop foreman to strengthen CVN 78 performance. The Navy has assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new Program-Executive Officer (PEO). The PEO and shipyard president conduct bi-weekly launch readiness reviews focusing on cost performance, critical path issues and accomplishment of the target for launch completion. The Assistant Secretary of the Navy (Research, Development, and Acquisition) conducts a monthly review of program progress and performance with the PEO and shipbuilder, bringing to bear the full weight of the Department, as needed, to ensure that all that can be done to improve on cost performance is being done. Early production performance improvements can be traced directly to these actions, however, significant further improvement is required. To this end, the Navy is conducting a line-by-line review of all 'cost to-go' on CVN 78 to identify further opportunity to reduce cost and to mitigate risk. Improving Cost Performance on CVN 79 CVN 79 Advance Procurement commenced in 2007 with early construction activities following in 2011. Authorization for CVN 79 procurement is requested in Fiscal Year 2013 President's Budget request with the first year of incremental funding. Two years have been added to the CVN 79 production schedule in this budget request, afforded by the fact that CVN 79 will replace CVN 68 when she inactivates. To improve affordability for CVN 79, the Navy plans to leverage this added time by introducing a fundamental change to the carrier procurement approach and a corresponding shift to the carrier build plan, while incorporating CVN 78 lessons learned. The two principal 'documents' which the Navy and shipbuilder must ensure are correct and complete at the outset of CVN 79 procurement are the design and the build plan. Design is governed by rules in place that no changes will be considered for the follow ship except changes necessary to correct design deficiencies on the lead ship, fact of life changes to correct obsolescence issues, or changes that will result in reduced cost for the follow ship. Exceptions to these rules must be approved by the JROC, or designee. Accordingly, the Navy is requesting procurement authority for CVN 79 with the Design Product Model complete and construction drawings approximately 95 percent complete (compared to approximately 30 percent complete at time of lead ship authorization). As well, first article testing and certification will be complete for virtually all major new equipments introduced in the FORD Class. At this point in time, the shipbuilder has developed a complete bill of material for CVN 79. The Navy is working with the shipbuilder to ensure that the contractor's material estimates are in-line with Navy 'should cost' estimates; eliminating non-recurring costs embedded in lead ship material, validating quantities, validating escalation indices, incorporating lead ship lessons learned. The Navy has increased its oversight of contractor furnished material procurement, ensuring that material procurement is competed (where competition is available); that it is fixed priced; that commodities are bundled to leverage economic order quantity opportunities; and that the vendor base capacity and schedule for receipt supports the optimal build plan being developed for production. In total, the high level of design maturity and material certification provides a stable technical baseline for material procurement cost and schedule performance, which are critical to developing and executing an improved, reliable build plan. In order to significantly improve production labor performance, based on timely receipt of design and material, the Navy and shipbuilder are reviewing and implementing changes to the CVN 79 build plan and affected facilities. The guiding principles are: maximize planned work in the shops and early stages of construction; revise sequence of structural unit construction to maximize learning curve performance through 'families of units' and work cells; incorporate design changes to improve FORD Class producibility; increase the size of erection units to eliminate disruptive unit breaks and improve unit alignment and fairness; increase outfitting levels for assembled units prior to erection in the dry-dock; increase overall ship completion levels at each key event. The shipbuilder is working on detailed plans for facility improvements that will improve productivity, and the Navy will consider incentives for capital improvements that would provide targeted return on investment, such as: increasing the amount of temporary and permanent covered work areas; adding ramps and service towers for improved access to work sites and the dry-dock; increasing lift capacity to enable construction of larger, more fully outfitted super-lifts: An incremental improvement to carrier construction cost will fall short of the improvement necessary to ensure affordability for CVN 79 and follow ships. Accordingly, the shipbuilder has established aggressive targets for CVN 79 to drive the game-changing improvements needed for carrier construction. These targets include: 75 percent Complete at Launch (15 percent> [i.e., 15 percent greater than] FORD); 85-90 percent of cable pulled prior to Launch (25-30 percent> FORD); 30 percent increase in front-end shop work (piping details, foundations, etc); All structural unit hot work complete prior to blast and paint; 25 percent increase to work package throughput; 100 percent of material available for all work packages in accordance with the integrated master schedule; zero delinquent engineering and planning products; resolution of engineering problems in < 8 [i.e., less than 8] hours. In parallel with efforts to improve shipbuilder costs, the PEO is establishing equally aggressive targets to reduce the cost of government furnished equipment for CVN 79; working equipment item by equipment item with an objective to reduce overall GFE costs by ~$500 million. Likewise, the Naval Sea Systems Command is committed to continuing its ongoing effort to identify specification changes that could significantly reduce cost without compromising safety and technical rigor. The output of these efforts comprises the optimal build plan for CVN 79 and follow, and will be incorporated in the detail design and construction baseline for CVN 79. CVN 79 will be procured using a fixed price incentive contract. Appendix D. March 2013 Navy Report to Congress on Construction Plan for CVN-79 This appendix reprints a March 2013 Navy report to Congress on the Navy's construction plan for CVN-79. Appendix E. Shock Trial An earlier oversight issue for Congress for the CVN-78 program was whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class. This appendix presents background information on that issue. A shock trial, known formally as a full ship shock trial (FSST) and sometimes called a shock test, is a test of the combat survivability of the design of a new class of ships. A shock trial involves setting off one or more controlled underwater charges near the ship being tested, and then measuring the ship's response to the underwater shock caused by the explosions. The test is intended to verify the ability of the ship's structure and internal systems to withstand shocks caused by enemy weapons, and to reveal any changes that need to be made to the design of the ship's structure or its internal systems to meet the ship's intended survivability standard. Shock trials are nominally to be performed on the lead ship in a new class of ships, but there have also been cases where the shock trial for a new class was done on one of the subsequent ships in the class. The question of whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class, has been a matter of disagreement at times between the Navy and the office of the Secretary of Defense (OSD). The Navy has wanted to perform the shock trial on the second ship in the class, because performing it on the lead ship in the class, the Navy has argued, will cause a significant delay in the first deployment of the lead ship, effectively delaying the return of the carrier force to an 11-ship force level and increasing the operational strain on the other 10 carriers. The Navy has argued that the risks of delaying the shock trial on the CVN-78 to the second ship in the class are acceptable, because the CVN-78 class hull design is based on the Nimitz (CVN-68) class aircraft carrier hull design, whose survivability against shocks is understood, because systems incorporated into the CVN-78 design have been shock tested at the individual component level, and because computer modeling can simulate how the CVN-78 design as a whole will respond to shocks. OSD has argued that the risks of delaying the CVN-78 class shock trial to the second ship in the class are not acceptable, because the CVN-78 design is the first new U.S. aircraft carrier design in four decades; because the CVN-78 design has many internal design differences compared to the CVN-68 design, including new systems not present in the CVN-68 class design; and because computer modeling can only do so much to confirm how a complex new platform, such as an aircraft carrier and all its internal systems, will respond to shocks. The risk of delaying the shock trial, OSD has argued, outweighs the desire to avoid a delay in the first deployment of the lead ship in the class. OSD in 2015 directed the Navy to plan for conducting a shock trial on the lead ship. The Navy complied with this direction but has also sought to revisit the issue with OSD. The issue of the shock trial for the CVN-78 class has been a matter of legislative activity—see the provisions shown earlier in " Recent Related Legislative Provisions ," particularly the most recent such provision, Section 121(b) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017). An April 5, 2018, press report states the following: The Pentagon's No. 2 civilian has said the Navy should perform shock-testing soon to determine how well its new $12.9 billion aircraft carrier—the costliest warship ever—could withstand an attack, affirming the service's recent decision to back down from a plan for delay. "We agree with your view that a test in normal sequence is more prudent and pragmatic," Deputy Defense Secretary Patrick Shanahan said in a newly released March 26 letter to Senate Armed Services Committee Chairman John McCain. The Arizona Republican and Senator Jack Reed, the panel's top Democrat, pressed for the shock-testing to go ahead as originally planned. James Guerts, the Navy's chiefs weapons buyer, told reporters last month that the Navy was acquiescing to the testing after initially asking Defense Secretary James Mattis to delay it for at least six years. In its push to maintain an 11-carrier fleet, the Navy wanted to wait and perform the test on a second carrier in the class rather than on the USS Gerald Ford.	[ "CVN-78, CVN-79, CVN-80, and CVN-81 are the first four ships in the Navy's new Gerald R. Ford (CVN-78) class of nuclear-powered aircraft carriers (CVNs). CVN-78 (Gerald R. Ford) was procured in FY2008. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $13,084.0 million (i.e., about $13.1 billion) in then-year dollars. The ship received advance procurement (AP) funding in FY2001-FY2007 and was fully funded in FY2008-FY2011 using congressionally authorized four-year incremental funding. To help cover cost growth on the ship, the ship received an additional $1,394.9 million in FY2014-FY2016 and FY2018 cost-to-complete procurement funding. The ship was delivered to the Navy on May 31, 2017, and was commissioned into service on July 22, 2017. The Navy is currently working to complete construction, testing, and certification of the ship's 11 weapons elevators. CVN-79 (John F. Kennedy) was procured in FY2013. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $11,327.4 million (i.e., about $11.3 billion) in then-year dollars. The ship received AP funding in FY2007-FY2012, and was fully funded in FY2013-FY2018 using congressionally authorized six-year incremental funding. The ship is scheduled for delivery to the Navy in September 2024. CVN-80 (Enterprise) and CVN-81 (not yet named) are being procured under a two-ship block buy contract that was authorized by Section 121(a)(2) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (H.R. 5515/P.L. 115-232 of August 13, 2018). The provision permitted the Navy to add CVN-81 to the existing contract for building CVN-80 after the Department of Defense (DOD) made certain certifications to Congress. DOD made the certifications on December 31, 2018, and the Navy announced the award of the contract on January 31, 2019. Compared to the estimated procurement costs for CVN-80 and CVN-81 in the Navy's FY2019 budget submission, the Navy estimates under its FY2020 budget submission that the two-ship block buy contract will reduce the cost of CVN-80 by $246.6 million and the cost of CVN-81 by $2,637.3 million, for a combined reduction of $2,883.9 million (i.e., about $2.9 billion). Using higher estimated baseline costs for CVN-80 and CVN-81 taken from a December 2017 Navy business case analysis, the Navy estimates under its FY2020 budget submission that the two-ship contract will reduce the cost of CVN-80 by $770.9 million and the cost of CVN-81 by $3,086.3 million, for a combined reduction of $3,857.2 million (i.e., about $3.9 billion). CVN-80 was procured in FY2018. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $12,335.1 million (i.e., about $12.3 billion) in then-year dollars. The ship received AP funding in FY2016 and FY2017, and the Navy plans to fully fund the ship in FY2018-FY2025 using incremental funding authorized by Section 121(c) of P.L. 115-232. The Navy's proposed FY2020 budget requests $1,062.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in March 2028. Prior to the awarding of the two-ship block buy contract, CVN-81 was scheduled to be procured in FY2023. Following the awarding of the two-ship block buy contract, the Navy has chosen to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020 (as opposed to a ship that was procured in FY2019). The Navy's FY2020 budget submission estimates the ship's procurement cost at $12,450.7 million (i.e., about $12.5 billion) in then-year dollars. The Navy plans to fully fund the ship beginning in FY2019 and extending beyond FY2026 using incremental funding authorized by Section 121(c) of P.L. 115-232. The Navy's proposed FY2020 budget requests $1,285.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in February 2032. The Navy's FY2020 budget submission proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 (Harry S. Truman), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. Oversight issues for Congress for the CVN-78 program include the following: DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019; the Navy's decision, as part of its FY2020 budget submission, to not accelerate the scheduled procurement of CVN-82 from FY2028 to an earlier fiscal year; whether to approve, reject, or modify the Navy's FY2020 procurement funding request for the CVN-78 program; the date for achieving the Navy's 12-ship force-level goal for aircraft carriers; cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps; Navy efforts to complete the construction, testing, and certification of the weapons elevators on CVN-78; additional CVN-78 program issues that were raised in a December 2018 report from the Department of Defense's (DOD's) Director of Operational Test and Evaluation (DOT&E); additional CVN-78 program issues that were raised in a May 2019 Government Accountability Office (GAO) report on DOD weapon systems; whether the Navy should shift at some point from procuring large-deck, nuclear-powered carriers like the CVN-78 class to procuring smaller aircraft carriers." ]	32,726	gov_report	en	null	6b904be52b37799ba0fe353800ac1a5246d263927387b6f1
Risk management, as applied to security of federal facilities, entails a continuous process of applying a series of mitigating actions—assessing risk through the evaluation of threats, vulnerabilities, and consequences; responding to risks with appropriate countermeasures; and monitoring risks using quality information (see fig. 1). In 1995, Executive Order 12977 established the ISC after the bombing of the Oklahoma City Alfred P. Murrah Federal Building in April 1995. The ISC’s mandate is to enhance the quality and effectiveness of security in and protection of federal facilities in the United States occupied by federal employees for nonmilitary activities. The order directs the ISC to develop and evaluate security standards for federal facilities, develop a strategy to ensure executive agencies and departments comply with such standards, and oversee the implementation of appropriate security measures in federal facilities. The ISC has released a body of standards, including the ISC Standard, designed to apply to the physical security efforts of all federal, non-military agencies. The ISC Standard prescribes a process for agencies to follow in developing their risk assessment methodologies (see fig. 2). Most federal departments and agencies are generally responsible for protecting their own facilities and have physical security programs in place to do so. The ISC Standard requires executive departments and agencies to follow the risk-management process when conducting risk assessments for each of their facilities. That process begins with determining the facility security level, ranging from level I (lowest risk) for facilities generally having 100 or fewer employees to level V (highest risk) for the most critical facilities and generally having greater than 750 employees. The security level designation determines the facility’s baseline countermeasures. For each facility, departments and agencies are required to (a) consider all of the “undesirable events” that could pose a risk to their facilities— such as active shooters, vandalism, and explosions—and (b) assess three factors of risk (threats, vulnerabilities, and consequences) to specific undesirable events. Subsequently, agencies are to combine all three factors to yield a measurable level of risk for each undesirable event (see app. III). Based on the results of these assessments, agencies should customize (either increase or decrease) the countermeasures to adequately reflect the assessed level of risk. In addition, as part of planning for physical security resources within an agency’s budget process, the ISC has identified the need to balance allocations for countermeasures with other operational needs and with competing priorities. The ISC Best Practices have some similarities with leading practices in capital decision-making. For example, both state that the allocation of resources should be integrated into the agency’s mission, objectives, goals, and budget process. However, beyond the ISC Best Practices, the Office of Management and Budget and we have developed more comprehensive leading practices in capital decision- making that provide agencies with guidance for prioritizing budget decisions such as for countermeasure projects. The Office of Management and Budget and our guidance also emphasize evaluating a full range of alternatives, informed by agency asset inventories that contain condition information, to bridge any identified performance gap. Furthermore, the guidance calls for a comprehensive decision-making framework to review, rank, and select from among competing project proposals. Such a framework should include the appropriate levels of management review, and selections should be based on the use of established criteria. The following describes the mission and physical security program characteristics for the agencies in our review: CBP, the nation’s largest law enforcement agency, has responsibility for securing the country’s borders. It also has responsibility for conducting security assessments at about 1,200 facilities, including approximately 215 federally owned and agency-controlled higher-level facilities (facility security levels III and IV). These facilities include border patrol stations with holding cells for people detained at the border, office buildings, and canine-training centers. CBP conducts these assessments. FAA’s mission is to provide a safe and efficient aerospace system for the country. According to agency data, FAA has 55 federally owned and agency-controlled higher-level facilities—including critical air traffic control towers. According to FAA officials, FAA specialists conduct security assessments. ARS conducts research related to agriculture and disseminates information to ensure high-quality safe food and to sustain a competitive agricultural economy. According to agency data, ARS has security responsibility for four domestic federally owned and agency- controlled higher-level facilities—including laboratories for research to improve food and crop quality, office buildings, and warehouses. ARS security personnel have responsibility for conducting security assessments. The Forest Service sustains the health, diversity, and productivity of the nation’s forests and grasslands. According to agency officials, the Forest Service has one federally owned and agency-controlled higher- level facility—a regional headquarters office building. The Forest Service’s security officials have responsibility for conducting security assessments, but at the time of our review, USDA security officials conducted the assessment at Forest Service’s one higher-level facility. None of the four selected agencies’ security assessment methodologies fully aligned with the ISC Standard. The ISC gives agencies some flexibility to design their own security-assessment methodologies for identifying necessary countermeasures as long as the chosen methodology adheres to fundamental principles of a sound risk- management methodology. Specifically, methodologies must: consider all of the undesirable events identified in the ISC Standard as possible risks to federal facilities, and assess three factors of risk (threats, vulnerabilities, and consequences) for each of the events. Furthermore, the ISC Standard requires executive departments and agencies to document decisions that deviate from the ISC Standard. Agencies’ policies and methodologies reference the ISC Standard. However, none of the agencies’ methodologies considered all of the undesirable events during assessments although they used some type of risk assessment methodology. In addition, the agencies did not always adhere to these principles of risk management (see table 1). At the time of our review, CBP’s methodology did not fully align with the ISC Standard because it did not consider all of the 33 undesirable events nor assess threat and consequence. CBP security specialists assessed vulnerabilities at building entrances and exits, in interior rooms, and around the perimeter using a yes/no checklist during the assessment process. However, assessment reports showed that specialists did not assess the threats and consequences of undesirable events at each facility. According to security officials, the gap occurred because they designed the checklist to meet requirements in the 2009 CBP Security Policy and Procedures Handbook, which predates the first edition of the ISC Standard issued in 2010. CBP officials told us that as of January 2017, they began using an improved methodology to assess the threats, vulnerabilities, and consequences for 30 of 33 undesirable events— omitting three now identified in the November 2016 revision to the ISC Standard. However, CBP has not yet updated its handbook to align with the ISC Standard, even though it started this effort over 3 years ago in December 2013. CBP officials did not provide a draft of its updated handbook, but they provided a plan with milestone dates for issuing the handbook by September 2018. CBP officials also told us that updates to the handbook may have to wait due to competing priorities, including efforts to address the backlog of assessments (which we discuss later in this report). Delays in updating the handbook mean that CBP’s policy will continue to not align with the ISC Standard. Furthermore, although CBP security officials told us that all of the agency’s security specialists have been trained to use the improved assessment methodology, without documentation of the methodology in agency policy, there may be greater risk of its inconsistent application. Standards for Internal Control emphasize the importance of agencies developing and documenting policies to ensure agency-wide objectives are met. Documentation serves to retain institutional knowledge over time when questions about previous decisions arise. Without an updated policy handbook that requires a methodology that assesses all undesirable events consistent with the ISC Standard, CBP cannot reasonably ensure that its facilities will have levels of protection commensurate to their risk. FAA’s methodology does not fully align with the ISC Standard because it does not consider all of the 33 undesirable events nor does it assess all three factors of risk. FAA security specialists assess vulnerabilities to the site perimeter, entryways, and interior rooms using a yes/no checklist, but the checklist does not assess the consequences from each of the undesirable events at each facility. With respect to threat, FAA applies the ISC’s baseline threat—a general federal facilities threat level that relates directly to a set of baseline countermeasures—across all its higher-level facilities because FAA policy states that there is no agency-specific threat that exceeds the current baseline threat. According to FAA officials, the baseline threat standardizes the security needs across their facilities rather than addressing the security needs of individual facilities from specific threats. When necessary, FAA policy allows specialists to modify countermeasures based on an evaluation of conditions at the facility. FAA realized that this approach was no longer appropriate given the agency-wide goal to make risk-based decisions, a review of the assessment process after a 2014 Chicago fire incident that destroyed critical FAA equipment, and an awareness of ISC initiatives to assess compliance. To address the resulting methodological gaps, FAA hired a contractor to design, develop, test, and validate an improved risk- assessment methodology. Subsequently, FAA improved its methodology in January 2017 to assess the threats, vulnerabilities, and consequences for 30 of the 33 undesirable events identified in the November 2016 revision to the ISC Standard —and tested the methodology at lower- and higher-level facilities. This revised methodology addresses the need to assess individual facility needs rather than using a standardized baseline approach. In April 2017, FAA officials told us of their plan for implementing this methodology and provided tentative milestone dates to conduct further testing, training, and analysis before deciding to use the improved methodology, which they expect to complete by January 2018. However, their plan lacks the necessary information to ensure successful implementation, such as detail on how many facilities they will test and how they will use the results of testing, training, and analysis to implement the improved methodology within the identified 9-month time frame. Furthermore, the improved methodology does not address undesirable events for which ISC issued countermeasures in May 2017. Without a detailed implementation plan to assess the methodology’s impact on its security program, FAA cannot reasonably ensure that its facilities have the proper countermeasures. With ongoing changes to its security program, FAA has an opportunity to fully align its improved methodology with the ISC Standard by including all 33 undesirable events and to update its policy requiring the use of such a methodology. Unlike CBP and FAA—which developed their own methodologies separate from their parent departments (Department of Homeland Security (DHS) and Department of Transportation (DOT), respectively)— ARS and the Forest Service follow an assessment methodology developed by USDA. USDA’s methodology does not fully align with the ISC Standard because it does not consider all of the 33 undesirable events for which ISC issued countermeasures in May 2017. Security specialists from USDA headquarters typically assess ARS’s and the Forest Service’s higher-level facilities using a risk-based methodology that considers the 31 undesirable events listed in the previous version of the ISC Standard dated August 2013. However, until recently, USDA did not assign ratings to each of the three risk factors—threat, vulnerability, and consequence—and then combine these ratings to yield a measurable level of risk for each undesirable event. USDA security officials said that they have revised the assessment-reporting format to include this risk calculation and trained their specialists to measure risk in this way. USDA officials provided us with a new assessment template that addresses all 33 undesirable events and includes measuring risk. Additionally, USDA officials said that they are revising their outdated physical security manual and expect to complete it by April 2018. With a revised manual and application of the new assessment template, USDA should be better positioned to assess risk at its facilities. When agencies do not use methodologies that fully align with the ISC Standard, they could face deleterious effects, ranging from facilities having inappropriate levels of protection to agencies having an inability to make informed resource allocation decisions for their physical security needs. Specifically, the ISC Standard states that facilities may face the effect of either having (1) less protection than needed resulting in inadequate security or (2) more protection than needed resulting in an unnecessary use of resources. The ISC Standard also states that these effects can be negated by determining the proper protection according to a risk assessment. Identified excess resources in one risk area then can be reallocated to underserved areas, thus ensuring the most cost- effective security program is implemented. As an illustration of such potential effects, we found that two agencies assessing two higher-level facilities came to two different conclusions in terms of their need for X-ray machines to screen for guns, knives, and other prohibitive items in federal facilities. Specifically, one agency based its decision on a policy that does not deviate from the ISC’s baseline set of countermeasures, and the other agency based its decision on professional judgement that deviated from the ISC’s baseline set of countermeasures. Neither agency based its decision on a risk assessment nor documented its decision—both ISC requirements, specifically: Without conducting a risk assessment, FAA recently expanded a policy requirement calling for all higher-level facilities to have X-ray machines and magnetometers. This new requirement poses a potentially sizeable investment for the agency with an estimated cost of X-ray machines of about $24,000 and magnetometers of about $4,000 each. FAA may need such equipment at all its higher-level facilities. However, the ISC Standard requires that agencies conduct risk assessments first to justify their needs. Without conducting risk assessments, FAA managers could unnecessarily use resources by installing such equipment in all higher-level air traffic facilities when there may be higher priority needs A USDA security specialist decided, despite an ISC baseline requirement that higher–level facilities have X-ray machines, not to recommend an X-ray machine at a higher-level Forest Service facility. The specialist reasoned that unlike other federal buildings with numerous unknown visitors, this facility receives mostly known individuals and a limited number of visitors. The ISC Standard allows for professional judgement; however, the ISC requires that agencies document deviations from the baseline set of countermeasures. Reducing the facility’s level of protection without documenting an assessment of risk could result in no record of the basis of the decision for current and future facility managers and security officials to review or use as justification in the case of a question of compliance. In another case, we found that one higher-level facility did not have access control for employees or visitors nor did it have armed guard patrols. The facility manager told us that intelligence and a history without incidents gave leadership reason to believe that these measures were not needed and that therefore the agency did not require and would not fund such protective measures for this facility—in effect, accepting the risks to the facility. Security officials said they also had the same understanding and did not document the matter in the assessment report even though agency policy and the ISC Standard require written documentation when officials deviate from the baseline requirement. Without security assessments that fully align with the ISC Standard and provide measureable levels of risk, agencies do not have the information they need to determine priorities and make informed resource allocation decisions. For example, they may not be able to assess whether to acquire or forego costly physical-security countermeasures—such as, X- ray machines, access control systems, and closed-circuit television systems—for facilities. Additionally, after determining the need to acquire a countermeasure, agencies must fund the countermeasure. As previously discussed, leading practices in capital decision-making include a comprehensive framework to review, rank, and select from competing project proposals for funding. In conducting risk assessments that do not fully align with the ISC Standard (i.e., not assessing threats, vulnerabilities, and consequences and measuring risks), agencies miss the opportunity for more informed funding decisions. Three of the four agencies (CBP, ARS, and the Forest Service) currently prioritize funding for operational needs over physical security needs (see table 2) when agencies’ priorities might be different if they based their decisions on an aligned risk assessment. Standards for Internal Control state that agencies should use quality information on an ongoing basis as a means to monitor program activities and take corrective action, as necessary. The ISC requires that agencies assess higher-level facilities at least once every 3 years—an interval requirement to identify and address evolving risks. We found that three of the four agencies (CBP, ARS, and the Forest Service) did not meet this requirement. Officials reported various challenges including (1) assessments competing with other security activities, (2) an insufficient number of qualified staff to conduct assessments when compared to the number of facilities, or (3) not knowing of the required assessment schedule. An “information system” is the people, processes, data, and technology that management organizes to obtain, communicate, or dispose of information. that had not been reassessed since 2010. CBP security officials attributed the backlog to (1) having too few security specialists assigned to assess about 1,200 facilities and (2) the specialists working on competing priorities, such as revising the security handbook, conducting technical inspections, and reviewing new construction designs and renovation projects. According to CBP security officials, they have developed a plan to eliminate the backlog by the end of fiscal year 2018 by prioritizing the completion of assessments. While we found the plan comprehensive, the schedule did not seem feasible. For example, the plan assumes that one specialist can complete six assessments in 3 consecutive days and that another specialist can complete three assessments in 1 day. In contrast, security officials told us specialists take about 20 work hours (or 2½ days) to conduct an on-site assessment of one facility. CBP officials said that they believe they can meet the time frames of the plan because they have set aside other priorities and have a thorough understanding of the scope of work involved at the facilities. They added that it will not be easy to meet the timeline, but they can accomplish it with a motivated and committed workforce, adequate financial resources, and absent activities that would otherwise require shifting of resources. We question the feasibility of setting aside important priorities, such as updating the policy manual and reviewing physical security elements in new construction designs, as well as the workload assumptions for completing the assessments. Further, these other priorities are also key to securing facilities. Without balancing assessments with competing priorities, CBP’s time frames for completing the assessments by the end of fiscal year 2018 may not be feasible and may also result in the agency’s not addressing other important physical security responsibilities. Since the ISC issued its standard in 2010, ARS and the Forest Service have assessed their higher-level facilities at least once. However, these agencies have not reassessed all of their higher-level facilities within the 3-year interval requirement. Specifically, security specialists have not conducted required reassessments of two ARS and one Forest Service higher-level facilities. The ARS headquarters official explained that the agency had not reassessed the two facilities due to competing priorities and insufficient internal resources. During the course of our review, ARS headquarters officials said they began assessing one of the two ARS facilities in May 2017 and will begin assessing the second facility in October 2017. The Forest Service official explained that the agency missed its security reassessment of the regional office because the facility staff had not requested one. During our visit, facility staff responsible for security told us that they were not aware of the ISC’s 3- year interval requirement. Facility staff requested a reassessment, and security officials told us that they expected to complete it by mid-June 2017. Completing this one-time assessment may address the facility’s security needs temporarily. However, ARS and the Forest Service have not implemented a long-term schedule with key milestones and lack a means to monitor completion of assessments of higher-level facilities at least once every 3 years. Consequently, these agencies cannot reasonably ensure that they have full knowledge of the risks to their facilities. FAA data from 2010 through 2016 show that FAA has assessed its 55 higher-level facilities at least once every 3 years. FAA policy requires that specialists schedule assessments of higher-level facilities every 12– 18 months depending on whether the facility has met FAA physical security standards. The ISC Standard states that to make appropriate resource decisions, agencies need information, such as what is being accomplished, what needs management attention, and what is performing at expected levels. We found that agencies’ methods of collecting and storing security information had limitations that affected agency and facility officials’ oversight of the physical security of their facilities (see table 3). Without having long-term, agency-wide information to monitor whether assessments are conducted on schedule, ARS and the Forest Service may not meet the ISC Standard, resulting in not adequately protecting their facilities and employees. The ISC Standard also states that agencies should measure their security program’s capabilities and effectiveness to demonstrate the need to fund facility security and to make appropriate decisions for allocating resources. However, the agencies in our review were unable to demonstrate appropriate oversight of their physical security programs because: CBP’s handbook does not include requirements for data collection and analysis for monitoring physical-security program activities. Facility managers and security officials do not enter assessment results, such as the countermeasures recommended for facilities, in the real property database. Consequently, they do not have comprehensive data to manage their security program, assess overall performance, and take any necessary corrective actions. A CBP official told us that a comprehensive database would allow CBP to set priorities for addressing countermeasures. Without including data collection and analysis requirements in its updated handbook, CBP may be unable to monitor the performance of its physical security program. FAA’s policy does not require ongoing monitoring of physical security information, such as the status of recommended countermeasures or assessment schedules. As a result, FAA officials do not proactively use physical security information to assess the overall performance of its physical security program and take corrective actions before an incident occurs. Without a policy requiring ongoing monitoring of information—an internal control activity, FAA may be unable to assess the overall performance of its security program and take necessary corrective actions. USDA has a decentralized security program and places the responsibility on agencies to create their physical security programs. Security officials from ARS and the Forest Service told us that USDA does not have a policy for collecting and managing agency-wide information; however, they said that USDA is drafting a new departmental regulation and manual that will specify (1) the roles and responsibilities of agency and facility managers and (2) electronic- data-reporting requirements for monitoring the performance of the physical security program. USDA officials provided a draft of USDA’s regulation and manual for our review. The draft regulation did not mention data reporting and monitoring, while the draft manual only contained a table of contents that included a section entitled “Facility Tracking Database.” USDA officials expect to issue new policies sometime between October 2017 and April 2018. In the absence of new departmental regulation and manual, USDA and Forest Service officials told us that they have begun to develop a Forest Service system for storing electronic copies of agency-wide assessments and that they plan to expand the use of this system to track site specific assessment dates and status of recommended countermeasures. Forest Service officials provided milestone dates and described the capabilities for a future information system, which they expect to complete in September 2017. However, we could not determine whether the manual will have information system requirements to monitor agencies’ physical security program, an internal control activity. Without USDA’s including data collection and analysis requirements in its manual, its agencies may not be able to monitor the performance of their physical security programs. Without agencies having information to monitor security activities, they were unable to provide us information on the status of countermeasures across their entire portfolio. In order to better understand the status of countermeasures implemented and facilities’ experiences when implementing countermeasures, we determined the status of countermeasures at 13 facilities we visited. As previously noted, risk management, as it pertains to physical security, involves agency officials monitoring their physical security programs. During our visits to 13 selected facilities, we found the four agencies differed in the number of countermeasures that they had not implemented. Facility officials provided us with some information on why countermeasures had not been implemented, specifically: CBP had a significant number of recommended countermeasures from 2010 through 2016 that remained open at the eight selected CBP facilities. CBP facility officials gave reasons why recommended countermeasures had not been implemented. At one facility, officials did not know about the recommended countermeasures from its last 2010 assessment because the individuals previously knowledgeable about the assessments left the organization without communicating the results. By taking action to improve facility security, they implemented some needed countermeasures. However, at the time of our review, a large number of the recommendations remained open. At another facility, officials told us that they too had not known (for the same reason mentioned above) of their 2010 assessment, which contained recommended countermeasures. However, these officials told us that they submitted a funding request a few weeks before our visit to address all except one of the open countermeasures. In other cases, facilities have not implemented needed countermeasures due to resource constraints or physical site limitations. FAA had a large number of recommended countermeasures from 2010 through 2016 that remained open at the time of our review for the two FAA facilities visited. In this case, the most recent security assessment, completed in late 2016, resulted in one facility’s having little time to implement countermeasures by the time we conducted our analysis. While ARS had closed almost all recommended countermeasures at two facilities at the time of our review, one Forest Service facility had not yet implemented a recommendation (to secure its entrance doors) that was identified in a 2013 security assessment (see bottom center photo, fig. 3). This countermeasure remained open because facility officials said they continued to explore alternatives to address the recommendation. Figure 3 shows examples of countermeasures not fully implemented at selected facilities we visited. During our site visits and discussions with facility staff, we found that physical site limitations or other priorities can make it difficult for facility managers to implement countermeasures. For example, a countermeasure might involve correcting a clear zone violation—that is, moving an object (such as a brick wall) a certain distance away from the facility’s perimeter fence to prevent a potential intruder from using the object to climb over the fence. However, when the object near the fence is a building and the property outside of the fence is not federally owned (see bottom right photo, fig. 3), it may not be cost effective to correct the clear zone violation. In this situation, the agency bears the responsibility for exploring ways to address the vulnerability. In following the ISC Standard, as previously noted, managers are required to justify and document why they could not implement recommended countermeasures—what the ISC calls risk acceptance. Selected agencies carry a great responsibility for protecting facilities that support border protection activities, provide safe and efficient air traffic around the country, and protect the quality of the nation’s food supply. With this responsibility comes the need to appropriately assess risk to ensure the security of these agencies’ facilities. However, 7 years after the ISC issued its initial risk-management process standard, each of four selected agencies continued to use assessment methodologies that did not fully align with this standard. During our review, agencies improved their methodologies to better align with the ISC Standard, but the agencies had not yet incorporated the methodologies into their policies and procedures. Without updated policies and procedures requiring a methodology that adheres to the ISC Standard (including all 33 undesirable events now identified in the November 2016 revision to the ISC Standard), agencies may not collect the information needed to assess risk and determine priorities for improved security. This situation could hamper the agencies’ ability to make informed resource allocation decisions or to recommend countermeasures commensurate to the needs at specific facilities. To address challenges in conducting timely assessments, agencies that had a backlog developed plans to address them, but the assumptions used in CBP’s plans and time frames did not appear to fully reflect the agency’s competing priorities and actual experience. Additionally, ARS and Forest Service have not implemented a long-term assessment schedule with key milestones to ensure that higher-level facilities are reassessed at least once every 3 years. Further, in cases where the agencies may have had risk assessment information, CBP, ARS, and the Forest Service lack the means to collect, store, and analyze this information in order to monitor the status of a facility’s security. Without these key aspects of a comprehensive security program—a methodology that meets the standard, policies, and procedures that incorporate that methodology; the ability to complete assessments on time; and information to perform monitoring—agencies remain vulnerable to substantial security risks. To improve agencies’ physical security programs’ alignment with the ISC Risk Management Process for Federal Facilities and Standards for Internal Control in the Federal Government for information and monitoring, we recommend that the Commissioner of U.S. Customs and Border Protection take the following three actions: with regard to the updated Security Policy and Procedures Handbook, the ISC’s Risk Management Process for Federal Facilities requirement to assess all undesirable events, consider all three factors of risk, and document deviations from the standard, and data collection and analysis requirements for monitoring the performance of CBP’s physical security program. revise the assumptions used in the plan to address the backlog to balance assessments with competing priorities, such as updating the policy manual and reviewing new construction design, to develop a feasible time frame for completing the assessment backlog. Secretary of Transportation direct the FAA Administrator to take the following three actions: develop a plan that provides sufficient details on the activities needed and time frames within the date when FAA will implement an improved methodology; update FAA’s policy to require the use of a methodology that fully aligns with the ISC’s Risk Management Process for Federal Facilities for assessing all undesirable events, considering all three factors of risk, and documenting all deviations from the standard countermeasures; and update FAA’s policy to include ongoing monitoring of physical security information. Secretary of Agriculture take the following two actions: include data collection and analysis requirements for monitoring the performance of agencies’ physical security programs, in the department’s revised physical-security manual, and direct the Administrator of the Agricultural Research Service and the Chief of the Forest Service to implement and monitor a long-term assessment schedule with key milestones to ensure that higher-level facilities are reassessed at least once every 3 years. We provided a draft of this report to the Departments of Homeland Security, Transportation, and Agriculture for review and comment. All three departments agreed with the findings and recommendations for their respective agencies. DHS agreed with our recommendations and provided actions and timeframes for completion. With regard to our recommendation to update the Security Policy and Procedures Handbook, DHS stated that CBP is updating the handbook to include: (1) a discussion and diagram of the ISC risk management process and its application within CBP’s assessment processes; (2) specific guidance for conducting risk assessments in accordance with the ISC’s Risk Management Process for Federal Facilities; and (3) a requirement and guidance for data collection and analysis in support of a robust physical security program. With regard to our recommendation to revise the assumptions used in the plan to address the assessment backlog, DHS stated that CBP has reevaluated current priorities and believes the current plan to eliminate the risk assessment backlog by the end of fiscal year 2018 is achievable. DHS also provided technical comments, which we incorporated as appropriate. DHS’s official written response is reprinted in appendix IV. DOT also agreed with our recommendations and by e-mail requested that we publish the response to the sensitive version of this report. DOT stated that FAA continues to refine its policy and develop processes that address the ISC threats, vulnerabilities, and consequences. Further, DOT stated that FAA would either validate that current mitigation strategies address those risks or apply additional appropriate countermeasures. DOT stated that it will provide a detailed response to each recommendation within 60 days from the date of this report. DOT’s official written response is reprinted in appendix V. USDA agreed with our recommendations and provided the agency-wide actions for completion. USDA provided a plan to ensure compliance with the ISC’s Risk Management Process for Federal Facilities by development of a standard physical-security assessment process and by initiation of a compliance program to track assessments and monitor the installation of countermeasures. In an e-mail, USDA provided milestone dates and planned completion by January 2019. USDA’s official written response is reprinted in appendix VI. If you or your staff has any questions about this report, please contact me at (202) 512-2834 or RectanusL@gao.gov. GAO staff who made key contributions to this report are listed in appendix VI. This report examines: (1) how selected agencies’ assessment methodologies align with the Interagency Security Committee’s (ISC) risk management standard for identifying necessary countermeasures and (2) what management challenges, if any, selected agencies reported facing in conducting physical security assessments and monitoring the results. To determine how selected agencies’ assessment methodologies align with ISC standards for identifying the necessary countermeasures, we identified federal executive branch departments and agencies reported by the Department of Homeland Security (DHS) to have received delegations of authority to protect their own buildings. We reviewed the Federal Real Property Council’s data on the Federal Real Property Profile to identify federally owned and agency-controlled buildings. We determined that these data were sufficiently reliable for the purpose of our reporting objectives based upon our recent report that reviewed these data fields. We selected four agencies based upon their large quantity of reported federally owned and agency-controlled buildings: DHS, U.S. Customs and Border Protection (CBP); Department of Transportation (DOT), Federal Aviation Administration (FAA); United States Department of Agriculture (USDA), Agricultural Research Service (ARS) and USDA’s United States Forest Service (Forest Service). This methodology purposely does not include federal buildings protected by FPS and under the control of the General Services Administration as well as other agencies that we reported on in our previous work. We obtained and reviewed one particular ISC standard, The Risk Management Process for Federal Facilities (the ISC Standard) and its related appendices for assessing physical security and providing recommended countermeasures at federal facilities. We obtained and analyzed the selected departments’ and agencies’ facility-security policies and procedures for a risk assessment methodology. According to the ISC Standard, agencies’ risk assessment methodologies must: consider all of the undesirable events identified in the ISC Standard as possible risks to federal facilities as listed in appendix III; assess the threat, consequences, and vulnerability to specific produce similar or identical results when applied by various security provide sufficient justification for deviations from the ISC-defined security baseline. We limited the scope of this review to the first two standards above because agencies’ adherence to these standards could be objectively verified by reviewing and analyzing agency documentation and interviewing agency officials, and their adherence to the two additional standards could not be verified in this manner. We did not conduct risk assessments with independent security professionals to evaluate: 1) the results from prior agency evaluations and 2) the sufficiency of justifications for deviations from the ISC-defined security baseline, as both evaluations were outside of the scope of the engagement. Therefore, for the purposes of this report, risk assessment policies, procedures and resulting methodology that align with ISC standards are those that consider all of the undesirable events and assess the threats, consequences, and vulnerabilities to specific undesirable events. We reviewed and analyzed information to answer the following five questions: 1. Do the policies and procedures mention the ISC standards? 2. Do the policies and procedures consider all of the undesirable events? 3. Do the policies and procedures assess the threat of specific undesirable events? 4. Do the policies and procedures assess the consequences of specific undesirable events? 5. Do the policies and procedures assess the vulnerability to specific undesirable events? We answered each of these questions as either a “Yes” or “No” for our selected agencies. The “No” answer to questions 3, 4, and 5 includes the following two possibilities: (a) the agency’s threat, consequence, or vulnerability ratings are not tied to specific undesirable events, or (b) the agency does not have a framework or formalized steps within which it collects and analyzes threat-, consequence-, or vulnerability-related information. If the answer to each of the five questions was “Yes,” then the agency’s overall risk assessment methodology aligns with ISC risk assessment standards for the purposes of this report. If the answer to one or more of the five questions was “No”, then the agency’s methodology does not to align with ISC standards for the purposes of this report. We interviewed security officials at ISC; three departments (DHS, DOT, and USDA); and four agencies (CBP, FAA, ARS, and the Forest Service). We obtained and analyzed agency guidance on prioritizing physical security needs and interviewed agencies’ facility maintenance and budget officials. We reviewed the ISC’s best practices for planning for physical security resources within an agency budget process. Additionally, we reviewed the Office of Management and Budget’s and our leading practices in capital decision-making that provide agencies with guidance for prioritizing budget decisions such as “countermeasure projects.” We also reviewed Standards for Internal Control in the Federal Government because internal controls play a significant role in helping agencies achieve their mission-related responsibilities. Our findings from our review of the selected agencies are not generalizable to all ISC member agencies, but provide insight into and illustrative examples about selected agencies’ facility risk-assessment methodologies. To determine what management challenges selected agencies reported facing in conducting physical security assessments and monitoring results, we interviewed agencies’ security, maintenance, and budget officials. We requested agency security officials to provide portfolio- wide data on facility security assessments for our review in order to select sites to visit and analyze data for dates of assessments and the status of findings. We assessed the reliability of this data through interviews with knowledgeable agency staff and a review for completeness and any unexpected values. We compiled information from physical security assessments when no portfolio-wide agency data were available. We determined that these data were sufficient for the purpose of our reporting objectives and selected geographically dispersed sites with buildings with higher reported security levels per the ISC Standard, as these higher security levels have greater requirements and therefore the potential for greater resource needs. See appendix II for the 13 sites we selected. For these selected sites, we interviewed agency staff concerning the assessment process, site-specific findings, recommendations, justification for deviations from ISC’s baseline standards, and management challenges faced in addressing physical security needs. We observed and photographed the status of the findings from the site physical security assessments. We did not independently determine what constitutes a management challenge or a physical security finding. Rather, we relied on these stakeholders to determine these physical security concerns as defined in their own standards and guidance. The information from our selected sites is illustrative and cannot be generalized to sites agency- wide. The performance audit upon which this report is based was conducted from June 2016 to August 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate, evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with DHS, DOT and USDA from August 2017 to October 2017 to prepare this version of the original report for public release. This public version was also prepared in accordance with these standards. Error! No text of specified style in document. Error! No text of specified style in document. Appendix VII: GAO Contact and Staff Acknowledgments Error! No text of specified style in document. In addition to the contact named above, Amelia Shachoy (Assistant Director), Steve Martinez (Analyst-in-Charge), Jennifer Clayborne, George Depaoli, Geoffrey Hamilton, Joshua Ormond, Alison Snyder, Amelia Michelle Weathers, and Elizabeth Wood made key contributions to this report.	[ "Protecting federal employees and facilities from security threats is of critical importance. Most federal agencies are generally responsible for their facilities and have physical security programs to do so. GAO was asked to examine how federal agencies assess facilities' security risks. This report examines: (1) how selected agencies' assessment methodologies align with the ISC's risk management standard for identifying necessary countermeasures and (2) what management challenges, if any, selected agencies reported facing in conducting physical security assessments and monitoring the results. GAO selected four agencies—CBP, FAA, ARS, and the Forest Service—based on their large number of facilities and compared each agency's assessment methodology to the ISC Standard; analyzed facility assessment schedules and results from 2010 through 2016; and interviewed security officials. GAO also visited 13 facilities from these four agencies, selected based on geographical dispersion and their high risk level. None of the four agencies GAO reviewed—U.S. Customs and Border Protection (CBP), the Federal Aviation Administration (FAA), the Agricultural Research Service (ARS), and the Forest Service—used security assessment methodologies that fully aligned with the Interagency Security Committee's Risk Management Process for Federal Facilities standard (the ISC Standard). This standard requires that methodologies used to identify necessary facility countermeasures—such as fences and closed-circuit televisions—must: 1. Consider all of the undesirable events (i.e., arson and vandalism) identified by the ISC Standard as possible risks to facilities. 2. Assess three factors—threats, vulnerabilities, and consequences—for each of these events and use these three factors to measure risk. All four agencies used methodologies that included some ISC requirements when conducting assessments. CBP and FAA assessed vulnerabilities but not threats and consequences. ARS and the Forest Service assessed threats, vulnerabilities, and consequences, but did not use these factors to measure risk. In addition, the agencies considered many, but not all 33 undesirable events related to physical security as possible risks to their facilities. Agencies are taking steps to improve their methodologies. For example, ARS and the Forest Service now use a methodology that measures risk and plan to incorporate the methodology into policy. Although CBP and FAA have updated their methodologies, their policies do not require methodologies that fully align with the ISC standard. As a result, these agencies miss the opportunity for a more informed assessment of the risk to their facilities. All four agencies reported facing management challenges in conducting physical security assessments or monitoring assessment results. Specifically, CBP, ARS, and the Forest Service have not met the ISC's required time frame of every 3 years for conducting assessments. For example, security specialists have not conducted required reassessments of two ARS and one Forest Service higher-level facilities. While these three agencies have plans to address backlogs, CBP's plan does not balance conducting risk assessments with other competing security priorities, such as updating its policy manual, and ARS and the Forest Service lack a means to monitor completion of future assessments. Furthermore, CBP, ARS, and the Forest Service did not have the data or information systems to monitor assessment schedules or the status of countermeasures at facilities, and their policies did not specify such data requirements. For example, ARS and the Forest Service do not collect and analyze security-related data, such as countermeasures' implementation. FAA does not routinely monitor the performance of its physical security program. Without improved monitoring, agencies are not well equipped to prioritize their highest security needs, may leave facilities' vulnerabilities unaddressed, and may not take corrective actions to meet physical security program objectives. This is a public version of a sensitive report that GAO issued in August 2017. Information that the agencies under review deemed sensitive has been omitted. GAO recommends: (1) that CBP and FAA update policies to require the use of methodologies fully aligned with the ISC Standard; (2) that CBP revise its plan to eliminate the assessments backlog; and (3) that all four agencies improve monitoring of their physical security programs. All four agencies agreed with the respective recommendations." ]	6,755	gov_report	en	null	b21cef508a0fd9406275823c8b44fc80175adadf8c8ac88e
In accordance with the Improper Payments Information Act of 2002 (IPIA), as amended, and OMB guidance, CMS developed the PERM to estimate the national Medicaid improper payment rate. CMS has other mechanisms to review and assess program integrity risks in state Medicaid managed care programs, and it uses information from the PERM to target its program integrity activities and oversight of states’ Medicaid programs. IPIA requires federal executive branch agencies to, among other things, (1) identify programs and activities that may be susceptible to significant improper payments; and (2), on an annual basis, estimate the amount of improper payments for susceptible programs and activities. Agency heads must produce a statistically valid estimate or an estimate that is otherwise appropriate, using an OMB-approved alternate methodology. Those agencies with programs identified by OMB as being high priority for additional oversight and review are required to submit annual reports to their Inspectors General detailing the actions the agency plans to take to recover improper payments and prevent future improper payments. The Inspector General of each agency submitting such a report is required to review the quality of the improper payment estimates and methodology, among other things. OMB designated Medicaid as a high priority program. In addition, the Improper Payments Elimination and Recovery Act of 2010 requires the Inspector General of each agency to conduct a compliance review to report on the agency’s compliance with several criteria, one of which is that an agency has reported an improper payment rate of less than 10 percent for each program and activity. IPIA also directed OMB to issue guidance for agencies in implementing the IPIA improper payments requirements. Among other things, the OMB guidance requires that agencies review payments made at the point that federal funds are transferred to nonfederal entities and report on the root causes of identified improper payments. To calculate the Medicaid improper payment rate through the PERM, CMS computes an annual rolling average of improper payment rates across all states based on a 17-state, 3-year rotation cycle. In accordance with IPIA, as amended, OMB approved CMS’s PERM methodology, and the HHS-OIG conducts annual compliance reviews. Beginning with its annual improper payment compliance review for fiscal year 2014, the HHS-OIG established a rotating approach to reviewing the estimation methodology for high-priority programs, including Medicaid, that OMB deemed susceptible to improper payments. Due to the number and complexity of the programs, the HHS-OIG methodology reviews are scheduled to be performed over a 4-year period; the PERM estimation methodology will be reviewed as a part of its fiscal year 2017 compliance review. Each of the three components of the Medicaid PERM—FFS, managed care, and eligibility—is estimated differently: The FFS component of the PERM measures errors in a sample of FFS claims, which are records of services provided and the amount the Medicaid program paid for these services. For the majority of sampled FFS claims, the PERM review contractor performs a medical review, which includes a review of the medical documentation to determine errors that do not meet federal and state policies, such as medically unnecessary services, diagnosis coding errors, and policy violations. Any FFS claims that were paid for services that should have been covered under a managed care plan’s capitated payment are also considered errors. The managed care component of the PERM measures errors that occur in the capitated payments that state Medicaid agencies make to managed care organizations (MCO) on behalf of enrollees. Capitated payments are periodic payments approved by CMS that state Medicaid agencies make to contracted MCOs to cover the provision of medical services to enrollees, as well as the MCOs’ administrative expenses and their profits or earnings. The PERM assesses whether any payments made to the MCOs were in amounts different than those the state agency is contractually required to pay, which are approved by CMS. In contrast to the FFS component, the managed care component of the PERM neither includes a medical review of services delivered to enrollees, nor reviews of MCO records or data. The eligibility component of the PERM measures errors in state determinations of whether enrollees meet categorical and financial criteria for receipt of benefits under the Medicaid program. The eligibility component assesses determinations for both FFS and managed care enrollees. This component has not been calculated since 2014; instead, CMS piloted different approaches to update the methodologies used to assess enrollee eligibility, as the Patient Protection and Affordable Care Act changed income eligibility requirements for nonelderly, nonpregnant individuals who qualify for Medicaid. Beginning in the 2019 reporting year, eligibility reviews under the PERM will resume and will be conducted by a federal contractor. Medicaid program integrity consists of efforts to ensure that federal and state expenditures are used to deliver quality, necessary care to eligible enrollees, and efforts to prevent fraud, waste, and abuse. We have found in prior work that CMS’s and states’ program integrity efforts focused primarily on payments and services delivered under FFS and did not closely examine program integrity in Medicaid managed care. For Medicaid managed care, CMS has largely delegated program integrity oversight of MCOs to the states. States, in turn, generally oversee MCOs and the providers under contract to MCOs through their contracts with the MCOs and reporting requirements. Some program integrity risks for managed care are similar to those in FFS, including payments made for nonenrolled, ineligible, or deceased individuals; payments to ineligible, excluded, or deceased providers; and payments to providers for improper or false claims, such as payments for services that are not medically necessary. Other program integrity risks are more unique to managed care. For example, capitated payments generally reflect the average cost to provide covered services to enrollees, rather than a specific service. Federal law requires capitation rates to be actuarially sound, meaning that, among other things, they must be reasonably calculated for the populations expected to be covered and for the services expected to be furnished under contract. In order to receive federal funds for its managed care program, a state is required to submit the rates it pays MCOs and the methodology it uses to set those rates to CMS for review and approval. Additionally, federal and state oversight of Medicaid managed care can include ensuring that MCOs fulfill contractual provisions within their managed care contracts. In some cases, these provisions relate directly to program integrity activities, including plans and procedures for identifying, recovering, and reporting on overpayments made to providers. The managed care component of the PERM measures the accuracy of the capitated payments state Medicaid agencies make to MCOs. Specifically, a CMS contractor examines whether the state agency made capitated payments only for eligible enrollees, made capitated payments for the correct amount based on the contract and coverage requirements (time period and geographic location), made capitated payments based on the correct rate for enrollees, and did not make any duplicate payments for enrollees. CMS officials noted that the agency established capitated payments as the level of review, because the capitation rate is the transaction used to determine the federal match in managed care. In general, the federal government matches most state expenditures for Medicaid services on the basis of a statutory formula. In FFS, the federal match is provided for the amount the state pays a health care provider for delivering services to enrollees. With managed care, the federal match is provided for the amount of the capitation rate the state pays the MCO. Capitated payments do not directly relate to the provision of a specific service, but reflect the average cost to provide covered services to enrollees. As a result, CMS officials maintain that the capitated payment is the lowest transaction level at which the agency can clearly identify federal funds without making significant assumptions. Because the managed care component of the PERM review is limited to measuring capitated payments, it does not account for other program integrity risks—such as overpayments to providers and unallowable MCO costs. In addition to errors in capitated payments included in PERM reviews, CMS regulations state that overpayments in managed care include any payment made to an MCO or provider under contract to an MCO to which the MCO or provider is not entitled under Medicaid. Such overpayments included payments for services that were not provided or medically necessary; or to ineligible, excluded, or deceased providers, which are not measured by the PERM. Unallowable MCO costs refers to operating costs that MCOs cannot claim under their managed care contracts, such as certain marketing costs, or that the MCO reported incorrectly. Among the 27 audits and investigations of Medicaid managed care programs we reviewed, 10 identified about $68 million in MCO overpayments to providers and unallowable MCO costs that were not accounted for in PERM estimates. In addition, one investigation of an MCO operating in nine states resulted in a $137.5 million settlement to resolve allegations of false claims. (See app. I for a complete list of the audits and investigations we identified.) However, the full extent of these overpayments and unallowable costs is unknown, because these audits and investigations were conducted over more than 5 years and involved a small fraction of the more than 270 MCOs operating nationwide as of September 2017. Specifically, 24 of the audits and investigations represented reviews in 10 states and, in many cases, focused on individual providers or MCOs; there were about 90 MCOs operating in the 10 states as of September 2017, according to the Kaiser Family Foundation. Some examples of the audits and investigations that identified overpayments and unallowable costs include the following: The Washington State Auditor’s Office found that two MCOs made $17.5 million in overpayments to providers in 2010, which may have increased the state’s 2013 capitation rates. The New York State Comptroller found that two MCOs paid over $6.6 million to excluded and deceased providers from 2011 through 2014. The Massachusetts State Auditor found that one MCO paid $420,000 for health care services and unauthorized prescriptions from excluded providers in 2013 and 2014. The Department of Justice alleged that an MCO operating in several states submitted inflated expenditure information to the state Medicaid agencies, falsified encounter data, and manipulated claims costs and service provision costs in nine states. The MCO agreed to pay over $137.5 million to resolve these claims. The Texas State Auditor’s Office found that an MCO reported $3.8 million in unallowable costs for advertising, company events, gifts, and stock options, along with $34 million in other questionable costs in 2015. The New York State Comptroller also found that an MCO claimed over $260,000 in unallowable administrative expenses, which contributed to an increase in capitation rates across the state. To the extent that the state does not identify or know of MCO overpayments to providers or unallowable MCO costs, the overpayments and unallowable costs could inflate future capitation rates, as the Washington State Auditor and New York State Comptroller noted in their findings. The PERM assesses the accuracy of capitated payments that states make to MCOs. States set capitation rates based on cost data— historical utilization and spending—that MCOs submit to the state Medicaid agencies, but the PERM does not consider these data. Unless removed from these cost data, unidentified overpayments and unallowable costs would likely inflate the MCO cost data that states use to set capitation rates. (See fig. 1.) As a result, future capitation rates would also be inflated, resulting in higher state and federal spending. In fiscal year 2017, the Medicaid managed care improper payment rate was 0.3 percent, while the FFS improper payment rate was 12.9 percent, leading to an assumption that the estimated risks in managed care are less significant than those estimated in FFS. However, the managed care component of the PERM does not determine whether MCO payments to providers were for services that were medically necessary, actually provided, accurately billed and delivered by eligible providers, or whether the MCO costs were allowable and appropriate. As a result, the PERM improper payment estimate potentially understates the extent of program integrity risks in Medicaid managed care. Moreover, this potential understatement in the PERM’s improper payment rate estimate may curtail investigations into the appropriateness of MCO spending. We previously reported that CMS and state program integrity efforts did not closely examine program integrity in Medicaid managed care, focusing primarily on payments and services delivered under FFS. Our current review of the 27 audits we identified encompassed a 5-year period, suggesting that reviews of managed care continue to be limited. An official from a state auditor’s office we spoke with suggested that some states may not audit services delivered under managed care, because of a low improper payment rate. In addition, he noted that his state Medicaid agency used the relatively low payment error rate in managed care as an indicator of few program integrity problems. As noted, CMS has increased its focus on and worked with states to improve oversight of Medicaid managed care; however, these efforts and the oversight efforts of states do not ensure the identification and reporting of overpayments and unallowable costs. In recent years, the agency has sought to strengthen oversight of managed care programs through updated regulations; reviews of states’ managed care programs (Focused Program Integrity Reviews) and collaborative audits, which are conducted jointly by federal program integrity contractors and states; and state monitoring of overpayments. Regulations. In May 2016, CMS updated its regulations for managed care programs in order to strengthen oversight. The updated regulations require a number of additional program integrity activities, such as those listed below. If fully implemented, these updated regulations may help with the identification and removal of overpayments and unallowable costs from data used to set future capitation rates. Under these regulations States must arrange for an independent audit of the accuracy, truthfulness, and completeness of the encounter and financial data submitted by MCOs, at least once every 3 years. Through contracts with MCOs, states must require MCOs to have a mechanism through which providers report and return overpayments to the MCOs. States must also require MCOs to promptly report any identified or recovered overpayments—specifying those that are potentially fraudulent—and submit an annual report on recovered overpayments to their state. States must use this information when setting actuarially sound capitation rates. Through contracts with MCOs, states must also require MCOs to report specific data, information, and documentation. In addition, the MCO’s chief executive officer or authorized representative must certify the accuracy and completeness of the reported data, information, and documentation. States must enroll MCO providers that are not otherwise enrolled with the state to provide services to enrollees in Medicaid FFS, and revalidate the enrollment at least once every 5 years. Initially this requirement was to start for MCO contracts beginning on July 1, 2018. Subsequently enacted legislation codified this requirement in statute and moved the implementation to January 1, 2018. It is too early to know if these regulations will assure better oversight of MCO payments to providers and the data used to set future capitation rates. The above program integrity requirements only went into effect recently—for contracts starting on or after July 1, 2017, and January 1, 2018. In addition, CMS issued a notice in June 2017 stating that the agency will use its enforcement discretion to assist states that are unable to implement new requirements by the required compliance date. Also, CMS has delayed issuance of implementing guidance for certain provisions until the agency completes its review, a step that may further delay states’ implementation. The agency has designated Medicaid managed care for “deregulatory action” and plans to propose a new rule, but has not indicated which of these provisions, if any, would be revised. Focused Program Integrity Reviews. In fiscal year 2014, CMS implemented its Focused Program Integrity Reviews in order to target high-risk program integrity areas in each state, including managed care. As we previously reported, these focused reviews are narrower in scope than the prior reviews conducted by CMS, but they still involve on-site visits to states. In its focused reviews of managed care, CMS found that several states had incomplete oversight of MCO payments to providers, even though the agency relies on states to verify reported MCO overpayments and to ensure the overpayments are excluded from the data used to set capitation rates. In the 27 focused reviews of managed care from 2014 to 2017, CMS found that MCOs in 17 states reported fewer overpayments to their state Medicaid agencies than CMS would expect. For example, MCOs in at least 5 states reported that overpayments were less than 0.1 percent of their total managed care expenditures; while CMS noted in 1 focused review that overpayments typically equal 1 to 10 percent of total expenditures in managed care. CMS also found that 5 of the 27 states did not verify that MCOs excluded overpayments from these data, and 1 state did not exclude overpayments from the capitation rate setting. This is consistent with our March 2017 report in which we noted that CMS commonly found that MCOs reported low amounts of recovered overpayments and conducted few reviews to identify overpayments. Also, officials from three of the five states we interviewed for that report said the focused reviews gave them leverage in dealing with MCOs or led MCOs to focus more on program integrity. We also reported that CMS officials recommended states take steps to improve their oversight of MCOs, based on the focused review findings. The findings from CMS’s focused reviews of managed care also highlight the need for greater federal oversight of states. Without these reviews, it is unclear if states would independently identify MCOs’ reporting of overpayments or work to strengthen MCO reporting. Yet, CMS has not yet published the focused reviews of managed care in 13 states, and it may only conduct a focused review in a state once every three or more years. Given CMS’s timeline for the focused reviews, it may take years to determine if corrective actions result in improved program integrity in services delivered through managed care. Collaborative audits. CMS has expanded the federal-state collaborative audits beyond FFS, and has begun to engage states to participate in collaborative audits of MCOs and providers under contract to MCOs. As a part of the collaborative audit process, the state volunteers to jointly develop the audit processes the federal contractors follow. CMS officials told us that federal contractors have completed 14 collaborative audits of providers under contract to MCOs in three states—Arizona, the District of Columbia, and Tennessee. Only the audit of Trusted Healthcare, an MCO in the District of Columbia, has been published. That audit identified $129,000 in overpayments in a sample of MCO payments to providers, which, if generalized to all of the MCO’s payments over 6 months, would equate to over $4 million in overpayments. According to CMS, three additional states—Louisiana, Nebraska, and New Hampshire—have shown interest in collaborative audits of their MCOs, although such audits require states to prepare data files for the federal contractor and commit staff time. In our March 2017 report, we found that states’ participation in FFS collaborative audits varied and some states reported barriers to their participation. Expanding collaborative audits in managed care will require commitment from and coordination with states. State monitoring of overpayments in managed care. States are required to report overpayments they have identified and recouped along with state expenditures on a quarterly basis. However, based on the responses of the program integrity officials in 13 of the 16 states we contacted, most officials were unable to define the magnitude of overpayments in their managed care programs, which may signify a need for greater federal oversight or coordination. Specifically, officials in 7 of the 13 states could not or did not identify the share of total reported Medicaid overpayments that occurred in managed care. In 11 of the 13 states, officials responded that they did not directly monitor MCO payments to providers. Of those 11 states, officials in 4 said they depend on MCOs to report overpayments and exclude the overpayments from the data used to set capitation rates. As long as states are not taking action to identify overpayments in managed care, they cannot be assured that they are accurately paying MCOs for medically necessary services provided to enrollees. Federal internal control standards call for agency management to identify, analyze, and respond to risks. CMS has taken some steps to identify, analyze, and respond to risks through its regulations, Focused Program Integrity Reviews, and collaborative audits. However, key CMS and state oversight efforts fall short of mitigating the limitations of the PERM estimates of improper payments for managed care, because they do not ensure the identification and reporting of overpayments to providers and unallowable MCO costs. Without addressing these key risks, CMS and states cannot ensure the integrity of Medicaid managed care programs. The 0.3 percent improper payment rate for Medicaid managed care, as measured by the PERM, is significantly lower than the improper payment rate of 12.9 percent for Medicaid FFS. However, this difference does not signal better oversight; rather, it represents differences in the review criteria between FFS and managed care, which result in a less complete accounting for the program integrity risks in managed care. The PERM does not account for key program integrity risks in Medicaid managed care: specifically, unidentified overpayments and unallowable costs. One federal investigation of an MCO operating in nine states resulted in a settlement of $137.5 million to resolve allegations of false claims that were not captured in the national Medicaid improper payment rate estimate. Further, CMS found that MCOs and states do not provide sufficient oversight in Medicaid managed care to address the risks that are not accounted for in the PERM, findings that are reinforced by our reports on Medicaid managed care program integrity. CMS has taken steps to improve its oversight of Medicaid managed care, yet these efforts fall short of ensuring that the agency and states will be able to identify and address overpayments to providers and unallowable MCO costs. Without better measurement of program risks—particularly as expenditures for Medicaid managed care continue to grow—CMS cannot be certain that the low improper payment rate for managed care, as measured by the PERM, accurately reflects lower risks in managed care. The Administrator of CMS should consider and take steps to mitigate the program risks that are not measured in the PERM, such as overpayments and unallowable costs; such an effort could include actions such as revising the PERM methodology or focusing additional audit resources on managed care. (Recommendation 1) We provided a draft of this report to the Department of Health and Human Services (HHS) for comment. In its written comments, HHS concurred with our recommendation, and indicated that it will review regulatory authority and audit resources to determine the best way to account for Medicaid program risks that are not accounted for in the PERM. However, HHS stated that the PERM is not intended to measure all Medicaid program integrity risks, and utilizing the PERM measurement in that way would be a misunderstanding and misuse of the reported rate. HHS also commented that a review of payments from MCOs to providers is outside the scope of IPIA. In addition, HHS asserted that including such a review would diminish the value of PERM reporting—because it would require significant assumptions about the amount of federal share in MCO payments to providers. Further, HHS maintained that such a review also would result in a measurement that was not comparable to other programs or agencies, which would diminish the value of government- wide improper payment rate reporting. We acknowledge that the current PERM methodology has been approved by OMB. However, we maintain that the PERM likely underestimates program integrity risks in Medicaid managed care. To ensure the appropriate targeting of program integrity activities, CMS needs better information about these risks. Given the size of the Medicaid program, its vulnerability to improper payments, and the growth in managed care, it is critical to have a full accounting of program integrity risks in managed care in order to best ensure the integrity of the whole Medicaid program. In its written comments, HHS also summarized several activities it uses to oversee and support states’ Medicaid program integrity efforts, including state program integrity reviews; collaborative audits conducted by federal contractors; Medicaid Integrity Institute training for state employees; and the Medicaid Provider Enrollment Compendium. HHS also provided technical comments, which we incorporated as appropriate. HHS’s comments are reprinted in appendix II. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of CMS, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or at yocomc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix III. We reviewed 16 federal and state audits and 11 notices of investigations of Medicaid managed care organizations (MCO) and providers issued from January 2012 to September 2017. As the findings below show, the audits and investigations represent a limited number of reviews that, in many cases, focused on individual states and individual providers or MCOs within that state. Given the limited scope and number of states reviewed, the amount of the overpayments and unallowable costs occurring nationwide is unknown. These audits and investigations show cases of MCO overpayments to providers or unallowable costs, which are not accounted for by the Centers for Medicare & Medicaid Services’ Payment Error Rate Measurement (PERM) ; errors in capitated payments (e.g., capitated payments made for deceased individuals), which are accounted for in the PERM; and gaps in managed care oversight. When reporting overpayments and unallowable costs identified in the audits and investigations, we only include amounts specifically attributed to MCOs in our total. This total does not include the following: overpayments and unallowable costs identified in those audits and investigations that did not distinguish between the amounts attributable to MCOs, Medicaid fee-for-service, or Medicare; overpayments and unallowable costs identified in criminal proceedings that are not yet resolved; and errors in capitated payments, as those payments would be reviewed by the PERM. As a result, the total amount of overpayments and unallowable costs and capitated payment errors in this appendix exceed what we report. In addition to the contact named above, Leslie V. Gordon (Assistant Director), Pauline Adams (Analyst-in-Charge), Erika Huber, and Drew Long made key contributions to this report. Also contributing were Muriel Brown and Jennifer Whitworth.	[ "The improper payment rate is a sentinel measure of program integrity risks for the Medicaid program. CMS and the states oversee Medicaid, whose size, structure, and diversity make it vulnerable to improper payments. CMS estimates the Medicaid improper payment rate annually through its PERM, which includes an estimate for Medicaid managed care, in which states contract with MCOs to provide services to Medicaid enrollees. GAO was asked to study the PERM methodology for managed care. In this report, GAO examined the extent to which the PERM accounts for program integrity risks in Medicaid managed care, including CMS's and states' oversight. GAO identified program integrity risks reported in 27 federal and state audits and investigations issued between January 2012 and September 2017; reviewed federal regulations and guidance on the PERM and CMS's Focused Program Integrity Reviews; and contacted program integrity officials in the 16 states with a majority of 2016 Medicaid spending for managed care, as well as CMS officials and program integrity experts. The Centers for Medicare & Medicaid Services' (CMS) estimate of improper payments for Medicaid managed care has limitations that are not mitigated by the agency's and states' current oversight efforts. One component of the Payment Error Rate Measurement (PERM) measures the accuracy of capitated payments, which are periodic payments that state Medicaid agencies make to managed care organizations (MCO) to provide services to enrollees and to cover other allowable costs, such as administrative expenses. However, the managed care component of the PERM neither includes a medical review of services delivered to enrollees, nor reviews of MCO records or data. Further, GAO's review of the 27 federal and state audits and investigations identified key program risks. Ten of the 27 federal and state audits and investigations identified about $68 million in overpayments and unallowable MCO costs that were not accounted for by PERM estimates; another of these investigations resulted in a $137.5 million settlement. These audits and investigations were conducted over more than 5 years and involved a small fraction of the more than 270 MCOs operating nationwide as of September 2017. To the extent that overpayments and unallowable costs are unidentified and not removed from the cost data used to set capitation rates, they may allow inflated MCO payments and minimize the appearance of program risks in Medicaid managed care. CMS and states have taken steps to improve oversight of Medicaid managed care through updated regulations, focused reviews of states' managed care programs, and federal program integrity contractors' audits of managed care services. However, some of these efforts went into effect only recently, and others are unlikely to address the risks in managed care across all states. Furthermore, these efforts do not ensure the identification and reporting of overpayments to providers and unallowable costs by MCOs. Federal internal control standards call for agency management to identify and respond to risks. Without addressing key risks, such as the extent of overpayments and unallowable costs, CMS cannot be certain that its estimated improper payment rate for managed care (0.3 percent compared with 12.9 percent in Medicaid fee-for-service) accurately reflects program risks. The Administrator of CMS should consider and take steps to mitigate the program risks that are not measured in the PERM, such as overpayments and unallowable costs; such an effort could include actions such as revising the PERM methodology or focusing additional audit resources on managed care. HHS concurred with this recommendation. HHS also provided technical comments, which were incorporated as appropriate." ]	4,469	gov_report	en	null	b2fe8963e0f2c588e236ef7b7eaafd3334407c176e9db530
The Federal Reserve's (the Fed's) responsibilities as the nation's central bank fall into four main categories: monetary policy, provision of emergency liquidity through the lender of last resort function, supervision of certain types of banks and other financial firms for safety and soundness, and provision of payment system services to financial firms and the government. Congress has delegated responsibility for monetary policy to the Fed, but retains oversight responsibilities to ensure that the Fed is adhering to its statutory mandate of "maximum employment, stable prices, and moderate long-term interest rates." The Fed has defined stable prices as a longer-run goal of 2% inflation—the change in overall prices, as measured by the Personal Consumption Expenditures (PCE) price index. By contrast, the Fed states that "it would not be appropriate to specify a fixed goal for employment; rather, the Committee's policy decisions must be informed by assessments of the maximum level of employment, recognizing that such assessments are necessarily uncertain and subject to revision." Monetary policy can be used to stabilize business cycle fluctuations (alternating periods of economic expansions and recessions) in the short run, while it mainly affects inflation in the long run. The Fed's conventional tool for monetary policy is to target the federal funds rate —the overnight, interbank lending rate. This report provides an overview of how monetary policy works and recent developments, a summary of the Fed's actions following the financial crisis, and ends with a brief overview of the Fed's regulatory responsibilities. In December 2008, in the midst of the financial crisis and the "Great Recession," the Fed lowered the federal funds rate to a range of 0% to 0.25%. This was the first time rates were ever lowered to what is referred to as the zero lower bound . The recession ended in 2009, but as the economic recovery consistently proved weaker than expected in the years that followed, the Fed repeatedly pushed back its time frame for raising interest rates. As a result, the economic expansion was in its seventh year and the unemployment rate was already near the Fed's estimate of full employment when it began raising rates on December 16, 2015. This was a departure from past practice—in the previous two economic expansions, the Fed began raising rates within three years of the preceding recession ending. Since then, the Fed has continued to raise rates in a series of steps to incrementally tighten monetary policy. The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0.25 percentage points each time. The Fed has stated that "some further gradual increases in ... the federal funds rate" are necessary to fulfill its mandate. The Fed describes its plans as "data dependent," meaning they would be altered if actual employment or inflation deviate from its forecast. Although monetary policy is now less stimulative than it had been at the zero lower bound, the Fed is still adding stimulus to the economy as long as the federal funds rate is below what economists call the "neutral rate" (or the long-run equilibrium rate). To illustrate, the federal funds rate is currently similar to the inflation rate, meaning that the real (i.e., inflation-adjusted) federal funds rate is around zero. However, there is uncertainty as to what constitutes a neutral rate today. By historical standards, a zero real interest rate would be well below the neutral rate, but the neutral rate appears to have fallen following the financial crisis, so that current rates may be close to the neutral rate today. Typically, the Fed keeps interest rates below the neutral rate when the economy is operating below full employment, at neutral levels when the economy is near full employment, and above the neutral rate when the economy is at risk of overheating. Indeed, the Fed identifies this as one of its "three key principles of good monetary policy." Because of lags between changes in interest rates and their economic effects, in the past, the Fed has often preemptively changed its monetary policy stance before the economy reaches the state that the Fed is anticipating. In this business cycle, the Fed has maintained a (progressively less) stimulative monetary policy throughout the expansion, boosting economic activity. In one sense, this policy could be viewed as having successfully delivered on the Fed's mandated goals of full employment and stable prices. The unemployment rate has been below 5% since 2015 and is now lower than the rate believed to be consistent with full employment. Other labor market measures are also consistent with full employment, with the possible exception of the still-low labor force participation rate. Economic theory posits that lower unemployment will lead to higher inflation in the short run, but inflation has not proven responsive to lower unemployment in recent years. After remaining persistently below the Fed's 2% target from mid-2012 to early 2018 as measured by core PCE, inflation has remained around 2% in 2018 as measured by headline or core PCE. Economic growth has also picked up beginning in the second quarter of 2017, after being persistently low by historical standards throughout the expansion. Contributing to the 2018 growth acceleration, a more expansionary fiscal policy (larger structural budget deficit) added more stimulus to the economy in the short run. Two notable policy changes contributing to fiscal stimulus in 2018 were the 2017 tax cuts ( P.L. 115-97 ) and the boost to discretionary spending in FY2018 and FY2019 agreed to in P.L. 115-123 . The Fed did little to offset this fiscal stimulus, as the pace of monetary tightening in 2018 was only slightly faster than in 2017. Despite strong economic data (which is only available with a lag), the Fed announced in January 2019 that it would be "patient" before raising rates again in light of increased economic uncertainty and financial volatility. The Fed's intended policy path poses risks. If the Fed waits too long to raise rates again, the economy could overheat, resulting in high inflation and posing risk to financial stability. As an example of how overly stimulative monetary policy can lead to the latter, critics contend that the Fed contributed to the precrisis housing bubble by keeping interest rates too low for too long during the economic recovery starting in 2001. Critics see these risks as outweighing any marginal benefit associated with monetary stimulus when the economy is already so close to full employment. Raising rates more quickly would also provide more "headroom" for the Fed to lower rates more aggressively during the next economic downturn. The potential percentage point reduction in rates before hitting the zero bound is currently smaller than the rate cuts that the Fed has undertaken in past recessions. Alternatively, there is uncertainty about whether strong growth, low unemployment, inflation around 2%, and the generally benign economic environment will continue. Economic expansions do not "die of old age"; nevertheless, the current expansion is already the second longest on record and cannot last forever. The flattening of the yield curve (i.e., long-term Treasury yields are similar to short-term Treasury yields) is seen by some as a warning signal that rates are too high. Although there is a risk of stimulative monetary policy causing the economy to overheat, there is also a risk that tightening too quickly could be harmful if the economy slows. Some critics would prefer clear evidence that inflation is above the Fed's target or financial conditions are unstable before the Fed raises rates again. Monetary policy refers to the actions the Fed undertakes to influence the availability and cost of money and credit to promote the goals mandated by Congress, a stable price level and maximum sustainable employment. Because the expectations of households as consumers and businesses as purchasers of capital goods exert an important influence on the major portion of spending in the United States, and because these expectations are influenced in important ways by the Fed's actions, a broader definition of monetary policy would include the directives, policies, statements, economic forecasts, and other Fed actions, especially those made by or associated with the chairman of its Board of Governors, who is the nation's central banker. The Fed's Federal Open Market Committee (FOMC) meets every six weeks to choose a federal funds target and sometimes meets on an ad hoc basis if it wants to change the target between regularly scheduled meetings. The FOMC is composed of the 7 Fed governors, the President of the Federal Reserve Bank of New York, and 4 of the other 11 regional Federal Reserve Bank presidents serving on a rotating basis. The Fed targets the federal funds rate to carry out monetary policy. The federal funds rate is determined in the private market for overnight reserves of depository institutions (called the federal funds market). At the end of a given period, usually a day, depository institutions must calculate how many dollars of reserves they want or need to hold against their reservable liabilities (deposits). Some institutions may discover a reserve shortage (too few reservable assets relative to those they want to hold), whereas others may have reservable assets in excess of their wants. These reserves can be borrowed and lent on an overnight basis in a private market called the federal funds market. The interest rate in this market is called the federal funds rate. If it wishes to expand money and credit, the Fed will lower the target, which encourages more lending activity and, thus, greater demand in the economy. Conversely, if it wishes to tighten money and credit, the Fed will raise the target. The federal funds rate is linked to the interest rates that banks and other financial institutions charge for loans. Thus, whereas the Fed may directly influence only a very short-term interest rate, this rate influences other longer-term rates. However, this relationship is far from being on a one-to-one basis because longer-term market rates are influenced not only by what the Fed is doing today, but also by what it is expected to do in the future and by what inflation is expected to be in the future. This fact highlights the importance of expectations in explaining market interest rates. For that reason, a growing body of literature urges the Fed to be very transparent in explaining what its policy is, will be, and in making a commitment to adhere to that policy. The Fed has responded to this literature and is increasingly transparent in explaining its policy measures and what these measures are expected to accomplish. The Federal Reserve uses two methods to maintain its target for the federal funds rate: The Fed can also change the federal funds rate by changing reserve requirements, which specify what portion of customer deposits (primarily checking accounts) banks must hold as vault cash or on deposit at the Fed. Thus, reserve requirements affect the liquidity available within the federal funds market. Statute sets the numerical levels of reserve requirements, although the Fed has some discretion to adjust them. Currently, banks are required to hold 0% to 10% of customer deposits that qualify as net transaction accounts in reserves, depending on the size of the bank's deposits. This tool is used rarely—the percentage was last changed in 1992. Each of these tools works by altering the overall liquidity available for use by the banking system, which influences the amount of assets these institutions can acquire. These assets are often called credit because they represent loans the institutions have made to businesses and households, among others. The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. The Fed directly controls the monetary base , which is made up of currency (Federal Reserve notes) and bank reserves. The size of the monetary base, in turn, influences broader measures of the money supply, which include close substitutes to currency, such as demand deposits (e.g., checking accounts) held at banks. The Fed's definition of monetary policy as the actions it undertakes to influence the availability and cost of money and credit suggests two ways to measure the stance of monetary policy. One is to look at the cost of money and credit as measured by the rate of interest relative to inflation (or inflation projections), and the other is to look at the growth of money and credit itself. Thus, it is possible to look at either interest rates or the growth in the supply of money and credit in coming to a conclusion about the current stance of monetary policy—that is, whether it is expansionary (adding stimulus to the economy), contractionary (slowing economic activity), or neutral. During the high inflation experience of the 1970s the Fed placed greater emphasis on money supply growth, but since then, most central banks including the Fed have preferred to formulate monetary policy in terms of the cost of money and credit rather than in terms of their supply. The Fed conducts monetary policy by focusing on the cost of money and credit as proxied by the federal funds rate. A simple comparison of market interest rates over time as an indicator of changes in the stance of monetary policy is potentially misleading, however. Economists call the interest rate that is essential to decisions made by households and businesses to buy capital goods the real interest rate. It is often proxied by subtracting from the market interest rate the actual or expected rate of inflation. If inflation rises and market interest rates remain the same, then real interest rates have fallen, with a similar economic effect as if market rates (called nominal rates) had fallen by the same amount with a constant inflation rate. The federal funds rate is only one of the many interest rates in the financial system that determines economic activity. For these other rates, the real rate is largely independent of the amount of money and credit over the longer run because it is determined by the interaction of saving and investment (or the demand for capital goods). The internationalization of capital markets means that for most developed countries the relevant interaction between saving and investment that determines the real interest rate is on a global basis. Thus, real rates in the United States depend not only on U.S. national saving and investment but also on the saving and investment of other countries. For that reason, national interest rates are influenced by international credit conditions and business cycles. How do changes in short-term interest rates affect the overall economy? In the short run, an expansionary monetary policy that reduces interest rates increases interest-sensitive spending, all else equal. Interest-sensitive spending includes physical investment (i.e., plant and equipment) by firms, residential investment (housing construction), and consumer-durable spending (e.g., automobiles and appliances) by households. As discussed in the next section, it also encourages exchange rate depreciation that causes exports to rise and imports to fall, all else equal. To reduce spending in the economy, the Fed raises interest rates and the process works in reverse. An examination of U.S. economic history will show that money- and credit-induced demand expansions can have a positive effect on U.S. GDP growth and total employment. The extent to which greater interest-sensitive spending results in an increase in overall spending in the economy in the short run will depend in part on how close the economy is to full employment. When the economy is near full employment, the increase in spending is likely to be dissipated through higher inflation more quickly. When the economy is far below full employment, inflationary pressures are more likely to be muted. This same history, however, also suggests that over the longer run, a more rapid rate of growth of money and credit is largely dissipated in a more rapid rate of inflation with little, if any, lasting effect on real GDP and employment. Economists have two explanations for this paradoxical behavior. First, they note that, in the short run, many economies have an elaborate system of contracts (both implicit and explicit) that makes it difficult in a short period for significant adjustments to take place in wages and prices in response to a more rapid growth of money and credit. Second, they note that expectations for one reason or another are slow to adjust to the longer-run consequences of major changes in monetary policy. This slow adjustment also adds rigidities to wages and prices. Because of these rigidities, changes in the growth of money and credit that change aggregate demand can have a large initial effect on output and employment, albeit with a policy lag of six to eight quarters before the broader economy fully responds to monetary policy measures. Over the longer run, as contracts are renegotiated and expectations adjust, wages and prices rise in response to the change in demand and much of the change in output and employment is undone. Thus, monetary policy can matter in the short run but be fairly neutral for GDP growth and employment in the longer run. In societies in which high rates of inflation are endemic, price adjustments are very rapid. During the final stages of very rapid inflations, called hyperinflation, the ability of more rapid rates of growth of money and credit to alter GDP growth and employment is virtually nonexistent, if not negative. Either fiscal policy (defined here as changes in the structural budget deficit, caused by policy changes to government spending or taxes) or monetary policy can be used to alter overall spending in the economy. However, there are several important differences to consider between the two. First, economic conditions change rapidly, and in practice monetary policy can be more nimble than fiscal policy. The Fed meets every six weeks to consider changes in interest rates and can call an unscheduled meeting any time. Large changes to fiscal policy typically occur once a year at most. Once a decision to alter fiscal policy has been made, the proposal must travel through a long and arduous legislative process that can last months before it can become law, whereas monetary policy changes are made instantly. Both monetary and fiscal policy measures are thought to take more than a year to achieve their full impact on the economy due to pipeline effects. In the case of monetary policy, interest rates throughout the economy may change rapidly, but it takes longer for economic actors to change their spending patterns in response. For example, in response to a lower interest rate, a business must put together a loan proposal, apply for a loan, receive approval for the loan, and then put the funds to use. In the case of fiscal policy, once legislation has been enacted, it may take some time for authorized spending to be outlayed. An agency must approve projects and select and negotiate with contractors before funds can be released. In the case of transfers or tax cuts, recipients must receive the funds and then alter their private spending patterns before the economy-wide effects are felt. For both monetary and fiscal policy, further rounds of private and public decisionmaking must occur before multiplier or ripple effects are fully felt. Second, monetary policy is determined based only on the Fed's mandate, whereas fiscal policy is determined based on competing political goals. Fiscal policy changes have macroeconomic implications regardless of whether that was policymakers' primary intent. Political constraints have prevented increases in budget deficits from being fully reversed during expansions. Over the course of the business cycle, aggregate spending in the economy can be expected to be too high as often as it is too low. This means that stabilization policy should be tightened as often as it is loosened, yet increasing the budget deficit has proven to be much more popular than implementing the spending cuts or tax increases necessary to reduce it. As a result, the budget has been in deficit in all but five years since 1961, which has led to an accumulation of federal debt that gives policymakers less leeway to potentially undertake a robust expansionary fiscal policy, if needed, in the future. By contrast, the Fed is more insulated from political pressures, as discussed in the previous section, and experience shows that it is willing to raise or lower interest rates. Third, the long-run consequences of fiscal and monetary policy differ. Expansionary fiscal policy creates federal debt that must be serviced by future generations. Some of this debt will be "owed to ourselves," but some (presently, about half) will be owed to foreigners. To the extent that expansionary fiscal policy crowds out private investment, it leaves future national income lower than it otherwise would have been. Monetary policy does not have this effect on generational equity, although different levels of interest rates will affect borrowers and lenders differently. Furthermore, the government faces a budget constraint that limits the scope of expansionary fiscal policy—it can only issue debt as long as investors believe the debt will be honored, even if economic conditions require larger deficits to restore equilibrium. Fourth, openness of an economy to highly mobile capital flows changes the relative effectiveness of fiscal and monetary policy. Expansionary fiscal policy would be expected to lead to higher interest rates, all else equal, which would attract foreign capital looking for a higher rate of return, causing the value of the dollar to rise. Foreign capital can only enter the United States on net through a trade deficit. Thus, higher foreign capital inflows lead to higher imports, which reduce spending on domestically produced substitutes and lower spending on exports. The increase in the trade deficit would cancel out the expansionary effects of the increase in the budget deficit to some extent (in theory, entirely if capital is perfectly mobile). Expansionary monetary policy would have the opposite effect—lower interest rates would cause capital to flow abroad in search of higher rates of return elsewhere, causing the value of the dollar to fall. Foreign capital outflows would reduce the trade deficit through an increase in spending on exports and domestically produced import substitutes. Thus, foreign capital flows would (tend to) magnify the expansionary effects of monetary policy. Fifth, fiscal policy can be targeted to specific recipients. In the case of normal open market operations, monetary policy cannot. This difference could be considered an advantage or a disadvantage. On the one hand, policymakers could target stimulus to aid the sectors of the economy most in need or most likely to respond positively to stimulus. On the other hand, stimulus could be allocated on the basis of political or other noneconomic factors that reduce the macroeconomic effectiveness of the stimulus. As a result, both fiscal and monetary policy have distributional implications, but the latter's are largely incidental whereas the former's can be explicitly chosen. In cases in which economic activity is extremely depressed, monetary policy may lose some of its effectiveness. When interest rates become extremely low, interest-sensitive spending may no longer be very responsive to further rate cuts. Furthermore, interest rates cannot be lowered below zero so traditional monetary policy is limited by this "zero lower bound." In this scenario, fiscal policy may be more effective. As is discussed in the next section, some argue that the U.S. economy experienced this scenario following the recent financial crisis. Of course, using monetary and fiscal policy to stabilize the economy are not mutually exclusive policy options. But because of the Fed's independence from Congress and the Administration, the two policy options are not always coordinated. If Congress and the Fed were to choose compatible fiscal and monetary policies, respectively, then the economic effects would be more powerful than if either policy were implemented in isolation. For example, if stimulative monetary and fiscal policies were implemented, the resulting economic stimulus would be larger than if one policy were stimulative and the other were neutral. Alternatively, if Congress and the Fed were to select incompatible policies, these policies could partially negate each other. For example, a stimulative fiscal policy and contractionary monetary policy may end up having little net effect on aggregate demand (although there may be considerable distributional effects). Thus, when fiscal and monetary policymakers disagree in the current system, they can potentially choose policies with the intent of offsetting each other's actions. Whether this arrangement is better or worse for the economy depends on what policies are chosen. If one actor chooses inappropriate policies, then the lack of coordination allows the other actor to try to negate its effects. When the United States experienced the worst financial crisis since the Great Depression, the Fed undertook increasingly unprecedented steps in an attempt to restore financial stability. These steps included reducing the federal funds rate to the zero lower bound, providing direct financial assistance to financial firms, and "quantitative easing." These unconventional policy decisions continue to have consequences for monetary policy today, as the Fed embarks on monetary policy "normalization." The bursting of the housing bubble led to the onset of a financial crisis that affected both depository institutions and other segments of the financial sector involved with housing finance. As the delinquency rates on home mortgages rose to record numbers, financial firms exposed to the mortgage market suffered capital losses and lost access to liquidity. The contagious nature of this development was soon obvious as other types of loans and credit became adversely affected. This, in turn, spilled over into the broader economy, as the lack of credit soon had a negative effect on both production and aggregate demand. In December 2007, the economy entered a recession. As the housing slump's spillover effects to the financial system, as well as its international scope, became apparent, the Fed responded by reducing the federal funds target and the discount rate. Beginning on September 18, 2007, and ending on December 16, 2008, the federal funds target was reduced from 5.25% to a range between 0% and 0.25%, where it remained until December 2015. Economists call this the zero lower bound to signify that once the federal funds rate is lowered to zero, conventional open market operations cannot be used to provide further stimulus. The Fed attempted to achieve additional monetary stimulus at the zero bound through a pledge to keep the federal funds rate low for an extended period of time, which has been called forward guidance or forward commitment . The decision to maintain a target interest rate near zero was unprecedented. First, short-term interest rates have never before been reduced to zero in the history of the Federal Reserve. Second, the Fed waited much longer than usual to begin tightening monetary policy in the current recovery. For example, in the previous two expansions, the Fed began raising rates less than three years after the preceding recession ended. With liquidity problems persisting as the federal funds rate was reduced, it appeared that the traditional transmission mechanism linking monetary policy to activity in the broader economy was not working. Monetary authorities became concerned that the liquidity provided to the banking system was not reaching other parts of the financial system. As noted above, using only traditional monetary policy tools, additional monetary stimulus cannot be provided once the federal funds rate has reached its zero bound. To circumvent this problem, the Fed decided to use nontraditional methods to provide additional monetary policy stimulus. First, the Federal Reserve introduced a number of emergency credit facilities to provide increased liquidity directly to financial firms and markets. The first facility was introduced in December 2007, and several were added after the worsening of the crisis in September 2008. These facilities were designed to fill perceived gaps between open market operations and the discount window, and most of them were designed to provide short-term loans backed by collateral that exceeded the value of the loan. A number of the recipients were nonbanks that are outside the regulatory umbrella of the Federal Reserve; this marked the first time that the Fed had lent to nonbanks since the Great Depression. The Fed authorized these actions under Section 13(3) of the Federal Reserve Act, a seldom-used emergency provision that allowed it to extend credit to nonbank financial institutions and to nonfinancial firms as well. The Fed provided assistance through liquidity facilities, which included both the traditional discount window and the newly created emergency facilities mentioned above, and through direct support to prevent the failure of two specific institutions, American International Group (AIG) and Bear Stearns. The amount of assistance provided was an order of magnitude larger than normal Fed lending, as shown in Figure 1 . Total assistance from the Federal Reserve at the beginning of August 2007 was approximately $234 million provided through liquidity facilities, with no direct support given. In mid-December 2008, this number reached a high of $1.6 trillion, with a near-high of $108 billion given in direct support. From that point on, it fell steadily. Assistance provided through liquidity facilities fell below $100 billion in February 2010, when many facilities were allowed to expire, and support to specific institutions fell below $100 billion in January 2011. The last loan from the crisis was repaid on October 29, 2014. Central bank liquidity swaps (temporary currency exchanges between the Fed and central foreign banks) are the only facility created during the crisis still active, but they have not been used on a large scale since 2012. All assistance through expired facilities has been fully repaid with interest. In 2010, the Dodd-Frank Act changed Section 13(3) to rule out direct support to specific institutions in the future. From the introduction of its first emergency lending facility in December 2007 to the worsening of the crisis in September 2008, the Fed sterilized the effects of lending on its balance sheet (i.e., prevented the balance sheet from growing) by selling an offsetting amount of Treasury securities. After September 2008, assistance exceeded remaining Treasury holdings, and the Fed allowed its balance sheet to grow. Between September 2008 and November 2008, the Fed's balance sheet more than doubled in size, increasing from less than $1 trillion to more than $2 trillion. The loans and other assistance provided by the Federal Reserve to banks and nonbank institutions are considered assets on this balance sheet because they represent money owed to the Fed. With the federal funds rate at its zero bound and direct lending falling as financial conditions began to normalize in 2009, the Fed faced the decision of whether to try to provide additional monetary stimulus through unconventional measures. It did so through two unconventional tools—large-scale asset purchases (quantitative easing) and forward guidance. With short-term rates constrained by the zero bound, the Fed hoped to reduce long-term rates through large-scale asset purchases, which were popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE, buying U.S. Treasury securities, agency debt, and agency mortgage-backed securities (MBS). These securities now comprise most of the assets on the Fed's balance sheet. To understand the effect of quantitative easing on the economy, it is first necessary to describe its effect on the Fed's balance sheet. In 2009, the Fed's emergency lending declined rapidly as market conditions stabilized, which would have caused the balance sheet to decline if the Fed took no other action. Instead, asset purchases under the first round of QE (QE1) offset the decline in lending, and from November 2008 to November 2010, the overall size of the Fed's balance sheet did not vary by much. Its composition changed because of QE1, however—the amount of Fed loans outstanding fell to less than $50 billion at the end of 2010, whereas holdings of securities rose from less than $500 billion in November 2008 to more than $2 trillion in November 2010. The second round of QE, QE2, increased the Fed's balance sheet from $2.3 trillion in November 2010 to $2.9 trillion in mid-2011. It remained around that level until September 2012, when it began rising for the duration of the third round, QE3. It was about $4.5 trillion (comprised of $2.5 trillion of Treasury securities, $1.7 trillion MBS, and $0.4 trillion of agency debt) when QE3 ended in October 2014, and has remained at that level since. Table 1 summarizes the Fed's QE purchases. In total, the Fed's balance sheet increased by more than $2.5 trillion over the course of the three rounds of QE, making it about five times larger than it was before the crisis. This increase in the Fed's assets must be matched by a corresponding increase in the liabilities on its balance sheet. The Fed's liabilities mostly take the form of currency, bank reserves, and cash deposited by the U.S. Treasury at the Fed. QE has mainly resulted in an increase in bank reserves, from about $46 billion in August 2008 to $820 billion at the end of 2008. Since October 2009, bank reserves have exceeded $1 trillion, and they have been between $2.5 trillion and $2.8 trillion since 2014. The increase in bank reserves can be seen as the inevitable outcome of the increase in assets held by the Fed because the bank reserves, in effect, financed the Fed's asset purchases and loan programs. Reserves increase because when the Fed makes loans or purchases assets, it credits the proceeds to the recipients' reserve accounts at the Fed. The intended purpose of QE was to put downward pressure on long-term interest rates. Purchasing long-term Treasury securities and MBS should directly reduce the rates on those securities, all else equal. The hope is that a reduction in those rates feeds through to private borrowing rates throughout the economy, stimulating spending on interest-sensitive consumer durables, housing, and business investment in plant and equipment. Indeed, Treasury and mortgage rates have been unusually low since the crisis compared with the past few decades, although the timing of declines in those rates does not match up closely to the timing of asset purchases. Determining whether QE reduced rates more broadly and stimulated interest-sensitive spending requires controlling for other factors, such as the weak economy, which tends to reduce both rates and interest-sensitive spending. The increase in the Fed's balance sheet has the potential to be inflationary because bank reserves are a component of the portion of the money supply controlled by the Fed (called the monetary base ), which grew at an unprecedented pace during QE. In practice, overall measures of the money supply have not grown as quickly as the monetary base, and inflation has remained below the Fed's goal of 2% for most of the period since 2008. The growth in the monetary base has not translated into higher inflation because bank reserves have mostly remained deposited at the Fed and have not led to increased lending or asset purchases by banks. Another concern is that by holding large amounts of MBS, the Fed is allocating credit to the housing sector, putting the rest of the economy at a disadvantage compared with that sector. Advocates of MBS purchases note that housing was the sector of the economy most in need of stabilization, given the nature of the crisis (this argument becomes less persuasive as the housing market continues to rebound); that MBS markets are more liquid than most alternatives, limiting the potential for the Fed's purchases to be disruptive; and that the Fed is legally permitted to purchase few other assets, besides Treasury securities. On October 29, 2014, the Fed announced that it would stop making large-scale asset purchases at the end of the month. Now that QE is completed, attention has turned to the Fed's "exit strategy" from QE and zero interest rates. The Fed laid out its plans to normalize monetary policy in a statement in September 2014. It plans to continue implementing monetary policy by targeting the federal funds rate. The basic challenge to doing so is that the Fed cannot effectively alter the federal funds rate by altering reserve levels (as it did before the crisis) because QE has flooded the market with excess bank reserves. In other words, in the presence of more than $2 trillion in bank reserves, the market-clearing federal funds rate is close to zero even if the Fed would like it to be higher. The most straightforward way to return to normal monetary policy would be to remove those excess reserves by shrinking the balance sheet through asset sales. The Fed does not intend to sell any securities, however. Instead, it is gradually reducing the balance sheet by ceasing to roll over securities as they mature, which began in September 2017—almost three years after QE ended. Initially, it allowed only $6 billion of Treasuries and $4 billion of MBS to run off each month, which was gradually increased to $30 billion of Treasuries and $20 billion of MBS per month, where it will remain until normalization is completed. The Fed believes that it would only cease shrinking the balance sheet or use QE again in the future if it its ability to stimulate the economy using reductions in the federal funds rate were insufficient. The Fed intends to ultimately reduce the balance sheet until it holds "no more securities than necessary to implement monetary policy efficiently and effectively." The Fed has stated that it foresees a balance sheet size that is consistent with this goal will be larger than it was before the crisis. In part, that is because other liabilities on the Fed's balance sheet are larger—there is more currency in circulation now than there was before the crisis, and the Treasury has kept larger balances on average in its account at the Fed. But the balance sheet will also be significantly larger because the Fed decided in January 2019 to continue using its new method of targeting the federal funds rate even after normalization is completed. Under the new method, the federal funds rate is not determined by supply and demand in the market for bank reserves, and the Fed would prefer to maintain abundant bank reserves so that it does not have to use open market operations to respond to changes in banks' demand for reserves. By contrast, if it went back to the pre-crisis method of targeting the federal funds rate, only minimal excess reserve balances would be necessary (but perhaps more than before the crisis), so its balance sheet could be much smaller. The Fed has not yet announced when the wind-down will be completed or how large the balance sheet would be upon completion, but the January 2019 FOMC minutes noted the wind-down could be completed as soon as this year. In that case, the balance sheet would not be much smaller than its current size of $4 trillion when normalization is completed—more than four times larger than its pre-crisis size. Although the Fed has stated that it intends to eventually stop holding MBS, the Fed would still have sizable MBS holdings in 2025, according to projections from the New York Fed. In order to raise the federal funds rate in the presence of large reserves, the Fed has raised the two market interest rates that are close substitutes—it has directly raised the rate it pays banks on reserves held at the Fed and used large-scale reverse repurchase agreements (repos) to alter repo rates. In 2008, Congress granted the Fed the authority to pay interest on reserves. Because banks can earn interest on excess reserves by lending them in the federal funds market or by depositing them at the Fed, raising the interest rate on bank reserves should also raise the federal funds rate. In this way, the Fed can lock up excess liquidity to avoid any potentially inflationary effects because reserves kept at the Fed cannot be put to use by banks to finance activity in the broader economy. In practice, the interest rate that the Fed has paid banks on reserves has been slightly higher than the federal funds rate, which some have criticized as a subsidy to banks. Reverse repos are another tool for draining liquidity from the system and influencing short-term market rates. They drain liquidity from the financial system because cash is transferred from market participants to the Fed. As a result, interest rates in the repo market, one of the largest short-term lending markets, rise. The Fed has long conducted open market operations through the repo market, but since 2013 it has engaged in a much larger volume of reverse repos with a broader range of nonbank counterparties, including the government-sponsored enterprises (such as Fannie Mae and Freddie Mac) and certain money market funds, through a new Overnight Reverse Repurchase Operations Facility. The Fed is currently not capping the amount of overnight reverse repos offered through this facility. There has been some concern about the potential ramifications of the Fed becoming a dominant participant in this market and expanding its counterparties. For example, will counterparties only be willing to transact with the Fed in a panic, and will the Fed be exposed to counterparty risk with nonbanks that it does not regulate? The Fed has distinct roles as a central bank and a regulator. Its main regulatory responsibilities are as follows: B ank regulation . The Fed supervises bank holding companies (BHCs) and thrift holding companies (THCs), which include all large and thousands of small depositories, for safety and soundness. The Dodd-Frank Act requires the Fed to subject BHCs with more than $50 billion in consolidated assets to enhanced prudential regulation (i.e., stricter standards than are applied to similar firms) in an effort to mitigate the systemic risk they pose. The Fed is also the prudential regulator of U.S. branches of foreign banks and state banks that have elected to become members of the Federal Reserve System. Often in concert with the other banking regulators, it promulgates rules and supervisory guidelines that apply to banks in areas such as capital adequacy, and examines depository firms under its supervision to ensure that those rules are being followed and those firms are conducting business prudently. The Fed's supervisory authority includes consumer protection for banks under its jurisdiction that have $10 billion or less in assets. P rudential regulat ion of nonbank systemically important financial institutions . The Dodd-Frank Act allows the Financial Stability Oversight Council (FSOC) to designate nonbank financial firms as systemically important (SIFIs). Designated firms are supervised by the Fed for safety and soundness. Since enactment, the number of designated firms has ranged from four, initially, to none today. R egulation of the payment system . The Fed regulates the retail and wholesale payment system for safety and soundness. It also operates parts of the payment system, such as interbank settlements and check clearing. The Dodd-Frank Act subjects payment, clearing, and settlement systems designated as systemically important by the FSOC to enhanced supervision by the Fed (along with the Securities and Exchange Commission and the Commodity Futures Trading Commission, depending on the type of system). M argin requirements . The Fed sets margin requirements on the purchases of certain securities, such as stocks, in certain private transactions. The purpose of margin requirements is to mandate what proportion of the purchase can be made on credit. The Fed attempts to mitigate systemic risk and prevent financial instability through these regulatory responsibilities, as well as through its lender of last resort activities and participation on the FSOC (whose mandate is to identify risks and respond to emerging threats to financial stability). The Fed has focused more on attempting to mitigate systemic risk through its regulations since the financial crisis, and has also restructured its internal operations to facilitate a macroprudential approach to supervision and regulation.	[ "Congress has delegated responsibility for monetary policy to the Federal Reserve (the Fed), the nation's central bank, but retains oversight responsibilities for ensuring that the Fed is adhering to its statutory mandate of \"maximum employment, stable prices, and moderate long-term interest rates.\" To meet its price stability mandate, the Fed has set a longer-run goal of 2% inflation. The Fed's control over monetary policy stems from its exclusive ability to alter the money supply and credit conditions more broadly. Normally, the Fed conducts monetary policy by setting a target for the federal funds rate, the rate at which banks borrow and lend reserves on an overnight basis. It meets its target through open market operations, financial transactions traditionally involving U.S. Treasury securities. Beginning in 2007, the federal funds target was reduced from 5.25% to a range of 0% to 0.25% in December 2008, which economists call the zero lower bound. By historical standards, rates were kept unusually low for an unusually long time to mitigate the effects of the financial crisis and its aftermath. Starting in December 2015, the Fed has been raising interest rates and expects to gradually raise rates further. The Fed raised rates once in 2016, three times in 2017, and four times in 2018, by 0.25 percentage points each time. In light of increased economic uncertainty and financial volatility, the Fed announced in January 2019 that it would be \"patient\" before raising rates again. The Fed influences interest rates to affect interest-sensitive spending, such as business capital spending on plant and equipment, household spending on consumer durables, and residential investment. In addition, when interest rates diverge between countries, it causes capital flows that affect the exchange rate between foreign currencies and the dollar, which in turn affects spending on exports and imports. Through these channels, monetary policy can be used to stimulate or slow aggregate spending in the short run. In the long run, monetary policy mainly affects inflation. A low and stable rate of inflation promotes price transparency and, thereby, sounder economic decisions. The Fed's relative independence from Congress and the Administration has been justified by many economists on the grounds that it reduces political pressure to make monetary policy decisions that are inconsistent with a long-term focus on stable inflation. But independence reduces accountability to Congress and the Administration, and recent legislation and criticism of the Fed by the President has raised the question about the proper balance between the two. While the federal funds target was at the zero lower bound, the Fed attempted to provide additional stimulus through unsterilized purchases of Treasury and mortgage-backed securities (MBS), a practice popularly referred to as quantitative easing (QE). Between 2009 and 2014, the Fed undertook three rounds of QE. The third round was completed in October 2014, at which point the Fed's balance sheet was $4.5 trillion—five times its precrisis size. After QE ended, the Fed maintained the balance sheet at the same level until September 2017, when it began to very gradually reduce it to a more normal size. The Fed has raised interest rates in the presence of a large balance sheet through the use of two new tools—by paying banks interest on reserves held at the Fed and by engaging in reverse repurchase agreements (reverse repos) through a new overnight facility. In January 2019, the Fed announced that it would continue using these tools to set interest rates permanently, in which case the balance sheet may not get much smaller than its current size of $4 trillion. With regard to its mandate, the Fed believes that unemployment is currently lower than the rate that it considers consistent with maximum employment, and inflation is close to the Fed's 2% goal by the Fed's preferred measure. Even after recent rate increases, monetary policy is still considered expansionary. This monetary policy stance is unusually stimulative compared with policy in this stage of previous expansions, and is being coupled with a stimulative fiscal policy (larger structural budget deficit). Debate is currently focused on how quickly the Fed should raise rates. Some contend the greater risk is that raising rates too slowly at full employment will cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion." ]	7,241	gov_report	en	null	869b783e558515d3f1f318298e103eb58c947be52d085c71
The Buy American Act of 1933 was enacted during the Great Depression when there was a need to create and preserve jobs for American workers, and it established a preference for the federal government to buy domestic end products. Many of the products the federal government buys—including aircraft engines and medical supplies—are end products that may be subject to the requirements of the Buy American Act. Further, the Buy American Act does not apply to products that are purchased for use outside the United States or obtained through contracts under the micro-purchase threshold, which was generally $3,500 in fiscal year 2017. end products manufactured in the United States provided that (a) the product is a commercially available off-the-shelf item; or (b) the cost of the components mined, produced, or manufactured in the United States exceeds 50 percent of the total cost of all components. End products that are not considered domestic under the Buy American Act are treated as foreign. This characterization is based on the origin of the end product—that is, where the product is manufactured or produced—and not the vendor’s location. For example, a vendor located in Finland may supply end products manufactured in the United States, in which case these products would be treated as domestic products. Conversely, a vendor located in the United States may supply end products manufactured in Finland. In this case, the end products would be considered foreign. Although the Buy American Act establishes a preference for domestic end products, there are situations in which agencies can procure foreign end products through established exceptions to the Buy American requirements. In addition, under the Trade Agreements Act of 1979, the United States has waived domestic purchasing requirements—including the Buy American Act—for certain acquisitions of foreign end products from countries that are party to international trade agreements or are considered designated countries by the U.S. Trade Representative. In implementing the Buy American Act, the FAR sets forth several exceptions that permit federal agencies to buy foreign end products. These include situations when a domestic end product is not produced in sufficient quantities or cases where the cost would be unreasonable to buy a domestic end product. The steps that contracting officers must take to determine or document an exception will vary depending on the circumstances of the acquisition. For example, a written determination from the Head of Contracting Activity (HCA) or a delegate may be necessary to determine non-availability in some cases. However, a written determination may not be required when an acquisition is conducted through full and open competition, is synopsized, and no domestic offer is received. Other exceptions to the Buy American Act restrictions on the purchase of foreign products, such as the exception for commercial information technology, are blanket exceptions that do not require a written determination. In addition, some agencies have specified additional considerations that must precede a determination and what level of authority is appropriate for certain determinations. The five Buy American Act exceptions that apply government-wide and the corresponding determination standards in the FAR are listed in Table 1. Individual federal agencies may make blanket determinations of situations in which the Act’s restrictions should not apply to that agency’s procurements, when it is not in the public interest to restrict the purchase of foreign end products. For example, over the years, DOD has entered into reciprocal procurement agreements with 27 foreign counterparts. DOD determined that it would be inconsistent with the public interest to apply the Buy American Act restrictions on products from these 27 qualifying countries. Thus, if an offer includes end products from a qualifying country, those products are not restricted by the Buy American Act and the acquisition of qualifying country end products does not require higher approval. This public interest exception for qualifying countries applies only to contracts awarded by DOD. Federal agencies can purchase eligible foreign end products from designated countries when the Buy American Act’s requirements are waived because of the terms of an international trade agreement or other criteria, such as a designation by the U.S. Trade Representative as a least developed country. In accordance with the Trade Agreements Act of 1979, the president has the authority to waive the Buy American Act. For eligible products that come from countries covered by the World Trade Organization’s Government Procurement Agreement, Free Trade Agreements, and the Israeli Trade Act, the Buy American Act has been waived so that these items receive nondiscriminatory consideration and are on equal footing with domestic end products. In total, these agreements cover approximately 60 countries—overlapping with all but two of the DOD qualifying countries. Appendix II highlights the overlap. Unlike DOD’s blanket public interest exception for qualifying countries, the Buy American Act requirements are only waived under a trade agreement if the acquisition is of a certain value set by the U.S. Trade Representative. Current trade agreement thresholds, at or above which the requirements are waived, range from $25,000 for contracts for eligible products from Canada to $180,000 for the 45 other parties to the World Trade Organization’s Government Procurement Agreement. Table 2 lists the parties eligible for trade agreements and the associated threshold for supply contracts. The FAR specifies certain conditions in which trade agreements do not apply, even if the acquisition is above the requisite threshold value set by the U.S. Trade Representative. In these cases, the Buy American Act would apply. These conditions include, but are not limited to: acquisitions that do not use full and open competition, when the limitation of competition would preclude the procedures applicable to acquisitions covered by trade agreements; certain sole-source acquisitions for commercial items using simplified acquisition procedures; acquisitions set aside for small businesses; acquisition of ammunition, arms, or war materials, or for purchases indispensable for national security or national defense purposes; and acquisitions from federal prison industries or nonprofit agencies employing people who are blind or severely disabled. If the contracting officer determines that a trade agreement applies to a particular acquisition, which waives the Buy American restrictions, that determination does not require additional review at a higher level. This is similar to other circumstances where Buy American Act restrictions do not apply, such as for the acquisition of products for use outside the United States or contracts valued below the micro-purchase threshold. The Buy American Act’s applicability is based on the country of origin of the product being supplied, rather than the country of the vendor offering the product to the government. Vendors who propose to do business with the U.S. government are required to certify as to where their products are manufactured or produced—whether in the United States or in a designated country covered by the Trade Agreements Act. Vendors can provide an annual certification applicable to all of their contracts through the federal government’s contractor registry, known as the System for Award Management (SAM). Through SAM, a vendor identifies the country of origin for foreign products associated with a broad category of products. For example, a vendor could state that it provides aircraft components that originate in France and Mexico. Vendors also have the option not to certify the origin of their products in SAM, but instead provide information about foreign end products in their individual offers for contracts. Contracting officials include the relevant clauses in solicitations and contracts in accordance with regulation to require vendor certification. For example, the clause at FAR 52.225-2, Buy American Certificate, requires the offeror to certify that each end product is a domestic end product, or list any foreign end products and their country of origin. Once a contract is awarded, the awarding agency must enter certain information into FPDS-NG, a government-wide database for contract awards and obligations. The Office of Federal Procurement Policy (OFPP) within the Office of Management and Budget provides the overall direction for FPDS-NG, which is managed by the General Services Administration. FPDS-NG data can be populated through the individual systems agencies use to develop contracts. Agencies are responsible for the quality of the information transmitted to FPDS-NG, including data captured on the contract value and whether the foreign product acquisition is authorized by one of the Buy American Act exceptions or a trade agreement. This information is recorded at the contract level, or at the delivery order level for orders from indefinite delivery contracts. For certain product categories—essentially those that represent end products—FPDS-NG requires that contracting staff enter information in the “Place of Manufacture” drop-down data field, as shown in Figure 1. This field must be populated for all reported manufactured end products, including those valued under the micro-purchase threshold, which at the time of our review was generally $3,500. Options in this field include indicating that the product is made in the United States, or that it is made outside the United States and qualifies under one of the Buy American Act exceptions, or that it is subject to the requirements of a trade agreement instead of the Buy American Act requirements. In 2018, FPDS-NG data on agencies’ historical reporting of the use of Buy American exceptions were added to the website on which agencies post contracting opportunities (www.fbo.gov). According to OFPP, this allows vendors selling domestic products to more easily see how agencies acquire foreign goods pursuant to Buy American Act exceptions. In fiscal year 2017, the federal government obligated approximately $7.8 billion for the acquisition of foreign end products, which accounts for less than 5 percent of total federal contract obligations for end products in that year. We observed differences in how civilian agencies and DOD apply Buy American Act exceptions and waivers. In our review of 38 contracts and orders from four agencies—DOD, HHS, DHS, and VA—we found 6 instances where the place of manufacture information was misreported in FPDS-NG. We further identified system limitations in how FPDS-NG captures information. Based on our analysis of FPDS-NG data, almost 40 percent of federal contract obligations in fiscal year 2017—totaling approximately $196 billion—were for domestic and foreign end products, such as aircraft parts, that may be subject to the Buy American Act. Less than 5 percent of these obligations—approximately $7.8 billion—were reported as foreign end products. This is consistent with the information agencies reported in FPDS-NG in the previous 4 years, with foreign end products accounting for approximately 3 to 8 percent of goods subject to Buy American Act restrictions between fiscal years 2013 through 2016. The foreign end products in fiscal year 2017 primarily came from South Korea, the United Kingdom, Afghanistan, Canada, Mexico, and the United Arab Emirates, which together accounted for almost half of the total foreign end products reported. Appendix III shows the federal government’s obligations for foreign end products from various countries for fiscal year 2017. The procurement of foreign end products is permitted by the flexibilities available under the Buy American Act’s exceptions and waivers. Agencies also procured foreign end products through means separate from the exceptions allowed under the Buy American Act, primarily in cases where the Act would not apply. Agencies reported obligating more than $700 million to procure foreign end products by applying one of the five government-wide Buy American Act exceptions—such as domestic non-availability or unreasonable cost—in FPDS-NG for fiscal year 2017. Agencies reported obligating approximately $550 million to procure foreign end products as permitted by the Trade Agreements Act, which waives the Buy American Act’s domestic preference requirements for US trading partners when eligible products are covered by trade agreements and are above certain dollar thresholds. DOD also obligated nearly $2.9 billion to procure foreign products from countries with which it has reciprocal procurement agreements, using what is referred to as the DOD qualifying country exception. This is an exercise of the authority available to agencies under the Buy American Act’s public interest exception. DOD determined that it is not in the public interest to restrict the purchase of foreign end products from 27 countries. All but two of these qualifying countries are also US trading partners, so some of these awards for eligible products may be authorized by a trade agreement. However, the qualifying country exception allows DOD to procure foreign end products without regard to dollar thresholds or other trade agreement eligibility limitations. Agencies also procured foreign end products, such as fuel, to be used outside the United States, in which circumstance the Buy American Act’s requirements do not apply. For fiscal year 2017, these obligations accounted for almost $3.7 billion—about 47 percent of all dollars obligated for foreign end products, as reported in FPDS-NG. Figure 2 highlights fiscal year 2017 obligations, including agencies’ reported spending on foreign end products under the Buy American Act exceptions and other means. DOD accounted for more than 80 percent—roughly $6.4 billion—of the total obligations for foreign end products in fiscal year 2017. Almost all of DOD purchases were either for use outside of the United States, so were not subject to Buy American Act restrictions, or were reported under the public interest exception for DOD qualifying countries. In contrast, civilian agencies report a more varied mix of the exceptions and waivers of the Buy American Act. The civilian agencies—which are unable to apply DOD’s qualifying country exception—were more likely to report buying foreign end products based on trade agreements or another exception to the Buy American Act requirements. Figure 3 shows how DOD and the civilian agencies acquired foreign end products authorized by the various exceptions and waivers of the Buy American Act. From our review of FPDS-NG data, the civilian agencies are more likely to cite one of the five Buy American Act exceptions or a trade agreement waiver when buying foreign end products, and thus take corresponding actions to document or approve the authority cited. For example, in our review of contracts from four agencies, VA obligated $71,000 for medical imaging equipment from Canada, and had to consider whether a trade agreement waiver applied. The manufacturer was determined to be the only source available and the contracting officer determined the acquisition was authorized by a Buy American exception based on domestic non-availability, which can require additional review. In contrast, DOD may make a similar contract award for equipment from Canada based on the qualifying countries exception. DOD acquisitions, then, may be authorized by exceptions such as domestic non-availability when a required item does not come from a qualifying country. For example, we reviewed a $744,000 DOD award for vehicle equipment that was only available from South Africa—which is not one of the DOD qualifying countries and not covered by any of the trade agreements—so the acquisition was authorized by the domestic non-availability exception. In addition, the civilian agencies also reported buying foreign end products for use outside the United States but to a lesser extent than DOD. For example, this included one of the contracts we reviewed, an HHS award for Ebola vaccines manufactured in the Netherlands, with $44.7 million obligated in fiscal year 2017. This contract was reported as used outside the United States because it is primarily stored overseas. FPDS-NG is the primary means for capturing procurement data regarding the Buy American Act, but we found that agencies may not always input reliable information on the extent to which exceptions or waivers authorized the acquisition of foreign end products. In addition, some aspects of how FPDS-NG is structured could lead to additional data reporting errors. In the non-generalizable sample of 38 contracts and orders we examined from DOD, HHS, DHS, and VA, we found 6 awards where information related to the Buy American Act was incorrectly reported in FPDS-NG. In three of the six contracts, agencies recorded the wrong exception or waiver, most often because of an error when reporting the place of manufacture in FPDS-NG. For example, DOD reported a $22,000 contract for vehicle equipment from South Africa as a Buy American Act exception due to unreasonable cost. But the contract file indicated that the exception that applied was domestic non-availability. DOD officials acknowledged the error and corrected it in FPDS-NG during the course of our review. In the three remaining contracts, agencies misreported whether an end product came from the United States or another country. For example, DHS incorrectly recorded that an $18 million contract was for aircraft accessories and other parts manufactured in the United States, even though file documentation showed the contract was for Italian-produced spare parts from the original equipment manufacturer. The Italian- produced spare parts were available from existing inventory maintained by the manufacturer and were needed immediately to meet a mandatory operational requirement. Officials from DHS acknowledged the recording oversight, attributed it to a mistake when entering information in FPDS- NG, and have since corrected the error in response to our observation. Additionally, FPDS-NG has system limitations that could hinder complete and accurate reporting of Buy American Act information: DOD Qualifying Country Exceptions and Trade Agreement Waivers. FPDS-NG requires that information on the type of Buy American Act exception or waiver applied be provided when end products are reported as foreign. But FPDS-NG does not identify errors associated with this process. For example, we reviewed an $8.3 million DHS contract for engines manufactured in Germany that was recorded as a DOD qualifying country exception in FPDS-NG, although this exception is not available to civilian agencies. Contracting officials corrected the data in FPDS-NG during the course of our review. Further, FPDS-NG does not prevent agencies from reporting trade agreement waivers when the contracts are valued below applicable thresholds or waivers do not apply, such as for small business set asides. For example, in the fiscal year 2017 data we reviewed, more than 5 percent of contract obligations reported for trade agreement waivers were for awards set-aside for small businesses, which would not be eligible under the Trade Agreements Act. OFPP officials noted that because of the various dollar thresholds applicable to different trade agreements, adding automatic thresholds in FPDS-NG to guide contracting staff in reporting an applicable trade agreement could lead to additional data errors in the procurement database. Awards under the Micro-purchase Threshold. Although the Buy American Act requirements do not apply to contract awards valued below the micro-purchase threshold—generally $3,500 in fiscal year 2017—the FPDS-NG ‘Place of Manufacture’ field does not have an option to indicate whether a contract is under the threshold. Instead, contracting officers entering information for awards under the micro- purchase amount must still state whether the product is domestic or foreign. If the product is foreign, the officials must select a Buy American Act exception authorizing the purchase, even though no exception is needed at these dollar levels. As a result, when agencies report in FPDS-NG that a Buy American Act exception or waiver applied for a procurement valued at less than $3,500, that information would not be accurate. Based on our review, this may have involved about $16 million in fiscal year 2017 obligations. Awards for both Foreign and Domestic Products. When reporting data for contracts that include multiple end products from both the United States and a foreign country, FPDS-NG only allows for one country of origin to be identified. Contracting officers told us that they typically will report a foreign end product in FPDS-NG when the foreign products account for the preponderance of the contract value. Thus, in cases where a contract includes foreign end products that do not account for the preponderance of the contract’s value, the value of these foreign end products would not be reported in FPDS-NG. We have previously reported that FPDS-NG has similar limitations in other fields, such the type of product or service provided, which prevent contracting officers from identifying more than one condition. According to OFPP, a recent change in the FAR requiring contract reporting at the line item level should provide greater transparency of all products included in a contract. Buy American Act Exceptions and Waivers under Indefinite Delivery Contracts. The way FPDS-NG captures data for Buy American Act exceptions and waivers for some indefinite-delivery contracts results in inaccurate data reporting. When an indefinite- delivery contract is initially awarded, FPDS-NG functionality does not give contracting staff the option to enter information for the ‘Place of Manufacture’ field. Instead, this information is typically captured once an order is placed on the contract. In our review of FPDS-NG data across the four agencies, however, we found that in some cases obligations are reported on the initial indefinite delivery contract so the Buy American Act exceptions or waivers are not recorded. This occurred with multiple agencies, but particularly at HHS, where information for almost 28 percent of HHS obligations for end products in fiscal year 2017 was not captured in FPDS-NG because the obligations were reported in the system through the initial contracts rather than orders. As a result, the applicability of the Buy American Act for HHS contracts totaling almost $1.9 billion in fiscal year 2017 was unreported in FPDS-NG. DOD, DHS, and VA officials told us they identified FPDS-NG reporting as an area of concern. GAO Standards for Internal Controls in the Federal Government state that management should use quality information to support objectives, and that such data should be complete and accurate. In response to the 2017 Executive Order calling for federal agencies to assess their implementation of the Buy American Act requirement, OFPP officials told us they are identifying potential strategies for improving the information agencies submit to FPDS-NG. As OFPP weighs potential options for FPDS-NG reporting, implementing enhancements to reduce data entry errors and ensure that the data collected are complete and accurate would help enable the system to provide the most useful information possible. Ensuring information is correctly reported in FPDS- NG is critical because the data are used to inform procurement policy decisions and facilitate congressional oversight. The four agencies we reviewed—DOD, HHS, DHS, and VA—took different approaches to provide training and guidance for the Buy American Act requirements. Contracting officers faced challenges when procuring products subject to the Buy American Act. For example, we found instances in which contracting officers applied a waiver or exception to contracts where the waiver did not apply and did not have complete guidance for required determinations or reviews. There also were challenges in confirming product origin information when vendors did not provide consistent information. The four agencies we reviewed varied in the mix of training and guidance provided to aid contracting officers in implementing the requirements of the Buy American Act. Three of the four agencies—DOD, DHS and VA— supplemented the federal acquisition regulation, which implements the requirements of the Buy American Act and Trade Agreements Act, with their own acquisition regulations. In addition, DHS and DOD have recently updated existing training or added new training and guidance. VA issued policy memoranda in 2017, emphasizing the importance of meeting Buy American Act requirements, but has not added training or provided specific guidance. HHS does not provide department-level training or guidance related to the Buy American Act. Most of the DHS and DOD contracting officers we spoke to reported that they had attended training and several found the guidance provided by the training to be helpful. HHS and VA contracting officials described confusion due to the lack of resources available at their respective agencies. In 2017, in response to a series of recommendations from the DOD Inspector General to re-emphasize Buy American Act training and guidance, the Defense Acquisition University introduced an updated training course that specifically focuses on the requirements and implementation of the Buy American Act. While not mandatory, a June 2017 memo notified all DOD services and the defense agencies that members of their contracting workforce should complete this training as part of their professional development. At the current pace of enrollment, DOD officials anticipate approximately 18,000 people will have taken this course by the end of September 2018, which is a seven-fold increase over previous graduation rates. Incorporated into these trainings were supplemental on-the-job tools to assist contracting officers when awarding contracts for end products subject to the Buy American Act requirements. One such tool is a flowchart outlining applicable solicitation provisions or contract clauses based upon the awarded contract’s total dollar value. DOD contracting officials we interviewed from Defense Logistics Agency’s (DLA) Land and Maritime division had completed the agency-level Buy American Act training and said it served as a good refresher, with some noting that most of the training they had received on the subject came when they were first hired. DOD provides regulations and guidance on Buy American Act requirements through both the Defense Federal Acquisition Regulation Supplement (DFARS) and the accompanying Procedures, Guidance and Information. DOD contracting officers use the provisions and clauses in DFARS to address the public interest exception for DOD qualifying countries. In addition, as a part of the updated training, the Defense Pricing and Contracting Office developed two documents to provide additional Buy American Act guidance. One outlines a step-by-step approach contracting officers can follow to determine whether the Buy American Act applies to their particular procurement and, if so, whether the use of an exception or waiver is appropriate. The second assists contracting officers with evaluating all offers—foreign and domestic— when price is the determining factor. In addition, we found that DLA supplements the available Defense Acquisition University training and guidance with a robust level of support, including annual training and subject matter expertise. DLA contracting officers told us that while they found the updated training helpful, they also appreciated the training course internal to their agency, as it addresses the types of procurements they typically handle in their day-to- day work, such as buying spare parts. Further, DLA contracting officers noted that they use the job aid provided through the local training. DHS introduced training courses in 2017 that specifically focus on the requirements and implementation of the Buy American Act, including a mandatory training course for DHS contracting officers. DHS reported that 94 percent of contracting staff had taken the required course as of April 2018. DHS developed these courses in response to the 2017 Executive Order to ensure its staff was familiar with the Buy American Act requirements. Incorporated into these training courses are supplemental on-the-job tools to assist contracting officers when awarding contracts for end products subject to the Buy American Act requirements, such as a flowchart outlining applicable solicitation provisions or contract clauses based upon contract dollar value. Contracting officials generally view the training and tools they received as beneficial. For example, several DHS contracting officials we interviewed said that the agency’s new course provided a helpful review on the topic, while one contracting officer specifically noted that the course materials are useful to new staff, to help them understand the Act’s waivers and exceptions. DHS also revised its acquisition manual in December 2017 to add further detail regarding the Buy American Act requirements. Specifically, DHS updated its acquisition manual to provide contracting officers more explicit FPDS-NG reporting instructions for procurements subject to the Buy American Act, as well as discretion to purchase domestic end products at or below the micro-purchase threshold. Additional changes include increasing the documentation and level of managerial review required to use several of the exceptions to the Buy American Act. For example, prior to 2018—which includes the time period in which the DHS contracts and orders we reviewed were awarded—the head of individual contracting offices had the authority to approve domestic non-availability and unreasonable cost exceptions, with a notification made to the DHS Chief Procurement Officer. But under the new policy, the use of these exceptions must have the concurrence of the HCA—who is responsible for contracting activities within individual DHS components—and be approved by the department’s Chief Procurement Officer. Table 3 outlines these changes. In September 2017, VA issued guidance to reinforce existing Buy American Act requirements. The policy memorandum encourages the HCAs within VA to institute reviews of awarded contracts subject to the Buy American Act to ensure compliance. As of September 2018, policy officials did not know how many HCAs had taken this step. Further, the guidance emphasizes the importance of Buy American Act training for its acquisition workforce. VA policy officials explained that the Buy American Act is introduced in several VA training courses, but the agency does not have a specific course on implementing the Buy American Act requirements or provide additional instruction or tools. During the course of our review, VA officials said that some of the HCAs had added internal training on the Buy American Act. In addition, VA contracting staff has the option of taking training offered outside the agency, such as the updated Defense Acquisition University course on the Buy American Act. This training is not required. Contracting officials we spoke to at VA said they struggled with the details of awarding contracts subject to Buy American Act requirements because they are not provided sufficient agency-specific training and guidance on the topic. Moreover, several contracting staff noted an increased need for training due to recent changes in VA contracting practices. Specifically, in response to a 2016 Supreme Court decision, VA has increased contracting efforts with veteran-owned small businesses through the Veterans First Contracting Program. As a result, contracting officials explained they have reduced their use of schedule contracts, in which the determinations related to the Buy American Act requirements were made with the initial awards. As one contracting officer explained, prior to this change, more than 90 percent of her division’s procurements were through VA schedule contracts in which Buy American Act applicability had already been established. However, this shift in contracting practices means contracting officers will more frequently need to consider the applicability of the Buy American Act, but contracting officers have not received specific guidance or training to do so. Noting the significance of this change, one contracting officer stated she approached VA management to obtain Buy American Act training for her division, but such training was not available. Federal internal controls state that agencies should ensure that training is aimed at developing and retaining employee knowledge, skills, and abilities to meet changing organizational needs. In September 2018, we reported that VA was experiencing difficulties implementing multiple aspects of the Veterans First policy, and we recommended that VA provide more targeted implementation training. As VA moves forward to implement this training, incorporating the Buy American Act requirements will be important to provide greater assurance that staff has the knowledge and skills needed to navigate the changing procurement environment. HHS does not have agency-level Buy American training or guidance. The HHS Acquisition Regulation Supplement does not address foreign acquisitions. HHS officials told us that efforts to develop guidance that would address Buy American Act requirements are underway, but they do not know when they will be finalized and made available to contracting officers, and could not describe the extent to which they will address Buy American Act implementation. The HHS contracting officers we interviewed discussed informal Buy American Act training their divisions had developed because department-level training was not available. For example, at HHS’ National Institutes of Health, a contracting official told us about a training course she recently developed because her office was taking on the administration of additional contracts for which the Buy American Act requirements would apply. Contracting officers at HHS’ Office of Biomedical Advanced Research and Development Authority described informal training on the agency’s contract writing system— included as part of their weekly internal staff meetings—that provides additional guidance on how to appropriately complete certain data fields relevant to the Buy American Act. In our analysis of 38 contracts from across the four agencies, we found that agencies faced various levels of challenge in applying the Trade Agreements Act waivers and Buy American Act exceptions to acquire foreign end products. This was particularly apparent in cases where contracting officers had to determine if a trade agreement applied or cases which required a determination that a domestic end product was not sufficiently available, in accordance with the domestic non-availability exception to the Buy American Act requirements. Contracting staff also had difficulty determining the origin of products in light of incomplete or conflicting information. Of the six contracts we reviewed reporting that a trade agreement applied to the foreign end products purchased, we found two cases in which this waiver did not apply to the contracts in question. The value of the contract is one determining factor for whether a trade agreement waives the Buy American Act requirements, although the FAR also states additional factors that would affect applicability under a trade agreement. The two contracts we found, both from VA, had total dollar values at award— $8,435 and $11,950, respectively—that were less than any of the thresholds at which trade agreement waivers of the Buy American Act are applicable. Both contracts were for products from countries that are party to the World Trade Organization Government Procurement Agreement, so the value of the acquisition would have to be equal to or exceed $191,000—the threshold that was in effect at the time of award—for waivers from Buy American requirements to apply. Contracting officials in both cases were generally unaware that the applicable threshold was not met, making the trade agreement waiver inapplicable. Although VA has added Buy American Act guidance since these contracts were awarded early in fiscal year 2017, the information currently available does not provide sufficient detail to assist contracting officers when awarding contracts in these situations. For example, the guidance VA provided contracting officers in September 2017 does not emphasize consideration of the applicable trade agreement thresholds or include information on how contracting officers should determine the applicable waiver or exception. When contracting officers procure foreign end products, the type of waiver or exception used to support the purchase matters—particularly when required additional steps and review are not completed because the wrong waiver or exception was applied. We found that the two VA contracts with foreign end products were incorrectly reported as the Trade Agreements Act waiver having applied. If one of the other Buy American Act exceptions permitting purchases of foreign end products had applied, contracting officers may have been required to obtain higher-level review or complete a written determination. In addition, we reviewed contracts that show some of the complexities contracting officers face beyond applying the dollar thresholds when determining if an award for foreign end products is eligible under the Trade Agreements Act waiver of the Buy American Act. Specifically, we found instances where DHS contracting officials took different approaches for non-competed awards for similar foreign-manufactured products. For example, we reviewed a non-competed $58 million DHS award for acquiring spare aircraft parts from an original equipment manufacturer located in a foreign country that is party to the World Trade Organization Government Procurement Agreement. DHS reported in FPDS-NG that the procurement was waived by the Trade Agreements Act. However, we also reviewed two other sole-source awards from DHS for similar products—spare aircraft parts from two separate manufacturers in foreign countries that are also party to the World Trade Organization Government Procurement Agreement—that were instead reported as subject to the Buy American Act, but excepted due to the non-availability of domestic products. Contracting officers may come to different conclusions for similar products, in part, because of the multiple factors that have to be considered when determining whether an acquisition is subject to the Buy American Act and whether any waivers or exceptions apply. However, available guidance does not always address these complexities. For example, agencies need to decide if other conditions, such as the procurement of products deemed indispensable for national security or national defense purposes apply to an acquisition that would make a trade agreement inapplicable. Further, if the product’s country of origin is considered a designated country under the World Trade Organization Government Procurement Agreement, officials need to determine that the product is eligible under that agreement. DHS updated its training and guidance for the Buy American Act, which includes a job aid outlining at what dollar values solicitation provisions and contract clauses under a trade agreement waiver are applicable. However, it does not address other situations in which contracts may not be eligible under the Trade Agreements Act, such as non-eligible products or products for national defense purposes. For the other agencies in our review, we found that DOD’s updated Buy American Act training and its acquisition supplement both address trade agreement eligibility, but HHS does not yet have Buy American guidance to address this topic. Federal internal control standards state that agencies should communicate quality information internally to achieve their objectives and that they should select the appropriate methods of communication. When written guidance is not available, agencies may miss opportunities to ensure appropriate steps are taken to meet Buy American Act requirements. Our review of 38 contracts also included 8 contracts for foreign end products pursuant to the domestic non-availability exception. In certain situations, such as when contracts are awarded without full and open competition, this exception requires an approved written determination. The FAR establishes requirements for domestic non-availability determinations, but agencies can delegate the level of review required or specify information to be included in the determination. Three of the agencies we reviewed—DOD, DHS, and VA—provide supplemental guidance on the process for making determinations, including who must make the determination when applying a domestic non-availability exception. However, DHS policy officials told us that when the agency uses the domestic non-availability exception for a sole-source acquisition, the written justification that the FAR requires for non- competed awards should suffice as the documentation to support the non-availability determination as well. The practice of using sole-source justifications to support Buy American determinations is not addressed in DHS guidance. According to DHS policy updated in 2018, determinations of domestic non-availability must be concurred with by the HCA and approved by the Chief Procurement Officer. Federal and DHS acquisition regulations, however, state that some justifications can be approved at a lower level. In the absence of further guidance, this difference in approval levels could result in inconsistent application within the department. In addition, as previously noted HHS does not yet have Buy American Act guidance so the department does not provide information on how to make determinations. According to federal internal control standards, agencies should communicate quality information internally to achieve their objectives and that they should select appropriate communication methods. When written guidance is not available, agencies may miss opportunities to ensure that contracting officers take the steps needed to meet requirements when applying a domestic non-availability exception. Knowing the country of origin of the products the federal government buys is necessary to implement the Buy American Act, but contracting officers do not always have access to accurate information on originating countries. The FAR and the DFARS provide various clauses which, when incorporated into contracts, require vendors to certify that the end products they provide to the government are domestic and, if necessary, declare the foreign countries from which they provide products. Vendors frequently certify this information through the System for Award Management (SAM), the government-wide system used to collect vendors’ annual representations and certifications. Contracting officers may rely on the information vendors provide about their product origins, but they are generally expected to take actions to verify incomplete or conflicting information when they have reason to believe that a vendor will be providing a non-compliant product. We found that SAM certifications and offers did not always include accurate information on end products from foreign countries. In 6 of the 38 contracts that we reviewed—from DHS, HHS, and VA—the vendors certified that they only provided domestic end products although the end products provided were foreign. In all of these cases, the contracting officers knew that the acquisitions included foreign end products. For example, we reviewed two DHS awards for spare aircraft parts from an Italian-based company, one of which was reported in FPDS-NG under the domestic non-availability exception to the Buy American Act, and the other which was incorrectly reported as being manufactured in the United States but has since been corrected. Contracting officials said they knew the parts were made in Italy based on extensive experience contracting with the company and, in part, because they had visited the production location. Contracting officials—including some at HHS and VA—said they use SAM as their primary source to determine whether the vendor is offering domestic end products. Others reported some awareness of the limitations of SAM certifications. At all four agencies, contracting officials emphasized that it is important to ask questions when end product origin information is not readily available—or if there is conflicting information—but agency guidance that we reviewed does not address this need or provide information on how to do so. Only the local training offered by DOD’s DLA addresses other sources of information, which officials said was helpful because it is specific to the industries with which they work. Instead, some officials described how they rely on their experience to know how to verify products’ origins but this can be problematic, particularly with newer staff. For example, in one contract we reviewed VA contracting officials acknowledged that a new contracting specialist at VA did not follow-up when the product origin certification was not provided and assumed all of the items procured were domestic. During the course of our review, the contracting specialist’s supervisor said that she contacted the vendor and learned that some of the items provided were in fact foreign end products. The foreign products were not considered to account for the preponderance of the contract so were not reported in FPDS-NG, but the contracting officer was acting with incomplete information at the time of award. Further, in 4 of the 38 contracts that we reviewed, it is not clear how contracting staff took steps to obtain product origin information in situations where it was not provided in SAM. In these cases—which include contracts for both domestic and foreign end products—the vendors had opted not to certify their product origins in SAM, but instead said that they would provide the information with their individual proposals. However, based on the information in the contract files, the proposals did not include this information. For example: Three of the contracts we reviewed from HHS—all reported as purchasing end items manufactured in the United States—did not certify product origin in SAM. The supervising contracting officer for two of the awards explained that his contracting staff regularly check the vendor’s written representations and certifications provided in the offer, because the SAM certifications are general and do not always apply to the specific equipment they buy. However, the three contract files we reviewed did not include manufacturing or origin information. The vendor for a DHS contract that was reported as manufactured in the United States did not certify this information in SAM. The contracting officer said that he checks SAM for product origin information, but in the documents we reviewed there is no evidence of the information in the contract file. Federal internal control standards state that agencies should communicate the necessary quality information needed to achieve the agency’s objectives, thereby enabling personnel to address risks. Providing guidance regarding the situations in which contracting officers should verify product origin information with vendors may help agencies better meet the requirements of the Buy American Act. Although purchases for foreign end products account for less than 5 percent of federal procurement spending in fiscal year 2017, it is important that these purchases be consistent with the domestic- purchasing restrictions in the Buy American Act. This requires that Buy American Act exceptions and trade agreement waivers be used only when applicable, and that agencies report accurate data on the extent to which they are used. However, data reporting errors by contracting staff and FPDS-NG limitations mean that data on the use of exceptions and waivers are not fully captured. The federal agencies all have responsibilities to ensure Buy American Act data are accurate and complete. The lack of good data can hinder congressional oversight of the extent to which foreign end products are procured as authorized by one of the exceptions or waivers of the Buy American Act. Agencies have taken varied approaches for providing information to contracting officers that navigate the complexities and nuances associated with applying the different Buy American Act exceptions or trade agreement waivers. DOD has added such detailed information through its revised training course and policy guidance. Adding these types of targeted information to address challenging areas would help contracting officers at other agencies implement the Buy American Act’s domestic preferences, as well as related exceptions and waivers. Further, to accurately determine how exceptions and waivers apply requires complete product origin information. Although the responsibility to certify the origins of products supplied to the federal government rests with the contractors, contracting officers would benefit from resources that help them identify information that may be inconsistent, to ensure that accurate information is available. We are making four recommendations, one each to the Office of Management and Budget, DHS, VA, and HHS. The Director of the Office of Management and Budget should instruct the Office of Federal Procurement Policy: To facilitate additional training to improve the understanding of the contracting workforce regarding the Buy American Act requirements; and To facilitate clarifying revisions to FPDS-NG, where needed, and provide training and guidance for recording Buy American Act information in FPDS-NG to improve the accuracy of the Buy American data. (Recommendation 1) The Secretary of Homeland Security should clarify existing guidance in the Homeland Security Acquisition Manual or update training to help contracting officials: Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; Document determinations of the use of Buy American exception for domestic non-availability and ensure the required approvals are obtained, particularly when such determinations are evidenced through justifications for other than full and open competition; and Identify sources of information available for determining product origin and the steps they should take to verify information that is inconsistent. (Recommendation 2) The Secretary of Veterans Affairs should clarify existing guidance, or provide training or other instruction, to help contracting officials: Address the applicability of the Buy American Act requirements and provide instruction on how to implement the requirements, including in any training developed to implement the Veterans First policy; Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; and Identify sources of information available for determining products’ origins and the steps they should take to verify information that is inconsistent. (Recommendation 3) The Secretary of Health and Human Services should provide guidance, training, or other instruction to help contracting officials: Identify the factors that should be considered in order to determine the applicability of the Trade Agreements Act and waiver of the Buy American Act; Document determinations of the use of Buy American exceptions for domestic non-availability and ensure the required approvals are obtained; and Identify sources of information available for determining products’ origins and the steps they should take to verify information that is inconsistent. (Recommendation 4) We provided a draft of this report to DOD, HHS, DHS, VA, and the Office of Management and Budget for review and comment. DOD reviewed the report, but did not offer comments. HHS, DHS, and VA provided written responses, which are reproduced in Appendices IV, V, and VI of this report, respectively. A senior official within the Office of Federal Procurement Policy (OFPP) at the Office of Management and Budget provided a response via email. In addition, HHS, DHS, and OFPP provided technical comments, which we incorporated into the report where appropriate. In their responses, HHS, DHS, VA agreed, and OFPP generally agreed, with our findings and recommendations. The written response from HHS and DHS included information on the steps each agency plans to take to address the recommendations. Specifically, HHS stated that the agency will evaluate ways to provide additional training and guidance to contracting officials. DHS stated that it will provide guidance on the applicability of the Buy American Act and the Trade Agreements Act in certain situations and the documentation and approvals required when awarding non-competed contracts that require an exception. Additionally, DHS plans to update training regarding actions contracting officers should take when there are discrepancies in product origin information. VA concurred with our three-part recommendation and described some of the actions the agency plans to take in response. However, VA’s comments do not fully address our recommendation. Specifically, we recommended that VA clarify guidance or provide training to identify factors that could help contracting officers determine the applicability of Trade Agreements Act waivers of the Buy American Act. The comments from VA, however, only restate the existing Buy American Act exceptions and make no mention of Trade Agreements Act waivers. Further, we recommended that VA identify sources of information regarding product origin and the steps to be taken to verify inconsistent product origin information. VA’s response only noted that contracting officers are responsible for conducting market research and ensuring that all product origin requirements are met. VA did not outline any additional steps the agency would take to help contracting officers navigate the complexities inherent in this area. Going forward, VA will need to develop a more robust and responsive approach in order to fully implement our recommendation. We are sending copies of this report to the appropriate congressional committees; the Secretaries of the Departments of Defense, Health and Human Services, Homeland Security, and Veterans Affairs; the Director of the Office of Management and Budget; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-4841 or woodsw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII. The objectives of this report are to assess the extent to which (1) the federal government procures foreign products through Buy American Act exceptions and waivers; and (2) selected agencies provide training and guidance to implement the Buy American Act requirements. To address both of these objectives, we reviewed relevant laws and policies, such as sections of the Federal Acquisition Regulation (FAR); the Buy American Act as amended; the Trade Agreements Act of 1979 as amended; federal acquisition regulation supplements from audited agencies such as the Department of Defense Federal Acquisition Regulation Supplement (DFARS); the Executive Order “Buy American, Hire American” of 2017; the World Trade Organization’s Agreement on Government Procurement; and memorandums, policy, guidance, and instructions related to the Buy American Act. To assess the federal government procurement of foreign products, including those procured through citing exceptions and waivers of the Buy American Act, we analyzed data from the Federal Procurement Data System-Next Generation (FPDS-NG) for fiscal year 2017, which was the most recent and complete data available at the time of our review. We analyzed procurement data in FPDS-NG across the federal government in fields relevant to the Buy American Act’s domestic preference requirements, including the product service code, country of product origin, and place of manufacture, in addition to fields such as the contract value and dollars obligated. We reviewed the place of manufacture field in particular as it contains information on how the Buy American Act applies to the contract, including whether the preponderance of the obligations is for manufactured end products and, if so, whether they are manufactured in or outside of the United States. When manufactured outside of the United States, this field also captures the reason the purchase was permissible, which we analyzed to assess the dollar obligations associated with the various Buy American exceptions or trade agreement waiver reported, as well as when products were used outside of the United States. We also analyzed data from FPDS-NG to identify the countries where foreign end products were reported to be manufactured and the associated dollars obligated in fiscal year 2017. In addition, we met with officials from the Office of Management and Budget, Office of Federal Procurement Policy to better understand ongoing reviews of the data in FPDS-NG that pertains to the Buy American Act. In our analysis of FPDS-NG data, we took steps to minimize issues that might affect data reliability. Specifically, we analyzed FPDS-NG data to identify potential errors and inconsistencies, such as non-eligible agencies reporting the use of exceptions for DOD qualifying countries, or reporting trade agreement waivers for contracts valued less than minimum thresholds for trade agreements. We made minor adjustments to minimize potential data reporting issues, including aggregating the exceptions reported, and where appropriate, limiting our analysis to one year of data, fiscal year 2017. Based on these steps, we determined that FPDS-NG data were sufficiently reliable to allow us to calculate the approximate extent of obligations for foreign end products and the use of the Buy American Act exceptions and the Trade Agreements Act waiver. However, we are unable to precisely determine the amount spent on foreign end products through the use of exceptions and waivers because of the reporting errors and data system limitations we identified in this report. Using FPDS-ND data, we identified four agencies—the Departments of Defense (DOD), Health and Human Services (HHS), Homeland Security (DHS), and Veterans Affairs (VA)—that had the highest fiscal year 2017 obligations in the product codes for manufactured products, which are potentially subject to the Buy American Act restrictions. In addition, to identify trends and determine if there were variations in reported obligations for foreign end products in the past, we reviewed FPDS-NG data on the Buy American exceptions and trade agreement waivers in fiscal years 2013 through 2017. To assess the extent to which selected agencies are providing training and guidance to implement the requirements of the Buy American Act, we reviewed training course materials and regulations, policies, and other guidance available at the four agencies in our review—DOD, HHS, DHS, and VA—to determine the extent to which they address the Buy American Act requirements. In addition, we reviewed training materials available to government employees through sources such as the Federal Acquisition Institute. We interviewed policy officials from the four agencies to understand how training and guidance had been implemented. We further reviewed relevant inspector general reports from the DOD Inspector General issued between 2015 and 2018, which made several recommendations to improve compliance with the Buy American Act, among other requirements. Within the four agencies, we selected contracting offices that reported obligating fiscal year 2017 dollars for awards with foreign end products and awards with US-manufactured end products. We specifically focused on offices that reported a sufficient amount of foreign end product obligations and a sufficient number of contract awards to allow us to select multiple contracts. We also considered offices with a variety of Buy American exceptions and waiver types reported, in order to select a mix of contracts. The contracting offices selected were as follows: DOD: Defense Logistics Agency, Land and Maritime HHS: National Institutes of Health and the HHS Office of the Assistant Secretary for Preparedness and Response DHS: United States Coast Guard VA: Veterans Health Administration From these offices, we selected a non-generalizable sample of 38 contracts and delivery orders awarded in fiscal year 2017. At each agency, we selected awards to include a mix of end items produced by domestic and foreign manufacturers and, when products were reported as foreign manufactured, a mix of the various exceptions and waivers cited. We also include awards across a range of value for dollars obligated above the micro purchase threshold—ranging from approximately $5,000 to more than $100 million—to ensure we reviewed awards both above and below the various thresholds at which the Trade Agreements Act waiver might apply. Additionally, our sample included awards for similar types of end products across agencies, including aircraft parts at DOD and DHS and medical supplies at HHS and VA, to compare practices in different agencies. We originally selected 40 awards for review—10 from each agency—but removed two awards from our sample. One was an HHS award that we determined was awarded using Other Transaction Authority and was not subject to the Buy American Act. The second excluded contract was from DHS, which was modified after award to reflect that it was an information technology service rather than a product. As a service, it would not be subject to the Buy American Act. We reviewed the contract files for each of the 38 awards in our sample, including documentation such as the contract and task order award, solicitations, vendors’ offers or response to proposals, determination and finding memos, and FPDS-NG output documents. In addition, we reviewed the certifications each vendor provided in the System for Award Management (SAM) at the time of contract award. We interviewed contracting officials responsible for each of the 38 contracts and task orders to understand how they addressed the Buy American Act requirements, including how they determined exception or waiver applicability and product origin. We also reviewed any agency-specific or local training and guidance, tools, or job aids available to assist contracting officers in implementing the Act’s requirements We conducted this performance audit from October 2017 to December 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on audit objectives. The United States maintains trade relationships with other countries whose specific negotiated terms results in different levels and types of applicability for waivers and exceptions to the Buy American Act. Figure 4 depicts the range of relationships that the United States maintains with other nations that allow for less restrictive purchasing of foreign end products by the federal government. The federal government purchases foreign end products from various countries. Figure 5 highlights the different amounts of contract obligations for foreign end products from these countries for fiscal year 2017. The highest category, over $500 million, includes 4 countries that account for almost 40 percent of all federal procurement of foreign end products. Countries where the federal government obligated less than $5 million for the procurement of foreign end products are not included. In addition to the contact named above, Candice Wright, Assistant Director; and Jennifer Dougherty, Analyst-in-Charge, managed this review. Skip McClinton; Erin Stockdale; Adam Cowles; Stephanie Gustafson; Julia Kennon; Anne Louise Taylor; and Robin Wilson made key contributions to this report.	[ "The Buy American Act of 1933, as amended, is the main U.S. law promoting domestic purchasing. The Act permits agencies to buy foreign end products only under certain exceptions, such as when domestic items are not available at a reasonable cost. Further, U.S. trade agreements waive the Buy American restrictions for certain products. GAO was asked to review implementation of the Buy American Act. This report assesses the extent to which (1) the federal government procures foreign products through Buy American Act exceptions and waivers; and (2) selected agencies provide training and guidance to implement the Act. GAO reviewed laws, regulations, and policies related to the Buy American Act and analyzed data for fiscal year 2017 from FPDS-NG. GAO also analyzed a non-generalizable sample of 38 contracts from DOD, HHS, DHS, and VA—the agencies with the most obligations for products in fiscal year 2017. The 38 awards selected include a mix of foreign and domestic products, as well as dollars obligated. Finally, GAO interviewed cognizant contracting and policy officials from the selected agencies. According to data reported in the Federal Procurement Data System-Next Generation (FPDS-NG) in fiscal year 2017, foreign end products accounted for less than 5 percent—about $7.8 billion—of federal obligations for products potentially subject to the Buy American Act. Federal agencies procured foreign products using exceptions to Buy American Act requirements, as well as through waivers or when the Buy American Act did not apply, as shown in the figure. The amount of foreign end products purchased could be greater than reported in FPDS-NG, however, due to reporting errors and system limitations. GAO found that 6 of the 38 contracts reviewed from the Departments of Defense (DOD), Health and Human Services (HHS), Homeland Security (DHS), and Veterans Affairs (VA) inaccurately recorded waiver or exception information. FPDS-NG system limitations compound these errors because it does not fully capture Buy American Act data. Among other things, the database does not always enable agencies to report the use of exceptions or waivers on contracts for both foreign and domestic products, reducing data accuracy. The Office of Management and Budget (OMB) is considering strategies to improve Buy American Act data. The four agencies GAO reviewed varied in their approaches to Buy American Act training and guidance. DOD reports that it will have trained more than 18,000 personnel by the end of 2018. DHS reports training almost 1,400 people—approximately 94 percent of its contracting staff—as of April 2018. Some VA courses mention the Act, but none is focused specifically on implementing its requirements. HHS does not have agency-level training or guidance on the Act. GAO found that contracting officers for the contracts it reviewed face challenges implementing Buy American Act requirements. Having specific and targeted Buy American Act guidance and training can better ensure that agencies meet the Act's requirements. GAO is recommending that OMB take steps to improve Buy American Act data and that HHS, DHS, and VA improve agency guidance and training on implementing the Act. All of the agencies either concurred or generally concurred with GAO's recommendations." ]	9,745	gov_report	en	null	fec1c70a413abe04d2f8ef06d9ac6af139f6569e5fdda2b1
As we have previously reported, 911 services have evolved from basic 911—which provided Americans with a universally recognized emergency number—to Enhanced 911 which also routes calls to the appropriate call center and provides information about the caller’s location and a call back number. NG911 represents the next evolution in 911 services by using IP-based technology to deliver and process 911 traffic. Under NG911, call centers will continue to receive voice calls and location information, but will also be able to accommodate emergency communications from the range of technologies in use today. In addition, NG911 systems provide call centers with enhanced capabilities to route and transfer calls and data, which could improve call centers’ abilities to handle overflow calls and increase information sharing with first responders. Generally speaking, 911 communications begin when a caller dials 911 using a landline, wireless, or Voice over Internet Protocol (VoIP) system. Once a 911 caller places an emergency call, a communications provider receives and routes the call to the appropriate call center, along with the caller’s phone number and location (i.e., street address for a landline caller, approximate geographic location for a wireless caller, and the subscriber’s address for VoIP). Calls and data may be routed to 911 call centers using legacy methods (i.e., routing calls across traditional telephone networks) or NG911 methods (i.e., routing calls and other data through IP-networks). Once the call reaches a call center, trained call takers and dispatchers determine the nature of the emergency and dispatch first responders, typically using a variety of equipment and systems, including call handling systems, mapping programs, and computer aided dispatch. Figure 1 illustrates the 911 communications and dispatch process. As illustrated in figure 1, NG911 systems use IP-networks capable of carrying voice plus large amounts of data. These emergency-services networks are typically deployed at the state or regional level with multiple call centers connecting to the network. However, the existence of an IP- network alone does not constitute an NG911 system. As defined by standards developed by the emergency communications community, an NG911 system should have the capability to, among other things: provide a secure environment for emergency communications; acquire and integrate additional data for routing and answering calls; process all types of emergency calls, including multimedia messages; transfer calls with added data to other call centers or first responders. While NG911 systems must possess certain capabilities, it is important to note that states and localities may make decisions about which capabilities they intend to use to best meet their needs. In addition, states and localities have the authority to make decisions about what NG911 equipment, systems, and vendors to use; thus, the configurations of these systems vary. According to a panel of experts convened by the National 911 Program, the transition to NG911 may require a variety of technical and operational changes to current 911 systems and processes. For example, technical changes can include upgrades to networks or installing new hardware or software in 911 call centers. Operational changes can include the need for additional training or the development of new policies and procedures (e.g., new procedures for processing or storing multimedia). These technical and operational changes may also have effects on 911 funding and state and local governance structures, which we will discuss in more detail later in this report. According to an FCC advisory body that examined NG911 systems architecture in 2016, while NG911 systems are implemented in a variety of ways at the state or local level, NG911 implementation can occur gradually and in phases. According to this model, NG911 implementation occurs on a continuum that begins with legacy 911 systems and ends with a fully deployed NG911 national end-state where all individual 911 call centers nationwide would be connected. The NG911 implementation model identifies activities that take place as part of the NG911 transition, many of which occur concurrently, such as: planning (e.g., conducting feasibility studies, preparing databases, establishing governance models); acquiring, testing, and implementing NG911 system elements (e.g., establishing an emergency-services IP-network, location-based call routing, processing multimedia); connecting call centers within a jurisdiction (i.e., jurisdictional end- state in which all call centers are fully NG911 operational, supported by agreements, policies, and procedures); and connecting NG911 systems nationwide (i.e., national end-state in which all call centers in the nation are fully NG911 operational, supported by agreements, policies, and procedures). In addition, because 911 services provide an essential function, the implementation of NG911 generally involves using both the legacy system and the NG911 system simultaneously for a period of time, according to the FCC advisory body, to ensure 911 services are not disrupted as new system elements are tested and implemented. Deploying and operating 911 is the responsibility of 911 authorities at the state and local level. As we have previously reported, all 50 states and the District of Columbia collect—or have authorized local entities to collect—funding for 911 from telephone service subscribers, and methods within each state for collecting funds vary. FCC, as required by statute, reports to Congress annually on the states’ collection and distribution of 911 fees and charges. There are approximately 6,000 call centers nationwide that process 911 calls, often at the county or city level, and these centers can vary greatly in size and technical sophistication. The state and local governance structures that oversee 911 operations also vary by location. For example, we previously reported that some states collect fees or charges for 911 and administer a statewide 911 program. Other states authorize local entities to collect fees or charges for 911 and administer 911 programs at the local level. Still other states use a combination of these approaches. According to a panel of experts convened by the National 911 Program, historically, 911 authority has been coordinated and maintained locally with no requirement to coordinate with other jurisdictions. However, the transition to NG911 enables connection of 911 systems. Thus, as previously mentioned, the NG911 transition may require technological and operational changes, as well as changes to 911 policies and governance responsibilities for states and localities. While deploying and operating 911 is the responsibility of entities at the state and local level, federal agencies—including NHTSA, NTIA, FCC, and DHS—have responsibilities to support state and local implementation, including through facilitating coordination of activities among 911 stakeholders and administering federal grants, for example: NHTSA houses the National 911 Program as part of its Office of Emergency Medical Services (Office of EMS) to provide national leadership and coordination for the NG911 transition throughout the United States, as previously mentioned. According to NHTSA, the fiscal year 2017 budget for the National 911 Program was $2.74 million. Among other activities, which we will discuss later in this report, the National 911 Program surveys states on progress implementing NG911 and reports this survey data annually. FCC issues orders and regulations for 911 service providers on topics relevant to NG911, such as 911 reliability, location accuracy, and text- to-911. FCC also sponsors advisory bodies comprised of government and industry experts that study relevant topics and provide recommendations related to NG911, such as the Task Force on Optimal Public Safety Answering Point Architecture and the Communications, Security, Reliability, and Interoperability Council. While there are no federally mandated time frames for implementing NG911, the Next Generation 911 Advancement Act of 2012 requires specific actions of some federal agencies as outlined in table 1, below. In addition, according to the National 911 Program, as states and localities continue to implement NG911, and begin to explore interconnection with other states’ 911 systems, federal agencies may need to take steps to help ensure state NG911 networks are interoperable and connected. We will discuss actions taken by federal agencies to assist states and localities to implement NG911 later in this report. According to NHTSA’s most recent national survey, state and local progress implementing NG911 varies, and about half of all states reported being in some phase of transition to NG911 in 2015. While a few states are well into statewide implementation, NHTSA officials told us that no state had completely implemented all NG911 functions. Additionally, as of the fall of 2017, none of the selected states we spoke with were processing multimedia—such as images or audio/video recordings—through their 911 systems due to concerns related to privacy, liability, and the ability to store and manage these types of data, among other things. The national survey data, based on responses from 45 states, measured the extent to which NG911 planning and acquisition of NG911 equipment and services were occurring, and the extent to which basic NG911 functions were operational at the state and local levels in 2015. Planning: This measure includes state and local NG911 plans for governance, funding, system components, and operations. In this context, system components refer to an emergency services IP-based network, NG911 software, system and information security, and databases, among other things, according to NHTSA’s survey. In total, 25 of 45 states reported having a state or at least one local NG911 plan in place; conversely, 18 states reported having no NG911 plan in place at either the state or local level—which may indicate they are in the early stages of planning for the NG911 transition or have not yet begun the transition to NG911. Acquisition: These measures identify states or local entities that have defined their NG911 needs and awarded contracts, and then installed and tested acquired NG911 components and services. Twenty-four states reported awarding at least one contract at the state or local level for NG911 components and services. Twenty-three states reported having installed and tested NG911 components and services at either the state or local level. NG911 services: This is a measure of 911 authorities that have some basic, functioning NG911 infrastructure in place. In total, 21 states reported having some level of basic NG911 services in place at the state or local level. Of these 21 states, 10 reported that all 911 authorities within the state were using NG911 technology to process emergency calls. Another 7 of these states reported that 25 percent or less of their state’s 911 authorities were using NG911 technology to process emergency calls. Federal officials, industry stakeholders, and state and local 911 officials we interviewed from nine states identified a number of challenges to implementing NG911, including challenges related to funding, evolving technology and operations, and governance. Funding: State and local officials in four of nine selected states identified insufficient funding as one of the challenges they face in implementing NG911. Additionally, FCC, NHTSA, and industry reports noted that state and local financing strategies are generally insufficient to fully implement NG911. Specifically, these reports note that the need to provide new capital for NG911 implementation while simultaneously funding legacy operational costs during the transition can strain state and local funding. Limited funding: Officials in three states told us that their current funding may not be able to support the upfront costs of infrastructure and equipment acquisitions associated with the transition to NG911. Further, officials said they will need to simultaneously fund both the new NG911 and legacy 911 systems currently in operation until the NG911 systems are fully operational. To address these challenges, a Minnesota official told us about how the state leveraged economies of scale to reduce overall costs through cost sharing between multiple call centers and of call centers consolidating operations from 114 to 104 call centers. Additionally, a Virginia official told us that to cover the upfront costs of transitioning to NG911, the state plans to borrow from the state treasury and then repay the treasury with future-year fee collections. Fee diversion: Diversion of fees intended for 911 costs to non-911 activities may affect a state’s or locality’s ability to cover NG911 transition costs and necessitate identifying alternative funding sources. The FCC’s 2016 annual report on 911 fees indicates that for calendar year 2015, all but two of the states that responded to FCC’s 911 fee survey affirmed that their state or jurisdiction collects fees from phone users to support or implement 911 services. State and local authorities also determine how these 911 fees can be used. FCC’s report also indicated that eight states and Puerto Rico reported diverting a total of more than $220 million (or approximately 8.4 percent) of 911 fees collected to non-911 purposes. Some of these diverted funds were directed to other public safety programs, and others were diverted to either non-public safety or unspecified purposes. According to one state official, had it not been for 911 fees being diverted to non-911 purposes, funding would have been sufficient to cover the NG911 transition without having to go to the state legislature for additional funding. However, officials in the other eight selected states told us that either fee diversion was not an issue in their state or that the diversion of funds had not affected their state’s ability to implement NG911. Evolving technology and operations: Officials in eight states told us that the retirement of legacy infrastructure and the transition to IP-based systems introduces new technical and operational challenges for call centers and states, as well as for equipment and service providers. Interoperability: Officials in three selected states mentioned that connecting to neighboring networks—whether within or between states—could pose challenges. For example, officials mentioned that states and localities may have obtained different equipment, software applications, or service providers – all of which can make interconnections difficult. Officials in Maine and New Hampshire told us that differences in service providers can also be a challenge to seamlessly connecting to neighboring systems. In an instance where two states (Minnesota and North Dakota) have worked to connect their 911 systems, both states used the same service provider, which officials said allowed for fewer barriers to connection. Cyber risks: Officials in three states told us that the transition from a traditional system that only transmits voice traffic to an IP-based system that transmits voice and data traffic has significantly increased the risk of a cyber-attack. This can be a challenge because managing cyber risks is a new and evolving role for state and local 911 authorities. Approaching the transition to NG911 without managing these risks could result in disrupted or disabled call center operations and ultimately a delayed response to an emergency situation. Multimedia: Officials in three states mentioned potential implementation challenges related to accepting and processing multimedia such as audio recordings, images, and videos. More specifically, one official said they did not have procedures to manage or store these multimedia files once received. In addition, another official raised privacy and liability concerns. Call routing: One of the core services of an NG911 system is the ability to have calls routed to the appropriate call center based on a wireless caller’s physical location, instead of the location of the cellular tower that receives and transmits the call. An FCC-sponsored working group reported that there are several options for achieving this and each option has unique positive and negative aspects. One challenge officials in two states noted was that rather than a single, nationwide approach to routing these calls, state and local 911 authorities would need to work individually with the wireless carriers to determine how to best implement location-based call routing. Governance: FCC has noted that transitioning to NG911 will likely result in new roles and levels of coordination between state 911 authorities, local 911 authorities, 911 call centers, and 911 service providers. Further, relationships among authorities at the state and local level may change as states work to interconnect NG911 systems. State and local officials noted that these types of governance challenges can apply in a variety of situations, including within or between states. Evolving roles: As previously mentioned, 911 governance structures vary among states. These varying governance structures may pose different challenges. For example, some states have a centralized structure in which a single government agency is responsible for statewide 911 system’s administration and policy. Officials in two states told us that although they faced challenges transitioning to NG911, their states’ centralized 911 structure eased the transition in their states because there was uniformity in policy and technology, among other things, coming from a single statewide authority. In other states, 911 systems are primarily a local responsibility and organized with decentralized authorities and resources. In these instances, there may be specific challenges related to transitioning to an interconnected NG911 system. Such challenges may include the need for increased levels of coordination among numerous jurisdictions with potentially disparate organizational structures, levels of funding, and priorities. An official also noted that there are governance challenges related to connecting states and evolving relationships between 911 authorities and service providers. Informing decision makers: One of the challenges identified by officials in two states is differing levels of experience and understanding by state and local officials as to what NG911 priorities should be for timely implementation. To help with this understanding, the federal government is making efforts to educate state and local authorities on how to facilitate policymaker understanding as well as provide regular updates to stakeholders on recent NG911 developments. We discuss some of these efforts later in this report. While state and local entities have the primary responsibility for implementing NG911 technology and services, federal agencies are taking actions to assist state and local 911 entities to address NG911 implementation challenges. Actions taken include developing resources, offering technical assistance, and convening stakeholders. More specifically, we identified selected activities that were taken by NHTSA, NTIA, FCC, and DHS that address some of the funding, technology, and governance challenges raised by state and local 911 stakeholders, for example: Cost study: NHTSA’s National 911 Program and NTIA, in consultation with FCC and DHS, plan to issue a study of the range of costs for 911 call centers and service providers to implement NG911 systems. According to NHTSA officials, the cost study will present a nationwide view, rather than a state-by-state view, on the progress of NG911 implementation and its associated costs. Grant program: NHTSA and NTIA are preparing to jointly administer a $115 million grant program to improve 911 services, including the adoption and operation of NG911 services. In September 2017, NHTSA and NTIA issued a notice of proposed rulemaking outlining implementing regulations for the grant program. NHTSA and NTIA expect to award the grants in 2018. Technology standards: The National 911 Program issued an annual guide in 2017 that stressed the importance of using open technology standards for NG911 services. The guide provides a list of standards that have been recently updated and an analysis that identifies whether existing standards fully address NG911 processes and protocols. Cybersecurity guides: DHS issued a guide in 2016 that identified cybersecurity risks for NG911 and risk mitigation strategies. According to DHS officials, the National 911 Program provided input on this guide. In addition, an advisory body tasked by FCC to examine 911 call-centers’ architecture issued a report in 2016 that provided a cybersecurity self-assessment tool for call centers and guidance on cybersecurity strategies. Governance plans: To address challenges related to the evolving roles for state and local 911 authorities, the National 911 Program issued a guide in 2016 that provided practices for states to consider when interconnecting NG911 networks, and DHS issued a guide in 2015 for emergency communications officials for establishing, assessing, and updating their governance structures. In addition, an FCC advisory body issued a report in 2016 that identified NG911 governance approaches, issues, and recommendations for states, localities, and call centers to consider when planning for the deployment of NG911. In addition to federal agency efforts to assist the state and local 911 community, the National 911 Program is in the early stages of establishing an interagency initiative to create a National NG911 Roadmap. As part of this initiative, the National 911 Program plans to convene the 911 stakeholder community to identify tasks that need to be completed at the national level by the federal government and other public and private-sector organizations to support the creation of a national, interconnected NG911 system. Additional details regarding this planned activity are described in further detail later in this report. For additional information on federal actions to address state and local NG911 challenges, see appendix II. As the lead entity for coordinating federal NG911 activities, the National 911 Program has taken a variety of actions to assist the state and local 911 community, in collaboration with other federal agencies. However, the program lacks goals and performance measures to assess whether these activities are achieving desired results. National 911 Program officials stated that they initiate program activities based on feedback received from the 911 community. In addition, officials said the program’s activities fall within the tasks established in the Next Generation 911 Advancement Act of 2012. However, the National 911 Program does not have a means to assess its progress toward meeting its responsibilities established in the 2012 Act. National 911 Program officials said the Office of EMS—the office within NHTSA in which the program is housed—has a strategic plan, but it is outdated and does not contain specific goals or performance measures related to 911 or NG911 implementation. Officials said the Office of EMS has held preliminary discussions to begin updating its strategic plan by January 2019 and plans to include goals and performance measures related to 911 and NG911 services. Office of EMS officials told us the Office of EMS strategic plan will be jointly developed with the National 911 Program. However the Office of EMS had not yet developed a draft strategic plan during the time of our review. Federal internal control standards call for management to clearly define objectives in order to achieve desired results. According to these standards, an entity determines its mission, establishes specific measurable objectives, and formulates plans to achieve its objectives. These standards state that management sets objectives in order to meet the entity’s mission, strategic plan, and goals and requirements of applicable laws and regulations. In addition, our work on leading practices for managing for results indicated that an agency’s strategic goals should also explain what results are expected from the agency and when to expect those results. Further, these goals form a basis for an entity to identify strategies to fulfill its mission and improve its operations to support the achievement of that mission. As the lead entity for coordinating federal NG911 efforts, the National 911 Program faces a complex and challenging task of assisting the 911 community while the nation’s 911 systems undergo a major transformation. However, without specific goals and related performance measures, the National 911 Program is unable to assess how well its activities are achieving results in relation to its responsibilities identified in the 2012 Act. As the National 911 Program and the Office of EMS consider creating a strategic plan, ensuring that the plan includes specific goals and related measures for the National 911 Program would help officials better understand whether the program’s activities are effectively assisting states and localities in transitioning to a fully integrated national NG911 system, and help identify any programmatic changes that might be needed. As previously mentioned, the National 911 Program is in the early stages of establishing an interagency initiative to create a National NG911 Roadmap. This initiative will convene the 911 stakeholder community to identify national-level tasks that need to be completed by federal agencies and other organizations to realize a national, interconnected NG911 system. According to the National 911 Program, a list of the national-level tasks needed to advance NG911 implementation nationwide has not been created to date. In addition, state officials we spoke with said there are certain issues related to interoperability and cybersecurity that federal agencies need to address before states can connect their respective state NG911 systems. To address these issues, NHTSA’s National 911 Program issued a request for proposal (RFP) in August 2017 for managing the roadmap development process and awarded a contract in September 2017. While the National 911 Program is taking steps to develop a National NG911 Roadmap, the program does not have a plan to identify: (1) roles or responsibilities for federal entities to carry out national-level tasks or (2) how the program plans to achieve the roadmap’s objectives. NHTSA’s NG911 roadmap RFP specifies that by identifying a list of national-level tasks that are developed and adopted by the 911 stakeholder community, the roadmap could serve as a blueprint to carry out these tasks and thereby ensure the interoperability of the nation’s NG911 system. However, the National 911 Program does not have plans for the entities participating in the development of the roadmap to be assigned roles and responsibilities for executing the roadmap’s national- level tasks. National 911 Program officials told us the National 911 Program does not plan to assign roles and responsibilities because NHTSA does not have the authority to require or assign tasks for other entities. Additionally, program officials view the simultaneous identification of tasks and assignments of responsibility for those tasks as a risk to facilitating a candid and productive discussion with entities participating in the roadmap initiative. However, officials stated it may be appropriate for agencies participating in the roadmap initiative to perform specific tasks after the roadmap is finalized. We have previously examined interagency collaborative mechanisms and identified certain key issues for federal agencies to consider when using these mechanisms to achieve results. Our prior work has found that following leading collaboration practices, such as clarifying roles and responsibilities of agencies engaged in collaboration, can enhance and sustain collaboration among agencies and provide an understanding of who will do what in support of meeting the aims of the collaborative group. As stated above, the RFP specifies that a roadmap developed by and adopted by 911 stakeholders could serve as a blueprint to carry out the roadmap’s tasks. Securing the commitment of agencies to assigned roles could help organize the collaborative group’s joint and individual efforts and thereby better facilitate decision making. As we have previously found, a lack of clarity on the roles and responsibilities of agencies participating in an interagency effort—such as the execution of the roadmap’s tasks—may limit agencies’ abilities to effectively achieve shared objectives. Given the complexity of the task and the number of agencies that could be involved, following selected leading collaboration practices for the roadmap initiative—particularly with regard to collaborating with roadmap stakeholders to clarify their roles and responsibilities (whether during the creation of the task list or afterwards)—could reduce barriers to agencies effectively working together to achieve the national-level tasks. While clarifying the roles and responsibilities of roadmap stakeholders for the execution of the roadmap’s tasks is an important collaborative step, the National 911 Program has additional responsibilities as the lead entity for the initiative. However, National 911 Program officials are unable to clearly articulate how the program will proceed following the completion of the roadmap. National 911 Program officials said without knowing the contents of the roadmap, it would be premature to specify how the roadmap’s national-level tasks would be completed. Officials stated that once the roadmap is completed, possible next steps may include identification of timelines, deadlines, and a mechanism for tracking progress, among other things, but officials stated that these steps are not required in the roadmap RFP. As stated above, federal internal control standards call for management to clearly define objectives in specific terms. According to these standards, management defines what is to be achieved, who is to achieve it, how it will be achieved, and the time frames for achievement. Without a clear plan for how the National 911 Program would take next steps to support the implementation of the roadmap’s objectives and tasks, the National 911 Program may not be prepared to take effective action once the roadmap is completed. We have previously found that having an implementation plan can assist agencies to better focus and prioritize goals and objectives, and align planned activities. Once the roadmap is completed, developing an implementation plan that details what is to be achieved and how it will be accomplished will place the National 911 Program in a better position moving forward to support the completion of the national-level tasks. The current 911 system is undergoing a historic transition. With no federal requirement that states transition to NG911 services, federal leadership is critical to addressing interoperability challenges and promoting the goal of an interconnected national system. As the lead federal entity for fostering coordination and collaboration among federal, state, and local 911 authorities, the National 911 Program plays a critical role in coordinating NG911 implementation efforts to improve the nation’s 911 services. However, this program—in collaboration with other federal agencies— faces a complex and challenging task to help move approximately 6,000 independent 911 call centers toward an interconnected national NG911 system. In addition, given that the NG911 transition is still in its early stages and is an ongoing effort, it is difficult to assess the effectiveness of various federal actions to assist states and localities in the transition. In light of these challenges, without specific goals and related measures to assess effectiveness, the National 911 Program may be hindered in determining whether it is making progress towards its stated mission. Through the roadmap initiative, the National 911 Program has taken important first steps in identifying the need for actions at the national level, in order to fully realize the desired end-state of a national, interconnected NG911 system. However, while identifying needed next steps is essential, equally important to the collaborative effort’s success is (1) defining and agreeing on the roles and responsibilities of the entities best suited to undertake these actions, and (2) developing plans for how the National 911 Program will support implementation to achieve the roadmap’s objectives. If taken, these actions could help further NG911 implementation nationwide and help the National 911 Program and federal agencies in assisting states and localities to improve these lifesaving services. We are making the following three recommendations to the Administrator of NHTSA regarding the National 911 Program: develop specific program goals and performance measures related to NG911 implementation. (Recommendation 1) in collaboration with the appropriate federal agencies, determine roles and responsibilities of federal agencies participating in the National NG911 Roadmap initiative in order to carry out the national-level tasks over which each agency has jurisdiction. (Recommendation 2) develop an implementation plan to support the completion of the National NG911 Roadmap’s national-level tasks. (Recommendation 3) We provided a draft of this report to the Departments of Transportation, Commerce, and Homeland Security and FCC for their review and comment. In its comments, reproduced in appendix III, the Department of Transportation agreed with the recommendations. The Departments of Transportation and Homeland Security also provided technical comments, which we incorporated as appropriate. The Department of Commerce and FCC had no comments. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, the Secretary of the Department of Transportation, the Secretary of the Department of Commerce, the Secretary of the Department of Homeland Security, the Managing Director of the FCC, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff who made key contributions to this report are listed in appendix IV. Our objectives were to examine (1) progress states and localities are making to implement Next Generation 911 (NG911) and the challenges they have faced and (2) how federal agencies have addressed state and local implementation challenges and planned next steps. To describe state and local progress in implementing NG911 and background information on fee collection and costs, we analyzed select survey data elements from the 2016 National 911 Progress Report and the Eighth Annual Report to Congress on State Collection and Distribution of 911 and Enhanced 911 Fees and Charges, maintained by the National Highway Traffic Safety Administration (NHTSA) and the Federal Communications Commission (FCC) respectively. More specifically, we analyzed the most recent state-provided data (from calendar year 2015) related to the planning and implementation of NG911 at the state and local levels, as well as NG911 cost and 911-related revenue data. We assessed the reliability of these data by reviewing relevant documents and discussing data elements with staff responsible for collecting and analyzing the data. We also conducted our own testing to check the consistency of the data. We found the data from both sources to be sufficiently reliable for our purposes to describe states’ progress in implementing NG911 and provide background on 911 fee collection and costs. While these data provide the best nationwide picture of NG911 implementation and fee collection, and are reliable for our purposes, there are some limitations on how the data can be used. Since we did not validate the state-reported responses, our findings based on these data are limited to what states reported. Additionally, regarding the 2016 National 911 Progress Report data, there are limitations to (1) making comparisons between states because states have different approaches to implementing NG911 and (2) ascertaining year-over-year progress because reporting is voluntary and states’ response rates can vary year to year. To describe implementation challenges that states and local authorities may be encountering, we selected a non-generalizable sample of 10 states as case studies, based upon a variety of factors, including reported progress in implementing NG911, statewide planning and coordination, reported number of annual 911 calls, whether states diverted 911 fees to other uses, and variation in geographic location. We selected these states, in part, based on their responses to the two aforementioned surveys. Based on the aforementioned criteria, we selected the following states to include as case studies: California, Maine, Maryland, Minnesota, Nevada, New Hampshire, North Dakota, South Dakota, Vermont, and Virginia. We reviewed documents and interviewed state officials from all of these states except Nevada about NG911 implementation progress, challenges, federal actions, and any additional assistance needed. We contacted 911 officials in Nevada but did not receive responses. We also interviewed local officials in four of the selected states. While not generalizable to all states, the information obtained from our case studies provides examples of broader issues faced by states and localities in managing the NG911 transition. To determine how federal agencies have addressed state and local implementation challenges and planned next steps, we reviewed relevant statutes, regulations, and documentation of federal agency actions and plans, and our prior reports. We also interviewed officials from federal agencies, including NHTSA, the National Telecommunications and Information Administration (NTIA), FCC, and the U.S. Department of Homeland Security (DHS), about federal actions taken and plans for next steps. To understand planning activities undertaken by NHTSA’s National 911 Program, and its planned project to develop a National NG911 Roadmap, we reviewed the National 911 Program’s internal planning documents, the program’s request for proposal to develop a national roadmap, the program’s written responses to our questions, and interviewed National 911 Program officials. In addition, we interviewed officials from national associations representing emergency-response- technology companies, wireless and wireline phone carriers, emergency- communications entities, and groups representing deaf and hard-of- hearing consumers to gain their perspectives on federal actions taken and next steps. We assessed the National 911 Program’s strategic- planning activities against leading practices for performance management found in our prior work on strategic planning and goal setting and federal internal control standards. We assessed the National 911 Program’s planned activities for the national roadmap project against federal internal control standards and selected key practices to enhance interagency collaboration identified in our prior work. We conducted our work from January 2017 to January 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Description of challenge State and local funding may not be sufficient to support costs associated with transitioning to NG911 equipment and infrastructure. Transitioning from legacy infrastructure to Internet Protocol-based systems presents technical and operational challenges such as interoperability and cybersecurity risks. Federal actions Grant resources: The National Highway Traffic Safety Administration’s (NHTSA) National 911 Program issued on its website a list clarifying which of the fiscal year 2016 emergency-communications grants may be used for NG911 services. Program officials said they developed this list in collaboration with the Department of Homeland Security (DHS). Cost study: NHTSA’s National 911 Program and the National Telecommunications and Information Administration (NTIA), in consultation with the Federal Communications Commission (FCC) and DHS, plan to issue a study of the range of costs for 911 call centers and service providers to implement NG911 systems and on the nationwide progress of implementing NG911 services. Grant program: NHTSA and NTIA are preparing to jointly administer a $115 million grant program to improve 911 services, including the adoption and operation of NG911 services. NHTSA and NTIA expect to award the grants in 2018. Funding mechanisms: An advisory body tasked by FCC issued a report in 2016 that identified common costs and funding mechanisms for 911 officials to consider. The report also introduced a 911 funding sustainment model designed for use by 911 officials to calculate their financial needs to support a transition to NG911 implementation. Guides on technology standards and procurement practices: In 2017, NHTSA’s National 911 Program issued an annual guide on emergency- communications technology standards that stressed the importance of using open technology standards for NG911 services. The National 911 Program issued another guide in 2016 that provides information on procuring goods and services related to NG911 such as practices for call centers to consider when developing their request for proposals and contracts. Examining emerging technology issues: In 2017, FCC tasked a public- private advisory council to recommend how FCC can promote the NG911 transition, enhance the reliability of NG911, and mitigate the threat of 911 outages. Prior to that tasking, the FCC advisory council issued a report in 2016 that explored location-based routing issues and discussed transition considerations from legacy 911 to NG911. NG911 cybersecurity guide and technical assistance: DHS, with input from NHTSA’s National 911 Program according to DHS officials, issued a guide in 2016 that identifies cybersecurity risks for NG911 and risk mitigation strategies. In addition, DHS provides NG911 technical assistance for states seeking assistance with strategic planning and technology integration. In a separate effort, an advisory body tasked by FCC to examine 911 call center architecture issued a report in 2016 that provides a cybersecurity self- assessment tool for call centers and guidance on cybersecurity strategies. Description of challenge States may face a range of challenges related to evolving roles for state and local 911 authorities that could hinder NG911 implementation. Federal actions Guides on state and legislative planning: NHTSA’s National 911 Program issued guides on state 911 planning and legislative issues to consider for NG911 and awarded a contract in September 2017 to update those guides. In 2016, the National 911 Program issued a guidebased on the experiences of Iowa, Minnesota, North Dakota, and South Dakota that identifies practices to consider for states interconnecting NG911 networks across state lines. Exploring NG911 governance implementation issues: In 2016, an advisory body tasked by FCC issued a report that identifies NG911 governance approaches, issues, and recommendations for states, localities, and call centers to consider when planning for the deployment of NG911. In 2013, FCC also issued a report that details recommendations to Congress for transitioning from legacy 911 to NG911 networks. Guide on emergency communications governance structures: In 2015, DHS and the National Council of Statewide Interoperability Coordinators issued a guide that provides characteristics of effective governance approaches and best practices for officials to establish, assess, and update their governance structures. In addition to the contact named above, Andrew Huddleston (Assistant Director), Jean Cook (Analyst in Charge), Camilo Flores, Steven Rabinowitz, Malika Rice, Kelly L. Rubin, Michael Sweet, Hai Tran, Marika Van Laan, and Michelle Weathers made key contributions to this report.	[ "Each year, millions of Americans call 911 for help during emergencies. However, the nation's legacy 911 system relies on aging infrastructure that is not designed to accommodate modern communications technologies. As a result, states and localities are upgrading to NG911, which offers improved capabilities, such as the ability to process images, audio files, and video. While deploying NG911 is the responsibility of state and local entities, federal agencies also support implementation, led by NHTSA's National 911 Program, which facilitates collaboration among federal, state, and local 911 stakeholders. GAO was asked to review NG911 implementation nationwide. This report examines: (1) state and local progress and challenges in implementing NG911 and (2) federal actions to address challenges and planned next steps. GAO reviewed relevant statutes, regulations, and federal agency reports and plans. GAO also analyzed NHTSA's survey data on state 911 implementation for calendar year 2015, the most recent year for which data were available, and interviewed federal officials, state and local officials from nine states (selected to represent different regions and various phases of NG911 implementation), and officials from industry and advocacy groups. The National Highway Traffic Safety Administration's (NHTSA) National 911 Program's most recent national survey on Next Generation 911 (NG911) implementation indicated that about half of states were in some phase of transition to NG911 in 2015, but that state and local progress varied. Specifically, 10 states reported that all 911 authorities in their state processed calls using NG911 systems; however, 18 states reported having no state or local NG911 transition plans in place—which may indicate these states were in the early phases of planning for the transition to NG911 or had not yet begun. GAO spoke with state and local 911 officials in 9 states, which were in various phases of implementing NG911, and found that none of the 9 selected states were accepting images, audio files, or video. State and local 911 officials identified a number of challenges to implementing NG911. Such challenges are related to funding, evolving technology and operations, and governance. For example, officials in 3 states said that the current funding they collect from telephone service subscribers may not be sufficient to support NG911's transition costs while simultaneously funding the operation of existing 911 systems. Federal agencies—including NHTSA, the National Telecommunications and Information Administration, the Federal Communications Commission, and the U.S. Department of Homeland Security—have responsibilities to support NG911 implementation, such as through coordinating activities and administering grants, and are taking actions to assist state and local entities in addressing challenges to NG911's implementation. Such actions include developing resources, offering technical assistance, and convening stakeholders to explore emerging NG911 issues. For example, as the lead entity for coordinating federal NG911 efforts, NHTSA's National 911 Program is developing resources on NG911 topics, such as federal funding and governance structures. While the National 911 Program is taking steps to facilitate the state and local transition to NG911, the program lacks specific performance goals and measures to assess its progress. Without such goals and measures, it is not clear to what extent the program is effectively achieving its mission. In 2018, the National 911 Program plans to establish an interagency initiative tasked with creating a National NG911 Roadmap. This roadmap is intended to identify next steps for the federal government in supporting the creation of a national, interconnected NG911 system. While the National 911 Program is taking steps to develop a list of national-level tasks as part of its roadmap initiative, the program does not have a plan to identify: (1) roles or responsibilities for federal entities to carry out these tasks or (2) how the program plans to achieve the roadmap's objectives. Collaborating with the appropriate federal agencies to determine federal roles and responsibilities to carry out the roadmap's national-level tasks could reduce barriers to agencies effectively working together to achieve those tasks. Furthermore, developing an implementation plan that details how the roadmap's tasks will be achieved would place the National 911 Program in a better position to effectively lead interagency efforts to implement NG911 nationwide. GAO recommends that NHTSA's National 911 Program develop performance goals and measures and, for the National NG911 Roadmap, determine agencies' roles and responsibilities and develop an implementation plan. NHTSA agreed with GAO's recommendations." ]	6,694	gov_report	en	null	00cee8bad9ec18d013af6d0e731f1bc7af22da0d06bf6d00
The Railroad Retirement Board (RRB), an independent federal agency, administers retirement, survivor, disability, unemployment, and sickness insurance for railroad workers and their families under the Railroad Retirement Act (RRA) and the Railroad Unemployment Insurance Act (RUIA). These acts cover workers who are employed by railroads engaged in interstate commerce and related subsidiaries, railroad associations, and railroad labor organizations. Lifelong railroad workers receive railroad retirement benefits instead of Social Security benefits; railroad workers with nonrailroad experience receive benefits either from railroad retirement or Social Security, depending on the length of their railroad service. The number of railroad workers has been declining since the 1950s, although the rate of decline has been irregular and recent years have seen increases in railroad employment after reaching an all-time low of 215,000 workers in January 2010. Recently, railroad employment peaked in April 2015 to 253,000 workers, the highest level since November 1999, and then declined through FY2017, falling to 221,000 workers. The total number of beneficiaries under the RRA and RUIA decreased from 623,000 in FY2008 to 574,000 in FY2017, and total benefit payments increased from $10.1 billion to $12.6 billion during the same time. During FY2017, the RRB paid nearly $12.5 billion in retirement, disability, and survivor benefits to approximately 548,000 beneficiaries. Almost $105.4 million in unemployment and sickness benefits were paid to approximately 28,000 claimants. This report explains the programs under RRA and RUIA, including how each program is financed, the eligibility rules, and the types of benefits available to railroad workers and family members. It also discusses how railroad retirement relates to the Social Security system. For a quick overview of this topic, see CRS In Focus IF10481, Railroad Retirement Board: Retirement, Survivor, Disability, Unemployment, and Sickness Benefits . The RRA authorizes retirement, survivor, and disability benefits for railroad workers and their families. In December 2017, there were a total of 526,100 RRA beneficiaries, decreasing from 672,400 in 2001. This decline might partly result from the decline in railroad employment in the past five decades. The average monthly benefit for each beneficiary was about $1,986 in 2017, which increased from $1,043 in 2001, reflecting the growth in average wages and prices (see Figure 1 ). The railroad retirement, disability, and survivor program is mainly financed by payroll taxes, financial interchanges from Social Security, and transfers from the National Railroad Retirement Investment Trust (NRRIT) (see Figure 2 ), all of which accounted for 93.9% of the $12.7 billion gross funding of the RRA program during FY2017. The remaining 6.1% of the program was financed by federal income taxes levied on railroad retirement benefits, interest on investment and other revenue, and general appropriations to pay the costs of phasing out vested dual benefits. Payroll taxes, which provided 47.0% of gross RRA funding in FY2017, are the largest funding source for railroad retirement, survivor, and disability benefits. Railroad retirement payroll taxes are divided into two tiers—Tier I and Tier II taxes. The Tier I tax is the same as the Social Security payroll tax: railroad employers and employees each pay 6.2% on earnings up to $132,900 in 2019. The Tier II tax is set each year based on the railroad retirement system's asset balances, benefit payments, and administrative costs. In 2019, the Tier II tax is 13.1% for employers and 4.9% for employees on earnings up to $98,700. Tier II taxes are used to finance Tier II benefits, the portion of Tier I benefits in excess of Social Security retirement benefits (such as unreduced early retirement benefits for railroad employees with at least 30 years of railroad service), and supplemental annuities. Tier I payroll taxes are deposited in the Social Security Equivalent Benefit Account (SSEBA), which pays the Social Security level of benefits and administrative expenses allocable to those benefits. The SSEBA also receives or pays the financial interchange transfers between the railroad retirement and Social Security systems. The financial interchange with Social Security provided 32.6% of gross RRA funding in FY2017. The purpose of the financial interchange is to place the Social Security trust funds in the same position they would have been in, if railroad employment had been covered under Social Security since that program's inception. Tier II tax revenues that are not needed to pay current benefits or associated administrative costs are held in the National Railroad Retirement Investment Trust (NRRIT), which is invested in both government securities and private equities. NRRIT transfers provide another revenue source for railroad benefits, and they were 14.3% of gross RRA funding in FY2017. Prior to the Railroad Retirement and Survivors' Improvement Act of 2001 ( P.L. 107-90 ), surplus railroad retirement assets could only be invested in U.S. government securities—just as the Social Security trust funds must be invested in securities issued or guaranteed by the U.S. government. The 2001 act established the NRRIT to manage and invest the assets in the Railroad Retirement Account in the same way that the assets of private-sector and most state and local government pension plans are invested. The remainder of the railroad retirement system's assets, such as assets in SSEBA, continues to be invested solely in U.S. government-issued or -granted securities. The combined fair market value of Tier II taxes and NRRIT assets is designed to maintain four to six years' worth of RRB benefits and administrative expenses. To maintain this balance, the Railroad Retirement Tier II tax rates automatically adjust as needed. This tax adjustment does not require congressional action, according to Section 204 of the 2001 act. To be insured for railroad benefits, a worker must generally have at least 10 years of covered railroad work or 5 years performed after 1995 and "insured status" under Social Security rules (generally 40 earnings credits) based on combined railroad retirement and Social Security-covered earnings. An insured railroad worker's family may be entitled to receive railroad retirement benefits. If a worker does not qualify for railroad retirement benefits, his or her railroad work counts toward Social Security benefits. Of the total $12.5 billion benefit payments during FY2017, 60.0% (or $7.5 billion) were paid in retirement annuities to retired workers, 8.0% (or $1.0 billion) in disability annuities, 14.4% (or $1.8 billion) in spouse annuities, and 16.8% (or $2.1 billion) in survivor annuities. Tier I annuities are designed to be nearly equivalent to Social Security Old Age, Survivors, and Disability Insurance benefits. Tier I annuities are calculated using the Social Security benefit formula and are based on both railroad retirement and Social Security-covered employment. However, Tier I annuities are more generous than Social Security benefits in certain situation. For example, at the age of 60, railroad workers with at least 30 years of covered railroad work may receive unreduced retirement annuities. At the full retirement age (FRA), which is gradually increasing from 65 to 67 for Social Security and railroad retirement beneficiaries, insured workers with fewer than 30 years of service may receive full retirement ann uities. Alternatively, workers with fewer than 30 years of service may, starting at the age of 62, receive annuities that have been reduced actuarially for the additional years the worker is expected to spend in retirement. Tier I benefit reductions for early retirement are similar to those in the Social Security system. As the FRA rises, so will the reduction for early retirement. If a railroad employee delays retirement past FRA, Tier I annuities are increased by a certain percentage for each month up until the age of 70, which is identical to the benefit increase provided by Delayed Retirement Credits under the Social Security system. In general, Social Security benefits are subtracted from Tier I annuities, because work covered by Social Security is counted toward Tier I annuities. Beneficiaries insured by both systems receive a single check from the RRB. Railroad retirement annuities may also be reduced for certain pensions earned through federal, state, and local government work that is not covered by Social Security. For early retirees who continue to work for a nonrailroad employer while receiving the retirement benefit during the year prior to FRA, Tier I benefits are reduced by $1 for every $2 earned above an exempt amount ($17,040 in 2018). After Tier I benefits are first paid, they increase annually with a cost-of-living adjustment (COLA) in the same manner as Social Security benefits. Retirement annuities are not payable to workers who continue to work in a covered railroad job or who return to railroad work after retirement. Tier II retirement annuities are paid in addition to Tier I annuities and any private pension and retirement saving plans offered by railroad employers. They are similar to private pensions and based solely on covered railroad service. Tier II annuities for current retirees are equal to seven-tenths of 1% of the employee's average monthly earnings in the 60 months of highest earnings, times the total number of years of railroad service. Tier II annuities are increased annually by 32.5% of the Social Security COLA. Tier II annuities are not (in contrast to Tier I annuities) reduced if a worker receives Social Security benefits or a government pension that was not covered by Social Security. For railroad retirees and spouses who work for their last pre-retirement nonrailroad employer while receiving retirement benefits, Tier II annuities are reduced by $1 for every $2 earned, capped at 50% of the Tier II annuity. There is no cap to the earnings-related reduction in railroad Tier I or Social Security benefits. In addition, the earnings-related reduction applies to all Tier II beneficiaries regardless of age, whereas for railroad Tier I and Social Security benefits, the earnings-related reduction applies only until the beneficiary reaches FRA. Tier II payroll taxes also finance a supplemental annuity program. Supplemental annuities are payable to employees first hired before October 1981, aged 60 with at least 30 years of covered railroad service or aged 65 and older with at least 25 years of covered railroad service, and a current connection with the railroad industry. In addition, general revenues finance a vested dual benefit for those who were insured for both railroad retirement and Social Security in 1974 when the two-tier railroad retirement benefit structure was established. Neither supplemental annuities nor vested dual benefits are adjusted for changes in the cost of living during retirement. Supplemental annuities are subject to the same earnings reductions as Tier II benefits; vested dual benefits are subject to the same earnings reductions as Tier I benefits. Railroad workers may be eligible for disability annuities if they become disabled regardless of whether the disability is caused by railroad work. The RRB determines whether a worker is disabled based on the medical evidence provided during the application process. Railroad workers found to be totally and permanently disabled from all work may be eligible for Tier I benefits at any age if the worker has at least 10 years of railroad service. Totally disabled workers may also receive Tier II benefits at the age of 62 if they have 10 or more years of service. Occupational disability annuities are also payable to workers found to be permanently disabled from their regular railroad occupations, if the worker is at least 60 years old with 10 years of service (or any age with 20 years of service), and with a current connection to the railroad industry. A five-month waiting period after the onset of disability is required before any disability annuity can be payable. Disability annuities are not payable if a worker is currently employed in a covered railroad job. Disability benefits are suspended if a beneficiary earns more than a certain amount after deducting certain disability-related work expenses. The Tier I portion of disability benefits may be reduced for the receipt of workers compensation or government disability benefits. In any month that a worker collects a railroad retirement or disability annuity, his or her spouse may also be eligible for a spousal annuity equal to or greater than the benefit he or she would have received if the worker's railroad work had been covered by Social Security. A spouse is eligible for a spousal annuity when he or she reaches the same minimum age required for the worker (i.e., either at the age of 60 or 62, depending on years of the worker's service). At any age, a spouse may be eligible for a spousal annuity if he or she cares for the worker's unmarried child under the age of 18 (or a child of any age that was disabled before the age of 22). An individual must have been married to the railroad worker for at least one year before he or she applies for the spousal annuities, with certain exceptions. A qualifying spouse receives 50% of the worker's Tier I benefit before any reductions (or, if higher, a Social Security benefit based on his or her own earnings). Spouses may also receive 45% of the worker's Tier II benefit before any reductions. Divorced spouses of retired or disabled railroad workers may also be eligible for spousal annuities. A divorced spouse may receive 50% of the worker's Tier I benefit before reductions, but no Tier II benefits. To qualify, the former spouse must have been married to the worker for at least 10 years and must not currently be married (remarriages if any must have terminated); both the worker and former spouse must be at least 62 years old. For spouses, as for railroad workers, Social Security benefits are subtracted from Tier I annuities. The Tier I portion of a spouse annuity may also be reduced for receipt of any pension from government employment not covered by Social Security based on the spouse's own earnings. Spouses are subject to reductions based on the primary worker's earnings as well as on their own earnings. For example, for early retirement, spouses are subject to different benefit reductions from workers. Finally, spouse annuities are reduced by the amount of any railroad benefits earned based on their own work. After the worker's death, surviving spouses, former spouses, children, and other dependents may be eligible to receive survivor annuities, which are paid in addition to any private life insurance offered by railroad employers. To be insured for survivor annuities, the worker must have had a current connection with the railroad industry at the time of death. Railroad survivor annuities are generally higher than comparable Social Security benefits because railroad workers' families may be entitled to Tier II annuities as well as Tier I annuities (as noted above, Tier I annuities are equivalent to Social Security benefits). In cases where no monthly survivor annuities are paid, a lump-sum payment may be made to certain survivors. The widows and widowers of railroad workers may be eligible to receive survivor annuities. At FRA, a surviving spouse may be eligible for 100% of the worker's Tier I annuity (or his or her own Social Security or railroad retirement Tier I benefit, if higher). The widow(er) may also receive up to 100% of the worker's Tier II annuity. As early as the age of 60 (or age 50, if disabled), widows and widowers may receive reduced survivor annuities. A qualifying widow(er) must have been married to the deceased railroad worker for at least nine months, with certain exceptions. At any age, a widow(er) caring for a deceased worker's child under the age of 18 may receive a survivor annuity equal to 75% of the worker's Tier I annuity, as well as up to 100% of the worker's Tier II annuity. Widow(er)s who are the natural or adoptive parent of the deceased worker's child do not have to meet the length of marriage requirement. Survivor annuities may also be payable to a surviving divorced spouse or remarried widow(er). To qualify for benefits, a surviving divorced spouse has to be married to the employee for at least 10 years and is unmarried or remarried after age 60 (age 50 for disabled surviving divorced spouse). A surviving divorced spouse who is unmarried can qualify for benefits at any age if caring for the employee's child who is under age 16 or disabled. Benefits are limited to the amounts Social Security would pay (Tier I only) and therefore are less than the amount of the survivor annuity otherwise payable. Railroad workers' children may also receive survivor annuities. To qualify, a child must be unmarried and under the age of 18 (or 19 if still in high school). Disabled adult children may qualify if their disability began before the age of 22. Eligible children receive 75% of the worker's Tier I annuity and 15% of the worker's Tier II annuity. In addition, if a worker's parent was dependent on the worker for at least half of the parent's support, he or she may receive 82.5% of the worker's Tier I annuity and 35% of the worker's Tier II annuity after reaching age 60. Survivor annuities are not payable to a current railroad employee, and survivor annuities are reduced by any railroad retirement benefit the survivor has earned through his or her own railroad work. Survivors receive the same reductions as retired workers for Social Security benefit receipt; they also have reductions from government pension receipts that are not covered by Social Security. A family maximum applies to survivor benefits, usually applicable when three or more survivors receive benefits on a worker's record (not counting divorced spouses). In summary, Table 1 provides data on railroad retirement, survivor, and disability annuities as of June 2018. Railroad workers may qualify for daily unemployment and sickness benefits under the Railroad Unemployment Insurance Act (RUIA). These monetary benefits are paid in addition to any paid leave or private insurance an employee may have. For sickness benefits, a worker must be unable to work because of illness or injury. Sickness benefits are distinct from disability benefits because they are intended to cover a finite, temporary period of time. Workers may not earn any money while receiving unemployment or sickness benefits. Figure 3 displays the monthly number of beneficiaries with unemployment and sickness benefits from January 2002 to July 2018, respectively. Although the number of sickness beneficiaries stayed relatively stable over time, the number of unemployment insurance beneficiaries increased significantly during and after the most recent economic recession from 2007 to 2009. Railroad unemployment and sickness benefits are financed solely by railroad employers' payroll taxes, based on the taxable earnings of their employees. Employers' tax rates depend on the past rates of unemployment and employees' sickness claims. For calendar year 2018, the employer tax rate ranges from 2.2% to 12.0% on the first $1,560 of each employee's monthly earnings. The payroll tax proceeds not needed immediately for unemployment and sickness insurance benefits or operating expenses are deposited in the Railroad Unemployment Insurance Account maintained by the Treasury. This account, together with similar unemployment insurance accounts for each state, forms a Federal Unemployment Insurance Trust Fund whose deposits are invested in U.S. government securities, and the Railroad Unemployment Insurance Account receives interest based on these deposits. During FY2017, payroll tax contributions from railroad employers totaled $126.4 million and interest income was about $4 million. The RUIA provides for employers to pay a surcharge if the Railroad Unemployment Insurance Account falls below an indexed threshold amount. The surcharge is added to the employer's tax rate. However, the total tax rate plus the surcharge cannot exceed the maximum rate of 12.0%, unless the surcharge is 3.5%, in which case the maximum tax rate is increased to 12.5%. From 2004 through 2010, the surcharge was 1.5%. The surcharge in 2011 was 2.5% and 1.5% in 2012 with no surcharges in 2013 or 2014. The surcharge in 2018 was 1.5%, the same as the level in the past three years. Eligibility for railroad unemployment and sickness benefits is based on recent railroad service and earnings. The annual benefit year begins on July 1. Eligibility is based on work in the prior year, or the base year. To qualify in the benefit year beginning July 1, 2018, railroad workers must have base year earnings of $3,862.50 in calendar year 2017, counting no more than $1,545 per month. New railroad workers must also have at least five months of covered railroad work in the base year. To receive unemployment benefits, a worker must be ready, willing, and able to work. The maximum daily unemployment and sickness benefit payable in the benefit year that began July 1, 2018, is $77, and the maximum benefit for a biweekly claim is $770. However, due to sequestration pursuant to the Budget Control Act of 2011 ( P.L. 112-25 , as amended), the maximum daily benefit of $77 is reduced by 6.2% to $72.23 and the maximum biweekly benefit is reduced by 6.2% to $722.26 through September 30, 2019. Railroad workers receive these benefits only to the extent that they are higher than other benefits they receive under the RRA, the Social Security Act, or certain other public programs, including workers compensation. Unemployment and sickness beneficiaries may receive normal benefits for up to 26 weeks in a benefit year or until the benefits they receive equal their creditable earnings in the base year if sooner. Employees with at least 10 years of covered railroad service may qualify for extended benefits for 13 weeks after they have exhausted normal benefits. Table 2 displays the number and average weekly amount of RUIA benefits paid in June 2018. Workers who apply for unemployment benefits are automatically enrolled in a free job placement service operated by railroad employers and the RRB.	[ "The Railroad Retirement Board (RRB), an independent federal agency, administers retirement, survivor, disability, unemployment, and sickness insurance for railroad workers and their families. During FY2017, the RRB paid nearly $12.5 billion in retirement, disability, and survivor benefits to approximately 548,000 beneficiaries and paid $105.4 million in unemployment and sickness benefits to approximately 28,000 claimants. Of the total $12.5 billion benefit payments in the same fiscal year, 60.0% was paid to retired workers, 8.0% to disabled workers, 14.4% to spouses, and 16.8% to survivors. The Railroad Retirement Act (RRA) authorizes retirement, disability, and survivor benefits for railroad workers and their families. RRA is financed primarily by payroll taxes, financial interchanges from Social Security, and transfers from the National Railroad Retirement Investment Trust (NRRIT). Railroad retirement payroll taxes have two tiers: the Tier I tax is essentially the same as the Social Security payroll tax and the Tier II tax is set each year based on the railroad retirement system's asset balances, benefit payments, and administrative costs. In FY2017, the gross RRA funding was about $12.7 billion. Railroad retirement annuities are also divided into two tiers. Tier I annuities are designed to be nearly equivalent to Social Security benefits and are based on both railroad retirement and Social Security-covered employment. However, Tier I annuities are more generous than Social Security benefits in certain situations. For example, at the age of 60, railroad workers with at least 30 years of covered railroad work may receive unreduced retirement annuities. Tier II annuities are similar to private pensions and based solely on covered railroad service. Tier II annuities are paid in addition to Tier I annuities. Railroad disability annuities may be payable to totally disabled railroad workers who are permanently disabled from all work and occupational disabled workers who are found to be permanently disabled from their regular railroad occupations. Eligible spouses and survivors of railroad workers may receive a certain portion of Tier I and Tier II benefits, but divorced spouses and surviving divorced spouses are eligible for only a certain portion of Tier I benefits. The Railroad Unemployment Insurance Act (RUIA) authorizes unemployment and sickness benefits for railroad workers. RUIA is financed solely by railroad employers, whose contributions are based on the taxable earnings of their employees. Eligibility for railroad unemployment and sickness benefits is based on recent railroad service and earnings. The maximum daily unemployment and sickness benefit payable in the benefit year that began July 1, 2018, is $77, and the maximum benefit for a biweekly claim is $770. Normal benefits are paid for up to 26 weeks in a benefit year. The railroad unemployment and sickness system remains affected by sequestration, as unemployment benefits will continue to be reduced through at least September 30, 2019." ]	3,573	gov_report	en	null	8b4549b580441e95fa54e11cc68671baf1466b257a88c444
VA’s mission is to promote the health, welfare, and dignity of all veterans in recognition of their service to the nation by ensuring that they receive medical care, benefits, social support, and lasting memorials. In carrying out this mission, the department operates one of the largest health care delivery systems in America, providing health care to millions of veterans and their families at more than 1,500 facilities. The department’s three major components—the Veterans Health Administration (VHA), the Veterans Benefits Administration (VBA), and the National Cemetery Administration (NCA)—are primarily responsible for carrying out its mission. More specifically, VHA provides health care services, including primary care and specialized care, and it performs research and development to improve veterans’ needs. VBA provides a variety of benefits to veterans and their families, including disability compensation, educational opportunities, assistance with home ownership, and life insurance. Further, NCA provides burial and memorial benefits to veterans and their families. Collectively, the three components rely on approximately 340,000 employees to provide services and benefits. These employees work in VA’s Washington, D.C. headquarters, as well as 170 medical centers, approximately 750 community-based outpatient clinics, 300 veterans centers, 56 regional offices, and more than 130 cemeteries situated throughout the nation. The use of IT is critically important to VA’s efforts to provide benefits and services to veterans. As such, the department operates and maintains an IT infrastructure that is intended to provide the backbone necessary to meet the day-to-day operational needs of its medical centers, veteran- facing systems, benefits delivery systems, memorial services, and all other systems supporting the department’s mission. The infrastructure is to provide for data storage, transmission, and communications requirements necessary to ensure the delivery of reliable, available, and responsive support to all VA staff offices and administration customers, as well as veterans. According to department data as of October 2016, there were 576 active or in-development systems in VA’s inventory of IT systems. These systems are intended to be used for the determination of benefits, benefits claims processing, and access to health records, among other services. VHA is the parent organization for 319 of these systems. Of the 319 systems, 244 were considered mission-related and provide capabilities related to veterans’ health care delivery. For example, VHA’s systems provide capabilities to establish and maintain electronic health records that health care providers and other clinical staff use to view patient information in inpatient, outpatient, and long-term care settings. VistA serves an essential role in helping the department to fulfill its health care delivery mission. Specifically, VistA is an integrated medical information system for all veterans’ health information. It was developed in-house by the department’s clinicians and IT personnel and has been in operation since the early 1980s. As such, the system has long been vital to helping ensure the quality of health care received by the nation’s veterans and their dependents. VistA is comprised of more than 200 applications that assist in the delivery of health care and perform other important functions within the department, including financial management, enrollment, and registration. Some of these applications have been in operation for over 30 years and, according to VA, have become increasingly difficult and costly to maintain. As such, the department has expended extensive resources to modernize the system and increase its ability to allow for the viewing or exchange of patient information with the Department of Defense (DOD) and private sector health providers. In addition, as we recently reported, VHA has unaddressed needs that indicate its current health IT systems, including VistA, do not fully support the organization’s business functions. Specifically, about 39 percent of all requests related to health IT needs have remained unaddressed after more than 5 years. Electronic health records are particularly crucial for optimizing the health care provided to veterans, many of whom may have health records residing at multiple medical facilities within and outside the United States. Taking steps toward interoperability—that is, collecting, storing, retrieving, and transferring veterans’ health records electronically—is significant to improving the quality and efficiency of care. One of the goals of interoperability is to ensure that patients’ electronic health information is available from provider to provider, regardless of where it originated or resides. Since 2007, VA has been operating a centralized organization, the Office of Information and Technology (OI&T), in which most key functions intended for effective management of IT are performed. This office is led by the Assistant Secretary for Information and Technology—VA’s Chief Information Officer (CIO). The office is responsible for providing strategy and technical direction, guidance, and policy related to how IT resources are to be acquired and managed for the department, and for working closely with its business partners—such as VHA—to identify and prioritize business needs and requirements for IT systems. Among other things, OI&T has responsibility for managing the majority of VA’s IT-related functions, including the maintenance and modernization of VistA. As of 2016, OI&T was comprised of more than 15,000 staff, with more than half of these positions filled by contractors. For fiscal year 2018, the department’s budget request included nearly $4.1 billion for IT. The department requested approximately $359 million for new systems development or modernization efforts, approximately $2.5 billion for maintaining existing systems, and approximately $1.2 billion for payroll and administration. For example, in its fiscal year 2018 budget submission, the department requested appropriations to support five IT portfolios, including the development and operations and maintenance for programs and projects related to the: Medical portfolio, which provides technology solutions to deliver modern, high-quality medical care capabilities to veterans ($944.2 million); Benefit portfolio, which addresses the technology needs managed by the Veterans Benefit Administration ($296.9 million); Memorial Affairs portfolio, which provides support for the modernization of applications and services for National Cemeteries at 133 locations nationwide ($24.5 million); Corporate portfolio, which consists of back office operations supporting the major business lines and department management ($270.6 million); and Enterprise IT, which provides the underlying infrastructure to enable the other portfolios to operate and includes such things as cybersecurity, data centers, cloud services, telephony, enterprise software, and data connectivity ($1.289 billion). In 2015, we designated VA Health Care as a high-risk area for the federal government and, currently, we continue to be concerned about the department’s ability to ensure that its resources are being used cost- effectively and efficiently to improve veterans’ timely access to health care. In part, we identified limitations in the capacity of VA’s existing systems, including the outdated, inefficient nature of certain systems and a lack of system interoperability—that is, the ability to exchange and use electronic health information—as contributors to the department’s IT challenges related to health care. These challenges present risks to the timeliness, quality, and safety of the health care. While we recently reported that the department has begun to demonstrate leadership commitment to addressing IT challenges, more work remains. Also, in February 2015, we added Improving the Management of IT Acquisitions and Operations to our list of high-risk areas. Specifically, federal IT investments too frequently fail or incur cost overruns and schedule slippages while contributing little to mission-related outcomes. We have previously testified that the federal government has spent billions of dollars on failed IT investments, including, for example, VA’s Scheduling Replacement Project, which was terminated in September 2009 after spending an estimated $127 million over 9 years; and its Financial and Logistics Integrated Technology Enterprise program, which was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011 due to challenges in managing the program. This high-risk area highlighted several critical IT initiatives in need of additional congressional oversight, including (1) reviews of troubled projects; (2) efforts to increase the use of incremental development; (3) efforts to provide transparency relative to the cost, schedule, and risk levels for major IT investments; (4) reviews of agencies’ operational investments; (5) data center consolidation; and (6) efforts to streamline agencies’ portfolios of investments. We noted that agencies’ implementation of these initiatives was inconsistent and that more work remained to demonstrate progress in achieving IT acquisition and operation outcomes. We also recently issued an update to our high-risk report and noted that, while progress has been made in addressing the high-risk area of IT acquisitions and operations, significant work remains to be completed. For example, we noted, among other things, that additional work was needed to establish action plans for federal agencies to modernize or replace obsolete systems. Specifically, we pointed out that many federal systems use outdated software languages and hardware, which has increased spending on operations and maintenance of technology investments. VA was among a handful of departments with one or more archaic legacy systems. As discussed in our recent report on legacy systems used by federal agencies, we identified 2 of the department’s systems as being over 50 years old, and among the 10 oldest investments and/or systems that were reported by 12 selected agencies. Personnel and Accounting Integrated Data (PAID)—This 53-year old system automates time and attendance for employees, timekeepers, payroll, and supervisors. It is written in Common Business Oriented Language (COBOL), a programming language developed in the late 1950s and early 1960s, and runs on IBM mainframes. Benefits Delivery Network (BDN)—This 51-year old system tracks claims filed by veterans for benefits, eligibility, and dates of death. It is a suite of COBOL mainframe applications. Ongoing uses of antiquated systems, such as PAID and BDN, contribute to agencies spending a large, and increasing, proportion of their IT budgets on operations and maintenance of systems that have outlived their effectiveness and are consuming resources that outweigh their benefits. Accordingly, we have recommended that VA identify and plan to modernize or replace its legacy systems. The department concurred with our recommendation and stated that it plans to retire and replace PAID with the Human Resources Information System Shared Service Center in 2017. The department also stated that it has general plans to roll the capabilities of BDN into another system and to retire BDN in 2018. Congress enacted federal IT acquisition reform legislation (commonly referred to as the Federal Information Technology Acquisition Reform Act, or FITARA) in December 2014. This legislation was intended to improve agencies’ acquisitions of IT and enable Congress to monitor agencies’ progress and hold them accountable for reducing duplication and achieving cost savings. The law applies to VA and other covered agencies. It includes specific requirements related to seven areas, including data center consolidation and optimization, agency CIO authority, and government-wide software purchasing. Federal data center consolidation initiative (FDCCI). Agencies are required to provide the Office of Management and Budget (OMB) with a data center inventory, a strategy for consolidating and optimizing their data centers (to include planned cost savings), and quarterly updates on progress made. The law also requires OMB to develop a goal for how much is to be saved through this initiative, and provide annual reports on cost savings achieved. Agency CIO authority enhancements. CIOs at covered agencies are required to (1) approve the IT budget requests of their respective agencies, (2) certify that IT investments are adequately implementing incremental development, as defined in capital planning guidance issued by OMB, (3) review and approve contracts for IT, and (4) approve the appointment of other agency employees with the title of CIO. Government-wide software purchasing program. The General Services Administration is to develop a strategic sourcing initiative to enhance government-wide acquisition and management of software. In doing so, the law requires that, to the maximum extent practicable, the General Services Administration should allow for the purchase of a software license agreement that is available for use by all executive branch agencies as a single user. Expanding upon FITARA, the Making Electronic Government Accountable by Yielding Tangible Efficiencies Act of 2016, or the “MEGABYTE Act,” further enhanced CIOs’ management of software licenses by requiring agency CIOs to establish an agency software licensing policy and a comprehensive software license inventory to track and maintain licenses, among other requirements. In June 2015, OMB released guidance describing how agencies are to implement FITARA. This guidance is intended to, among other things: assist agencies in aligning their IT resources with statutory establish government-wide IT management controls that will meet the law’s requirements, while providing agencies with flexibility to adapt to unique agency processes and requirements; clarify the CIO’s role and strengthen the relationship between agency CIOs and bureau CIOs; and strengthen CIO accountability for IT costs, schedules, performance, and security. In our draft report that is currently with VA for comments, we discuss the history of VA’s efforts to modernize its health information system, VistA. These four efforts—HealtheVet, the integrated Electronic Health Record (iEHR), VistA Evolution, and the Electronic Health Record Modernization (EHRM)—reflect varying approaches that the department has considered to achieve a modernized health care system over the course of nearly two decades. The modernization efforts are described as follows. In 2001, VA undertook its first VistA modernization project, the HealtheVet initiative, with the goals of standardizing the department’s health care system and eliminating the approximately 130 different systems used by its field locations at that time. HealtheVet was scheduled to be fully implemented by 2018 at a total estimated development and deployment cost of about $11 billion. As part of the effort, the department had planned to develop or enhance specific areas of system functionality through six projects, which were to be completed between 2006 and 2012. Specifically, these projects were to provide capabilities to support VA’s Health Data Repository and Patient Financial Services System, as well as the Laboratory, Pharmacy, Imaging, and Scheduling functions. In June 2008, we reported that the department had made progress on the HealtheVet initiative, but noted issues with project planning and governance. In June 2009, the Secretary of Veterans Affairs announced that VA would stop financing failed projects and improve the management of its IT development projects. Subsequently, in August 2010, the department reported that it had terminated the HealtheVet initiative. In February 2011, VA began its second modernization initiative, the iEHR program, in conjunction with DOD. The program was intended to replace the two separate electronic health record systems used by the two departments with a single, shared system. Moreover, because both departments would be using the same system, this approach was expected to largely sidestep the challenges that had been encountered in trying to achieve interoperability between their two separate systems. Initial plans called for the development of a single, joint system consisting of 54 clinical capabilities to be delivered in six increments between 2014 and 2017. Among the agreed-upon capabilities to be delivered were those supporting laboratory, anatomic pathology, pharmacy, and immunizations. According to VA and DOD, the single iEHR system had an estimated life cycle cost of $29 billion through the end of fiscal year 2029. However, in February 2013, the Secretaries of VA and DOD announced that they would not continue with their joint development of a single electronic health record system. This decision resulted from an assessment of the iEHR program that the secretaries had requested in December 2012 because of their concerns about the program facing challenges in meeting deadlines, costing too much, and taking too long to deliver capabilities. In 2013, the departments abandoned their plan to develop the integrated system and stated that they would again pursue separate modernization efforts. In December 2013, VA initiated its VistA Evolution program as a joint effort of VHA and OI&T that was to be completed by the end of fiscal year 2018. The program was to be comprised of a collection of projects and efforts focused on improving the efficiency and quality of veterans’ health care by modernizing the department’s health information systems, increasing the department’s data exchange and interoperability with DOD and private sector health care partners, and reducing the time it takes to deploy new health information management capabilities. Further, the program was intended to result in lower costs for system upgrades, maintenance, and sustainment. According to the department’s March 2017 cost estimate, VistA Evolution was to have a life cycle cost of about $4 billion through fiscal year 2028. Since initiating VistA Evolution in December 2013, VA has completed a number of key activities that were called for in its plans. For example, the department delivered capabilities, such as the ability for health providers to have an integrated, real-time view of electronic health record data through the Joint Legacy Viewer, as well as the ability for health care providers to view sensitive DOD notes and highlight abnormal test results for patients. VA also initiated work to standardize VistA across the 130 VA facilities and released enhancements to its legacy scheduling, pharmacy, and immunization systems. In addition, the department released the enterprise Health Management Platform, which is a web- based user interface that assembles patient clinical data from all VistA instances and DOD. Although VistA Evolution is ongoing, VA is currently in the process of revising its plan for the program as a result of the department recently announcing its pursuit of a fourth VistA modernization program (discussed below). For example, the department determined that it would no longer pursue additional development or deployment of the enterprise Health Management Platform—a major VistA Evolution component— because the new modernization program is envisioned to provide similar capabilities. In June 2017, the VA Secretary announced a significant shift in the department’s approach to modernizing VistA. Specifically, rather than continue to use VistA, the Secretary stated that the department plans to acquire the same electronic health record system that DOD is implementing. In this regard, DOD has contracted with the Cerner Corporation to provide a new integrated electronic health record system. According to the Secretary, VA has chosen to acquire this same product because it would allow all of VA’s and DOD’s patient data to reside in one system, thus enabling seamless care between the department and DOD without the manual and electronic exchange and reconciliation of data between two separate systems. The VA Secretary added that this fourth modernization initiative is intended to minimize customization and system differences that currently exist within the department’s medical facilities, and ensure the consistency of processes and practices within VA and DOD. When fully operational, the system is intended to be the single source for patients to access their medical history and for clinicians to use that history in real time at any VA or DOD medical facility, which may result in improved health care outcomes. According to VA’s Chief Technology Officer, Cerner is expected to provide integration, configuration, testing, deployment, hosting, organizational change management, training, sustainment, and licenses necessary to deploy the system in a manner that meets the department’s needs. To expedite the acquisition, in June 2017, the Secretary signed a “Determination and Findings,” which noted a public interest exception to the requirement for full and open competition, and authorized VA to issue a solicitation directly to the Cerner Corporation. According to the Secretary, VA expects to award a contract to Cerner in December 2017, and deployment of the new system is anticipated to begin 18 months after the contract has been signed. VA’s Executive Director for the Electronic Health Records Modernization System stated that the department intends to incrementally deploy the new system to its medical facilities. Each facility is expected to continue using VistA until the new system has been deployed at that location. All VA medical facilities are anticipated to have the new system implemented within 7 to 8 years after the first deployment. Figure 1 shows a timeline of the four efforts that VA has pursued to modernize VistA since 2001. For iEHR and VistA Evolution, the two modernization initiatives for which VA could provide contract data, the department obligated approximately $1.1 billion for contracts with 138 different contractors during fiscal years 2011 through 2016. Specifically, the department obligated approximately $224 million and $880 million, respectively, for contracts associated with these efforts. Of the 138 contractors, 34 of them performed work supporting both iEHR and VistA Evolution. The remaining 104 contractors worked exclusively on either iEHR or VistA Evolution. Funding for the 34 contractors that worked on both iEHR and VistA Evolution totaled about $793 million of the $1.1 billion obligated for contracts on the two initiatives. Obligations for contracts awarded to the top 15 of these 34 contractors (which we designated as key contractors) accounted for about $741 million (about 67 percent) of the total obligated for contracts on the two initiatives. The remaining 123 contractors were obligated about $364 million for their contracts. The 15 key contractors were obligated about $564 million and $177 million for VistA Evolution and iEHR contracts, respectively. Table 1 identifies the key contractors and their obligated dollar totals for the two efforts. Additionally, we determined that, of the $741 million obligated to the key contractors, $411 million (about 55 percent) was obligated for contracts supporting the development of new system capabilities, $256 million (about 35 percent) was obligated for contracts supporting project management activities, and $74 million (about 10 percent) was obligated for contracts supporting operations and maintenance for iEHR and VistA Evolution. VA obligated funds to all 15 of the key contractors for system development, 13 of the key contractors for project management, and 12 of the key contractors for operations and maintenance. Figure 2 shows the amounts obligated for each of these areas. Further, based on the key contractors’ documentation, for the iEHR program, VA obligated $102 million for development, $65 million for project management, and $10 million for operations and maintenance. For the VistA Evolution Program, VA obligated $309 million for development, $191 million for project management, and $64 million for operations and maintenance. Figure 3 shows the amounts obligated for contracts on the VistA Evolution and iEHR programs for development, project management, and operations and maintenance. In addition, table 2 shows the amounts that each of the 15 key contractors were obligated for the three types of contract activities performed on iEHR and VistA Evolution. Industry best practices and IT project management principles stress the importance of sound planning for system modernization projects. These plans should identify key aspects of a project, such as the scope, responsible organizations, costs, schedules, and risks. Additionally, planning should begin early in the project’s lifecycle and be updated as the project progresses. Since the VA Secretary announced that the department would acquire the same electronic health record system as DOD, VA has begun planning for the transition from VistA Evolution to EHRM. However, the department is still early in its efforts, pending the contract award. In this regard, the department has begun developing plans that are intended to guide the new EHRM program. For example, the department has developed a preliminary description of the organizations that are to be responsible for governing the EHRM program. Further, the VA Secretary announced in congressional testimony in November 2017, a key reporting responsibility for the program—stating that the Executive Director for the Electronic Health Records Modernization System will report directly to the department’s Deputy Secretary. In addition, the department has developed a preliminary timeline for deploying its new electronic health record system to VA’s medical facilities, and a 90-day schedule that depicts key program activities. The department also has begun documenting the EHRM program risks. Beyond the aforementioned planning activities undertaken thus far, the Executive Director stated that the department intends to complete a full suite of planning and acquisition management documents to guide the program, including a life cycle cost estimate and an integrated master schedule to establish key milestones over the life of the project. To this end, the Executive Director told us that VA has awarded two program management contracts to support the development of these plans to MITRE Corporation and Booz Allen Hamilton. According to the Executive Director, VA also has begun reviewing the VistA Evolution Roadmap, which is the key plan that the department has used to guide VistA Evolution since 2014. This review is expected to result in an updated plan that is to prioritize any remaining VistA enhancements needed to support the transition from VistA Evolution to the new system. According to the Executive Director, the department intends to complete the development of its plans for EHRM within 90 days after award of the Cerner contract, which is anticipated to occur in December 2017. Further, beyond the development of plans, VA has begun to staff an organizational structure for the modernization initiative, with the Under Secretary of Health and the Assistant Secretary for Information and Technology (VA’s Chief Information Officer) designated as executive sponsors. It has also appointed a Chief Technology Officer from OI&T, and a Chief Medical Officer from VHA, both of whom are to report to the Executive Director. VA’s efforts to develop plans for EHRM and to staff an organization to manage the program encompass key aspects of project planning that are important to ensuring effective management of the department’s latest modernization initiative. However, the department remains early in its modernization planning efforts, many of which are dependent on the system acquisition contract award, which has not yet occurred. The department’s continued dedication to completing and effectively executing the planning activities that it has identified will be essential to helping minimize program risks and guide this latest electronic health record modernization initiative to a successful outcome—one which VA, for almost two decades, has yet to achieve. Beyond managing its system modernization efforts, such as VistA, VA has to ensure the effective implementation of the IT acquisition requirements called for in FITARA. Pursuant to FITARA, in August 2016, the Federal CIO issued a memorandum that announced the Data Center Optimization Initiative (DCOI). According to OMB, this new initiative supersedes and builds on the results of FDCCI, and is also intended to improve the performance of federal data centers in areas such as facility utilization and power usage. Among other things, DCOI requires 24 federal departments and agencies, including VA, to develop plans and report on strategies (referred to as DCOI strategic plans) to consolidate inefficient infrastructure, optimize existing facilities, improve security posture, and achieve costs savings. Further, the memorandum establishes a set of five data center optimization metrics and performance targets intended to measure agency’s progress in the areas of (1) server utilization and automated monitoring, (2) energy metering, (3) power usage effectiveness, (4) facility utilization, and (5) virtualization. The guidance also indicates that OMB is to maintain a public dashboard that will display consolidation-related costs savings and optimization performance information for the agencies. However, in a series of reports that we issued from July 2011 through August 2017, we noted that, while data center consolidation could potentially save the federal government billions of dollars, weaknesses existed in several areas, including agencies’ data center consolidation plans, data center optimization, and OMB’s tracking and reporting on related cost savings. Further, we previously reported that VA’s progress toward closing data centers, and realizing the associated cost savings, lagged behind that of other covered agencies. More recently, VA reported a total inventory of 415 data centers, of which 39 had been closed as of August 2017. While the department anticipates another 10 data centers will be closed by the end of fiscal year 2018, these closures fall short of the targets set by OMB. Specifically, even if VA meets all of its planned targets for closure, it will only close about 9 percent of its tiered data centers and about 18.7 percent of its non-tiered data centers by the end of fiscal year 2018, which is short of the respective 25 and 60 percent targets set by OMB. Further, while VA has reported $23.61 million in data center-related cost savings and avoidances for 2012 through August 2017, the department does not expect to realize further savings from the additional 10 data center closures in the next year. In addition, in August 2017 we reported that agencies needed to address challenges in optimizing their data centers in order to achieve cost savings. Specifically, we noted that, according to the 24 agencies’ data center consolidation initiative strategic plans as of April 2017, most agencies were not planning to meet OMB’s optimization targets by the end of fiscal year 2018. As of February 2017, VA reported meeting one of the five data center optimization metrics related to power usage effectiveness. Also, the department’s data center optimization strategic plan indicates that the department plans to meet three of the five metrics by the end of fiscal year 2018. Further, while OMB directed agencies to replace manual collection and reporting of metrics with automated tools no later than fiscal year 2018, VA had only implemented automated tools at 6 percent of its data centers. OMB has emphasized the need to deliver investments in smaller parts, or increments, in order to reduce risk, deliver capabilities more quickly, and facilitate the adoption of emerging technologies. In 2010, it called for agencies’ major investments to deliver functionality every 12 months and, since 2012, every 6 months. Subsequently, FITARA codified a requirement that agency CIOs certify that IT investments are adequately implementing incremental development, as defined in the capital planning guidance issued by OMB. Later OMB guidance on the law’s implementation—issued in June 2015—directed agency CIOs to define processes and policies for their agencies which ensure that they certify that IT resources are adequately implementing incremental development. Between May 2014 and November 2017, we reported on agencies’ efforts to utilize incremental development practices for selected major investments. In November 2017, we noted that agencies reported that 62 percent of major IT software development investments were certified by the agency CIO as using adequate incremental development in fiscal year 2017, as required by FITARA. VA’s CIO certified the use of adequate incremental development for all 10 of its major IT investments. However, VA had not yet updated the department’s policy and process for the CIO’s certification of major IT investments’ adequate use of incremental development, in accordance with OMB’s guidance on the implementation of FITARA as we recommended. The department stated that it plans to address our recommendation to establish a policy and that the policy is targeted for completion in 2017. Federal agencies engage in thousands of licensing agreements annually. Effective management of software licenses can help organizations avoid purchasing too many licenses that result in unused software. In addition, effective management can help avoid purchasing too few licenses, which results in noncompliance with license terms and causes the imposition of additional fees. Federal agencies are responsible for managing their IT investment portfolios, including the risks from their major information system initiatives, in order to maximize the value of these investments to the agency. OMB developed a policy that requires agencies to conduct an annual, agency-wide IT portfolio review to, among other things, reduce commodity IT spending. Such areas of spending could include software licenses. We previously identified seven elements that a comprehensive software licensing policy should address: identify clear roles, responsibilities, and central oversight authority within the department for managing enterprise software license agreements and commercial software licenses; establish a comprehensive inventory (at least 80 percent of software license spending and/or enterprise licenses in the department) by identifying and collecting information about software license agreements using automated discovery and inventory tools; regularly track and maintain software licenses to assist the agency in implementing decisions throughout the software license management life cycle; analyze software usage and other data to make cost-effective provide training relevant to software license management; establish goals and objectives of the software license management consider the software license management life-cycle phases (i.e., requisition, reception, deployment and maintenance, retirement, and disposal phases) to implement effective decision making and incorporate existing standards, processes, and metrics. We previously made recommendations to VA to (1) develop an agency- wide comprehensive policy for the management of software licenses that includes guidance for using analysis to better inform investment decision making, (2) employ a centralized software license management approach that is coordinated and integrated with key personnel, (3) establish a comprehensive inventory of software licenses using automated tools, (4) track and maintain a comprehensive inventory of software licenses using automated tools and metrics, (5) analyze agency-wide software license data to identify opportunities to reduce costs and better inform investment decision making, and (6) provide software license management training to appropriate personnel. Consistent with our recommendation, in July 2015, VA issued a comprehensive software licensing policy that addressed weaknesses we previously identified. The department also issued a directive that documents VA’s software license management policy and responsibilities for central management of agency-wide software licenses, consistent with our recommendations. By implementing our recommendations, VA should be better positioned to consistently and cost-effectively manage software throughout the agency. In August 2017, the department also provided documentation showing that it had generated a comprehensive inventory of software licenses using automated tools for the majority of agency software license spending or enterprise-wide licenses. This inventory can serve to reduce redundant applications and help identify other cost saving opportunities. Further, the department implemented a solution to analyze agency-wide software license data, including usage and costs. This solution should allow VA to identify cost saving opportunities and inform future investment decisions. In addition, the department has provided information indicating that appropriate personnel receive software license management training. In conclusion, VA has made extensive use of numerous contractors and has obligated more than $1 billion for contracts that supported two of four VistA modernization programs that the department has initiated. VA has recently begun the fourth modernization program in which it plans to replace VistA with the same commercially available electronic health record system that is used by DOD. However, the department’s latest modernization effort is in the early stages of planning and is dependent on the system acquisition contract award in December 2017. VA’s completion and effective execution of plans will be essential to guiding this latest electronic health record modernization initiative to a successful outcome. Beyond VistA, the department continues to make progress on key FITARA-related initiatives. Although the department has made progress in the area of software licensing, additional actions in the areas of data center consolidation and optimization, as well as incremental system development can better position VA to effectively manage its IT. We plan to continue to monitor the department’s progress on these important activities. Chairman Hurd, Ranking Member Kelly, and Members of the Subcommittee, this completes my prepared statement. I would be pleased to respond to any questions that you may have. If you or your staffs have any questions about this testimony, please contact David A. Powner at (202) 512-9286 or pownerd@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony statement. GAO staff who made key contributions to this statement are Mark Bird (Assistant Director), Jacqueline Mai (Analyst in Charge), Justin Booth, Chris Businsky, Rebecca Eyler, Paris Hawkins, Valerie Hopkins, Brandon S. Pettis, Jennifer Stavros-Turner, Eric Trout, Christy Tyson, Eric Winter, and Charles Youman. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "The use of IT is crucial to helping VA effectively serve the nation's veterans and, each year, the department spends billions of dollars on its information systems and assets. However, VA has faced challenges spanning a number of critical initiatives related to modernizing its major systems. To improve all major federal agencies' acquisitions and hold them accountable for reducing duplication and achieving cost savings, in December 2014 Congress enacted federal IT acquisition reform legislation (commonly referred to as the Federal Information Technology Acquisition Reform Act , or FITARA). GAO was asked to summarize its previous and ongoing work regarding VA's history of efforts to modernize VistA, including past use of contractors, and the department's recent effort to acquire a commercial electronic health record system to replace VistA. GAO was also asked to provide an update on VA's progress in key FITARA-related areas, including (1) data center consolidation and optimization, (2) incremental system development practices, and (3) software license management. VA generally agreed with the information upon which this statement is based. For nearly two decades, the Department of Veterans Affairs (VA) has undertaken multiple efforts to modernize its health information system—the Veterans Health Information Systems and Technology Architecture (known as VistA). Two of VA's most recent efforts included the Integrated Electronic Health Record (iEHR) program, a joint program with the Department of Defense (DOD) intended to replace separate systems used by VA and DOD with a single system; and the VistA Evolution program, which was to modernize VistA with additional capabilities and a better interface for all users. VA has relied extensively on assistance from contractors for these efforts. VA obligated over $1.1 billion for contracts with 138 contractors during fiscal years 2011 through 2016 for iEHR and VistA Evolution. Contract data showed that the 15 key contractors that worked on both programs accounted for $741 million of the funding obligated for system development, project management, and operations and maintenance to support the two programs (see figure). VA recently announced that it intends to change its VistA modernization approach and acquire the same electronic health record system that DOD is implementing. With respect to key FITARA-related areas, the department has reported progress on consolidating and optimizing its data centers, although this progress has fallen short of targets set by the Office of Management and Budget. VA has also reported $23.61 million in data center-related cost savings, yet does not expect to realize further savings from additional closures. In addition, VA's Chief Information Officer (CIO) certified the use of adequate incremental development for 10 of the department's major IT investments; however, VA has not yet updated its policy and process for CIO certification as GAO recommended. Finally, VA has issued a software licensing policy and has generated an inventory of its software licenses to inform future investment decisions. GAO has made multiple recommendations to VA aimed at improving the department's IT management. VA has generally agreed with the recommendations and begun taking responsive actions." ]	5,865	gov_report	en	null	99f4c9b3ae17f0f11db1ec1965778c695a021407717a969a
According to international and U.S. government sources, climate change poses serious risks to many of the physical and ecological systems upon which society depends, although the exact details of these impacts are uncertain. Climate change may intensify slow-onset disasters, such as drought, crop failure, and sea level rise. Climate change is also increasing the frequency and intensity of extreme weather events, including sudden- onset disasters, such as floods, according to key scientific assessments. These effects of climate change may alter existing migration trends across the globe, according to IOM. (See appendix II for further discussion of climate change as a driver of migration in seven geographic regions.) For example, sea level rise, a slow-onset disaster, may result in the salinization of soil and drinking water, thereby undermining a country or community’s ability to sustain livelihoods and maintain critical services, which could cause some people to migrate. Sudden-onset disasters may also contribute to migration as people flee natural disasters, in most cases leading to temporary displacement. For example, people may either voluntarily migrate, or be forced to migrate, to earn money needed to rebuild damaged homes after flooding, especially as extreme weather events increase in intensity and number. If unable or unwilling to migrate, people may find themselves trapped or choosing to stay in deteriorating conditions. Sources agree that the effects of climate change generally impact internal migration, while migration across international borders due to climate change is less common. In deciding whether to migrate, people weigh multiple factors including economic and political factors, social or personal motives, or demographic pressures. The effects of climate change add another layer of complexity to this decision, but there is debate about the role climate change plays in migration. Figure 1 depicts how climate change may influence other factors that drive the decision to migrate or stay. There are limitations to reliably estimating the number of people displaced by climate change because there are no reliable global estimates for those migrating due to slow-onset disasters, and estimates for those migrating due to sudden-onset disasters are based on limited data, according to IOM. The lack of reliable data is due in part to the multi- causal nature of migration. Further, IOM notes that forecasts for the number of environmental migrants by 2050 vary from 25 million to 1 billion. They and others have questioned the methodologies used to arrive at even these broad estimates. Migration, potentially driven by climate change, may contribute to instability and result in national security challenges, according to some international organizations and national governments. For example, an influx of migrants to a city may put pressure on existing resources, resulting in tensions between new migrants and residents, or between the population and its government. The U.S. Global Change Research Program has also stated that migration, such as displacement resulting from extreme weather events, is a potential national security issue. At different times, the United Nations General Assembly and, in 2014, DOD have deemed climate change to be a threat multiplier, as the effects of climate change could increase competition for resources, reduce government capacity, and threaten livelihoods, thereby causing instability and migration. Further, the U.S. intelligence community considers climate change to increase the risks of humanitarian disasters, conflict, and migration. Identifying the cause of a conflict, however, is complicated, and experts debate the connections linking climate, migration, and national security. For example, IOM has reported that existing evidence on climate migration and instability must be considered with caution. Further, some studies stress that other factors can mitigate the effects of climate change on migration and stability, including governance and community resilience, as the World Bank has reported. State, USAID, and DOD are among the U.S. government agencies with a role in responding to issues related to climate change, including as a driver of migration. State interacts with foreign governments and international organizations focused on climate change and migration primarily through the Bureau of Oceans and International Environmental and Scientific Affairs (State/OES) and the Bureau of Population, Refugees, and Migration (State/PRM). USAID supports a range of development programs that help to mitigate the effects of climate change through the Bureaus for Economic Growth, Education and Environment; Democracy, Conflict and Humanitarian Assistance; Food Security; Asia; and Africa; and individual USAID missions. Additionally, USAID’s Offices of U.S. Foreign Disaster Assistance (USAID/OFDA) and Food for Peace (USAID/FFP) lead and coordinate the U.S. government’s emergency responses to sudden- and slow-onset disasters, and complex emergencies overseas. DOD assists in the United States’ humanitarian response to sudden- onset disasters abroad through its six geographic combatant commands, with support from the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and the Joint Staff’s Office of Humanitarian Engagement. Climate change as a driver of migration was not a focus of the policy documents we reviewed for either the current or previous administrations during fiscal years 2014 through 2018. Our review of executive actions, budget requests, and executive branch strategies that affected State, USAID, and DOD found only brief mentions of climate change as a driver of migration. None of the documents we reviewed reflected a priority for assessing or addressing climate change as a driver of migration, although these documents reflect a shift in administrations’ climate change priorities more generally. The previous administration issued two executive orders and a presidential memorandum related to climate change. These executive actions had a policy of improving climate preparedness and resilience, factoring climate-resilience considerations into agencies’ international development decisions, and creating forums for interagency coordination. In March 2017, the current administration issued a subsequent executive order revoking some of the previous executive actions related to climate change. See figure 2 for a timeline of these executive actions. The previous administration issued three executive actions related to climate change, which included requirements focused on agencies’ considerations of the impacts of climate change and established forums for interagency coordination. The current administration issued an executive action related to energy independence and climate change. Executive Order 13653: Preparing the United States for the Impacts of Climate Change. Executive Order 13653 stated that agencies—including State, USAID, and DOD—shall, among other things, develop, implement, and update comprehensive Agency Adaptation Plans that integrate consideration of climate change into agency operations and overall mission objectives. Executive Order 13653 also established the Council on Climate Preparedness and Resilience. Executive Order 13677: Climate-Resilient International Development. Executive Order 13677 requires State, USAID, and other U.S. government agencies with direct international development programs and investments to incorporate climate-resilience considerations into decision making by assessing climate-related risks to agency strategies, and to adjust relevant strategies as appropriate, among other things. Executive Order 13677 also established the Working Group on Climate-Resilient International Development as part of the Council on Climate Preparedness and Resilience. 2016 Presidential Memorandum on Climate Change and National Security. The 2016 presidential memorandum required, among other things, that agencies, including State, USAID, and DOD, develop an agency-specific approach to address climate-related threats to national security. It also required agencies to develop implementation plans that would describe how they would identify the potential impact of climate change on human mobility, including migration and displacement, and the resulting impacts on national security, among other requirements, and stated that the effects of climate change can lead to population migration within and across international borders, spur crises, and amplify or accelerate conflict in countries or regions already facing instability. The 2016 memorandum also established the Climate and National Security Working Group. Executive Order 13783, Promoting Energy Independence and Economic Growth. Executive Order 13783 revoked Executive Order 13653 and the 2016 presidential memorandum, among other things, as seen in figure 2. Priorities related to climate change shifted between the past two administrations as reflected in a recent budget request that reduced some climate change funding affecting U.S. foreign assistance. 2017 Presidential Budget Request. The previous administration stated in its fiscal year 2017 budget request that “the challenge of climate change will define the contours of this century more dramatically than any other” and that “it is imperative for the United States to couple action on climate change at home with leadership internationally.” The fiscal year 2017 budget request sought $1.3 billion in discretionary funding to advance the goals of the Global Climate Change Initiative, which was established in 2010 and aimed to promote resilient, low-emission development, and integrate climate change considerations into U.S. foreign assistance. The $1.3 billion in requested funding included $750 million in U.S. funding for the Green Climate Fund, a multilateral trust fund designed to foster resilient low-emission development in developing countries. 2018 Presidential Budget Request. The current administration, in its fiscal year 2018 budget request, did not include any funding for the Global Climate Change Initiative. In addition, the current administration’s budget request stated that it “Eliminate the Global Climate Change Initiative and fulfill the President’s pledge to cease payments to United Nations’ (UN) climate change programs by eliminating U.S. funding related to the Green Climate Fund. . .” Some strategies from the current and previous administrations that affect State, USAID, and DOD, among other agencies, reflect a shift in priorities related to climate change. For example, the previous administration cited climate change as a “top strategic risk” in its 2015 National Security Strategy and stated that climate change is an urgent and growing threat to U.S. national security, contributing to increased natural disasters, refugee flows, and conflicts over basic resources like food and water. The current administration does not discuss climate change in its 2017 National Security Strategy. Additionally, State and USAID have a Joint Strategic Plan to help the agencies achieve the objectives of the National Security Strategy. The previous State-USAID Joint Strategic Plan included a strategic goal on “promoting the transition to a low-emission, climate-resilient world” that proposed leading international actions to combat climate change. The current State-USAID Joint Strategic Plan does not have a climate change goal. State, USAID, and DOD were required by executive orders to assess climate change-related risks to their missions and, for State and USAID, to their strategies, among other things. In response to Executive Order 13653, which has since been revoked, the agencies completed adaptation plans that integrated considerations of climate change into agency operations and overall mission objectives. In response to Executive Order 13677, which has not been revoked, State and USAID developed processes for climate change risk assessments for their country and regional planning documents. Although these executive orders did not require a specific assessment of climate change as a driver of migration, all three agencies have discussed the effects of climate change on migration in their adaptation plans and risk assessments. However, State lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies. State, USAID, and DOD each completed adaptation plans in 2014 that included limited discussions of migration as one potential effect of climate change. Executive Order 13653 directed the agencies to develop or continue to develop, implement, and update comprehensive Agency Adaptation Plans that integrate consideration of climate change into agency operations and overall mission objectives. Each adaptation plan was to include, among other things, a description of how the agency would consider the need to improve climate adaptation and resilience. State. In its 2014 adaptation plan, State included a brief discussion of climate change as one of multiple factors that potentially will drive migration and impact its mission. State reported that the specific impacts of climate change on the ability of the department to promote peace and stability in regions of vital interest to the United States were unknown. For example, according to the plan, an increase in heavy precipitation events around the world could damage the electric grid and transportation and energy water infrastructure, upon which State depends, making it difficult to maintain operations and diplomatic relations. In its plan, State reported that climate change impacts may threaten international peace, civil stability, and economic growth through aggravating existing problems related to poverty and environmental degradation. Further, environmental and poverty- related issues and regional instability could stress relationships with some foreign governments. However, the plan noted that specific impacts of climate change on conflict, migration, terrorism, and complex disasters were still unknown. USAID. In its 2014 adaptation plan, USAID included a brief discussion of migration as one potential effect of climate change that could also impact security. USAID stated that the impact of climate change on its programs and operations, if left unaddressed, could compromise the agency’s ability to achieve its mission. Further, USAID’s plan referred to increased migration as a potential risk of climate change. Flooding and other extreme climate events can result in increased migration, among other impacts, that could affect existing and planned USAID programming. In particular, programs in areas like agriculture and food security, global health, water and sanitation, infrastructure, and disaster readiness and humanitarian response are vulnerable to climate change, according to USAID. In the infrastructure area, climate change may necessitate new protective measures for coastal homes and infrastructure, and in some cases even mass evacuations or permanent migration. USAID stated that climate change could further reduce or alter the distribution of already limited resources like food and water, or force temporary or permanent migration of communities. According to the plan, in areas with high risk factors for conflict, climate change stresses can aggravate tensions and contribute to conflict. DOD. In its 2014 adaptation roadmap, DOD included a brief discussion of migration as one of multiple potential effects of climate change that could impact national security. DOD referred to climate change as a threat multiplier that can aggravate other risks around the world, with migration being one effect that could increase requests for DOD to provide assistance. The roadmap stated that as climate change affects the availability of food and water, human migration, and competition for natural resources, the department’s unique capability to provide logistical, material, and security assistance on a massive scale or in rapid fashion may be called upon with increasing frequency. Furthermore, DOD stated that the impacts of climate change may cause instability in other countries by, among other things, impairing access to food and water, damaging infrastructure, uprooting and displacing large numbers of people, and compelling mass migration. These developments, according to the department, could undermine already fragile governments that are unable to respond effectively, or challenge currently stable governments, as well as increase competition and tension between countries vying for limited resources. In response to Executive Order 13677, State and USAID developed processes for climate change risk assessments for their country and regional planning documents. Though these assessments are not specific to migration, a few of the assessments identified the nexus of climate change and migration. State. State required climate change risk assessments for all new integrated country strategies drafted in 2016 or later. We reviewed 10 integrated country strategies from the two regions that were the first to implement the climate change risk assessment requirement— Africa, and East Asia and the Pacific. All 10 of the strategies included climate change risk assessments, one of which—Cambodia— identified migration as a risk for the country. The Cambodia strategy states that internal migration due to climate change hinders access to health care and the prevention of infectious diseases like malaria. We also reviewed 10 strategies from State’s functional and regional bureaus for assessments of climate-related risks, including 3 functional bureau strategies (State/PRM, State/OES, and State’s Bureau of International Organization Affairs) and 7 regional bureau strategies. All of the functional bureau strategies we reviewed identified climate change as a risk and State/PRM cited the impact of climate change on migration. Of the regional bureau strategies we reviewed, we found that one, the Bureau for East Asian and Pacific Affairs, identified climate change as a driver of migration as a challenge or risk in its region. For example, the strategy states that climate change is becoming increasingly disruptive, potentially increasing migration due to rising sea levels. None of the other six regional bureau strategies we reviewed identified the nexus of climate change and migration as a risk or challenge. However, five regional bureaus identified climate change as a risk or challenge and one identified migration as a risk or challenge. USAID. USAID also requires the integration of climate risk management into all country or regional development cooperation strategies drafted since October 1, 2015. Missions must document in a climate change appendix to the strategy any climate risks they identified and how they considered climate change in their strategy. As of August 2018, USAID had completed five country or regional development cooperation strategy updates initiated since October 1, 2015—Uganda, Tunisia, East Africa, Sri Lanka, and Zimbabwe—and all five included the required appendix. Of the five updated strategies, three—Uganda, Tunisia, and East Africa—discuss the indirect effect of climate change on migration, among other issues. For example, Uganda’s 2016-2021 country strategy states that increased frequency and duration of droughts is likely to be the most significant climate‐related change in Uganda. The strategy also notes that droughts have affected, and will continue to affect, water resources, hydroelectricity production, and agriculture, among other sectors. As agriculture, forestry, and fisheries decline in Uganda, the strategy asserts that people will migrate to urban areas, leading to the formation of slums. We also reviewed USAID’s nine regional development cooperation strategies, one of which—East Africa—had been updated since the requirement to include climate risk management. Of the other eight strategies that have yet to be updated, seven identified climate change as a challenge or risk and three identified climate change as a driver of migration as a challenge or risk. For example, the Southern Africa regional development cooperation strategy states that water scarcity, natural disasters, and other climate change related events will most likely increase migration throughout the region. Additionally, the Asia regional development cooperation strategy discusses the risks of climate change in urban areas. In Asia, the number of migrants seeking economic opportunities in urban centers is likely to increase. According to the strategy, migrants are moving into hazard-prone areas located along coastlines, flood plains, and other low-lying areas in many Asian primary and secondary cities—areas that experts predict will experience more frequent and intense storm surges, floods, and coastal erosion as a result of climate change. The requirement in Executive Order 13677 to assess climate change- related risks to agency strategies remains unchanged; however, State now lacks clear guidance on its process for assessing climate change- related risks to its integrated country strategies. Specifically, State’s 2016 guidance for developing integrated country strategies stated that all missions should assess the risk of climate change on their strategies’ goals and objectives and included reference to the climate risk screening tool—a method that missions could use to assess climate change risks. State issued new guidance to its missions in 2018, but this guidance does not include information on the process for assessing climate change-related risks to agency strategies. According to State officials, the 2018 guidance for integrated country strategies does not reference climate change risk assessments because, in September 2017, State decided that the strategies should not single out climate change risks in a separate appendix. State officials said this decision resulted, in part, from the new administration’s shift in priorities on climate change. Officials also said that this decision reflects a new approach to risk management by State and that the missions could choose to include climate change and other potential risks in the general risk discussion section of their strategies. Officials from State’s Office of U.S. Foreign Assistance Resources said that it is now up to each mission to decide whether a strategic objective may have a climate challenge. However, those missions that choose to include an assessment of climate change risks are not provided guidance on the process for doing so and there is no reference to the climate risk screening tool—or to climate change at all—in the 2018 guidance. Executive Order 13677 directed State to incorporate climate-resilience considerations into decision making by assessing climate-related risks to agency strategies, among other things. Subsequently, a State cable from September 2016 further explained that State would implement the executive order’s requirement by screening for climate risks as part of the process for drafting all new integrated country strategies. Additionally, the Standards for Internal Control in the Federal Government state that documentation is a necessary part of an effective internal control system. If management determines that a principle is not relevant, management must support that determination with documentation that includes the rationale of how, in the absence of that principle, the associated component could be designed, implemented, and operated effectively. Because State lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies, it is less likely that the current round of strategies will include the assessment of climate- related risks. It is also possible that those missions that choose to conduct climate change risk assessments will not do so in a consistent manner. Such assessments might identify climate change as a driver of migration, as at least one previous assessment did under the 2016 guidance. Thus, without clear guidance, missions may not examine climate change as a risk to their strategic objectives and could miss opportunities to improve the climate resilience of foreign assistance activities. For fiscal years 2014 through 2017, State, USAID, and DOD had some activities that could potentially address climate change as a driver of migration, although none of these activities specifically focused on the issue. For example, USAID has climate change adaptation activities, but to date migration has not been a focus of this programming. With the shift in priorities related to climate change in fiscal year 2017, agencies have reduced some of these activities. State’s offices that are focused on the issues of climate change (State/OES) and migration (State/PRM) have participated in multilateral activities related to climate change as a driver of migration and funded adaptation and other activities related to the issue. State officials said that the agency does not, however, have any activities that specifically address migration due to climate change or environmental factors. State has participated in multilateral activities related to climate change and migration. With the shift in priorities related to climate change in fiscal year 2017, the United States has disengaged from some of these multilateral activities (see table 1). In addition to State’s participation in the multilateral activities described in table 2, State has provided funding for activities related to climate change and capacity building that address natural disasters. These activities may involve efforts potentially related to migration. For example, according to State: State provided about $2 million per year, between fiscal years 2014 and 2016, to the Intergovernmental Panel on Climate Change, which analyzed the impacts of climate change on migration in its most recent assessment report. State/PRM provided about $4 million, between fiscal years 2014 through 2018, for IOM’s Migrants in Countries in Crisis Initiative, which provides guidelines to protect migrants in countries experiencing conflict or natural disasters. IOM provides training to countries on these guidelines. State/PRM officials said that this initiative is not specifically related to climate change and does not focus on specific types of disasters but does mention sudden-onset disasters. Officials also said that IOM tries to promote a climate change perspective in its trainings. State/OES provided about $78 million in adaptation funding from the Global Climate Change Initiative to eight projects during fiscal years 2014 through 2017. (See appendix III for a description of all eight projects.) State/OES officials said that these projects help countries prepare for the impacts of climate change, potentially reducing the pressure to migrate. However, to these officials’ knowledge, none of these projects directly supported activities related to migration. For example, State/OES provided a $4 million grant to the National Adaptation Plans Global Network. This network focuses on increasing the capacity of governments to identify and assess climate risks, integrate these risks in planning, develop a pipeline of projects to address these risks, identify and secure funding for projects, and track progress toward resilience targets. Adaptation activities occurred in over 35 countries. With the shift in priorities related to climate change in fiscal year 2017, State discontinued some of these efforts. For example, funding for the Global Climate Change Initiative was not included in the President’s budget request for fiscal year 2018. State/OES officials said that the agency does not plan to fund additional adaptation activities and has not requested additional funding for the activities. According to a State official, PRM had been in discussion with IOM to develop a project proposal that would have assisted the governments of Small Island Developing States in adapting their migration policies to account for challenges and opportunities associated with environmental degradation, ecosystem loss, climate change impacts, and natural disasters. State/PRM stopped further development of the proposal following the change in administrations. Additionally, according to a State official, the department made some efforts at the end of the previous administration to develop a formal position on the topic of climate change as a driver of migration. For example, State drafted an internal document to help clarify its role in responding to the humanitarian aspects of sudden-onset and slow-onset climate events. This initial work stopped under the current administration. USAID officials said that, with respect to the agency’s climate-related programming, its climate change adaptation programming was the most likely to include activities related to migration or displacement, although a broad swath of USAID development programming has the potential to build host country resilience. Officials stated that, to date, migration has not been a primary motivation for the agency’s climate-related or disaster assistance programming. However, officials said that, in a humanitarian crisis or under some economic conditions, development programming can reduce displacement or the pressure to migrate—such as by fostering greater resilience to drought or other adverse conditions—and that this is also true of climate-related programming. USAID also provides humanitarian assistance in response to natural disasters that displace people. Officials said that USAID recognizes the links between displacement and natural disasters, but that the agency does not have specific programs linking disaster assistance, migration, and climate change. USAID identified about 250 activities that received adaptation funding from the Global Climate Change Initiative during fiscal years 2014 through 2016. Our analysis of the descriptions of these activities determined that none directly mentioned any efforts specifically related to migration. Officials emphasized that the connection between climate change and migration tends to be indirect and shaped by other more immediate factors. USAID’s data on activities that received adaptation funding identified 38 beneficiary countries, as well as activities described generally as implemented at the regional or global level. For activities where USAID’s data identified a specific region, most activities were located in Africa followed by Asia and Latin America and the Caribbean. Examples of the types of activities that received adaptation funding from the Global Climate Change Initiative during fiscal years 2014 through 2016 include: The Mali Climate Change Adaptation Activity, which aims to build resilience to current climate variability and increase resilience to longer-term climate change effects. This activity is also working to strengthen the capacity of Mali’s meteorological agency to provide improved climate information as well as to incorporate climate considerations into local-level planning. The total estimated cost is about $13 million over 5 years. The activity for Climate-Resilient Ecosystems and Livelihoods, which ended in September 2018, aimed to increase Bangladesh’s resilience to natural hazards by working with community-based organizations, government ministries, and technical agencies. This activity provided technical assistance to the Government of Bangladesh and local communities to improve ecosystem conservation and resilience capacity. The total estimated cost was about $33 million in funding over 6 years. The activity for Pastoralist Areas Resilience Improvement through Market Expansion, which aims to support pastoralists in Ethiopia via expansion of markets and long-term behavior change (see fig. 3). USAID officials cited this activity as an example of adaptation efforts that indirectly address the issue of climate change as a driver of migration. The activity has three interrelated objectives: increasing household incomes, enhancing resilience, and bolstering adaptive capacity to climate change among pastoral people in Ethiopia. An evaluation of the activity found that migration is a coping strategy for dealing with climate shocks, although participants said that drought is becoming more frequent, placing a severe strain on traditional coping mechanisms, such as migration and selling cattle, and that permanent migration is not a preferred strategy. The total estimated cost is about $60 million in funding over 6 years. With the shift in priorities related to climate change, funding for USAID’s climate change adaptation activities has decreased. Missions may continue to fund their adaptation activities with discretionary funds or other earmarked, sector funding, provided the activities further the funding source’s objective, according to USAID. For example, in some cases, missions are using Water sector funding to continue some of their adaptation work. USAID also said that among the agency’s goals are to increase the resilience of USAID partner countries to recurrent crises, including climate variability and change. In addition to USAID’s climate change adaptation programming, USAID/OFDA and USAID/FFP provide emergency humanitarian assistance to people affected by sudden-onset disasters—such as hurricanes and floods—and slow-onset and extended disasters, including droughts and conflicts. Some of this assistance helps people who have been displaced by disaster. USAID officials stated that although disasters cause mainly temporary displacement, the relationship among humanitarian assistance, climate change, and migration is very complex and depends on both climatic and non-climatic factors. USAID/OFDA responded to 267 disasters from fiscal year 2014 through June 2018, according to agency data. For example, USAID/OFDA responded to the effects of Hurricane Matthew in Haiti in October 2016, as seen in figure 4, including helping temporarily displaced people. DOD assists in the U.S. government response to overseas disasters, including helping people displaced by such disasters, regardless of the cause of the disaster. These efforts are not specific to climate change as a driver of migration. For example, officials from DOD’s geographic combatant commands said that, to the extent they address climate change, migration is not a focus of those efforts and they view migration as caused by security and economic issues. Between fiscal years 2014 and 2018, Congress has appropriated to DOD between $103 and $130 million per year for Overseas Humanitarian, Disaster, and Civic Aid. Officials said that the geographic combatant commands use most of this funding for steady state humanitarian assistance related to health, education, basic infrastructure, and disaster preparedness with a smaller amount set aside for immediate disaster assistance although that varies based on emergency requirements. DOD officials said that they have not seen any changes to this funding or associated activities with the change of administrations in fiscal year 2017. DOD officials we spoke with also emphasized that USAID/OFDA is the lead agency for the U.S. government’s response to disasters overseas. USAID/OFDA formally requested DOD support on about 10 percent of the foreign disaster assistance provided by USAID/OFDA, according to USAID data for fiscal year 2014 through June 2018 and DOD officials. DOD assistance is typically provided for the largest, most complex disasters, according to agency officials. According to a July 2015 assessment conducted by the geographic combatant commands, while their activities vary, each command works with partner nations to increase their abilities to reduce the risks and effects from environmental impacts and climate-related events, including severe weather and other hazards. For example, in the report, U.S. Southern Command stated that it had requested funding to pre-position assets for when a severe storm threatens Haiti to be able to respond immediately to a potential disaster. U.S. Southern Command officials said that they work with partner nations to encourage residents experiencing extreme weather to remain where they are because it is easier to provide help to people who stay in one place. Officials from U.S. Southern Command and U.S. Africa Command also said that the major factors driving migration in their regions are security and economic issues. State, USAID, and DOD have participated in interagency forums regarding climate change, which may have addressed its effects on migration. With changes to priorities regarding climate change in fiscal year 2017, these forums have been disbanded or are not meeting. The Council on Climate Preparedness and Resilience. The Council on Climate Preparedness and Resilience, of which State, USAID, and DOD were members, was established to facilitate the integration of climate science in policies and planning of government agencies, including by promoting the development of climate change related information, data, and tools, among other things. Additionally, the council was to develop, recommend, and coordinate interagency efforts on priority federal government actions related to climate preparedness and resilience. According to State officials, the council began working with the National Security Council and other agencies to facilitate greater interagency cooperation on adaptation. In addition, a task force on the council was discussing the federal role in addressing displacement related to climate change. The council was disbanded when Executive Order 13783 revoked Executive Order 13653, which had established the council. The Working Group on Climate-Resilient International Development. The Working Group on Climate-Resilient International Development, of which State and USAID were members, was established by Executive Order 13677 and placed under the Council on Climate Preparedness and Resilience. The working group’s mission includes developing guidelines for integrating considerations of climate-change risks and climate resilience into agency strategies, plans, programs, projects, investments, and related funding decisions, among other things. Additionally, the working group was tasked with facilitating the exchange of knowledge and lessons learned in assessing climate risks to agency strategies, among other things. USAID officials said that the working group had not discussed climate change as a driver of migration. While the working group has not been formally disbanded, it has not met since at least November 2017 according to USAID. The Climate and National Security Working Group. The Climate and National Security Working Group, of which State, USAID, and DOD were members, was established by the 2016 presidential memorandum. The chairs of the working group were to coordinate the development of a strategic approach to identify, assess, and share information on current and projected climate-related impacts on national security interests and to inform the development of national security doctrine, policies, and plans, among other things. According to the memorandum, the working group was to provide a venue for enhancing the understanding of the links between climate change- related impacts and national security interests and for discussing opportunities for climate mitigation and adaptation activities to address national security issues. This working group was disbanded when Executive Order 13783 revoked the 2016 presidential memorandum, which had established the working group. State, USAID, and DOD assessments and activities have not focused specifically on the nexus of climate change and migration. State did identify migration as a risk of climate change in at least one of its climate change risk assessments for the department’s country strategies. However, State now lacks clear guidance on its process for assessing climate change-related risks to its integrated country strategies. State’s current guidance for these country strategies no longer mentions a climate change risk assessment and does not provide missions with information about the climate risk screening tool that can be used to conduct such an assessment. As such, missions are less likely to examine climate change as a risk to their strategic objectives, or to do so in a consistent manner, and thus may not have the information they would need to identify migration as a risk of climate change. By clearly documenting and providing guidance on how to assess the risk of climate change, State would ensure that the department examines the potential risks of climate change on its foreign assistance activities. We are making the following recommendation to State: The Secretary of State should ensure that the Director of the Office of U.S. Foreign Assistance Resources provides missions with guidance that clearly documents the department’s process for climate change risk assessments for integrated country strategies. (Recommendation 1) We provided a draft of this product to State, USAID, and DOD for review and comment. State provided written comments, which we have reprinted in appendix IV. In its comments, State did not oppose the recommendation and noted that the agency will update its integrated country strategy guidance by June 30, 2019 to inform missions that they have the option to include an annex on climate resilience, as well as other topics. However, State also indicated that the agency will begin working with stakeholders to consider whether to recommend that the Secretary of State ask the President to rescind Executive Order 13677: Climate- Resilient International Development. USAID also provided written comments, which we have reprinted in appendix V. In its letter, USAID provided some additional information about its programs and its proposed transformation effort. USAID and DOD provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional requesters, Secretary of State, the Administrator of USAID, and the Secretary of Defense. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact David Gootnick at (202) 512-3149 or gootnickd@gao.gov, or Brian J. Lepore at (202) 512-4523 or leporeb@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. This report (1) describes executive branch actions related to climate change and migration from fiscal years 2014 through 2018; (2) examines the extent to which the Department of State (State), the U.S. Agency for International Development (USAID), and the Department of Defense (DOD) have discussed the potential effects of climate change on migration in their plans and risk assessments; and (3) describes State, USAID, and DOD activities, if any, that are related to climate change and global migration. We chose fiscal years 2014 through 2018 as our time frame based on our review of recent executive orders related to climate change. We selected State, USAID, and DOD because the agencies’ missions of diplomacy, development, and defense provide the foundation for promoting and protecting U.S. interests abroad. To describe executive branch actions related to climate change and migration from fiscal years 2014 through 2018, we reviewed documents that reflect priorities of the previous and current administrations. Specifically, we reviewed budget requests and enacted appropriations between fiscal years 2014 through 2018 for funding priorities related to climate change and U.S. foreign assistance. In addition, we reviewed executive actions and executive branch strategies that applied to State, USAID, and DOD between fiscal years 2014 through 2018 for executive and national security priorities related to climate change. For example, we reviewed the current and previous national security strategies. strategies and seven regional bureau strategies. For USAID, we examined the five country and regional strategies that were required to include a climate risk assessment at the time of our review: Uganda, Tunisia, East Africa, Sri Lanka, and Zimbabwe. We also reviewed all nine USAID regional strategies. For both State and USAID, we reviewed the selected strategies by searching for information related to migration and climate change. To determine whether State clearly documents the department’s current climate risk assessment process for integrated country strategies, we compared State’s 2018 guidance for developing integrated country strategies with standards related to documentation in Standards for Internal Control in the Federal Government and previous State guidance issued in 2016, which was created in response to Executive Order 13677’s requirements to assess climate change risks to strategies, among other things. to these issues. The agency then provided us with data for about 250 activities from its annual operational plans for fiscal years 2014 through 2016, the 3 years during the period we reviewed in which it received adaptation funding. USAID identified these activities based on whether the agency had tagged them in its plans as having an “adaptation key issue.” USAID excluded projects that had planned attributions to the adaptation key issue of less than $250,000 in a given fiscal year, as well as certain other activities such as those that focused on project support. We then conducted an automated review of the activity description fields provided by USAID for terms related to migration and other descriptive information such as locations of activities. Because no USAID adaptation activities specifically mentioned migration, for the purposes of this report we chose illustrative examples to provide context for the types of activities the agency has funded. DOD officials we met with did not identify any specific activities related to climate change as a driver of migration. DOD officials from the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and the geographic combatant commands generally discussed DOD activities related to humanitarian assistance and disaster response as most relevant to our inquiry. Because DOD works in coordination with USAID’s Office of U.S. Foreign Disaster Assistance on disaster assistance we also reviewed USAID data on its disaster response activities during this period. We determined that the USAID and State adaptation project data and USAID disaster assistance data were sufficiently reliable for the purposes of describing these efforts. State, USAID, and DOD to obtain information on whether changes in government priorities related to climate change affected their activities. We conducted this performance audit from October 2017 to January 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This appendix provides a review by region of observed and projected climate change effects, migration trends, and challenges in stability and security. Multiple sources we used for this overview make a connection between climate change and such events as rising sea levels, higher temperatures, and an increase in the number and severity of extreme weather events. The following regions are discussed: Asia, South America, the Arctic, Sub-Saharan Africa, the Middle East and North Africa, Oceania, and Central America and the Caribbean. We have provided an overview for each region and a focus on one country or territory in the region. international and regional organizations, including a variety of organizations within the United Nations, the World Bank, regional development banks, the European Union, and others. Third, we reviewed relevant public documents from U.S. government agencies, including the Department of Defense, the U.S. Agency for International Development (USAID), and the United States Institute of Peace (USIP). Fourth, we reviewed academic sources, research institutions, and documents from the relevant country’s national government. population. Economic conditions may be a factor for people deciding whether to migrate or stay in their country of origin. Remittances as Percent of GDP: The money international migrants transfer to recipients in their country of origin, expressed as a percentage of the origin country’s GDP. Sources agree that remittances support resilience in origin countries. Agriculture, Fishing, Forestry as Percent of GDP: A measure of the value added to an economy from the agricultural sector, which includes forestry, hunting, fishing, and the cultivation of crops and livestock, expressed as a percentage of the country’s GDP. Countries that depend on the agricultural sector may be vulnerable to the effects of climate change, according to the World Bank. Percent of Population in Cities: The population living in areas classified as urban according to criteria each country uses. Today, more than half of the global population lives in cities. Migration, in some cases due to climate change, is an important driver of urban growth, according to IOM. Cities are also expected to face increasing risks from rising sea levels, flooding, storms, and other climate change effects. Net Migration Rate: A measure of the number of people leaving a country compared to the number of people entering a country, expressed as a number per 1,000 people. The effects of climate change in Asia may impact migration and stability according to the Intergovernmental Panel on Climate Change (IPCC) and the Asian Development Bank (ADB). In coastal areas, effects of climate change include rising sea levels, storm surges, and others. Receding glaciers in mountanous areas may also cause flooding, and monsoons in a warmer climate may be more severe. Heat extremes and more rainfall are a particular concern in Southeast Asia. Changes in precipitation and drought in Asia may exacerbate food security challenges, and contribute to people deciding to migrate. Increases in migration, partly stemming from the effects of climate change in surrounding rural areas, may put pressure on existing urban infrastructure. Rural migrants may settle in informal communities on the outskirts of cities, areas that have little resilience to natural disasters. Although the World Bank and others agree that climate change largely causes internal migration, some evidence shows that the impact of climate change contributes to cross-border migration in Asia. Large numbers of migrants, along with other destabilizing factors, may contribute to instability and conflict, according to the IPCC. The effects of climate change on livelihoods, for example, could increase migration, strain governance, and contribute to conflict as a result. Bangladesh is one example where decreased yields from agriculture and fisheries have contributed to migration to the country’s coastal cities, which face their own climate change challenges. Bangladesh’s high population density and geography make the country susceptible to the effects of climate change, according to the World Bank, and others. Bangladesh’s coasts and river banks are vulnerable to sudden-onset events such as tropical cyclones and flooding. Cyclone Aila in 2009, for example, caused widespread flooding in the southern coastal areas of Bangladesh and impacted millions of people. The storm washed away embankments that protected coastlines and caused severe damage to crops and livelihoods. Tropical Cyclone Mora in 2017 damaged thousands of homes and displaced an estimated 200,000 people. Increases in the number and intensity of tropical cyclones, which some predict will occur in a warmer climate, could have severe impacts on homes, livelihoods, and food security. Bangladesh also experiences many slow-onset climate change events, such as rising sea levels and increasingly severe droughts, which are projected to intensify with climate change. Bangladesh would lose an estimated 17.5 percent of its land if the sea level rose 1 meter, as the International Organization for Migration (IOM) has reported. Projected changes in precipitation levels could cause drought and food insecurity in the northwest and salt-water intrusion could reduce crop yields in the southwest. Migration is a common adaptation strategy to climate change in Bangladesh, according to the ADB. For example, some farmers have adapted to salt water intrusion and destroyed crops by switching to salt- tolerant rice production or shrimp cultivation. Others have migrated, often to Bangladesh’s cities to find work less dependent on agriculture. Many new migrants to Bangladesh’s cities live in informal settlements that lack the resilience to withstand sudden-onset climate events. The capital city, Dhaka, is a common destination for migrants displaced by salt-water intrusion, flooding, and river erosion, according to IOM. Dhaka, like many coastal cities in South Asia, is located on a low-lying riverbank and faces increasing risks of extreme flooding. For example, past floods in Dhaka have destroyed homes and contaminated drinking water, creating significant health hazards. In some cases, individuals migrate to cities temporarily for work and return home after the agricultural off season ends. Bangladeshis also provide a significant number of labor migrants to the Gulf States and Malaysia. Remittances from international migrants represent 5.4 percent of the country’s GDP, and may help to support resilience to climate change, according to IOM, and others. These migration trends may intensify in the future. One study estimates 9.6 million people will migrate from 2011 to 2050 due to the effects of climate change. Challenges in Stability and Security Migration due to climate change is cited as a potential destabilizing factor in Bangladesh by ADB, and others. The low-income population in Bangladesh is dependent on agriculture, making the effects of climate change—including impacts on food security—a particular concern. By 2030, these effects on livelihoods and food security could increase the poverty rate in Bangladesh by 15 percent, as the IPCC has reported. Given the proximity of Bangladesh to India, some individuals may also choose to cross the border. Increased migration to India is a potential concern, according to some sources, as India may not have the resources to absorb large numbers of Bangladeshi migrants. The CNA Corporation, National Security and the Threat of Climate Change (Alexandria, VA: 2007); and Population Council, “Effects of Future Climate Change on Cross-Border Migration in North Africa and India,” Population and Development Review, Vol. 36, No. 2 (2010). The effects of climate change in South America vary by region, according to the the Intergovernmental Panel on Climate Change (IPCC) and International Organization for Migration (IOM), as well as potentially impacting migration and stability. On the coast, risks include sea level rise, depletion of fisheries, and coral reef bleaching, according to IOM. Coastal cities with growing populations are particularly vulnerable. Melting glaciers in the Andean mountain region, and increased rainfall are expected to change the distribution of water resources, and impact food production as global demand for food is growing. Desertification and land degradation, complicated by the effects of climate change, are contributing to migration from rural areas to cities in South America, as IOM has reported. An estimated 77 percent of people living in high risk areas in South America are located in cities, according to IOM. IOM predicts that as these people feel the effects of sea level rise and water scarcity, they will migrate from the large coastal cities to smaller urban areas. While South America has experienced economic growth in the last decade, poverty rates remain high, and the effects of climate change, including possible migration, may exacerbate inequalities, putting further pressure on cities to meet the needs of their populations. Water security in particular is expected to disproportionaly impact low-income communities, according to the IPCC. For example, in Brazil, drought in the northeast may increase migration to southern cities that are facing rising sea levels and landslides, with consequences for food, water, and energy security. Observed and Projected Effects of Climate Change Brazil’s cities and rural regions may encounter a range of climate change effects, according to the IPCC and IOM. Rural areas, particularly in the northeast, could experience significant impacts from climate change partly due to poverty rates, and historical vulnerability to drought. Higher temperatures are expected to affect crop yields and household incomes, especially for low-income communities. In northeastern Brazil, temperatures are expected to increase and rainfall to decrease. The northeast could see a 22 percent reduction in precipitation by 2100, according to IPCC projections. Brazil’s coastal areas, including cities, are also vulnerable to rising sea levels, heavy precipitation, flooding, and landslides. The vast majority of Brazil’s population, about 86 percent, lives in cities, many in coastal areas, according to the United Nations Development Program. As their populations have grown, urban areas have extended out. This urban growth in Brazil’s megacities has caused further increases in temperature, rainfall, and landslides. For example, current levels of urbanization in the metropolitan area of Sao Paulo may already be responsible for the 2°C warming observed in the city over the last 50 years, as well as the rise in extreme rainfall, according to the IPCC. The metropolitan area is expected to extend its area 38 percent by 2030. Multiple studies of the effects of urbanization on Sao Paulo’s climate suggest higher temperatures affect convective rainfall, which occurs when warm air rises, condenses to form clouds, and produces extreme rain. Other concerns are the depletion of coral reefs and mangrove forests on Brazil’s coastlines, and decreases in biodiversity. Migration from drought in northeastern Brazil to cities has increased urban populations, putting more people at risk of displacement from flooding and landslides. Migration from the northeast is a historical trend in Brazil, as economic migrants have sought seasonal jobs in more productive agricultural regions, or moved permanently to southern cities. Projected declines in rainfall have led some to predict further increases in migration in northeastern Brazil, as the IPCC has reported. However, remittances from family members who leave Brazil’s northeast support resilience for those who remain and may help to reduce migration. Already environmental factors contribute to migration to cities, including to favelas, informal settlements often constructed in hilly areas and floodplains outside of Brazilian cities. A significant number of the favela residents in Rio de Janeiro are migrants from northeastern Brazil, according to IOM. These new migrants may be at risk of further displacement if heavy rainfall, flooding, and other climate change effects destroy their vulnerable homes. For example, heavy rainfall in April 2010 resulted in landslides across Rio de Janeiro, displacing an estimated 5,000 people, according to a report from the World Bank. Brazil is also a destination for migrants from other countries in the region. Migrants from Venezuela searching for jobs and improved food security have come in growing numbers in recent years, as have migrants from Haiti fleeing a series of natural disasters, as IOM has reported. Challenges in Stability and Security Although Brazil ranks 106th out of 178 countries on the Fragile States Index, the effects of climate change may contribute to challenges with water, food, and energy access according to the IPCC. Decreased rainfall could decrease agricultural productivity, with potential health impacts for poor populations. These conditions are of particular concern in northeastern Brazil, as extreme weather and low crop yields are associated with more violence, according to the IPCC. Brazil also receives about 70 percent of its electricity from hydroelectric power, according the United Nations Environment Programme, and recent droughts caused power cuts across many major cities. Although not linked to the effects of climate change, absorbing a growing number of migrants fleeing political and economic instability in Venezuela may impact the broader region, according to the U.S. Department of Defense and the National Intelligence Council. Neighboring countries, including Brazil, may struggle to absorb the influx of migrants. On average, 800 Venezuelans are crossing the border to Brazil every day in need of urgent humanitarian assistance, according to the UNHCR, the UN Refugee Agency. The effects of climate change in the Arctic, including higher temperatures and melting ice, have contributed to shifts in migration across the Arctic, and may have security implications. Increasing temperatures may have a variety of impacts in the Arctic, according to the Intergovernmental Panel on Climate Change (IPCC). The effects of rising temperatures are disrupting livelihoods and food security, especially for indigenous communities, and opening up untapped natural resources to extraction. Both trends have impacted migration flows in the Arctic. Rising temperatures and melting ice have opened up previously inaccessible waterways in the Arctic, with implications for national security, according to the Department of Defense and others. Greenland, located in the Arctic and considered part of Kingdom of Denmark, exhibits many of these trends. Greenland is experiencing the effects of climate change, including glacial and ice melt, shifts in wildlife distribution, and newly available oil and mineral deposits, among others. The Greenland Ice Sheet covers approximately 80 percent of Greenland’s land mass. The ice sheet’s melting rate is slow, but uncertain. Increases in temperature greater than 1°C may result in the near loss of the entire ice sheet over a millennium and significant sea level rise, according to the IPCC. In the short term, predicting the ice sheet’s melting rate is a challenge as predictions vary in the scientific community. Accurate predictions would support mitigation and adaptation efforts in vulnerable areas. Rising temperatures and shrinking ice cover have shifted the distribution and migration patterns of marine mammals and fish, and impacted food security according to the IPCC and the Arctic Council, an intergovernmental forum for Arctic states. For example, the economy in Paamiut, Greenland, depended primarily on cod fisheries until changing climate conditions caused cod to disappear, and the town was slow to adapt to newly available shrimp. Similarly, fisheries in Disko Bay, Greenland, have struggled to adapt to new conditions. Rising temperatures and the resulting reduction in ice cover have required a shift to fishing from boats in open water instead of hunting and fishing over ice cover. Lastly, warming and ice melt may make significant oil and mineral deposits accessible for extraction in the future. The potential expansion of extraction industries makes environmental sustainability another possible concern. For example, an estimated 31 billion barrels of oil and gas may exist off the coast of Northeast Greenland, according to the Kingdom of Denmark’s 2011-2020 Arctic Strategy. The strategy stresses the importance of assessing and reducing risks to the environment resulting from the exploration and extraction of oil and gas. The effects of climate change are predicted to contribute to internal and external migration in Greenland. For example, young people are increasingly leaving indigenous communities in rural areas for cities in Greenland in search of work, as traditional livelihoods become unsustainable. Greenland is home to a majority indigenous population, primarily Inuit, whose traditional hunting and fishing practices require travel across ice. In the past, people adapted to seasonal changes to support livelihoods by migrating, and the practice was embedded into indigenous social structures. With reduced ice cover, however, migrating to hunt, fish, and maintain connections to community is more dangerous or restricted. Government policies promoting centralized services, such as health care and education, have also played a role in the shift away from migration as a way of life. As a result, indigenous livelihoods are more difficult to maintain, and young people often migrate to towns and cities in Greenland, or to Denmark, for education. At the same time, warmer temperatures have made mineral extraction feasible. As the extraction industry grows, new jobs may draw migrants from outside the Arctic region. In 2011 companies spent $100 million on the exploration of minerals in the Artic, and the estimated number of new mines is expected to require more workers than now live in the region.17 79Currently, more people leave than migrate to Greenland. The local Inuit population in Uummannaq, Greenland relies heavily on ice coverage for fishing and travel by traditional dog-sled. Brookings-LSE Project on Internal Displacement, A Complex Constellation: Displacement, Climate Change and Arctic Peoples (January 30, 2013). Brookings-LSE Project on Internal Displacement. The effects of climate change on Sub-Saharan Africa vary depending on the region and have impacts on migration and security, according to the International Organization for Migration (IOM). Coastal areas, for example, in West and East Africa are at risk from sea level rise that could affect major cities. Drought and the risk of desertification in the Sahel is cited as a concern, as is increased rainfall in parts of Central Africa accompanied by lower agricultural yields. As desertification threatens the livelihoods of farmers and herders, and drought makes fishing more challenging, rural dwellers may be more likely to migrate to cities, according to the United Nations Environment Programme (UNEP). Urbanization and population growth across Sub-Saharan Africa is already making densely populated cities vulnerable to flooding, storms, and erosion, increasing the number of people at risk of displacement by sudden-onset disasters. Climate change effects and changing migration flows across Sub-Saharan Africa may impact access to natural resources and contribute to existing tensions and conflicts, according to UNEP and the Intergovernmental Panel on Climate Change (IPCC). In Nigeria, the effects of climate change may effect a variety of livelihoods and increase migration south, while also exacerbating existing conflicts. The effects of climate change on Nigeria may impact the country’s agriculture and economy, according to the United States Institute of Peace (USIP). Higher temperatures and decreased rainfall have contributed to drought in northern Nigeria. Desertification is also a concern. Some regions in northern Nigeria have less than 10 inches of rain a year, an amount that has decreased by 25 percent since the 1980’s, according to USIP. In other areas across Nigeria flooding has resulted in major crop losses, according to UNEP. Rising sea level, water inundation, and erosion are concerns in Nigeria’s coastal areas. Rising sea level is predicted to pose medium to very high risks to Africa’s coastal areas by 2100, according to the IPCC. Future sea level rise could result in the inundation of over 70 percent of the Nigerian coast. A rise of 0.2 meters in sea level could risk billions of dollars in assets, including oil wells near the coast. Even without a rapid rise in sea level, Nigeria’s coastal areas could experience erosion and significant land loss by 2100, as the IPCC has reported. The effects of climate change on livelihoods in northern Nigeria may contribute to migration to the south according to UNEP, while conflict in the north drives separate migration trends. As the effects of climate change make farming and fishing more challenging elsewhere in Nigeria, migration to southern coastal cities may increase. Traditionally, farmers, herders, and fishery workers migrated for temporary employment during the off season, including migration to Nigeria’s cities to work in the oil industry. Permanent migration south as well as to cities may become more common if land suitable for farming decreases. As fish habitats like Lake Chad dry up, fishery workers may also migrate. Larger urban populations on the coast will put more people at risk of sea level rise, water inundation, and erosion, according to the IPCC. A rise in sea level of 1 meter could put over 3 million people at risk of displacement as the IPCC has reported. Herders have also moved further south due to increased drought in northern Nigeria, as UNEP and USIP have reported. A 2010 survey of herdsmen in Nigeria, for example, found that nearly one-third of them had migrated southeast as a result of changes in the natural environment, according to the UNEP. The ongoing conflict with Boko Haram, while not caused by climate change, has further resulted in millions of displaced people across the Lake Chad region, including many Nigerians who have fled to Cameroon, Chad, and Niger. Nigerian refugees at the Minawao camp in Cameroon. Challenges in Stability and Security The effects of climate change, migration, and conflict are interconnected in Nigeria, as USIP has reported. The country is ranked 14th of 178 countries on the Fragile States Index. Events in northwest Africa, including Boko Haram’s attacks in Nigeria, have underscored concerns about the region’s vulnerability to the spread of violent extremism. The effects of climate change may exacerbate these concerns, according to USIP. Nigerians fleeing attacks from Boko Haram in the north have gone to communities in neighboring Chad, Cameroon, and Niger that are already experiencing food shortages due in part to climate change. These neighboring countries as a result have fewer resources to support both their own residents and the newer refugees. Non-state actors may also take advantage of government inaction on the effects of climate change. Boko Haram, for example, has justified its acts of violence by pointing to government failures, according to the USIP. Separately, increased drought in the north may aggravate historic tensions over land and water use between farmers in the south and herders migrating from the north, according to UNEP. Nigeria’s oil fields on the coast, which represent a significant part of the economy, are also at risk from sea level rise. Potential losses in oil revenue could impact Nigeria’s ability to respond to humanitarian crises and conflict at home. Increased violence within its borders could also affect Nigeria’s ability to support regional peacekeeping missions, such as the United Nations Mission in Liberia from 2003 to 2018, where Nigerian troops worked to restore security after a civil war. The effects of climate change in the Middle East and North Africa, including on its desert regions, may impact water access and compound migration and stability challenges, according to the United Nations Environmental Programme (UNEP). Over 60 percent of the population already experiences high or very high water stress, according to the World Bank. Coupled with unsustainable water use, climate change may further exacerbate challenges with water security. The region continues to experience rising temperatures and declining annual rainfall, trends that contribute to the severity and length of drought, land degradation, and desertification. Decreased water security affects the livelihood and quality of life of farmers in the region, contributing to an increase in their migration to the cities and more urbanization, according to the World Bank. In contrast, many people are expected to migrate away from coastal cities as a result of sea level rise, according to UNEP. These potential migrations would be taking place in a region that already hosts large numbers of migrants such as those displaced by conflict and violence, including 18 percent of the world’s refugees, according to the International Organization for Migration. Challenges in water security may put greater pressure on unstable governments in the region, by intensifying existing tensions and conflicts between populations and their governments as well as between countries that share sources of water. The conflict in Syria illustrates the complex nature of climate change, migration, and conflict in the region, and the challenges to accurately assessing the links among the three, as noted in a technical paper commissioned by the U.S. Agency for International Development (USAID). Rising temperatures and declining rainfall have contributed to recent droughts in Syria, a trend that may continue. The country underwent an extended drought from about 2006 until 2011. During the drought an estimated 60 percent of Syria experienced severe crop failure, and accompanying impacts on food security. Some studies have linked the length and severity of the drought in Syria to climate change, as USAID has reported. Others, however, have pointed to government land and water use policies, combined with the effects of climate change, as responsible for the severity of the drought. Agricultural policies, for example, encouraged farmers to grow water intensive crops like wheat, and supported inefficient irrigation practices, policies which further depleted ground water and made the region more vulnerable to decreases in rainfall linked to climate change. Across the Middle East, the rising temperatures and declining rainfalls of recent decades may worsen, according to the World Bank. If these trends continue, countries in the Middle East, including Syria, could continue to experience periods of severe drought and reduced crop yields. Migration Trends The ongoing conflict in Syria, in which migration due to climate change may have been a contributing factor, has caused large-scale migration to neighboring countries in the Middle East and to Europe. Leading up to the civil war, prolonged drought, among other factors, had increased migration to Syrian cities. Because of the drought, in 2009, over 800,000 Syrians lost their livelihoods in the agricultural sector, while nearly 1 million experienced food insecurity. In 2010, an estimated 200,000 people migrated from farms in rural areas to cities, according to a UN report. The conflict in Syria, which began in 2011, has further displaced large numbers of people within the country and across the Middle East, as we have previously reported.At the beginning of the conflict, Syrians, as well as Iraqi and Palestinian refugees who had been residing in Syria, fled mainly to Jordan, Lebanon, and Turkey. As the conflict persisted, refugees fled in larger numbers to Turkey, with the UNHCR reporting that nearly 1 million Syrians sought protection in that country in 2015. Starting that year, a growing number of Syrians risked dangerous sea voyages to reach countries in Europe, such as Greece, Germany, and Sweden. As of June 2017, more than 5 million registered Syrian refugees were living in neighboring countries, including more than 3 million in Turkey, and more than 1 million in Lebanon. Challenges in Stability and Security Sources agree that the Syrian conflict is a significant security challenge that has resulted in large scale migration across the Middle East and to Europe. Yet the link between prolonged drought, rural to urban migration, and the current conflict in Syria is uncertain. Some academic sources argue that the increased strain on urban infrastructure and resources due to the rural to urban migration played a role in Syria’s growing instability. Others highlight the complex nature of the Syrian conflict, pointing to broader political factors that exacerbated resource scarcity and inequality. For example, as the drought intensified, the Syrian government downplayed the severity of the humanitarian crisis, as described in research cited in a technical report commissioned by USAID.result, appeals to the international community for emergency aid received minimal support. Combined with existing sectarian divisions, ongoing revolutions across the Middle East, and other factors, the government’s response to the drought may have contributed to the current conflict. Migration and displacement are a concern in the region, according to the Department of Defense and others. The U.S. government has provided significant humanitarian assistance for Syrian refugees in the Middle East, including in Lebanon and Jordan, as we have previously reported.However, a technical report commissioned by USAID has cautioned that the ongoing conflict in Syria makes it difficult to conduct research and draw conclusions related to climate, migration and conflict. As a The effects of climate change on Oceania, particularly rising seas, may significantly impact coastal populations and increase migration in the future, as the Asian Development Bank (ADB) and the Intergovernmental Panel on Climate Change (IPCC) have reported. Rising temperatures and declining rainfall may also contribute to lower yields from fisheries and agriculture, and a significant decrease in coral reef cover. Extreme weather events, including higher temperatures, wind, and rainfall, have already increased in number and intensity across the region. In the majority of Pacific island nations, of those who migrate, more people leave than come, according to the African, Caribbean, and Pacific Observatory on Migration. The majority of migration in the region is economically driven. In the future, climate change may further impact these migration patterns across the region, according to the IPCC. Climate change has already exacerbated challenges that aid-dependent nations in the region face, restricting livelihoods and resources and contributing to pressures to migrate. The costs of climate change, including a decline in crop yields, a rise in energy demands, and a loss of coastal land, are predicted to be significant. The ADB estimates these costs will reach 12.7 percent of the Pacific regions’ GDP by 2100. Increased migration may also impact political stability and play a role in geopolitical rivalries within the region, according to the IPCC. The effects of climate change, especially rising sea levels, may result in forced migration from the Republic of the Marshall Islands (the Marshall Islands) and have additional impacts on the U.S. defense infrastructure on the islands. Observed and Projected Effects of Climate Change Rising sea levels are a grave threat to the Marshall Islands.The country consists of islands, low-lying atolls—coral caps sitting on top of submerged volcanoes—making it particularly vulnerable to rising sea levels. On average, the Marshall Islands are 2 meters above sea level. In Majuro, the country’s most populous atoll, observed rates of sea level rise are already twice as fast as the global average. Population centers experience significant flooding, with damage to roads, houses, and infrastructure, especially during La Niña years, which are significantly wetter and more prone to extreme rainfall. Flooding is expected to worsen with rising sea levels, with consequences for the availabity of drinking water. On Roi-Namur island, for example, a 0.4 meter rise in sea level combined with wave-driven flooding is predicted to make groundwater undrinkable year round as early as 2055. This salt water inundation may contaminate already limited groundwater across the Marshall Islands. Lastly, during the 1940s and 1950s, the Marshall Islands was the site of 67 U.S. nuclear weapons tests on or near Bikini and Enewetak Atolls. Projected increases in frequency of flooding may negatively impact efforts to contain radioactive material stored on Runit Island. A number of factors have increased migration from the Marshall Islands, including to the United States. In 1986, the United States entered into a compact of free association with the country that allowed its citizens to migrate to the United States, as we have previously reported. As a result, more than 20,000 Marshallese now live in the United States.People are more likely to migrate abroad as the effects of climate change on the Marshall Islands—including rising sea levels—increasingly impact livelihoods.The threat of mass displacement and forced migration is also a concern, as the International Organization for Migration has reported. However, Marshallese culture has a strong connection to the land, which means that many view migration as a last resort. For people still living in the Marshall Islands, they face overpopulation in urban centers and displacement by sudden-onset disasters like cyclones and flooding. Factors influencing people deciding to move abroad include displacement, lack of economic opportunity—sometimes exacerbated by climate change—and limited access to health care. Climate change is likely to increase risks to public health in the country.Increased rainfall, for instance, may expand mosquito breeding grounds, raising the risk of diseases like dengue fever. The country’s limited health care system may further contribute to migration from the islands. Challenges in Stability and Security In the future, the Marshall Islands may become uninhabitable. This prospect threatens the existence of the Marshall Islands as a sovereign state, as well as the United States defense facilities located on the islands. The total loss of land could result in the Marshall Islands being uninhabitable, which raises problems of migration, resettlement, cultural survival, and sovereignty. Relocation of the population of the Marshall Islands, and of other Pacific Island nations at risk of rising seas, could cause significant geopolitical challenges.The Marshall Islands are also of strategic importance for the United States. Under the Compact of Free Association, the United States has permission to use several islands— including Kwajalein Atoll, the location of the Ronald Reagan Ballistic Missile Defense Test Range—until 2066. The country’s proximity to the equator makes the Marshall Islands ideal for missile defense and space work. Yet the island’s defense infrastructure and operations are at significant risk due to rising sea levels, flooding, and diminishing supplies of potable water. As the Department of Defense has noted, climate change will have serious implications for the department’s ability to maintain its infrastructure and ensure military readiness in the future. DOD, 2014 Climate Change Adaptation Roadmap (Alexandria, VA: June 2014). The effects of climate change on Central America and the Caribbean may increase migration and exacerbate poverty rates, as the National Intelligence Council has reported. The climate in Central America and the Caribbean is predicted to be warmer and dryer. The Caribbean’s extensive coastlines and low-lying areas are vulnerable to sea level rise and an increase in sudden-onset disasters, including hurricanes and storm surges. Drought is a particular concern in Central America, where declines in rainfall have reduced crop yields and threatened livelihoods in recent years. Some evidence shows that drought in parts of Central America has contributed to migration north, including to the United States. Population growth, especially in coastal cities, has increased the number of people at risk during hurricane season, and the number and intensity of hurricanes have grown in recent years. Some attribute the increase in intensity to higher sea surface temperatures caused by climate change. However, there remains debate about long term hurricane trends. Recent hurricanes have caused displacement, and significant losses and damages—including to infrastructure—across the region. The depletion of coral reefs and mangrove trees, natural barriers to coastal erosion and flooding, has exacerbated vulnerability to storms in coastal areas. Climate change is likely to have negative impacts on tourism in the Caribbean, where the industry is an important part of the economy, according to Inter-American Development Bank. Climate change impacts on the economy may make it increasingly difficult for governments to reduce poverty and move towards environmental sustainability. Haiti’s geography, location, and high poverty rates make the country especially vulnerable. Haiti is highly vulnerable to climate change effects, partly due to its long coastline.Hurricanes routinely make landfall in the country, and increases in rainfall and wind speeds associated with hurricanes are likely. Severe hurricanes, including Hurricane Matthew in September 2016, have hit Haiti in recent years. Hurricane Matthew was the first category 4 storm in Haiti since 1964. Damage from severe flooding and severe winds during the hurricane affected over 2 million people and created significant food security and public health challenges. Significant deforestation has further exacerbated Haiti’s vulnerability to hurricanes, as trees previously provided a natural barrier to the erosion that strong winds and more rainfall can cause. Rising temperature and highly variable rainfall have led to extreme drought and flash flooding, according to the U.S. Agency for International Development (USAID).32 2 These trends decrease crop yields, affecting the livelihoods of farmers, and threaten water access. Projected increase in temperature and decreases in rainfall are likely to intensify drought in Haiti’s interior. USAID, Haiti: Environment and Climate Change Fact Sheet (January 2016). Migration Trends Slow-onset climate events, such as drought, and rising sea levels, and sudden-onset events, including earthquakes, affect Haiti, according to the International Organization for Migration (IOM). Haiti is also particularly exposed to extreme weather events, such as hurricanes, which can lead to displacement. In January 2010, a catastrophic earthquake in Haiti killed an estimated 230,000 people and left close to 1.5 million people homeless. According to IOM, the recurrence of environmental disruptions increases risks and vulnerabilities. When Hurricane Sandy struck Haiti in October 2012, the country had still not recovered from the 2010 earthquake. The worsening of climate change effects around the world, particularly in low-income countries, may increase the number of people wanting to immigrate to the United States, where approximately 700,000 Haitians live today.Remittances from family members living outside Haiti make up a significant portion of the economy, at 24.7 percent of GDP. The majority of these remittances come from the United States, as we have previously reported.34 4Remittances may support resilience to climate change effects as migrants send money home for disaster recovery and adaptation. Challenges in Stability and Security Haiti, the poorest country in the western hemisphere, has experienced political instability for most of its history, and ranks 12th of 178 on the Fragile States Index. The government has a low capacity to respond to additional challenges like those related to climate change, according to USAID. The Ministry of Environment, for example, is a relatively new organization within the Haitian government, and local and regional governments have a limited ability to enforce environmental laws and regulations. The United States has provided substantial aid to Haiti, both in disaster response and broader development projects. Official development assistance for Haiti in 2015, for instance, totaled slightly more than $1 billion. According to a January 2018 UN report, 2.8 million people were still in need of humanitarian assistance. GAO, Remittances To Fragile Countries: Treasury Should Assess Risks from Shifts to Non-Banking Channels, GAO-18-313 (Washington, D.C., March 8, 2018). The Department of State’s Bureau of Oceans and International Environmental and Scientific Affairs (State/OES) provided about $78 million in adaptation funding from the Global Climate Change Initiative for eight projects for fiscal years 2014 through 2017 (see table 2). The Global Climate Change Initiative was established in 2010 to promote resilient, low- emission development, and integrate climate change considerations into U.S. foreign assistance and was divided into three main programmatic initiatives: (1) Adaptation assistance, (2) Clean Energy assistance, and (3) Sustainable Landscapes assistance. The primary purpose of these contributions to the LDCF was to address the adaptation needs of the least developed countries, which are especially vulnerable to the adverse impacts of climate change. The LDCF financed the preparation and implementation of National Adaptation Programs of Action, which identify a country’s priorities for adaptation actions. Initial grant to the National Adaptation Plans Global Network. The network is focused on increasing the capacity of national and subnational governments to identify and assess climate risks, integrate these risk considerations in sector planning, develop a pipeline of projects to address risks, identify and secure funding for projects, and track progress toward resilience targets. Colombia, East Caribbean (Guyana, Saint Lucia, Saint Vincent and the Grenadines), Ethiopia, Peru, South Africa, Uganda, West Africa (Côte d’Ivoire, Ghana, Guinea, Sierra Leone, Togo) and, under current consideration, East Caribbean (Dominica, Suriname), and Pacific (Fiji, Kiribati, Tuvalu) The cost amendment intensified the technical support on National Adaptation Plans to select countries dependent upon specific country adaption needs. In addition, the cost amendment continued the learning and progress from the initial grant. Implemented through the Department of Treasury, this funding supported a Treasury grant to the Pacific Catastrophe Risk Assessment and Financing Initiative Multi Donor Trust Fund at the World Bank. This activity established the Pacific Catastrophe Risk Insurance Foundation and the Pacific Catastrophe Risk Insurance Company, among other things. The goal of PIER is to increase private sector investment in resilience to climate change in eight developing countries. The first phase of the project will assess and identify opportunities for private investment in resilience, as well as build public and private capacity for climate risk assessment in all the countries. In the second phase, public and private sector partners will develop and pilot climate risk-reduction investment models in four of the countries. The third phase will publicize the piloted investment models and lessons learned among the eight countries. Implemented through the National Oceanic and Atmospheric Administration, this activity aims to implement a capacity-building partnership with India to promote effective climate resilient decision making at national, state, and local levels. In addition to the contacts named above, the following individuals made key contributions to this report: Miriam Carroll Fenton (Assistant Director), Kristy Williams (Assistant Director), Rachel Girshick (Analyst-in-Charge), Nancy Santucci, Miranda Cohen, Aldo Salerno, Neil Doherty, and Judith Williams. Alexander Welsh, Justin Fisher, and Joseph Thompson provided technical and other support. Climate Change Adaptation: DOD Needs to Better Incorporate Adaptation into Planning and Collaboration at Overseas Installations. GAO-18-206. Washington, D.C.: November 13, 2017. Compacts Of Free Association: Actions Needed to Prepare for The Transition of Micronesia and the Marshall Islands to Trust Fund Income. GAO-18-415. Washington, D.C.: May 17, 2018. Remittances to Fragile Countries: Treasury Should Assess Risks from Shifts to Non-Banking Channels. GAO-18-313. Washington, D.C.: March 8, 2018. Syrian Refugees: U.S. Agencies Conduct Financial Oversight Activities for Humanitarian Assistance but Should Strengthen Monitoring. GAO-18-58. Washington, D.C.: October 31, 2017. International Food Assistance: Agencies Should Ensure Timely Documentation of Required Market Analyses and Assess Local Markets for Program Effects. GAO-17-640. Washington, D.C.: July 13, 2017. High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15, 2017. Federal Disaster Assistance: Federal Departments and Agencies Obligated at Least $277.6 Billion during Fiscal Years 2005 through 2014. GAO-16-797. Washington, D.C.: September 22, 2016. Coast Guard: Arctic Strategy Is Underway, but Agency Could Better Assess How Its Actions Mitigate Known Arctic Capability Gaps. GAO-16-453. Washington, D.C.: July 12, 2016. Climate Information: A National System Could Help Federal, State, Local, and Private Sector Decision Makers Use Climate Information. GAO-16-37. Washington, D.C.: November 23, 2015. Hurricane Sandy: An Investment Strategy Could Help the Federal Government Enhance National Resilience for Future Disasters. GAO-15-515. Washington, D.C.: July 30, 2015. High-Risk Series: An Update. GAO-15-290. Washington, D.C.: February 11, 2015. Standards for Internal Control in the Federal Government. GAO-14-704G. Washington, D.C.: September 10, 2014. Combating Terrorism: U.S. Efforts in Northwest Africa Would Be Strengthened by Enhanced Program Management. GAO-14-518. Washington, D.C.: June 24, 2014. Climate Change Adaptation: DOD Can Improve Infrastructure Planning and Processes to Better Account for Potential Impacts. GAO-14-446. Washington, D.C.: May 30, 2014. Extreme Weather Events: Limiting Federal Fiscal Exposure and Increasing the Nation’s Resilience. GAO-14-364T. Washington, D.C.: February 12, 2014. Climate Change: State Should Further Improve Its Reporting on Financial Support to Developing Countries to Meet Future Requirements and Guidelines. GAO-13-829. Washington, D.C.: September 19, 2013. High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February 14, 2013. International Climate Change Assessments: Federal Agencies Should Improve Reporting and Oversight of U.S. Funding. GAO-12-43. Washington, D.C.: November 17, 2011. Climate Change Adaptation: Federal Efforts to Provide Information Could Help Government Decision Making. GAO-12-238T. Washington, D.C.: November 16, 2011. Foreign Relation: Kwajalein Atoll Is the Key U.S. Defense Interest in Two Micronesian Nations, GAO-02-119. Washington D.C.: January 22, 2002.	[ "The effects of climate change, combined with other factors, may alter human migration trends across the globe, according to the International Organization for Migration. For example, climate change can increase the frequency and intensity of natural disasters, causing populations to move from an area. Climate change can also intensify slow-onset disasters, such as drought, crop failure, or sea level rise, potentially altering longer-term migration trends. GAO was asked to review how U.S. agencies address climate change as a potential driver of global migration. For State, USAID, and DOD, this report (1) describes executive branch actions related to climate change and migration from fiscal years 2014 through 2018; (2) examines the extent to which the agencies discussed the potential effects of climate change on migration in their plans and risk assessments; and (3) describes agency activities on the issue. GAO analyzed documents on administration priorities; reviewed agency plans, risk assessments, and documentation of agency activities; and interviewed agency officials. From fiscal years 2014 through 2018, a variety of executive branch actions related to climate change—such as executive orders and strategies—affected the Department of State (State), the U.S. Agency for International Development (USAID), and the Department of Defense (DOD), including their activities that could potentially address the nexus of climate change and migration. For example, a fiscal year 2016 presidential memorandum—rescinded in 2017—required agencies to develop implementation plans to identify the potential impact of climate change on human mobility, among other things. In general, however, climate change as a driver of migration was not a focus of the executive branch actions. For example, a fiscal year 2014 executive order—also rescinded in 2017—requiring agencies to prepare for the impacts of climate change did not highlight migration as a particular concern. State, USAID, and DOD have discussed the potential effects of climate change on migration in agency plans and risk assessments. For example, State and USAID required climate change risk assessments when developing country and regional strategies, and a few of the strategies reviewed by GAO identified the nexus of climate change and migration as a risk. However, State changed its approach in 2017, no longer providing missions with guidance on whether and how to include climate change risks in their integrated country strategies. In doing so, State did not include in its 2018 guidance to the missions any information on how to include climate change risks, should the missions choose to do so. Without clear guidance, State may miss opportunities to identify and address issues related to climate change as a potential driver of migration. The three agencies have been involved in climate change related activities but none were specifically focused on the nexus with global migration. For example, USAID officials said that the agency's adaptation efforts, such as its Pastoralist Areas Resilience Improvement through Market Expansion project in Ethiopia, were the most likely to include activities, such as enhancing resilience, that can indirectly address the issue of climate change as a driver of migration. GAO recommends that State provide missions with guidance that clearly documents its process for climate change risk assessments for country strategies. In commenting on a draft of this report, State indicated that it would update its integrated country strategy guidance and will specifically note that missions have the option to provide additional information on climate resilience and related topics." ]	14,011	gov_report	en	null	8df98281be571d77d1b26cfe285fdc4072e43607dd793980
The issue of executive discretion has been at the center of constitutional debates in liberal democracies throughout the twentieth century. How to balance a commitment to the rule of law with the exigencies of modern political and economic crises has engaged legislators and scholars in the United States and around the world. The United States Constitution is silent on questions of emergency power. As such, over the past two centuries, Congress and the President have answered those questions in varied and often ad hoc ways. In the eighteenth and nineteenth centuries, the answer was often for the President to act without congressional approval in a time of crisis, knowingly risking impeachment and personal civil liability. Congress claimed primacy over emergency action and would decide subsequently to either ratify the President's actions or indemnify the President for any civil liability. By the twentieth century, a new pattern had begun to emerge. Instead of retroactively judging an executive's extraordinary actions in a time of emergency, Congress created statutory bases permitting the President to declare a state of emergency and make use of extraordinary delegated powers. The expanding delegation of emergency powers to the executive and the increase of governing via emergency power by the executive has been a common trajectory among twentieth-century liberal democracies. As innovation has quickened the pace of social change and global crises, some legislatures have felt compelled to delegate to the executive, who traditional political theorists assumed could operate with greater "dispatch" than deliberate, future-oriented legislatures. Whether such actions subvert the rule of law or are a standard feature of healthy modern constitutional orders has been a subject of extensive debate. The International Emergency Economic Powers Act (IEEPA) is one such example of a twentieth-century delegation of emergency authority. One of 123 emergency statutes under the umbrella of the National Emergencies Act (NEA), IEEPA grants the President extensive power to regulate a variety of economic transactions during a state of emergency. Congress enacted IEEPA in 1977 to rein in the expansive emergency economic powers that it had been delegated to the President under the Trading with the Enemy Act (TWEA). Nevertheless, some scholars argue that judicial and legislative actions subsequent to IEEPA's enactment have made it, like TWEA, a source of expansive and unchecked executive authority in the economic realm. Others, however, argue that Presidents often use IEEPA to implement the will of Congress either as directed by law or as encouraged by congressional activity. Until recently, there has been little congressional discussion of modifying either IEEPA or its umbrella statute, the NEA. Recent presidential actions, however, have drawn attention to presidential emergency powers under the NEA of which IEEPA is the most frequently used. Should Congress consider changing IEEPA, there are two issues that Congress may wish to address. The first pertains to how Congress has delegated its authority under IEEPA and its umbrella statute, the NEA. The second pertains to choices made in the Export Control Reform Act of 2018. The First World War (1914-1918) saw an unprecedented degree of economic mobilization. The executive departments of European governments began to regulate their economies with or without the support of their legislatures. The United States, in contrast, was in a privileged position relative to its allies in Europe. Separated by an ocean from Germany and Austria-Hungary, the United States was never under substantial threat of invasion. Rather than relying on the inherent powers of the presidency, or acting unconstitutionally and waiting for congressional ratification, President Wilson sought explicit pre-authorization for expansive new powers to meet the global crisis. Between 1916 and the end of 1917, Congress passed 22 statutes empowering the President to take control of private property for public use during the war. These statutes gave the President broad authority to control railroads, shipyards, cars, telegraph and telephone systems, water systems, and many other sectors of the American economy. TWEA was one of those 22 statutes. It granted to the executive an extraordinary degree of control over international trade, investment, migration, and communications between the United States and its enemies. TWEA defined "enemy" broadly and included "any individual, partnership, or other body of individuals [including corporations], of any nationality, resident within the territory ... of any nation with which the United States is at war, or resident outside of the United States and doing business within such a territory ...." The first four sections of the act granted the President extensive powers to limit trading or communication with, or transporting enemies (or their allies) of the United States. These sections also empowered the President to censor foreign communications and place extensive restrictions on enemy insurance or reinsurance companies. It was Section 5(b) of TWEA, however, that would form one of the central bases of presidential emergency economic power in the twentieth century. Section 5(b), as originally enacted, states: That the President may investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, export or earmarkings of gold or silver coin or bullion or currency, transfers of credit in any form (other than credits relating solely to transactions to be executed wholly within the United States), and transfers of evidences of indebtedness or of the ownership of property between the United States and any foreign country, whether enemy, ally of enemy or otherwise, or between residents of one or more foreign countries, by any person within the United States; and he may require any such person engaged in any such transaction to furnish, under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody or control of such person, either before or after such transaction is completed. The statute gave the President exceptional control over private international economic transactions in times of war. While Congress terminated many of the war powers in 1921, TWEA was specifically exempted because the U.S. Government had yet to dispose of a large amount of alien property in its custody. The Great Depression, a massive global economic downturn that began in 1929, presented a challenge to liberal democracies in Europe and the Americas. To deal with the complexities presented by the crisis, nearly all such democracies began delegating discretionary authority to their executives to a degree that had only previously been done in times of war. The U.S. Congress responded, in part, by dramatically expanding the scope of TWEA, delegating to the President the power to declare states of emergency in peacetime and assume expansive domestic economic powers. Such a delegation was made possible by analogizing economic crises to war. In public speeches about the crisis, President Franklin D. Roosevelt asserted that the Depression was to be "attacked," "fought against," "mobilized for," and "combatted" by "great arm[ies] of people." The economic mobilization of the First World War had blurred the lines between the executive's military and economic powers. As the Depression was likened to "armed strife" and declared to be "an emergency more serious than war" by a Justice of the Supreme Court, it became routine to use emergency economic legislation enacted in wartime as the basis for extraordinary economic authority in peacetime. As the Depression entered its third year, the newly-elected President Roosevelt sought from Congress "broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe." In his first act as President, Roosevelt proclaimed a bank holiday, suspending all transactions at all banking institutions located in the United States and its territories for four days. In his proclamation, Roosevelt claimed to have authority to declare the holiday under Section 5(b) of TWEA. However, because the United States was not in a state of war and the suspended transactions were primarily domestic, the President's authority to issue such an order was dubious. Despite the tenuous legality, Congress ratified Roosevelt's actions by passing the Emergency Banking Relief Act three days after his proclamation. The act amended Section 5(b) of TWEA to read: During time of war or during any other period of national emergency declared by the President , the President may, through any agency that he may designate, or otherwise, investigate, regulate, or prohibit.... This amendment gave the President the authority to declare that a national emergency existed and assume extensive controls over the national economy previously only available in times of war. By 1934, Roosevelt had used these extensive new powers to regulate "Every transaction in foreign exchange, transfer of credit between any banking institution within the United States and any banking institution outside of the United States." With America's entry into the Second World War in 1941, Congress again amended TWEA to grant the President extensive powers over the disposition of private property, adding the so-called "vesting" power, which authorized the permanent seizure of property. Now in its most expansive form, TWEA authorized the President to declare a national emergency and, in so doing, to regulate foreign exchange, domestic banking, possession of precious metals, and property in which any foreign country or foreign national had an interest. The Second World War ended in 1945. Following the conflict, the allied powers constructed institutions and signed agreements designed to keep the peace and to liberalize world trade. However, the United States did not immediately resume a peacetime posture with respect to emergency powers. Instead, the onset of the Cold War rationalized the continued use of TWEA and other emergency powers outside the context of a declared war. Over the next several decades, Presidents declared four national emergencies under Section 5(b) of TWEA and assumed expansive authority over economic transactions in the postwar period. During the Cold War, economic sanctions became an increasingly popular foreign policy and national security tool, and TWEA was a prominent source of presidential authority to use the tool. In 1950, President Harry S. Truman declared a national emergency, citing TWEA, to impose economic sanctions on North Korea and China. Subsequent Presidents referenced that national emergency as authority for imposing sanctions on Vietnam, Cuba, and Cambodia. Truman likewise used Section 5(b) of TWEA to maintain regulations on foreign exchange, transfers of credit, and the export of coin and currency that had been in place since the early 1930s. Presidents Richard M. Nixon and Gerald R. Ford invoked TWEA to continue export controls established under the Export Administration Act when the act expired. TWEA was also a prominent instrument of postwar presidential monetary policy. Presidents Dwight D. Eisenhower and John F. Kennedy used TWEA and the national emergency declared by President Roosevelt in 1933 to maintain and modify regulations controlling the hoarding and export of gold. In 1968, President Lyndon B. Johnson explicitly used Truman's 1950 declaration of emergency under Section 5(b) of TWEA to limit direct foreign investment by U.S. companies in an effort to strengthen the balance of payments position of the United States after the devaluation of the pound sterling by the United Kingdom. In 1971, after President Nixon ended the convertibility of the U.S. dollar to gold, effectively ending the postwar monetary order, he made use of Section 5(b) of TWEA to declare a state of emergency and place a 10% ad valorem supplemental duty on all dutiable goods entering the United States. The reliance by the executive on the powers granted by Section 5(b) of TWEA meant that postwar sanctions regimes and significant parts of U.S. international monetary policy relied on continued states of emergency for their operation. By the mid-1970s, in the wake of U.S. military involvement in Vietnam, revelations of domestic spying, assassinations of foreign political leaders, the Watergate break-in, and other related abuses of power, Congress increasingly focused on checking the executive branch. The Senate formed a bipartisan special committee chaired by Senators Frank Church and Charles Mathias to reevaluate the expansive delegations of emergency authority to the President. The special committee issued a report surveying the President's emergency powers in which it asserted that the United States had technically "been in a state of national emergency since March 9, 1933" and that there were four distinct declarations of national emergency in effect. The report also noted that the United States had "on the books at least 470 significant emergency statutes without time limitations delegating to the Executive extensive discretionary powers, ordinarily exercised by the Legislature, which affect the lives of American citizens in a host of all-encompassing ways." In the course of its investigations, Senator Mathias, committee co-chair, noted, "A majority of the people of the United States have lived all of their lives under emergency government." Senator Church, the other co-chair, said the central question before the committee was "whether it [was] possible for a democratic government such as ours to exist under its present Constitution and system of three separate branches equal in power under a continued state of emergency." Among the more controversial statutes highlighted by the committee was TWEA. In 1977, during the House markup of a bill revising TWEA, Representative Jonathan Bingham, Chairperson of the House International Relations Committee's Subcommittee on Economic Policy, described TWEA as conferring "on the President what could have been dictatorial powers that he could have used without any restraint by Congress." According to the Department of Justice, TWEA granted the President four major groups of powers in a time of war or other national emergency: (a) Regulatory powers with respect to foreign exchange, banking transfers, coin, bullion, currency, and securities; (b) Regulatory powers with respect to "any property in which any foreign country or a national thereof has any interest"; (c) The power to vest "any property or interest of any foreign country or national thereof"; and (d) The powers to hold, use, administer, liquidate, sell, or otherwise deal with "such interest or property" in the interest of and for the benefit of the United States. The House report on the reform legislation called TWEA "essentially an unlimited grant of authority for the President to exercise, at his discretion, broad powers in both the domestic and international economic arena, without congressional review." The criticisms of TWEA centered on the following: (a) It required no consultation or reports to Congress with regard to the use of powers or the declaration of a national emergency. (b) It set no time limits on a state of emergency, no mechanism for congressional review, and no way for Congress to terminate it. (c) It stated no limits on the scope of TWEA's economic powers and the circumstances under which such authority could be used. (d) The actions taken under the authority of TWEA were rarely related to the circumstances in which the national emergency was declared. In testimony before the House Committee on International Relations, Professor Harold G. Maier summed up the development and the main criticisms of TWEA: Section 5(b)'s effect is no longer confined to "emergency situations" in the sense of existing imminent danger. The continuing retroactive approval, either explicit or implicit, by Congress of broad executive interpretations of the scope of powers which it confers has converted the section into a general grant of legislative authority to the President…" Congress's reforms to emergency powers under TWEA came in two acts. First, Congress enacted the National Emergencies Act (NEA) in 1976. The NEA provided for the termination of all existing emergencies in 1978, except those making use of Section 5(b) of TWEA, and placed new restrictions on the manner of declaring and the duration of new states of emergency, including: Requiring the President to immediately transmit to Congress of the declaration of national emergency. Requiring a biannual review whereby "each House of Congress shall meet to consider a vote on a concurrent [now joint, see below] resolution to determine whether that emergency shall be terminated." Authorizing Congress to terminate the national emergency through a privileged concurrent [now joint] resolution. Second, Congress tackled the thornier question of TWEA. Because the authorities granted by TWEA were heavily entwined with postwar international monetary policy and the use of sanctions in U.S. foreign policy, unwinding it was a difficult undertaking. The exclusion of Section 5(b) reflected congressional interest in preserving existing regulations regarding foreign assets, foreign funds, and exports of strategic goods. Similarly, establishing a means to continue existing uses of TWEA reflected congressional interest in "improving future use rather than remedying past abuses." The subcommittee charged with reforming TWEA spent more than a year preparing reports, including the first complete legislative history of TWEA, a tome that ran nearly 700 pages. In the resulting legislation, Congress did three things. First, Congress amended TWEA so that it was, as originally intended, only applicable "during a time of war." Second, Congress expanded the Export Administration Act to include powers that previously were authorized by reference to Section 5(b) of TWEA. Finally, Congress wrote the International Emergency Economic Powers Act (IEEPA) to confer "upon the President a new set of authorities for use in time of national emergency which are both more limited in scope than those of section 5(b) and subject to procedural limitations, including those of the [NEA]." The Report of the House Committee on International Relations summed up the nature of an "emergency" in their "new approach" to international emergency economic powers: [G]iven the breadth of the authorities, and their availability at the President's discretion upon a declaration of a national emergency, their exercise should be subject to various substantive restrictions. The main one stems from a recognition that emergencies are by their nature rare and brief, and are not to be equated with normal ongoing problems. A national emergency should be declared and emergency authorities employed only with respect to a specific set of circumstances which constitute a real emergency, and for no other purpose. The emergency should be terminated in a timely manner when the factual state of emergency is over and not continued in effect for use in other circumstances. A state of national emergency should not be a normal state of affairs. IEEPA, as currently amended, empowers the president to: (A) investigate, regulate, or prohibit: (i) any transactions in foreign exchange, (ii) transfers of credit or payments between, by, through, or to any banking institution, to the extent that such transfers or payments involve any interest of any foreign country or national thereof, (iii) the importing or exporting of currencies or securities; and (B) investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States. (C) when the United States is engaged in armed hostilities or has been attacked by a foreign country or foreign nationals, confiscate any property, subject to the jurisdiction of the United States, of any foreign person, foreign organization, or foreign country that he determines has planned, authorized, aided, or engaged in such hostilities or attacks against the United States; and all right, title, and interest in any property so confiscated shall vest, when, as, and upon the terms directed by the President, in such agency or person as the President may designate from time to time, and upon such terms and conditions as the President may prescribe, such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States, and such designated agency or person may perform any and all acts incident to the accomplishment or furtherance of these purposes. These powers may be exercised "to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat." Presidents may invoke IEEPA under the procedures set forth in the NEA. When declaring a national emergency, the NEA requires that the President "immediately" transmit the proclamation declaring the emergency to Congress and publish it in the Federal Register . The President must also specify the provisions of law that he or she intends to use. In addition to the requirements of the NEA, IEEPA provides several further restrictions. Preliminarily, IEEPA requires that the President consult with Congress "in every possible instance" before exercising any of the authorities granted under IEEPA. Once the President declares a national emergency invoking IEEPA, he or she must immediately transmit a report to Congress specifying: (1) the circumstances which necessitate such exercise of authority; (2) why the President believes those circumstances constitute an unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States; (3) the authorities to be exercised and the actions to be taken in the exercise of those authorities to deal with those circumstances; (4) why the President believes such actions are necessary to deal with those circumstances; and (5) any foreign countries with respect to which such actions are to be taken and why such actions are to be taken with respect to those countries. The President subsequently is to report on the actions taken under the IEEPA at least once in every succeeding six-month interval that the authorities are exercised. As per the NEA, the emergency may be terminated by the President, by a privileged joint resolution of Congress, or automatically if the President does not publish in the Federal Register and transmit to Congress a notice stating that such emergency is to continue in effect after such anniversary. Congress has amended IEEPA eight times ( Table 1 ). Five of the eight amendments have altered civil and criminal penalties for violations of orders issued under the statute. Other amendments excluded certain informational materials and expanded IEEPA's scope following the terrorist attacks of September 11, 2001. Congress also amended the NEA in response to a ruling by the Supreme Court to require a joint rather than a concurrent resolution to terminate a national emergency. As originally enacted, IEEPA protected the rights of U.S. persons to participate in the exchange of "any postal, telegraphic, telephonic, or other personal communication, which does not involve a transfer of anything of value" with a foreign person otherwise subject to sanctions. Amendments in 1988 and 1994 updated this list of protected rights to include the exchange of published information in a variety of formats. The act currently protects the exchange of "information or informational materials, including but not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds," provided such exchange is not otherwise controlled for national security or foreign policy reasons related to weapons proliferation or international terrorism. Unlike the Trading with the Enemy Act (TWEA), IEEPA did not allow the President to vest assets as originally acted. In 2001, at the request of George W. Bush Administration, Congress amended IEEPA as part of the USA PATRIOT Act to return to the President the authority to vest frozen assets, but only under certain circumstances: ... the President may ... when the United States is engaged in armed hostilities or has been attacked by a foreign country or foreign nationals, confiscate any property, subject to the jurisdiction of the United States, of any foreign person, foreign organization, or foreign country that [the President] determines has planned, authorized, aided, or engaged in such hostilities or attacks against the United States; and all right, title, and interest in any property so confiscated shall vest, when, as, and upon the terms directed by the President, in such agency or person as the President may designate from time to time, and upon such terms and conditions as the President may prescribe, such interest or property shall be held, used, administered, liquidated, sold, or otherwise dealt with in the interest of and for the benefit of the United States, and such designated agency or person may perform any and all acts incident to the accomplishment or furtherance of these purposes. Speaking about the efforts of intelligence and law enforcement agencies to identify and disrupt the flow of terrorist finances, Attorney General John Ashcroft told Congress: At present the President's powers are limited to freezing assets and blocking transactions with terrorist organizations. We need the capacity for more than a freeze. We must be able to seize. Doing business with terrorist organization must be a losing proposition. Terrorist financiers must pay a price for their support of terrorism, which kills innocent Americans. Consistent with the President's [issuance of E.O. 13224 ] and his statements [of September 24, 2001], our proposal gives law enforcement the ability to seize the terrorists' assets. Further, criminal liability is imposed on those who knowingly engage in financial transactions, money-laundering involving the proceeds of terrorist acts. The House Judiciary Committee report explaining the amendments described its purpose as follows: Section 203 of the International Emergency Economic Powers Act (50 U.S.C. § 1702) grants to the President the power to exercise certain authorities relating to commerce with foreign nations upon his determination that there exists an unusual and extraordinary threat to the United States. Under this authority, the President may, among other things, freeze certain foreign assets within the jurisdiction of the United States. A separate law, the Trading With the Enemy Act, authorizes the President to take title to enemy assets when Congress has declared war. Section 159 of this bill amends section 203 of the International Emergency Economic Powers Act to provide the President with authority similar to what he currently has under the Trading With the Enemy Act in circumstances where there has been an armed attack on the United States, or where Congress has enacted a law authorizing the President to use armed force against a foreign country, foreign organization, or foreign national. The proceeds of any foreign assets to which the President takes title under this authority must be placed in a segregated account can only be used in accordance with a statute authorizing the expenditure of such proceeds. Section 159 also makes a number of clarifying and technical changes to section 203 of the International Emergency Economic Powers Act, most of which will not change the way that provision currently is implemented. The government has apparently never employed the vesting power to seize Al Qaeda assets within the United States. Instead, the government has sought to confiscate them through forfeiture procedures. The first, and to date, apparently only, use of this power under IEEPA occurred on March 20, 2003. On that date, in Executive Order 13290, President George W. Bush ordered the blocked "property of the Government of Iraq and its agencies, instrumentalities, or controlled entities" to be vested "in the Department of the Treasury.... [to] be used to assist the Iraqi people and to assist in the reconstruction of Iraq." However, the President's order excluded from confiscation Iraq's diplomatic and consular property, as well as assets that had, prior to March 20, 2003, been ordered attached in satisfaction of judgments against Iraq rendered pursuant to the terrorist suit provision of the Foreign Sovereign Immunities Act and § 201 of the Terrorism Risk Insurance Act (which reportedly totaled about $300 million) . A subsequent executive order blocked the property of former Iraqi officials and their families, vesting title of such blocked funds in the Department of the Treasury for transfer to the Development Fund for Iraq (DFI) to be "used to meet the humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq's infrastructure, for the continued disarmament of Iraq, for the cost of Iraqi civilian administration, and for other purposes benefitting of the Iraqi people." The DFI was established by UN Security Council Resolution 1483, which required member states to freeze all assets of the former Iraqi government and of Saddam Hussein, senior officials of his regime and their family members, and transfer such assets to the DFI, which was then administered by the United States. Most of the vested assets were used by the Coalition Provision Authority (CPA) for reconstruction projects and ministry operations. The USA PATRIOT Act made three other amendments to Section 203 of IEEPA. After the power to investigate, it added the power to block assets during the pendency of an investigation. It clarified that the type of interest in property subject to IEEPA is an "interest by any person, or with respect to any property, subject to the jurisdiction of the United States." It also added subsection (c), which provides: In any judicial review of a determination made under this section, if the determination was based on classified information (as defined in section 1(a) of the Classified Information Procedures Act) such information may be submitted to the reviewing court ex parte and in camera. This subsection does not confer or imply any right to judicial review. As described in the House Judiciary Committee report, these provisions were meant to clarify and codify existing practices. Like TWEA prior to its amendment in 1977, the President and Congress together have often turned to IEEPA to impose economic sanctions in furtherance of U.S. foreign policy and national security objectives. While initially enacted to rein in presidential emergency authority, presidential emergency use of IEEPA has expanded in scale, scope, and frequency since the statute's enactment. The House report on IEEPA stated, "emergencies are by their nature rare and brief, and are not to be equated with normal, ongoing problems." National emergencies invoking IEEPA, however, have increased in frequency and length since its enactment. Since 1977, Presidents have invoked IEEPA in 54 declarations of national emergency. On average, these emergencies last nearly a decade. Most emergencies have been geographically specific, targeting a specific country or government. However, since 1990, Presidents have declared non-geographically-specific emergencies in response to issues like weapons proliferation, global terrorism, and malicious cyber-enabled activities. The erosion of geographic limitations has been accompanied by an expansion in the nature of the targets of sanctions issued under IEEPA authority. Originally, IEEPA was used to target foreign governments; however, Presidents have increasingly targeted groups and individuals. While Presidents usually make use of IEEPA as an emergency power, Congress has also directed the use of IEEPA or expressed its approval of presidential emergency use in several statutes. IEEPA is the most frequently cited emergency authority when the President invokes NEA authorities to declare a national emergency. ( Figure 1 ). Rather than referencing the same set of emergencies, as had been the case with TWEA, IEEPA has required the President to declare a national emergency for each independent use. As a result, the number of national emergencies declared under the terms of the NEA has proliferated over the past four decades. Presidents declared only four national emergencies under the auspices of TWEA in the four decades prior to IEEPA's enactment. In contrast, Presidents have invoked IEEPA in 54 of the 61 declarations of national emergency issued under the National Emergen cies Act. As of March 1, 2019, there were 32 ongoing national emergencies; all but three involved IEEPA. Each year since 1990, Presidents have issued roughly 4.5 executive orders citing IEEPA and declared 1.5 new national emergencies citing IEEPA. ( Figure 2 ). On average, emergencies invoking IEEPA last nearly a decade. The longest emergency was also the first. President Jimmy Carter, in response to the Iranian hostage crisis of 1979, declared the first national emergency under the provisions of the National Emergencies Act and invoked IEEPA. Six successive Presidents have renewed that emergency annually for nearly forty years. As of March 1, 2019, that emergency is still in effect, largely to provide a legal basis for resolving matters of ownership of the Shah's disputed assets. That initial emergency aside, the length of emergencies invoking IEEPA has increased each decade. The average length of an emergency invoking IEEPA declared in the 1980s was four years. That average extended to 10 years for emergencies declared in the 1990s and 11 years for emergencies declared in the 2000s ( Figure 3 ). As such, the number of ongoing national emergencies has grown nearly continuously since the enactment of IEEPA and the NEA ( Figure 4 ). Between January 1, 1979, and January 1, 2019, there were on average 14 ongoing national emergencies each year, 13 of which invoked IEEPA. In most cases, the declared emergencies citing IEEPA have been geographically specific ( Figure 5 ). For example, in the first use of IEEPA, President Jimmy Carter issued an executive order that both declared a national emergency with respect to the "situation in Iran" and "blocked all property and interests in property of the Government of Iran [...]." Five months later, President Carter issued a second order dramatically expanding the scope of the first EO and effectively blocked the transfer of all goods, money, or credit destined for Iran by anyone subject to the jurisdiction of the United States. A further order expanded the coverage to block imports to the United States from Iran. Together, these orders touched upon virtually all economic contacts between any place or legal person subject to the jurisdiction of the United States and the territory and government of Iran. Many of the executive orders invoking IEEPA have followed this pattern of limiting the scope to a specific territory, government, or its nationals. Executive Order 12513, for example, prohibited "imports into the United States of goods and services of Nicaraguan origin" and "exports from the United States of goods to or destined for Nicaragua." The order likewise prohibited Nicaraguan air carriers and vessels of Nicaraguan registry from entering U.S. ports. Executive Order 12532 prohibited various transactions with the "Government of South Africa or to entities owned or controlled by that Government." While the majority (38) of national emergencies invoking IEEPA have been geographically specific, ten have lacked explicit geographic limitations. President George H.W. Bush declared the first geographically nonspecific emergency in response to the threat posed by the proliferation of chemical and biological weapons. Similarly, President George W. Bush declared a national emergency in response to the threat posed by "persons who commit, threaten to commit, or support terrorism." President Barack Obama declared emergencies to respond to the threats of "transnational criminal organizations" and "persons engaging in malicious cyber-enabled activities." Without explicit geographic limitations, these orders have included provisions that are global in scope. These geographically nonspecific emergencies have increased in frequency over the past 40 years—three of the ten have been declared since 2015. In addition to the erosion of geographic limitations, the stated motivations for declaring national emergencies have expanded in scope as well. Initially, stated rationales for declarations of national emergency citing IEEPA were short and often referenced either a specific geography or the specific actions of a government. Presidents found that circumstances like "the situation in Iran," or the "policies and actions of the Government of Nicaragua," constituted "unusual and extraordinary threat[s] to the national security and foreign policy of the United States" and would therefore declare a national emergency. The stated rationales have, however, expanded over time in both the length and subject matter. Presidents have increasingly declared national emergencies, in part, to respond to human and civil rights abuses, slavery, denial of religious freedom, political repression, public corruption, and the undermining of democratic processes. While the first reference to human rights violations as a rationale for a declaration of national emergency came in 1985, most of such references have come in the past twenty years. Table A-2 . Presidents have also expanded the nature of the targets of IEEPA sanctions. Originally, the targets of sanctions issued under IEEPA were foreign governments. The first use of IEEPA targeted "Iranian Government Property." Use of IEEPA quickly expanded to target geographically defined regions. Nevertheless, Presidents have also increasingly targeted groups, such as political parties or terrorist organizations, and individuals, such as supporters of terrorism or suspected narcotics traffickers. The first instances of orders directed at groups or persons were limited to foreign groups or persons. For example, in Executive Order 12978, President Bill Clinton targeted specific "foreign persons" and "persons determined [...] to be owned or controlled by, or to act for or on behalf of" such foreign persons. An excerpt is included below: Except to the extent provided in section 203(b) of IEEPA (50 U.S.C. 1702(b)) and in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the effective date, I hereby order blocked all property and interests in property that are or hereafter come within the United States, or that are or hereafter come within the possession or control of United States persons, of: (a) the foreign persons listed in the Annex to this order; (b) foreign persons determined by the Secretary of the Treasury, in consultation with the Attorney General and the Secretary of State: (i) to play a significant role in international narcotics trafficking centered in Colombia; or (ii) materially to assist in, or provide financial or technological support for or goods or services in support of, the narcotics trafficking activities of persons designated in or pursuant to this order; and (c) persons determined by the Secretary of the Treasury, in consultation with the Attorney General and the Secretary of State, to be owned or controlled by, or to act for or on behalf of, persons designated in or pursuant to this order. However, in 2001, President George W. Bush issued Executive Order 13219 to target "persons who threaten international stabilization efforts in the Western Balkans." While the order was similar to that of Executive Order 12978, it removed the qualifier "foreign." As such, persons in the United States, including U.S. citizens, could be targets of the order. The following is an excerpt of the order: Except to the extent provided in section 203(b)(1), (3), and (4) of IEEPA (50 U.S.C. 1702(b)(1), (3), and (4)), the Trade Sanctions Reform and Export Enhancement Act of 2000 (title IX, P.L. 106-387 ), and in regulations, orders, directives, or licenses that may hereafter be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the effective date, all property and interests in property of: (i) the persons listed in the Annex to this order; and (ii) persons designated by the Secretary of the Treasury, in consultation with the Secretary of State, because they are found: (A) to have committed, or to pose a significant risk of committing, acts of violence... Several subsequent invocations of IEEPA have similarly not been limited to foreign targets. In sum, presidential emergency use of IEEPA was directed at foreign states initially, with targets that were delimited by geography or nationality. Since the 1990s, however, Presidents have expanded the scope of their declarations to include individual persons, regardless of nationality or geographic location, who are engaged in specific activities. While IEEPA is often categorized as an emergency statute, Congress has used IEEPA outside of the context of national emergencies. When Congress legislates sanctions, it often authorizes or directs the President to use IEEPA authorities to impose those sanctions. In the Nicaragua Human Rights and Anticorruption Act of 2018, the most recent example, Congress directed the President to exercise "all powers granted to the President [by IEEPA] to the extent necessary to block and prohibit [certain transactions]." Penalties for violations by a person of a measure imposed by the President under the Act would be, likewise, determined by reference to IEEPA. The trend has been long-term. Congress first directed the President to make use of IEEPA authorities in 1986 as part of an effort to assist Haiti in the recovery of assets illegally diverted by its former government. That statute provided: The President shall exercise the authorities granted by section 203 of the International Emergency Economic Powers Act [50 USC 1702] to assist the Government of Haiti in its efforts to recover, through legal proceedings, assets which the Government of Haiti alleges were stolen by former president-for-life Jean Claude Duvalier and other individuals associated with the Duvalier regime. This subsection shall be deemed to satisfy the requirements of section 202 of that Act. [50 USC 1701] In directing the President to use IEEPA, Congress waived the requirement that he declare a national emergency (and none was declared). Subsequent legislation has followed this general pattern, with slight variations in language and specificity. The following is an example of current legislative language that has appeared in several recent statutes: (a) IN GENERAL.—The President shall impose the sanctions described in subsection (b) with respect to— ... (b) SANCTIONS DESCRIBED.— (1) IN GENERAL.—The sanctions described in this subsection are the following: (A) ASSET BLOCKING.—The exercise of all powers granted to the President by the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) to the extent necessary to block and prohibit all transactions in all property and interests in property of a person determined by the President to be subject to subsection (a) if such property and interests in property are in the United States, come within the United States, or are or come within the possession or control of a United States person. ... (2) PENALTIES.—A person that violates, attempts to violate, conspires to violate, or causes a violation of paragraph (1)(A) or any regulation, license, or order issued to carry out paragraph (1)(A) shall be subject to the penalties set forth in subsections (b) and (c) of section 206 of the International Emergency Economic Powers Act (50 U.S.C. 1705) to the same extent as a person that commits an unlawful act described in subsection (a) of that section. Congress has also expressed, retroactively, its approval of unilateral presidential invocations of IEEPA in the context of a national emergency. In the Countering Iran's Destabilizing Activities Act of 2017, for example, Congress declared, "It is the sense of Congress that the Secretary of the Treasury and the Secretary of State should continue to implement Executive Order No. 13382." Presidents, however, have also used IEEPA to preempt or modify parallel congressional activity. On September 9, 1985, President Reagan, finding "that the policies and actions of the Government of South Africa constitute an unusual and extraordinary threat to the foreign policy and economy of the United States," declared a national emergency and limited transactions with South Africa. The President declared the emergency despite the fact that legislation limiting transactions with South Africa was quickly making its way through Congress. In remarks about the declaration, President Reagan stated that he had been opposed to the bill contemplated by Congress because unspecified provisions "would have harmed the very people [the U.S. was] trying to help." Nevertheless, members of the press at the time (and at least one scholar since) noted that the limitations imposed by the Executive Order and the provisions in legislation then winding its way through Congress were "substantially similar." In general, IEEPA has served as an integral part of the postwar international sanctions regime. The President, either through a declaration of emergency or via statutory direction, has used IEEPA to limit economic transactions in support of administrative and congressional national security and foreign policy goals. Much of the action taken pursuant to IEEPA has involved blocking transactions and freezing assets. Once the President declares that a national emergency exists, he may use the authority in Section 203 of IEEPA (Grants of Authorities; 50 U.S.C. § 1702) to investigate, regulate, or prohibit foreign exchange transactions, transfers of credit, transfers of securities, payments, and may take specified actions relating to property in which a foreign country or person has interest—freezing assets, blocking property and interests in property, prohibiting U.S. persons from entering into transactions related to frozen assets and blocked property, and in some instances denying entry into the United States. Pursuant to Section 203, Presidents have prohibited transactions with and blocked property of those designated as engaging in malicious cyber-enabled activities, including "interfering with or undermining election processes or institutions" [Executive Order 13694 of April 1, 2015, as amended; 50 U.S.C. § 1701 note. See also Executive Order 13848 of September 12, 2018; 83 F.R. 46843.]; prohibited transactions with and blocked property of those designated as illicit narcotics traffickers including foreign drug kingpins; prohibited transactions with and blocked property of those designated as engaging in human rights abuses or significant corruption; prohibited transactions related to illicit trade in rough diamonds; prohibited transactions with and blocked property of those designated as Transnational Criminal Organizations; prohibited transactions with "those who disrupt the Middle East peace process;" prohibited transactions related to overflights with certain nations; instituted and maintained maritime restrictions; prohibited transactions related to weapons of mass destruction, in coordination with export controls authorized by the Arms Export Control Act and the Export Administration Act of 1979, and in furtherance of efforts to deter the weapons programs of specific countries (i.e., Iran, North Korea); prohibited transactions those designated as "persons who commit, threaten to commit, or support terrorism;" maintained the dual-use export control system at times when its then-underlying authority, the Export Administration Act authority had lapsed; blocked property of and transactions with those designated as engaged in cyber activities that compromise critical infrastructures including election processes or the private sector's trade secrets; blocked property of and prohibited transactions with those designated as responsible for serious human rights abuse or engaged in corruption; blocked certain property of and transactions with foreign nationals of specific countries those designated as engaged in activities that constitute an extraordinary threat. No President has used IEEPA to place tariffs on imported products from a specific country or on products imported to the United States in general. However, IEEPA's similarity to TWEA, coupled with its relatively frequent use to ban imports and exports, suggests that such an action could happen. In addition, no President has used IEEPA to enact a policy that was primarily domestic in effect. Some scholars argue, however, that the interconnectedness of the global economy means it would probably be permissible to use IEEPA to take an action that was primarily domestic in effect. The ultimate disposition of assets frozen under IEEPA may serve as an important part of the leverage economic sanctions provide to influence the behavior of foreign actors. The President and Congress have each at times determined the fate of blocked assets to further foreign policy goals. Presidents have used frozen assets as a bargaining tool during foreign policy crises and to bring a resolution to such crises, at times by unfreezing the assets, returning them to the sanctioned entity or channeling them to a follow-on government. The following are some examples of how Presidents have made use of blocked assets to resolve foreign policy issues. President Carter invoked authority under IEEPA to impose trade sanctions against Iran, freezing Iranian assets in the United States, in response to the hostage crisis in 1979. On January 19, 1981, the United States and Iran entered into a series of executive agreements brokered by Algeria under which the hostages were freed, a portion of the blocked assets ($5.1 billion) was used to repay outstanding U.S. bank loans to Iran, another part ($2.8 billion) was returned directly to Iran, another $1 billion was transferred into a security account in the Hague to pay other U.S. claims against Iran as arbitrated by the Iran-U.S. Claims Tribunal (IUSCT), and an additional $2 billion remained blocked pending further agreement with Iran or decision of the Tribunal. The United States also undertook to freeze the assets of the former Shah's estate along with those of the Shah's close relatives pending litigation in U.S. courts to ascertain Iran's right to their return. Iran's litigation was unsuccessful, and none of the contested assets were returned to Iran. Presidents have also been able to channel frozen assets to opposition governments in cases where the United States continued to recognize a previous government that had been removed by coup d'état or otherwise replaced as the legitimate government of a country. For example, after Panamanian President Eric Arturo Delvalle tried to dismiss de facto military ruler General Manuel Noriega from his post as head of the Panamanian Defense Forces, which resulted in Delvalle's own dismissal by the Panamanian Legislative Assembly, President Reagan recognized Delvalle as the legitimate head of government and instituted economic sanctions against the Noriega regime. The Department of State advised U.S. banks not to disburse funds to the Noriega regime, and Delvalle was able to obtain court orders permitting him access to the funds. President Reagan issued Executive Order 12635, which blocked all property and interests in payments of the government of Panama, and the Department of the Treasury issued regulations requiring companies who owed money to Panama to pay those funds into an escrow account established at the Federal Reserve Bank of New York, which also held payments owed by the United States for the operation of the Panama Canal Commission. Some of the funds in the escrow account were used to pay the operating expenses of the Delvalle government. After the U.S. invasion of Panama, President George H.W. Bush lifted economic sanctions and used some of the frozen funds to repay debts owed by Panama to foreign creditors, with remaining funds returned to the successor government. In a similar more recent case, the Trump Administration's recognition of Venezuelan opposition leader Juan Guaidó as Venezuela's interim president permitted Guaidó access to Venezuelan government assets held at the United States Federal Reserve and other insured United States financial institutions. President Barrack Obama initially froze Venezuelan government assets in 2015, pursuant to IEEPA and the Venezuela Defense of Human Rights and Civil Society Act of 2014. After official recognition of Guaidó, the Trump Administration imposed new sanctions under IEEPA to freeze the assets of the main Venezuelan state-owned oil company, Petróleos de Venezuela (Pdvsa), which could both significantly reduce funds available to the regime of Nicolas Maduro and channel them to Guaidó. There is also precedent for using frozen foreign assets for purposes authorized by the U.N. Security Council. After the first war with Iraq, President George H.W. Bush ordered the transfer of frozen Iraqi assets derived from the sale of Iraqi petroleum held by U.S. banks to be transferred to a holding account in the Federal Reserve Bank of New York to fulfill "the rights and obligations of the United States under U.N. Security Council Resolution No. 778." The President cited a section of the United Nations Participation Act (UNPA), as well as IEEPA, as authority to take the action. The transferred funds were used to provide humanitarian relief and to finance the United Nations Compensation Commission, which was established to adjudicate claims against Iraq arising from the invasion. Other Iraqi assets remained frozen and accumulated interest until they were vested in 2003 (see below). In some cases, the United States has ended sanctions and returned frozen assets to successor governments. In the case of the former Yugoslavia, for example, in 2003, $237.6 million in frozen funds belonging to the Central Bank of the Socialist Federal Republic of Yugoslavia were transferred to the central banks of the successor states. In the case of Afghanistan, $217 million in frozen funds belonging to the Taliban were released to the Afghan Interim Authority in January 2002. The executive branch has traditionally resisted congressional efforts to vest foreign assets to pay U.S. claimants without first obtaining a settlement agreement with the country in question. Congress has overcome such resistance in the case of foreign governments that have been designated as "State Supporters of Terrorism." U.S. nationals who are victims of state-supported terrorism involving designated states have been able to sue those countries for damages under an exception to the Foreign Sovereign Immunities Act (FSIA) since 1996. To facilitate the payment of judgments under the exception, Congress passed Section 117 of the Treasury and General Government Appropriations Act, 1999, which further amended the FSIA by allowing attachment and execution against state property with respect to which financial transactions are prohibited or regulated under Section 5(b) TWEA, Section 620(a) of the Foreign Assistance Act (authorizing the trade embargo against Cuba), or Sections 202 and 203 of IEEPA, or any orders, licenses or other authority issued under these statutes. Because of the Clinton Administration's continuing objections, however, Section 117 also gave the President authority to "waive the requirements of this section in the interest of national security," an authority President Clinton promptly exercised in signing the statute into law. The Section 117 waiver authority protecting blocked foreign government assets from attachment to satisfy terrorism judgments has continued in effect ever since, prompting Congress to take other actions to make frozen assets available to judgment holders. Congress enacted §2002 of the Victims of Trafficking and Violence Protection Act of 2000 (VTVPA) to mandate the payment from frozen Cuban assets of compensatory damages awarded against Cuba under the FSIA terrorism exception on or prior to July 20, 2000. The Department of the Treasury subsequently vested $96.7 million in funds generated from long-distance telephone services between the United States and Cuba in order to compensate claimants in Alejandre v. Republic of Cuba , the lawsuit based on the1996 downing of two unarmed U.S. civilian airplanes by the Cuban air force. Another payment of more than $7 million was made using vested Cuban assets to a Florida woman who had won a lawsuit against Cuba based on her marriage to a Cuban spy. As unpaid judgments against designated state sponsors of terrorism continued to mount, Congress enacted the Terrorism Risk Insurance Act (TRIA). Section 201 of TRIA overrode long-standing objections by the executive branch to make the frozen assets of terrorist states available to satisfy judgments for compensatory damages against such states (and organizations and persons) as follows: Notwithstanding any other provision of law, and except as provided in subsection (b), in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under section 1605(a)(7) of title 28, United States Code, the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of execution in order to satisfy such judgment to the extent of any compensatory damages for which such terrorist party has been adjudged liable. Subsection (b) of Section 201 provided waiver authority "in the national security interest," but only with respect to frozen foreign government "property subject to the Vienna Convention on Diplomatic Relations or the Vienna Convention on Consular Relations." When Congress amended the FSIA in 2008 to revamp the terrorism exception, it provided that judgments entered under the new exception could be satisfied out of the property of a foreign state notwithstanding the fact that the property in question is regulated by the United States government pursuant to TWEA or IEEPA. Congress has also directed that the proceeds from certain sanctions violations be paid into a fund for providing compensation to the former hostages of Iran and terrorist state judgment creditors. To fund the program, Congress designated that certain real property and bank accounts owned by Iran and forfeited to the United States could go into the United States Victims of State Sponsored Terrorism Fund, along with the sum of $1,025,000,000, representing the amount paid to the United States pursuant to the June 27, 2014, plea agreement and settlement between the United States and BNP Paribas for sanctions violations. The fund is replenished through criminal penalties and forfeitures for violations of IEEPA or TWEA-based regulations, or any related civil or criminal conspiracy, scheme, or other federal offense related to doing business or acting on behalf of a state sponsor of terrorism. Half of all civil penalties and forfeitures relating to the same offenses are also deposited into the fund. A number of lawsuits seeking to overturn actions taken pursuant to IEEPA have made their way through the judicial system, including challenges to the breadth of congressionally delegated authority and assertions of violations of constitutional rights. As demonstrated below, most of these challenges have failed. The few challenges that succeeded did not seriously undermine the overarching statutory scheme for sanctions. The breadth of presidential power under IEEPA is illustrated by the Supreme Court's 1981 opinion in Dames & Moore v. Regan . In Dames & Moore , petitioners had challenged President Carter's executive order establishing regulations to further compliance with the terms of the Algiers Accords, which the President had entered into to end the hostage crisis with Iran. Under these agreements, the United States was obligated (1) to terminate all legal proceedings in U.S. courts involving claims of U.S. nationals against Iran, (2) to nullify all attachments and judgments, and (3) to resolve outstanding claims exclusively through binding arbitration in the Iran-U.S. Claims Tribunal (IUSCT). The President, through executive orders, revoked all licenses that permitted the exercise of "any right, power, or privilege" with regard to Iranian funds, nullified all non-Iranian interests in assets acquired after a previous blocking order, and required banks holding Iranian assets to transfer them to the Federal Reserve Bank of New York to be held or transferred as directed by the Secretary of the Treasury. Dames and Moore had sued Iran for breach of contract to recover compensation for work performed. The district court had entered summary judgment in favor of Dames and Moore and issued an order attaching certain Iranian assets for satisfaction of any judgment that might result, but stayed the case pending appeal. The executive orders and regulations implementing the Algiers Accords resulted in the nullification of this prejudgment attachment and the dismissal of the case against Iran, directing that it be filed at the IUSCT. In response, Dames and Moore sued the government. The plaintiffs claimed that the President and the Secretary of the Treasury exceeded their statutory and constitutional powers to the extent they adversely affected Dames and Moore's judgment against Iran, the execution of that judgment, the prejudgment attachments, and the plaintiff's ability to continue to litigate against the Iranian banks. The government defended its actions, relying largely on IEEPA, which provided explicit support for most of the measures taken—nullification of the prejudgment attachment and transfer of the property to Iran—but could not be read to authorize actions affecting the suspension of claims in U.S. courts. Justice Rehnquist wrote for the majority: Although we have declined to conclude that the IEEPA…directly authorizes the President's suspension of claims for the reasons noted, we cannot ignore the general tenor of Congress' legislation in this area in trying to determine whether the President is acting alone or at least with the acceptance of Congress. As we have noted, Congress cannot anticipate and legislate with regard to every possible action the President may find it necessary to take or every possible situation in which he might act. Such failure of Congress specifically to delegate authority does not, "especially . . . in the areas of foreign policy and national security," imply "congressional disapproval" of action taken by the Executive. On the contrary, the enactment of legislation closely related to the question of the President's authority in a particular case which evinces legislative intent to accord the President broad discretion may be considered to "invite" "measures on independent presidential responsibility." At least this is so where there is no contrary indication of legislative intent and when, as here, there is a history of congressional acquiescence in conduct of the sort engaged in by the President. The Court remarked that Congress's implicit approval of the long-standing presidential practice of settling international claims by executive agreement was critical to its holding that the challenged actions were not in conflict with acts of Congress. For support, the Court cited to Justice Frankfurter's concurrence in Youngstown Sheet and Tube Co. v. Sawyer stating that "a systematic, unbroken, executive practice, long pursued to the knowledge of the Congress and never before questioned … may be treated as a gloss on 'Executive Power' vested in the President by § 1 of Art. II." Consequently, it may be argued that Congress's exclusion of certain express powers in IEEPA do not necessarily preclude the President from exercising them, at least where a court finds sufficient precedent exists. Lower courts have examined IEEPA under a number of other constitutional doctrines. Courts have reviewed whether Congress violated the non-delegation principle of separation of powers by delegating too much power to the President to legislate, in particular by creating new crimes. These challenges have generally failed. As the U.S. Court of Appeals for the Second Circuit explained while evaluating IEEPA, delegations of congressional authority are constitutional so long as Congress provides through a legislative act an "intelligible principle" governing the exercise of the delegated authority. Even if the standards are higher for delegations of authority to define criminal offenses, the court held, IEEPA provides sufficient guidance. The court stated: The IEEPA "meaningfully constrains the [President's] discretion," by requiring that "[t]he authorities granted to the President ... may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency has been declared." And the authorities delegated are defined and limited. The Second Circuit found it significant that "IEEPA relates to foreign affairs—an area in which the President has greater discretion," bolstering its view that IEEPA does not violate the non-delegation doctrine. The U.S. Court of Appeals for the Eleventh Circuit considered whether Section 207(b) of IEEPA is an unconstitutional legislative veto. That provision states: The authorities described in subsection (a)(1) may not continue to be exercised under this section if the national emergency is terminated by the Congress by concurrent resolution pursuant to section 202 of the National Emergencies Act [50 U.S.C. § 1622] and if the Congress specifies in such concurrent resolution that such authorities may not continue to be exercised under this section. In U.S. v. Romero-Fernandez , two defendants convicted of violating the terms of an executive order issued under IEEPA argued on appeal that IEEPA was unconstitutional, in part, because of the above provision. The Eleventh Circuit accepted that the provision was an unconstitutional legislative veto (as conceded by the government) based on INS v. Chadha , in which the Supreme Court held that Congress cannot void the exercise of power by the executive branch through concurrent resolution, but can act only through bicameral passage followed by presentment of the law to the President. The Eleventh Circuit nevertheless upheld the defendants' convictions for violations of IEEPA regulations, holding that the legislative veto provision was severable from the rest of the statute. Courts have also addressed whether certain actions taken pursuant to IEEPA have effected an uncompensated taking of property rights in violation of the Fifth Amendment. The Fifth Amendment's Takings Clause prohibits "private property [from being] taken for public use, without just compensation." The Fifth Amendment's prohibitions apply as well to regulatory takings, in which the government does not physically take property but instead imposes restrictions on the right of enjoyment that decreases the value of the property or right therein. The Supreme Court has held that the nullification of prejudgment attachments pursuant to regulations issued under IEEPA was not an uncompensated taking, suggesting that the reason for this position was the contingent nature of the licenses that had authorized the attachments. The Court also suggested that the broader purpose of the statute supported the view that there was no uncompensated taking: This Court has previously recognized that the congressional purpose in authorizing blocking orders is "to put control of foreign assets in the hands of the President...." Such orders permit the President to maintain the foreign assets at his disposal for use in negotiating the resolution of a declared national emergency. The frozen assets serve as a "bargaining chip" to be used by the President when dealing with a hostile country. Accordingly, it is difficult to accept petitioner's argument because the practical effect of it is to allow individual claimants throughout the country to minimize or wholly eliminate this "bargaining chip" through attachments, garnishments, or similar encumbrances on property. Neither the purpose the statute was enacted to serve nor its plain language supports such a result. Similarly, a lower court held that the extinguishment of contractual rights due to sanctions enacted pursuant to IEEPA does not amount to a regulatory taking requiring compensation under the Fifth Amendment. Even though the plaintiff suffered "obvious economic loss" due to the sanctions regulations, that factor alone was not enough to sustain plaintiff's claim of a compensable taking. The court quoted long-standing Supreme Court precedent to support its finding: A new tariff, an embargo, a draft, or a war may inevitably bring upon individuals great losses; may, indeed, render valuable property almost valueless. They may destroy the worth of contracts. But whoever supposed that, because of this, a tariff could not be changed, or a non-intercourse act, or an embargo be enacted, or a war be declared? .... [W]as it ever imagined this was taking private property without compensation or without due process of law? Accordingly, it seems unlikely that entities whose business interests are harmed by the imposition of sanctions pursuant to IEEPA will be entitled to compensation from the government for their losses. Persons whose assets have been directly blocked by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) pursuant to IEEPA have likewise found little success challenging the loss of the use of their assets as uncompensated takings. Many courts have recognized that a temporary blocking of assets does not constitute a taking because it is a temporary action that does not vest title in the United States. This conclusion is apparently so even if the blocking of assets necessitates the closing altogether of a business enterprise. In some circumstances, however, a court may analyze at least the initial blocking of assets under a Fourth Amendment standard for seizure. One court found a blocking to be unreasonable under a Fourth Amendment standard where there was no reason that OFAC could not have first obtained a judicial warrant. Some persons whose assets have been blocked have asserted that their right to due process has been violated. The Due Process Clause of the Fifth Amendment provides that no person shall be deprived of life, liberty, or property, without due process of law. Where one company protested that the blocking of its assets without a pre-deprivation hearing violated its right to due process, a district court found that a temporary deprivation of property does not necessarily give rise to a right to notice and an opportunity to be heard. A second district court stated that the exigencies of national security and foreign policy considerations that are implicated in IEEPA cases have meant that OFAC historically has not provided pre-deprivation notice in sanctions programs. A third district court stated that OFAC's failure to provide a charitable foundation with notice or a hearing prior to its designation as a terrorist organization and blocking of its assets did not violate its right to procedural due process, because the OFAC designation and blocking order serve the important governmental interest of combating terrorism by curtailing the flow of terrorist financing. That same court also held that prompt action by the government was necessary to protect against the transfer of assets subject to the blocking order. In Al Haramain Islamic Foundation v. U.S. Department of Treasury , the U.S. Court of Appeals for the Ninth Circuit considered whether OFAC's use of classified information without any disclosure of its content in its decision to freeze the assets of a charitable organization, and its failure to provide adequate notice and a meaningful opportunity to respond, violated the organization's right to procedural due process. The court applied the balancing test set forth by the Supreme Court in its landmark administrative law case Mathews v. Eldridge to resolve these questions. Under the Eldridge test, to determine if an individual has received constitutional due process, courts must weigh: (1) [the person's or entity's] private property interest, (2) the risk of an erroneous deprivation of such interest through the procedures used, as well as the value of additional safeguards, and (3) the Government's interest in maintaining its procedures, including the burdens of additional procedural requirements." While weighing the interests and risks at issue in Al Haramain , the Ninth Circuit found the organization's property interest to be significant: By design, a designation by OFAC completely shutters all domestic operations of an entity. All assets are frozen. No person or organization may conduct any business whatsoever with the entity, other than a very narrow category of actions such as legal defense. Civil penalties attach even for unwitting violations. Criminal penalties, including up to 20 years' imprisonment, attach for willful violations. For domestic organizations such as AHIF–Oregon, a designation means that it conducts no business at all. The designation is indefinite. Although an entity can seek administrative reconsideration and limited judicial relief, those remedies take considerable time, as evidenced by OFAC's long administrative delay in this case and the ordinary delays inherent in our judicial system. In sum, designation is not a mere inconvenience or burden on certain property interests; designation indefinitely renders a domestic organization financially defunct. Nevertheless, the court found "the government's interest in national security [could not] be understated." In evaluating the government's interest in maintaining its procedures, the Ninth Circuit explained that the Constitution requires that the government "take reasonable measures to ensure basic fairness to the private party and that the government follow procedures reasonably designed to protect against erroneous deprivation of the private party's interests." While the Ninth Circuit had previously held that the use of undisclosed information in a case involving the exclusion of certain longtime resident aliens should be considered presumptively unconstitutional, the court found that the presumption had been overcome in this case. The Ninth Circuit noted that all federal courts that have considered the argument that OFAC may not use undisclosed classified information in making its determinations have rejected it. Although the court found that OFAC's failure to provide even an unclassified summary of the information at issue was a violation of the organization's due process rights, the court deemed the error harmless because it would not likely have affected the outcome of the case. In the same case, the Ninth Circuit also considered the organization's argument that it had been denied adequate notice and an opportunity to be heard. Specifically, the organization asserted that OFAC had refused to disclose its reasons for investigating and designating the organization, leaving it unable to respond adequately to OFAC's unknown suspicions. Because OFAC had provided the organization with only one document to support its designation over the four-year period between the freezing of its assets and the redesignation of the organization as a specially designated global terrorist (SDGT), the court agreed that the organization had been deprived of due process rights. However, the court found that this error too was harmless. Some courts have considered whether asset blocking or penalties imposed pursuant to regulations promulgated under IEEPA have violated the subjects' First Amendment rights to free association, free speech, or religion. Challenges on these grounds have typically failed. Courts have held that there is no First Amendment right to support terrorists. The U.S. Court of Appeals for the District of Columbia Circuit distinguished advocacy from financial support and held that the blocking of assets affected only the ability to provide financial support, but did not implicate the organization's freedom of association. Similarly, a district court interpreted relevant case law to hold that government actions prohibiting charitable contributions are subject to intermediate scrutiny rather than strict scrutiny, a higher standard that applies to political contributions. With respect to a free speech challenge brought by a charitable organization whose assets were temporarily blocked during the pendency of an investigation, a district court explained that "when 'speech' and 'nonspeech' elements are combined in the same course of conduct, a sufficiently important government interest in regulating the nonspeech element can justify incidental limitations on First Amendment freedoms." Accordingly, the district court applied the following test to determine whether the designations and blocking actions were lawful. Citing the Supreme Court's opinion in United States v. O'Brien , the court stated that a government regulation is sufficiently justified if: it is within the constitutional power of the government; it furthers an important or substantial governmental interest; the governmental interest is unrelated to the suppression of free expression; and the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest. The court found the government's actions to fall within the bounds of this test: First, the President clearly had the power to issue the Executive Order. Second, the Executive Order promotes an important and substantial government interest—that of preventing terrorist attacks. Third, the government's action is unrelated to the suppression of free expression; it prohibits the provision of financial and other support to terrorists. Fourth, the incidental restrictions on First Amendment freedoms are no greater than necessary. However, with respect to an organization that was not itself designated as an SDGT but wished to conduct coordinated advocacy with another organization that was so designated, one appellate court found that an OFAC regulation barring such coordinated advocacy based on its content was subject to strict scrutiny. Accordingly, the court rejected the government's reliance on the Supreme Court's decision in Holder v. Humanitarian Law Project to find that the regulation impermissibly implicated the organization's right to free speech. Accordingly, there may be some circumstances where the First Amendment protects speech coordinated with (but not on behalf of) an organization designated as an SDGT. Until the recent enactment of the Export Control Reform Act of 2018, export of dual use goods and services was regulated pursuant to the authority of the Export Administration Act (EAA), which was subject to periodic expiry and reauthorization. President Reagan was the first President to use IEEPA as a vehicle for continuing the enforcement of the EAA's export controls. After Congress did not extend the expired EAA, President Reagan issued Executive Order 12444 in 1983, finding that "unrestricted access of foreign parties to United States commercial goods, technology, and technical data and the existence of certain boycott practices of foreign nations constitute, in light of the expiration of the Export Administration Act of 1979, an unusual and extraordinary threat to the national security." Although the EAA had been reauthorized for short periods since its initial expiration in 1983, every subsequent President utilized the authorities granted under IEEPA to maintain the existing system of export controls during periods of lapse. Figure 1 . In the latest iteration, President George W. Bush issued Executive Order 13222 in 2001, finding the existence of a national emergency with respect to the expiration of the EAA and directing—pursuant to the authorities allocated under IEEPA—that "the provisions for administration of the [EAA] shall be carried out under this order so as to continue in full force and effect…the export control system heretofore maintained." Presidents Obama and Trump annually extended the 2001 executive order. Courts have generally treated this arrangement as authorized by Congress, although certain provisions of the EAA in effect under IEEPA have led to challenges. The determining factor appears to be whether IEEPA itself provides the President the authority to carry out the challenged action. In one case, the U.S. Court of Appeals for the Fifth Circuit upheld a conviction for an attempt to violate the regulations even though the EAA had expired and did not expressly criminalize such attempts. The circuit court rejected the defendants' argument that the President had exceeded his delegated authority under the EEA by "enlarging" the crimes punishable under the regulations. Nevertheless, a district court held that the conspiracy provisions of the EAA regulations were rendered inoperative by the lapse of the EAA and "could not be repromulgated by executive order under the general powers that IEEPA vests in the President." The district court found that, even if Congress intended to preserve the operation of the EAA through IEEPA, that intent was limited by the scope of the statutes' substantive coverage at the time of IEEPA's enactment, when no conspiracy provision existed in either statute. The U.S. Court of Appeals for the D.C. Circuit upheld the application of the EAA as a statute permitting the government to withhold information under exemption 3 of the Freedom of Information Act (FOIA), which exempts from disclosure information exempted from disclosure by statute, even though the EAA had expired. Referring to legislative history it interpreted as congressional approval of the use of IEEPA to continue the EAA provisions during periods of lapse, the court stated: Although the legislative history does not refer to the EAA's confidentiality provision, it does evince Congress's intent to authorize the President to preserve the operation of the export regulations promulgated under the EAA. Moreover, it is significant for purposes of determining legislative intent that Congress acted with the knowledge that the EAA's export regulations had long provided for confidentiality and that the President's ongoing practice of extending the EAA by executive order had always included these confidentiality protections. The D.C. Circuit distinguished this holding in a later case involving appellate jurisdiction over a decision by the Department of Commerce to apply sanctions for a company's violation of the EAA regulations. Pursuant to the regulations and under the direction of the Commerce Department, the company sought judicial review directly in the D.C. Circuit. The D.C. Circuit, however, concluded that it lacked jurisdiction: This court would have jurisdiction pursuant to the President's order only if the President has the authority to confer jurisdiction—an authority that, if it exists, must derive from either the Executive's inherent power under the Constitution or a permissible delegation of power from Congress. The former is unavailing, as the Constitution vests the power to confer jurisdiction in Congress alone. Whether the executive order can provide the basis of our jurisdiction, then, turns on whether the President can confer jurisdiction on this court under the auspices of IEEPA…..We conclude that the President lacks that power. Nothing in the text of IEEPA delegates to the President the authority to grant jurisdiction to any federal court. Consequently, the appeal of the agency decision was determined to belong in the district court according to the default rule under the Administrative Procedure Act (APA). Congress may wish to address a number of issues with respect to IEEPA; two are addressed here. The first pertains to how Congress has delegated its authority under IEEPA and its umbrella statute, the NEA. The second pertains to choices made in the Export Control Reform Act of 2018. Although the stated aim of the drafters of the NEA and IEEPA was to restrain the use of emergency powers, the use of such powers has expanded by several measures. Presidents declare national emergencies and renew them for years or even decades. The limitation of IEEPA to transactions involving some foreign interest was intended to limit IEEPA's domestic application. However, globalization has eroded that limit, as few transactions today do not involve some foreign interest. Many of the other criticisms of TWEA that IEEPA was supposed to address—consultation, time limits, congressional review, scope of power, and logical relationship to the emergency declared—are criticisms that scholars levy against IEEPA today. In general, three common criticisms are levied by scholars with respect to the structure of the NEA and IEEPA that may be of interest to Congress. First, the NEA and IEEPA do not define the phrases "national emergency" and "unusual and extraordinary threat" and Presidents have interpreted these terms broadly. Second, the scope of presidential authority under IEEPA has become less constrained in a highly globalized era. Third, owing to rulings by the Supreme Court and amendments to the NEA, Congress would likely have to have a two-thirds majority rather than a simple majority to terminate a national emergency. Despite these criticisms, Congress has not acted to terminate or otherwise express displeasure with an emergency declaration invoking IEEPA. This absence of any explicit statement of disapproval, coupled with explicit statements of approval in some instances, may indicate congressional approval of presidential use of IEEPA thus far. Arguably, then, IEEPA could be seen as an effective tool for carrying out the will of Congress. Neither the NEA nor IEEPA define what constitutes a "national emergency." IEEPA conditions its invocation in a declaration on its necessity for dealing with an "unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States." In the markup of IEEPA in the House, Fred Bergsten, then-Assistant Secretary for International Affairs in the Department of the Treasury, praised the requirement that a national emergency for the purposes of IEEPA be "based on an unusual and extraordinary threat" because such language "emphasizes that such powers should be available only in true emergencies." Because "unusual" and "extraordinary" are also undefined, the usual and ordinary invocation of the statute seems to conflict with those statutory conditions. If Congress wanted to refine the meaning of "national emergency" or "unusual and extraordinary threat," it could do so through statute. Additionally, Congress could consider requiring some sort of factual finding by a court prior to, or shortly after, the exercise of any authority, such as under the First Militia Act of 1792 or the Foreign Intelligence Surveillance Act. However, Congress may consider that the ambiguity in the existing statute provides the executive with the flexibility necessary to address national emergencies with the requisite dispatch. While IEEPA nominally applies only to foreign transactions, the breadth of the phrase, "any interest of any foreign country or a national thereof" has left a great deal of room for executive discretion. The interconnectedness of the modern global economy has left few major transactions in which a foreign interest is not involved. As a result, at least one scholar has concluded, "the exemption of purely domestic transactions from the President's transaction controls seems to be a limitation without substance." Presidents have used IEEPA since the 1980s to control exports by maintaining the dual-use export control system, enshrined in the Export Administration Regulations (EAR) in times when its underlying authorization, the Export Administration Act (EAA), periodically expired. During those times when Congress did not reauthorize the EAA, Presidents have declared emergencies to maintain the dual-use export control system. The current emergency has been ongoing since 2001. While Presidents have used IEEPA to implement trade restrictions against adversaries, it has not been used as a general way to impose tariffs. However, as noted above, President Nixon used TWEA to impose a 10% ad valorem tariff on goods entering the United States to avoid a balance of payments crisis after he ended the convertibility of the U.S. dollar to gold. Although the use of TWEA in this instance was criticized at the time, it does not appear that the subsequent reforms resulting in the enactment of IEEPA would prevent the President from imposing tariffs or other restrictions on trade. However, the availability of diverse other authorities for addressing trade, including for national security purposes, makes the use of IEEPA for this purpose unlikely. The scope of powers over individual targets is also extensive. Under IEEPA, the President has the power to prohibit all financial transactions with individuals designated by Executive Order. Such power allows the President to block all the assets of a U.S. citizen or permanent resident. Such uses of IEEPA may reflect the will of Congress or they may represent a grant of authority that may have gone beyond what Congress originally intended. The heart of the curtailment of presidential power by the NEA and IEEPA was the provision that Congress could terminate a state of emergency declared pursuant to the NEA with a concurrent resolution. When the "legislative veto" was struck down by the Supreme Court (see above), it left Congress with a steeper climb—presumably requiring passage of a veto-proof joint resolution—to terminate a national emergency declared under the NEA. Two such resolutions have ever been introduced and neither declarations of emergency involved IEEPA. The lack of congressional action here could be the result of the necessity of obtaining a veto-proof majority or it could be that the use of IEEPA has so far reflected the will of Congress. If Congress wanted to assert more authority over the use of IEEPA, it could amend the NEA or IEEPA to include a "sunset provision," terminating any national emergency after a certain number of days. At least one scholar has recommended such an amendment. Alternatively, Congress could amend IEEPA to provide for a review mechanism that would give Congress an active role. In the Senate during the 115 th Congress, for example, Senator Mike Lee introduced the Global Trade Accountability Act of 2017 required the President to report to Congress on any proposed trade action (including the use of IEEPA), including a description of the proposal together with a list of items to be affected, an economic impact study of the proposal including potential retaliation. Congress, using expedited procedures, would need to approve the President's action through a joint resolution within a 60-day period. The legislation would have provided for a temporary one-time unilateral trade action for a 90-day period. Similarly, in the 116 th Congress, Senator Lee introduced S. 764 , a bill to provide for congressional approval of national emergency declarations, and for other purposes, which would amend the NEA to require an act of Congress within 30 days to allow a national emergency to continue. Another approach would establish a means for Congress to pass a resolution of disapproval if IEEPA authorities are invoked. An example of this approach is the Trade Authority Protection Act (H.R. 5760). After the submission of similar reporting requirement to S. 177 (above), Congress could, under Congressional Review Act (CRA)-style procedures, pass a joint resolution of disapproval. Congress does have the authority to pass a joint resolution under IEEPA, as noted above, but the use of CRA procedures would allow for certain expedited consideration. Alternatively, Congress could use any of these mechanisms to amend the current disapproval resolution process in IEEPA or the NEA itself. In testimony before the House Committee on International Relations in 1977, Professor Harold G. Maier summed up the main criticisms of TWEA: Section 5(b)'s effect is no longer confined to "emergency situations" in the sense of existing imminent danger. The continuing retroactive approval, either explicit or implicit, by Congress of broad executive interpretations of the scope of powers which it confers has converted the section into a general grant of legislative authority to the President…" Like TWEA before it, IEEPA sits at the center of the modern U.S. sanction regime. Like TWEA before it, Congress has often approved explicitly of the President's use of IEEPA. In several circumstances, Congress has directed the President to impose a variety of sanctions under IEEPA and waived the requirement of an emergency declaration. Even when Congress has not given explicit approval, no Member of Congress has ever introduced a resolution to terminate a national emergency citing IEEPA. The NEA requires that both houses of Congress meet every six months to consider a vote on a joint resolution on terminating an emergency. Neither house has ever met to do so. In response to concerns over the scale and scope of the emergency economic powers granted by IEEPA, supporters of the status quo would argue that Congress has implicitly and explicitly expressed approval of the statute and its use. In 2018, Congress passed the Export Control Reform Act (ECRA). The legislation repealed the expired Export Administration Act of 1979, the regulations of which had been continued by reference to IEEPA since 2001. The ECRA became the new statutory authority for Export Administration Regulations. Nevertheless, several export controls addressed in the Export Administration Act of 1979 were not updated in the Export Control Reform Act of 2018; instead, Congress chose to require the President to continue to use IEEPA to continue to implement the three sections of the Export Administration Act of 1979 that were not repealed. Going forward, Congress may wish to revisit these provisions, which all relate to deterring the proliferation of weapons of mass destruction. Appendix A. NEA and IEEPA Use	[ "The International Emergency Economic Powers Act (IEEPA) provides the President broad authority to regulate a variety of economic transactions following a declaration of national emergency. IEEPA, like the Trading with the Enemy Act (TWEA) from which it branched, sits at the center of the modern U.S. sanctions regime. Changes in the use of IEEPA powers since the act's enactment in 1977 have caused some to question whether the statute's oversight provisions are robust enough given the sweeping economic powers it confers upon the President upon declaration of a state of emergency. Over the course of the twentieth century, Congress delegated increasing amounts of emergency power to the President by statute. The Trading with the Enemy Act was one such statute. Congress passed TWEA in 1917 to regulate international transactions with enemy powers following the U.S. entry into the First World War. Congress expanded the act during the 1930s to allow the President to declare a national emergency in times of peace and assume sweeping powers over both domestic and international transactions. Between 1945 and the early 1970s, TWEA became a critically important means to impose sanctions as part of U.S. Cold War strategy. Presidents used TWEA to block international financial transactions, seize U.S.-based assets held by foreign nationals, restrict exports, modify regulations to deter the hoarding of gold, limit foreign direct investment in U.S. companies, and impose tariffs on all imports into the United States. Following committee investigations that discovered that the United States had been in a state of emergency for more than 40 years, Congress passed the National Emergencies Act (NEA) in 1976 and IEEPA in 1977. The pair of statutes placed new limits on presidential emergency powers. Both included reporting requirements to increase transparency and track costs, and the NEA required the President to annually assess and extend, if appropriate, the emergency. However, some experts argue that the renewal process has become pro forma. The NEA also afforded Congress the means to terminate a national emergency by adopting a concurrent resolution in each chamber. A decision by the Supreme Court, in a landmark immigration case, however, found the use of concurrent resolutions to terminate an executive action unconstitutional. Congress amended the statute to require a joint resolution, significantly increasing the difficulty of terminating an emergency. Like TWEA, IEEPA has become an important means to impose economic-based sanctions since its enactment; like TWEA, Presidents have frequently used IEEPA to restrict a variety of international transactions; and like TWEA, the subjects of the restrictions, the frequency of use, and the duration of emergencies have expanded over time. Initially, Presidents targeted foreign states or their governments. Over the years, however, presidential administrations have increasingly used IEEPA to target individuals, groups, and non-state actors such as terrorists and persons who engage in malicious cyber-enabled activities. As of March 1, 2019, Presidents had declared 54 national emergencies invoking IEEPA, 29 of which are still ongoing. Typically, national emergencies invoking IEEPA last nearly a decade, although some have lasted significantly longer--the first state of emergency declared under the NEA and IEEPA, which was declared in response to the taking of U.S. embassy staff as hostages by Iran in 1979, may soon enter its fifth decade. IEEPA grants sweeping powers to the President to control economic transactions. Despite these broad powers, Congress has never attempted to terminate a national emergency invoking IEEPA. Instead, Congress has directed the President on numerous occasions to use IEEPA authorities to impose sanctions. Congress may want to consider whether IEEPA appropriately balances the need for swift action in a time of crisis with Congress' duty to oversee executive action. Congress may also want to consider IEEPA's role in implementing its influence in U.S. foreign policy and national security decision-making." ]	14,753	gov_report	en	null	f8a0313fccf5acb9eed57e3363eecb4d2b0b7f72639a82f4
The national pipeline system consists of more than 2.7 million miles of networked pipelines transporting oil, natural gas, and other hazardous liquids. Hazardous liquid and natural gas pipelines—primarily buried underground in the continental United States—run under remote and open terrain, as well as densely populated areas. These pipelines are of three main types: Hazardous liquid: About 216,000 miles of hazardous liquid pipeline transport crude oil, diesel fuel, gasoline, jet fuel, anhydrous ammonia, and carbon dioxide. Natural gas transmission and storage: About 319,000 miles of pipeline—mostly interstate—transport natural gas from sources to communities. Natural gas distribution: About 2.2 million miles of pipeline—mostly intrastate—transport natural gas from transmission sites to consumers. Figure 1 depicts the network of hazardous liquid and natural gas transmission pipelines in the United States. More than 3,000 pipeline companies operate the nation’s pipeline systems, which can traverse multiple states and the U.S. borders with Canada and Mexico. Many pipeline systems are comprised of the pipelines themselves, as well as a variety of facilities, such as storage tanks, compressor stations, and control centers. Most pipeline systems are monitored and moderated through automated ICS or Supervisory Control and Data Acquisition (SCADA) systems using remote sensors, signals, and preprogramed parameters to activate and deactivate valves and pumps to maintain flows within tolerances. Federal agencies and pipeline operators determine the criticality of pipeline systems and their facilities based on their importance to the nation’s energy infrastructure; service to installations critical to national defense; or, if attacked, have the potential to cause mass casualties and significant impact on public drinking water affecting major population centers. Accordingly, those determined to be critical merit increased attention to security. However, as we previously reported, the inherent design and operation of U.S. pipeline systems may reduce some potential impacts of lost service. The pipeline sector is generally considered to be resilient and versatile. Historically, pipeline operators have been able to quickly respond to the adverse consequences of an incident—whether it is damage from a major hurricane or a backhoe—and quickly restore pipeline service. Pipeline infrastructure also includes redundancies such as parallel pipelines or interconnections that enable operators to reroute material through the network. Figure 2 depicts the U.S. pipeline system, its basic components, examples of vulnerabilities, and the entities to which it supplies energy and raw materials. These entities include utility companies, airports, military sites, and industrial and manufacturing facilities. According to TSA, pipelines are vulnerable to physical attacks—including the use of firearms or explosives—largely due to their stationary nature, the volatility of transported products, and the dispersed nature of pipeline networks spanning urban and outlying areas. The nature of the transported commodity and the potential effect of an attack on national security, commerce, and public health make some pipelines and their assets more attractive targets for attack. Oil and gas pipelines have been and continue to be targeted by terrorists and other malicious groups globally. Terrorists have also targeted U.S. pipelines, but have not succeeded in attacking them. Further, environmental activists and lone actors seeking to halt the construction of new pipelines through sabotage have recently emerged as a new threat to pipelines. For example, in March 2017, activists used blowtorches to cut holes in empty portions of the Dakota Access Pipeline in two states. In February 2017, local law enforcement officers fatally shot a man who used an assault rifle to damage the Sabal Trail Pipeline, a natural gas pipeline under construction in Florida. The sophisticated computer systems that pipeline operations rely on are also vulnerable to various cyber threats. According to DOE, the frequency, scale, and sophistication of cyber threats have increased, and attacks have become easier to launch. NCCIC reported that the energy sector, which includes pipelines, experienced more cyber incidents than any sector from 2013 to 2015, accounting for 35 percent of the 796 incidents reported by all critical infrastructure sectors. In 2016, NCCIC reported that the energy sector was the third most frequently attacked sector. Further, according to DOE, the cost of preventing and responding to cyber incidents in the energy sector is straining the ability of companies to adequately protect their critical cyber systems. For example, a 2015 study by the Ponemon Institute estimated the annualized cost of cyber crime for an average energy company to be about $28 million. Ineffective protection of cyber assets from these threats can increase the likelihood of security incidents and cyber attacks that disrupt critical operations; lead to inappropriate access to and disclosure, modification, or destruction of sensitive information; and threaten national security, economic well-being, and public health and safety. Unintentional or nonadversarial threat sources may include failures in equipment or software due to aging, resource depletion, and errors made by end users. They also include natural disasters and failures of critical infrastructure on which the organization depends, but that are outside of the control of the organization. Intentional or adversarial threats may include corrupt employees, criminal groups, terrorists, and nations that seek to leverage the organization’s dependence on cyber resources (i.e., information in electronic form, information and communications technologies, and the communications and information-handling capabilities provided by those technologies). These threat adversaries vary in terms of their capabilities, their willingness to act, and their motives, which can include seeking monetary gain or seeking an economic, political, or military advantage. Cyber threat adversaries make use of various techniques, tactics, practices, and exploits to adversely affect an organization’s computers, software, or networks, or to intercept or steal valuable or sensitive information. For example, an attacker could infiltrate a pipeline’s operational systems via the internet or other communication pathways to potentially disrupt its service and cause spills, releases, explosions, or fires. Moreover, ICS, which were once largely isolated from the Internet and the company’s information technology systems, are increasingly connected in modern energy systems, allowing cyber attacks to originate in business systems and migrate to operational systems. For example, malicious nation-state actors used spear-phishing and other similar approaches in 2018 against energy sector organizations to gain access to their business systems, conduct reconnaissance, and collect information about their ICS. Similarly, in April 2012, the Industrial Control Systems Cyber Emergency Response Team reported that an unidentified cyber attacker had conducted a series of cyber intrusions into U.S. natural gas pipeline systems beginning in December 2011. Federal policy and public-private plans establish roles and responsibilities for the protection of critical infrastructure, including pipelines. These include Presidential Policy Directive 21 (PPD-21), the NIPP, and Executive Order 13636. PPD-21, issued in February 2013, reflects an all- hazards approach to protecting critical infrastructure, including natural disasters, terrorism, and cyber incidents. The directive also identifies the 16 critical infrastructure sectors and assigns roles and responsibilities for each critical infrastructure sector among nine designated federal sector-specific agencies. While PPD-21 identified the critical infrastructure sectors and assigned responsibility for each sector’s sector-specific agency, the NIPP outlines critical infrastructure stakeholder roles and responsibilities regarding critical security and resilience. It describes a voluntary partnership model as the primary means of coordinating government and private sector efforts to protect critical infrastructure. As part of the partnership structure, the designated sector-specific agencies serve as the lead coordinators for security programs of their respective sector. As sector-specific agencies, federal departments or agencies lead, facilitate, or support the security and resilience programs and associated activities of their designated critical infrastructure sector. For example, DHS and DOT are both designated as sector-specific agencies for the transportation systems sector, which includes pipelines. Each sector also has a government coordinating council, consisting of representatives from various levels of government, and many have a sector coordinating council (SCC) consisting of owner-operators of these critical assets or members of their respective trade associations. For example, the Transportation Government Coordinating Council has been established, and the Pipeline Modal SCC has been established to represent pipeline operators. The NIPP also outlines a risk management framework for critical infrastructure protection. As shown in Figure 3, the NIPP uses a risk management framework as a planning methodology intended to inform how decision makers take actions to manage risk. The risk management framework calls for public and private critical infrastructure partners to conduct risk assessments to understand the most likely and severe incidents that could affect their operations and communities, and use this information to support planning and resource allocation. According to DHS, the risk management framework is influenced by the nature and magnitude of a threat, the vulnerabilities to that threat, and the consequences that could result, as shown in Figure 4. Federal policy has encouraged voluntary information-sharing mechanisms between the federal government and critical infrastructure owners and operators. For example, Information Sharing and Analysis Centers (ISAC) are formed by critical infrastructure owners and operators to gather, analyze, appropriately sanitize, and disseminate intelligence and information related to critical infrastructure. They typically collect, analyze and disseminate actionable threat information to their members and provide members with tools to mitigate risks and enhance resiliency. ISACs in which pipeline operators may participate have been formed including the Oil and Natural Gas ISAC, Downstream Natural Gas ISAC, and Electricity ISAC. Finally, in February 2013, the president issued Executive Order 13636, Improving Critical Infrastructure Cybersecurity, which cited repeated cyber intrusions into critical infrastructure as demonstrating the need for improved cybersecurity. Executive Order 13636 outlined actions for improving critical infrastructure cybersecurity, including direction for the National Institute of Standards and Technology (NIST) to lead the development of a voluntary risk-based cybersecurity framework that would comprise a set of industry standards and best practices to help organizations manage cybersecurity risks. NIST issued the framework in 2014 and updated it in April 2018. The order also addressed the need to improve cybersecurity information sharing and collaboratively develop risk-based standards and stated that U.S. policy was to increase the volume, timeliness, and quality of cyber threat information shared with private sector entities so that these entities may better protect and defend themselves against cyber threats. Protecting the nation’s pipeline systems is a responsibility shared by both the federal government and private industry. As a result, several federal departments, agencies, and the private sector have significant roles in pipeline physical and cyber-related security. These entities include the following: Transportation Security Administration (TSA). TSA, within DHS, has primary oversight responsibility for the physical security and cybersecurity of transmission and distribution pipeline systems. Within TSA, the Security Policy and Industry Engagement’s Pipeline Security Branch is charged with overseeing its pipeline security program. Pursuant to its authority, TSA’s Pipeline Security Branch first issued its voluntary Pipeline Security Guidelines in 2011, and released revised guidelines in March 2018. In accordance with the 9/11 Commission Act, TSA’s Pipeline Security Branch identifies the top 100 critical pipeline systems in the nation. To do so, it uses system annual throughput, which is based on the amount of hazardous liquid or natural gas product transported through a pipeline in 1 year (i.e., annual throughput). TSA also ranks the relative risk among the top 100 critical pipeline systems, discussed later in the report. Additionally, TSA’s Pipeline Security Branch is responsible for conducting voluntary Corporate Security Reviews (CSR) and Critical Facility Security Reviews (CFSR), which assess the extent to which the 100 most critical pipeline systems are following the intent of TSA’s Pipeline Security Guidelines. See figure 5 below for an overview of the CSR and CFSR processes. In addition, TSA Intelligence and Analysis is responsible for collecting and analyzing threat information related to the transportation network, and sharing relevant threat information to pipeline stakeholders. National Cybersecurity and Communications Integration Center (NCCIC). Within DHS, NCCIC assists critical infrastructure owners in addressing cyber incidents and attacks, including those targeting industrial control systems. The NCCIC’s mission is to reduce the likelihood and severity of incidents that may significantly compromise the security and resilience of the nation’s critical information technology and communications networks. NCCIC’s role is to serve as the federal civilian interface for sharing information related to cybersecurity risks, incidents, analysis, and warnings with federal and nonfederal entities, and to provide shared situational awareness to enable real-time actions to address cybersecurity risks and incidents to federal and nonfederal entities. Pipeline and Hazardous Materials Safety Administration (PHMSA). PHMSA, within DOT, is responsible for regulating the safety of hazardous materials transportation and the safety of pipeline systems, some aspects of which can be related to pipeline security. In 2004, PHMSA and TSA entered into a memorandum of understanding regarding their respective roles in all modes of transportation. In 2006, they signed an annex to the memorandum of understanding that further delineates lines of authority and responsibility between TSA and PHMSA on pipeline and hazardous materials transportation security. The annex identifies TSA as the lead federal entity for transportation security, including hazardous materials and pipeline security, and PHMSA as responsible for administering a national program of safety in natural gas and hazardous liquid pipeline transportation, including identifying pipeline safety concerns and developing uniform safety standards. Department of Energy (DOE). DOE is responsible for protecting electric power, oil, and natural gas delivery infrastructure and, in December 2015, was identified in statute as the sector-specific agency for cybersecurity for the energy sector. The Office of Cybersecurity, Energy Security, and Emergency Response is the lead for DOE’s cybersecurity efforts. In addition, DOE operates the National SCADA Test Bed Program, a partnership with Idaho National Laboratory, Sandia National Laboratories, and other national laboratories which addresses control system security challenges in the energy sector. Among its key functions, the program performs control systems testing, research, and development; control systems requirements development; and industry outreach. Federal Energy Regulatory Commission (FERC). FERC regulates the U.S. bulk electric power system, which is increasingly powered by natural gas pipeline systems. FERC has regulatory authority over interstate natural gas pipelines under the Natural Gas Act. However, its role is limited to natural gas pipeline siting and rate regulation. The North American Electric Reliability Corporation is the federally designated U.S. Electric Reliability Organization, and is overseen by FERC. The North American Electric Reliability Corporation, with approval from FERC, has developed mandatory critical infrastructure protection standards for protecting electric utility–critical and cyber-critical assets. Private sector. Although TSA has primary federal responsibility for overseeing interstate pipeline security, private sector pipeline operators are responsible for implementing asset-specific protective security measures. As we previously reported, operators have increased their attention on security by incorporating security practices and programs into their overall business operations. Pipeline operators’ interests and concerns are primarily represented by five major trade associations with ties to the pipeline industry—the Interstate Natural Gas Association of America (INGAA), American Gas Association (AGA), American Public Gas Association, American Petroleum Institute (API), and Association of Oil Pipe Lines. According to TSA officials, pipeline operators, and association representatives, these associations have worked closely with the federal government on a variety of pipeline security-related issues, including collaborating on TSA’s voluntary standards and information sharing. All of the pipeline operators and pipeline association representatives we interviewed reported receiving security information from federal and nonfederal entities. Pipeline operators also reported providing security- related information to federal agencies, including TSA, as incidents occur. Multiple federal entities exchange alerts of physical and cybersecurity incidents and other risk-related information with critical infrastructure partners, including pipeline operators. For example, DHS components including TSA’s Intelligence and Analysis and NCCIC share security- related information on physical and cyber threats and incidents with sector stakeholders. Specifically, Intelligence and Analysis provides quarterly intelligence briefings to pipeline operators. NCCIC also issues indicator bulletins, which can contain information related to cyber threat indicators, defensive measures, and cybersecurity risks and incidents. In addition, TSA and other federal entities have coordinated to address specific pipeline-related security incidents. For example, TSA officials coordinated with DOT, DOE, the Department of Justice, and FERC through the Oil and Natural Gas subsector SCC to address ongoing incidents of vandalism and sabotage of critical pipeline assets by environmental activists in 2016. In July 2017, according to DOT officials, PHMSA and TSA collaborated on a web-based portal to facilitate sharing sensitive but unclassified incident information among federal agencies with pipeline-related responsibilities. See table 1 for the key federal information sharing entities and programs that exchange security-related or incident information with critical infrastructure stakeholders, including the pipeline sector. Pipeline operators also share security-related information with TSA and the NCCIC. In its Pipeline Security Guidelines, TSA requests that pipeline operators report by telephone or email to its Transportation Security Operations Center (TSOC) any physical security incidents that are indicative of a deliberate attempt to disrupt pipeline operations or activities that could be considered precursors to such an attempt. TSA’s Pipeline Security Guidelines also request that operators report any actual or suspected cyber attacks that could impact pipeline industrial control systems or other information technology-based systems to the NCCIC. According to the TSOC’s operating procedures, if a reported incident meets certain criteria, such as the incident was intended to or resulted in damage or requires a general evacuation of a facility, the TSOC watch officer is then to contact Office of Security and Industry Engagement officials. According to TSA officials, the TSOC does not conduct investigations of the specific security incidents that pipeline operators report. However, TSOC staff do analyze the incident information they receive for national trends and common threats. TSA officials stated that they share their observations with pipeline operators and other critical infrastructure asset owners during monthly and quarterly conference calls that TSA holds with pipeline operators. All the pipeline operators and association representatives we interviewed identified other nonfederal information sharing entities, including ISACs, fusion centers, industry associations, and SCCs, which provide forums for exchanging information about physical and cyber incidents throughout the pipeline sector. See table 2 for nonfederal information sharing entities identified as available to pipeline operators. Operators and TSA officials reported that the current backlog in granting security clearances for some key pipeline operator employees was a significant factor affecting information sharing between TSA and pipeline operators. TSA officials acknowledged that some pipeline operators have had difficulty obtaining security clearances for key employees due to ongoing backlogs in processing requests by the Office of Personnel Management National Background Investigation Bureau, and that TSA’s ability to share timely information with operators whose staff do not have a clearance may be hindered. Three of the 10 pipeline operators we interviewed identified receiving timely classified security information as a specific challenge due, in part, to difficulties staff have had obtaining security clearances. Further, 7 of the 10 pipeline operators that we interviewed reported experiencing delays in obtaining a security clearance or were aware of others who had experienced this issue. However, according to three operators we interviewed, TSA was helpful in facilitating approval of security clearances for the operators’ personnel to access classified information when necessary. This security clearance challenge is not faced by pipeline operators alone. In January 2018, we designated the backlog of investigations for the clearance process and the government-wide personnel security clearance process as a high-risk area. We will continue to monitor agencies’ progress in reducing the backlog and improving the security clearance process. Pipeline operators that we interviewed reported using a range of guidelines and standards to address their physical and cybersecurity risks, and all of them reported implementing TSA’s voluntary Pipeline Security Guidelines that were applicable to their operations. TSA revised and issued its Pipeline Security Guidelines in March 2018, but the revised guidelines lack a defined process to consider updates to supporting guidance such as to the NIST Framework for Improving Critical Infrastructure Cybersecurity (Cybersecurity Framework). Furthermore, TSA has not clearly defined the terms within the criteria that pipeline operators are to use to determine the criticality of their facilities. Pipeline operators that we interviewed reported using a range of guidelines and standards to address their physical and cybersecurity risks. For example, all 10 of the pipeline operators we interviewed stated they had implemented the voluntary 2011 TSA Pipeline Security Guidelines the operators determined to be applicable to their operations. The guidelines provide TSA’s recommendations for pipeline industry security practices such as establishing a corporate security program and identifying critical facilities among others (see sidebar). Five of the 10 pipeline operators we interviewed characterized the guidelines as generally or somewhat effective in helping to secure their operations, 1 was neutral on their effectiveness, and 4 did not provide an assessment of the guidelines’ effectiveness. However, one operator pointed out that they had not adopted the guidelines’ recommended interval of 36 months or less for conducting security vulnerability assessments due to staffing limitations. Also, another pipeline operator noted that they were working to implement the guidelines in the operations of a newly acquired asset that they determined was not using the guidelines in the same manner as their company. All of the pipeline operators we interviewed reported using other guidelines or standards to address pipeline systems’ security risks. For example, pipeline operators reported using and industry association representatives reported that their members use INGAA’s Control Systems Cyber Security Guidelines for the Natural Gas Pipeline Industry, API’s Pipeline SCADA Security standard, and the NIST Cybersecurity Framework as sources of cybersecurity standards, guidelines, and practices that may be scaled and applied to address a pipeline operator’s cybersecurity risks. Further, pipeline operators are required to adhere to regulations related to pipeline safety and, depending upon their assets, operations, and location, may be required to adhere to regulations for electrical utilities, chemical storage facilities, and locations near waterways. For example, all pipeline operators must adhere to DOT’s PHMSA safety regulations. In addition, pipeline operators whose systems include chemical facilities may be required to comply with DHS’s Chemical Facility Anti-Terrorism Standards (CFATS). Pipeline operators whose systems include a terminal located on a U.S. port may be required to comply with Maritime Transportation Security Act regulations. For a listing of federal and industry guidelines identified as applicable to security by the pipeline operators, see appendix I. TSA’s Pipeline Security Branch issued its revised Pipeline Security Guidelines in March 2018, but TSA has not established a documented process to ensure that revisions occur and fully capture updates to supporting standards and guidance. The guidelines were revised to, among other things, reflect the dynamic threat environment and to incorporate cybersecurity principles and practices from the NIST Cybersecurity Framework, which were initially issued in February 2014. To revise the guidelines and incorporate feedback, according to Pipeline Security Branch officials, they incorporated outcomes from pipeline modal threat assessments and best practices from security reviews, and collaborated with pipeline sector stakeholders—including industry associations and other federal agencies with a role in pipeline security. Officials from the industry associations we interviewed confirmed that they provided input to the revised pipeline guidelines, including meeting with and consolidating comments from member pipeline operators. See figure 6 for a timeline of events pertinent to federal pipeline security guidelines. TSA’s Pipeline Security Smart Practice Observations for pipeline operators states that security plans should have a documented process to include security plan reviews and updates on a periodic and an as- needed basis. Standards for Internal Control in the Federal Government states that periodic review of policies, procedures, and related control activities should occur to determine their continued relevance and effectiveness in achieving identified objectives or addressing related risks. The NIPP and NIST also emphasize the need to provide updates on incident response guidance and security procedures, respectively. Moreover, other pipeline industry guidance cited by TSA’s guidelines also has a prescribed interval for review and revision. For example, API reviews its standards at least every 5 years. However, TSA has not instituted a documented process to consider the need to update the Pipeline Security Guidelines on a regular basis. Pipeline Security Branch officials acknowledged the value of having a defined process for reviewing and, if necessary, revising TSA’s Pipeline Security Guidelines at regular defined intervals to ensure it includes, among other things, newly identified best practices and updated industry guidance that are relevant to pipeline operators, such as the elements of the latest version of NIST’s Cybersecurity Framework. For example, TSA’s revisions to its guidelines incorporated some, but not all of the elements of the NIST Cybersecurity Framework version 1. Specifically, to improve incident response, the NIST framework recommends implementing an incident response analysis and feedback function to a security program. However, TSA’s Pipeline Security Guidelines do not include similar steps for pipelines operators to include in their pipeline security programs. Further, because NIST released version 1.1 of the Cybersecurity Framework in April 2018, the guidelines that TSA released in March 2018 do not incorporate cybersecurity elements that NIST added to the latest Cybersecurity Framework such as the Supply Chain Risk Management category. Pipeline Security Branch officials said that they have not instituted a review process on a regular basis because they intended to review and revise TSA’s guidelines on an as-needed basis in response to updated supporting guidance, but could provide no timeline for doing so. Without a documented process defining how frequently Pipeline Security Branch staff are to review and revise its guidelines, TSA cannot ensure that its guidelines reflect the latest known standards and best practices for physical and cybersecurity, or address the persistent and dynamic security threat environment currently facing the nation’s pipeline system. Under TSA’s Pipeline Security Guidelines, pipeline operators are to self- identify the critical facilities within their system and report their critical facilities to TSA. TSA’s Pipeline Security Branch conducts CFSRs at the critical facilities that pipeline operators have identified. However, our analysis of TSA’s data found that at least 34 of the top 100 critical pipeline systems deemed highest risk indicated that they had no critical facilities. Accordingly, TSA would not conduct a CFSR at any of these systems’ facilities because their operators identified none of them as critical. The fact that pipeline operators of about one third of the highest risk systems identified no critical facilities may be due, in part, to the Pipeline Security Branch not clearly defining the criteria outlined in the Pipeline Security Guidelines that pipeline operators are to use to determine the criticality of their facilities. Three of the 10 operators we interviewed stated that some companies reported to TSA that they had no critical facilities, and may possibly be taking advantage of the guidelines’ lack of clarity. Accordingly, operators that report no critical facilities would avoid TSA’s reviews of their facilities. service or deliverability resulting in a state or local government's inability to provide essential public services and emergency response for an extended period of time; Significantly damage or destroy national intended use of major rivers, lakes, or waterways (e.g., public drinking water for large populations or disruption of major commerce or public transportation routes); service or deliverability to a significant number of customers or individuals for an extended period of time; operations for an extended period of time (i.e., business critical facilities). Our review of the eight criteria included in TSA’s Pipeline Security Guidelines (see sidebar) found that no additional examples or clarification are provided to help operators determine criticality. Although we previously noted that 5 of the 10 operators we interviewed generally found TSA’s Guidelines as a whole helpful in addressing pipeline security, more than half of the operators we interviewed identified TSA’s criticality criteria as a specific area for improvement. Specifically, 3 of the 10 pipeline operators that we interviewed stated that TSA had not clearly defined certain terms within the criteria, and 3 additional operators of the 10 reported that additional consultation with TSA was necessary to appropriately apply the criteria and determine their facilities’ criticality. For example, 2 operators told us that individual operators may interpret TSA’s criterion, “cause mass casualties or significant health effect,” differently. One of these operators that we interviewed stated that this criterion could be interpreted either as a specific number of people affected or a sufficient volume to overwhelm a local health department, which could vary depending on the locality. Another operator reported that because TSA’s criteria were not clear, they created their own criteria which helped the operator identify two additional critical facilities. Pipeline Security Branch officials acknowledged there are companies that report having no critical facilities in their pipeline systems. According to Pipeline Security Branch officials, pipeline operators are in the best position to determine which of their facilities are critical, and the companies that have determined that their pipeline systems have no critical facilities also have reported sufficient redundancies to make none of their facilities critical to the continuity of their operations. According to these officials, they have had extensive discussions with pipeline company officials to assess the validity of their criticality determinations, and have closely questioned companies to ensure they have properly applied TSA’s criteria. However, according to TSA’s Pipeline Security Guidelines, operators should use a consistent set of criteria for determining the criticality of their facilities. In addition, Standards for Internal Control in the Federal Government states that management should define objectives clearly to enable the identification of risks. To achieve this, management generally defines objectives in specific and measurable terms and ensures the terms are fully and clearly set forth so they can be easily understood. Pipeline Security Branch officials acknowledged that the criticality definitions in the Pipeline Security Guidelines could be clarified to be more specific. Additionally, an industry association representative reported that the association, in consultation with TSA, has been developing supplementary guidance for its members to clarify certain terms in TSA’s critical facility criteria. As of October 2018 this guidance is still under review at the association and has not been made available to the association’s members. Pipeline Security Branch officials confirmed they worked with the industry association on its supplementary guidance, but also acknowledged that the supplementary guidance may only be distributed to the association’s membership. Without clearly defined criteria for determining pipeline facilities’ criticality, TSA cannot ensure that pipeline operators are applying its guidance uniformly. Further, because TSA selects the pipeline facilities on which to conduct CFSRs based on operators’ determinations, TSA cannot fully ensure that all of the critical facilities across the pipeline sector have been identified using the same criteria, or that their vulnerabilities have been identified and addressed. TSA’s Intelligence and Analysis identifies security risks to pipeline systems through various assessments. Additionally, TSA’s Pipeline Security Branch conducts security reviews to assess pipeline operators’ implementation of TSA’s Pipeline Security Guidelines, but gaps in staffing and lack of a workforce plan may affect its ability to carry out effective reviews. The Pipeline Security Branch also developed a pipeline risk assessment to rank relative risk of the top 100 critical pipeline systems and to prioritize its security reviews of pipeline companies, but shortfalls in its calculations of threat, vulnerability, and consequence may limit its ability to accurately identify pipeline systems with the highest risk. Finally, the pipeline risk assessment has not been peer reviewed to validate the assessment’s data and methodology, which we previously reported as a best practice in risk management. TSA’s Intelligence and Analysis produces assessments related to pipeline security risks, including Pipeline Modal and Cyber Modal Threat Assessments and the Transportation Sector Security Risk Assessment. The Pipeline and Cyber Modal Threat Assessments are issued on a semiannual basis; TSA Intelligence and Analysis may also issue additional situation-based products on emerging threats. The Pipeline Modal and Cyber Modal Threat Assessments evaluate, respectively, physical and cyber threats to pipelines. The pipeline modal threat assessment evaluates terrorist threats to hazardous liquid and natural gas pipelines, and the cyber modal threat assessment evaluates cyber threats to transportation, including pipelines. Both assessments specifically analyze the primary threat actors, their capabilities, and activities—including attacks occurring internationally—as well as other characteristics of threat. The Transportation Sector Security Risk Assessment assesses threat, vulnerability, and consequence for various attack scenarios across the five transportation modes for which TSA is responsible. The scenarios define a type of threat actor—including homegrown violent extremists and transnational extremists, such as al Qaeda and its affiliates—a target, and an attack mode. For example, a scenario might assess the risk of attacks using varying sizes of improvised explosive devices on pipeline system assets. As part of the assessment process, TSA engages with subject matter experts from TSA and industry stakeholder representatives to compile vulnerabilities for each mode, and TSA analyzes both direct and indirect consequences of the various attack scenarios. According to Pipeline Security Branch officials, the assessments produced by TSA’s Intelligence and Analysis provide key information to inform the pipeline security program’s efforts. According to TSA officials, TSA conducts pipeline security reviews— Corporate Security Reviews (CSRs) and Critical Facility Security Reviews (CFSRs)—to assess pipeline vulnerabilities and industry implementation of TSA’s Pipeline Security Guidelines. However, as shown by Figure 7 below, the number of CSRs and CFSRs completed by TSA has varied during the last five fiscal years, ranging from zero CSRs conducted in fiscal year 2014 to 23 CSRs conducted in fiscal year 2018, as of July 31, 2018. TSA officials reported that staffing limitations have prevented TSA from conducting more reviews. As shown in table 3, TSA Pipeline Security Branch staffing levels (excluding contractor support) have varied significantly over the past 9 years ranging from 14 full-time equivalents (FTEs) in fiscal years 2012 and 2013 to one FTE in fiscal year 2014. They stated that, while contractor support has assisted with conducting CFSRs, there were no contractor personnel providing CSR support from fiscal years 2010 through 2017, but that has now increased to two personnel in fiscal year 2018. TSA prioritizes reviewing and collecting information on the nation’s top 100 critical pipeline systems. According to TSA officials, they would need to conduct 46 CSRs in order to review the top 100 critical pipeline systems. In July 2018, TSA officials stated that TSA’s current target was to assess each pipeline company every 2 to 3 years; this would equate to about 15 to 23 CSRs per year. TSA officials stated that they expect to complete 20 CSRs and 60 CFSRs per fiscal year with Pipeline Security Branch employees and contract support, and have completed 23 CSRs through July 2018 for fiscal year 2018. Given the ever-increasing cybersecurity risks to pipeline systems, ensuring that the Pipeline Security Branch has the required cybersecurity skills to effectively evaluate pipeline systems’ cybersecurity is essential. Pipeline operators we interviewed emphasized the importance of cybersecurity skills among TSA staff. Specifically, 6 of the 10 pipeline operators and 3 of the 5 industry representatives we interviewed reported that the level of cybersecurity expertise among TSA staff and contractors may challenge the Pipeline Security Branch’s ability to fully assess the cybersecurity portions of its security reviews. TSA officials stated that Security Policy and Industry Engagement staff are working with DHS’s National Protection and Programs Directorate to help address cyber- related needs, including identifying specific cybersecurity skills and competencies required for the pipeline security program. The officials were uncertain, however, whether TSA would use contractor support or support from the National Protection and Programs Directorate to provide identified skills and competencies. TSA officials also stated that Security Policy and Industry Engagement staff work with TSA’s human resource professionals to identify critical skills and competencies needed for Pipeline Security Branch personnel, and helps its workforce maintain professional expertise by providing training and education for any identified skill or competency gaps. Our previous work has identified principles that a strategic workforce planning process should follow including developing strategies tailored to address gaps in number, deployment, and alignment of human capital approaches for enabling and sustaining the contributions of all critical skills and competencies. Workforce planning efforts, linked to an agency’s strategic goals and objectives, can enable it to remain aware of and be prepared for its needs, including the size of its workforce, its deployment across the organization, and the knowledge, skills, and abilities needed for it to pursue its mission. Agencies should consider how hiring, training, staff development, performance management, and other human capital strategies can be aligned to eliminate gaps and improve the long-term contribution of skills and competencies identified as important for mission success. TSA has not established a workforce plan for its Security Policy and Industry Engagement or its Pipeline Security Branch that identifies staffing needs and skill sets such as the required level of cybersecurity expertise among TSA staff and contractors. When asked for TSA strategic workforce planning documents used to inform staffing allocations related to the pipeline security program, TSA officials acknowledged they do not have a strategic workforce plan. Rather, according to these officials, TSA determines agency-level staffing allocations through the Planning, Programming, Budgeting and Execution process, which is used to decide policy, strategy, and the development of personnel and capabilities to accomplish anticipated missions. According to TSA officials, when they use this process they look at existing resources and then set priorities based on the TSA Administrator’s needs. However, a strategic workforce plan allows an agency to identify and prepare for its needs, such as the size of its workforce, its deployment across the organization, and the knowledge, skills, and abilities needed to pursue its mission. TSA officials stated that the agency has a detailed allocation plan for strategically aligning resources to screen passengers at TSA-regulated airports, but not for the entire agency. By establishing a strategic workforce plan, TSA can help ensure it has identified the knowledge, skills, and abilities that the future workforce of TSA’s Pipeline Security Branch may need in order to meet its mission of reducing pipeline systems’ vulnerabilities to physical and cybersecurity risks, especially in a dynamic and evolving threat environment. Further, as greater emphasis is placed on cybersecurity, determining the long- term staffing needs of the Pipeline Security Branch will be essential. Furthermore, a workforce plan could enable TSA to determine the number of personnel it needs to meet its stated goals for conducting CSRs and CFSRs. After TSA identifies the top 100 critical pipeline systems based on throughput, the Pipeline Security Branch uses the Pipeline Relative Risk Ranking Tool (risk assessment), which it developed in 2007, to assess various security risks of those systems. We previously reported, in 2010, that the Pipeline Security Branch was the first of TSA’s surface transportation modes to develop a risk assessment model that combined all three components of risk—threat, vulnerability, and consequence—to generate a risk score. The risk assessment generates a risk score for each of the 100 most critical pipeline systems and ranks them according to risk. The risk assessment calculates threat, vulnerability, and consequence for each pipeline system on variables such as the amount of throughput in the pipeline system and the number critical facilities. The risk assessment combines data collected from pipeline operators, as well as other federal agencies, such as the Departments of Transportation and Defense, to generate the risk score. However, the last time the Pipeline Security Branch calculated relative risk among the top 100 critical pipeline systems using the risk assessment was in 2014. Pipeline Security Branch officials told us that they use the pipeline risk assessment to rank relative risk of the top 100 critical pipeline systems, and the standard operating procedures for conducting CSRs state the results of the risk ranking are the primary factor considered when prioritizing corporate security reviews of pipeline companies. According to Pipeline Security Branch officials, the risk assessment has not changed since 2014 because the Pipeline Security Branch is still conducting CSRs based on the 2014 ranking of pipeline systems. As outlined in table 4 below, we identified several factors that likely limit the usefulness of the current risk assessment in calculating threat, vulnerability, and consequence to allow the Pipeline Security Branch to effectively prioritize reviews of pipeline systems. For example, because the risk assessment has not changed since 2014, information on threat may be outdated. Additionally, sources of data and underlying assumption and judgments regarding certain threat and vulnerability inputs to the assessment are not fully documented. For example, threats to cybersecurity are not specifically accounted for in the description of the risk assessment methodology, making it unclear if cybersecurity is part of the assessment’s threat factor. Further, the risk assessment does not include information that is consistent with the NIPP and other DHS priorities for critical infrastructure risk mitigation, such as information on natural hazards and the ability to measure risk reduction (feedback data). According to Pipeline Security Branch officials, the risk ranking assessment is not intended to be a fully developed risk model detailing all pipeline factors influencing risk. Rather, officials said they are primarily interested in assessing risk data that impacts security. However, because TSA’s Pipeline Security Program is designed to enhance the security preparedness of the pipeline systems, incorporating additional factors that enhance security into their risk calculation would better align their efforts with PPD-21. For example, PPD-21 calls for agencies to integrate and analyze information to prioritize assets and manage risks to critical infrastructure, as well as anticipate interdependencies and cascading impacts. For a more detailed discussion of the shortfalls we identified, refer to appendix II. In addition to the shortfalls identified above, the risk assessment has not been peer reviewed since its conception in 2007. In our past work, we reported that independent, external peer reviews are a best practice in risk management and that independent expert review panels can provide objective reviews of complex issues. According to the National Research Council of the National Academies, external peer reviews should, among other things, address the structure of the assessment, the types and certainty of the data, and how the assessment is intended to be used. The National Research Council has also recommended that DHS improve its risk analyses for infrastructure protection by validating the assessments and submitting them to independent, external peer review. Other DHS components have implemented our prior recommendations to conduct peer reviews of their risk assessments. For example, in April 2013, we reported on DHS’s management of its Chemical Facility Anti- Terrorism Standards (CFATS) program and found that the approach used to assess risk did not consider all of the elements of consequence, threat, and vulnerability associated with a terrorist attack involving certain chemicals. The Infrastructure Security Compliance Division, which manages the CFATS program conducted a multiyear effort to improve their risk assessment methodology and included commissioning a peer review by the Homeland Security Studies and Analysis Institute, which resulted in multiple recommendations. As part of the implementation of some of the peer review’s recommendations, DHS conducted peer reviews and technical reviews with government organizations and facility owners and operators, and worked with Sandia National Laboratories to verify and validate the CFATS program’s revised risk assessment methodology, which was completed in January 2017. According to Pipeline Security Branch officials, they are considering updates to the risk assessment methodology including changes to the vulnerability and consequence factors. These officials said the risk assessment was previously reviewed within the past 18 months by industry experts and they consider input from several federal partners including DHS, DOT, and the Department of Defense. Officials also said they will consider input from industry experts and federal partners while working on updating the risk assessment. However, most of the proposed changes to the risk assessment methodology officials described are ones that have been deliberated since our last review in 2010. Therefore, an independent, external peer review would provide the opportunity for integration and analysis of additional outside expertise across the critical infrastructure community. While independent, external peer reviews cannot ensure the success of a risk assessment approach, they can increase the probability of success by improving the technical quality of projects and the credibility of the decision-making process. According to the National Research Council of the National Academies, independent, external peer reviews should include validation and verification to ensure that the structure of the risk assessment is both accurate and reliable. Thus, an independent, external peer review would provide better assurance that the Pipeline Security Branch can rank relative risk among pipeline systems using the most comprehensive and accurate threat, vulnerability, and consequence information. TSA has established performance measures, as well as databases to monitor pipeline security reviews and analyze their results. However, weaknesses in its performance measures and its efforts to record pipeline security review recommendations limit its ability to determine the extent that its pipeline security program has reduced pipeline sector risks. Furthermore, we identified data reliability issues in the information that TSA collects to track the status of pipeline security review recommendations, such as missing data, inconsistent data entry formats, and data entry errors. TSA has three sets of performance measures for its pipeline efforts: the Pipeline Security Plan in the 2018 Biennial National Strategy for Transportation Security (NSTS), a management measure in the DHS fiscal year 2019 congressional budget justification, and summary figures in their CSR and CFSR databases. As a result of our 2010 work, TSA established performance measures and linked them to Pipeline Security Plan goals within the Surface Security Plan of the 2018 NSTS. See table 5 below for the 2018 NSTS Pipeline Security Plan performance measures. As shown in table 6 below, DHS also included a management measure in its fiscal year 2019 congressional budget justification to track the annual number of completed pipeline security reviews. Finally, TSA Pipeline Security Branch officials said they use summary figures in the CFSR status database and the CSR goals and priorities database as performance measures. For example, these include the percentage of CFSR recommendations implemented and the average percentage compliance with the guidelines by fiscal year. We previously found that results-oriented organizations set performance goals to clearly define desired program outcomes and develop performance measures that are clearly linked to the performance goals. Performance measures should focus on whether a program has achieved measurable standards toward achieving program goals, and allow agencies to monitor and report program accomplishments on an ongoing basis. Our previous work on performance metrics identified 10 attributes of effective performance. Table 7 identifies each key attribute of effective performance measures along with its definition. We evaluated the current performance measures included in the 2018 NSTS, the DHS fiscal year 2019 congressional budget justification, the CSR goals and priorities database, and the CFSR status database related to TSA’s Pipeline Security Branch. We primarily focused on key attributes which could be applied to individual measures. These include clarity, linkage, measurable targets, objectivity, reliability, and baseline and trend data. Our prior work on performance measurement found that all performance measure attributes are not equal and failure to have a particular attribute does not necessarily indicate that there is a weakness in that area or that the measure is not useful; rather, it may indicate an opportunity for further refinement. Based on our evaluation, the TSA-identified measures do not possess attributes that we have identified as being key to successful performance measures. As a result, TSA cannot fully determine the extent to which the Pipeline Security Branch has achieved desired outcomes, including the effectiveness of its efforts to reduce risks to pipelines. Specifically, many of TSA’s measures cover agency goals and mission, but they generally lack clarity and measurable targets, provide significantly overlapping information, and do not include baseline and trend data. Clarity. The pipeline-related measures in the 2018 NSTS are not clear because they do not describe the methodology used to calculate them, and the names and definitions are not clearly described. For example, NSTS goal 1 includes an objective to conduct training of employees responding to terrorist attacks. The desired outcome is to improve the capability of industry employees to respond and recover from terrorist attacks. However, the performance measure is the percentage of critical pipeline systems implementing the TSA Pipeline Security Guidelines. It is not clear if this measure is specific to the sections of the guidelines related to employee training or overall implementation of the guidelines. The CFSR status database measures include the percentage of recommendations implemented by topic, such as “Site Specific Security Measures,” “Signage,” or “Miscellaneous.” However, the database does not specifically define these topics or explain the methodology for calculating the measures. Unclear measures could be confusing and misleading to users. Core program activities. The pipeline-related measures in the 2018 NSTS cover some of the agency’s core program activities, such as conducting security exercises with the pipeline industry and providing intelligence and information products to the industry. However, the NSTS Pipeline Security Plan measures do not specifically include some core program activities, such as updating the TSA Pipeline Security Guidelines or the results of conducting CSRs and CFSRs in order to collect the information necessary for the existing performance measures. The CSR goals and priorities database and the CFSR status database include measures intended to track some of the results of pipeline security reviews, such as the average percentage compliance with the guidelines by fiscal year and the percentage of CFSR recommendations implemented. If core program activities are not covered, there may not be enough information available in those areas to managers and stakeholders. Limited overlap. The pipeline-related measures in the 2018 NSTS do not have limited overlap. As discussed previously, four of the five NSTS measures are based on the percentage of critical pipeline systems implementing TSA’s Pipeline Security Guidelines. The management measure is based on the number of complete pipeline security reviews. The CFSR status database measures are based on the percentage of recommendations implemented overall and by groups. Finally, the CSR goals and priorities database measures are based on the average compliance percentage of companies that had CSRs conducted in fiscal years 2016 and 2017. This is similar to four of the five NSTS measures. Significantly overlapping measures may lead to redundant, costly information that does not add value for TSA management. Linkage. The pipeline-related measures in the 2018 NSTS generally exhibited this key attribute. For example, all of the NSTS measures were arranged by agency strategic goals and risk-based priorities. However, the management measure in DHS’s fiscal year 2019 congressional budget justification and the CFSR status database measures did not specify the TSA goals and priorities to which they were aligned. If measures are not aligned with division and agency- wide goals and mission, the behaviors and incentives created by these measures do not support achieving those goals or mission. Measurable target. TSA’s measures generally did not include measurable targets in the form of a numerical goal and none of the NSTS measures had measurable targets. For example, the NSTS measure under the Security Planning priority, which tracks the percentage of critical pipeline systems implementing TSA’s Pipeline Security Guidelines, does not state what specific percentages would be considered an improvement in industry security plans. However, the management measure did include target numbers of pipeline security reviews by fiscal year. Both the CFSR status database measures and CSR goals and priorities database measures did not include measurable targets. Without measurable targets, TSA cannot tell if performance is meeting expectations. Objectivity. Because the pipeline-related measures in the 2018 NSTS, the CFSR status database, and the CSR goals and priorities database generally lack clarity and measurable targets, TSA cannot ensure its measures are free from bias or manipulation, and therefore, are not objective. If measures are not objective, the results of performance assessments may be systematically overstated or understated. Reliability. Because the pipeline-related measures in the 2018 NSTS, the CFSR status database, and the CSR goals and priorities database generally lack clarity, measurable targets, and baseline and trend data, it is not clear if TSA’s measures produce the same result under similar conditions; therefore, the pipeline-related measures are unreliable. If measures are not reliable, reported performance data may be inconsistent and add uncertainty. Baseline and trend data. TSA’s measures generally did not include baseline and trend data. For example, none of the NSTS measures included past results and compared them to measurable targets. TSA officials were unable to identify measures or goals to assess the extent to which pipeline operators have fully implemented the guidelines or increased pipeline security, but did say developing a feedback mechanism to measure progress in closing vulnerability gaps was important. However, the management measure did include the number of completed pipeline security reviews for each fiscal year from 2014 through 2017, as well as numerical goals. The CFSR status database includes information on CFSRs conducted from May 22, 2012, through June 29, 2017, but the measures are calculated for the entire time period rather than year-by-year. The CSR goals and priorities database measures include percentage compliance with the guidelines for CSRs conducted in fiscal years 2016 and 2017, as well as a combined measure. However, baseline and trend data are not tracked or reported in either database. Collecting, tracking, developing, and reporting baseline and trend data allows agencies to better evaluate progress being made and whether or not goals are being achieved. Pipeline Security Branch officials explained that in addition to the measures reported in the 2018 NSTS Pipeline Security Plan, they primarily rely on measures assessing CSR and CFSR implementation for assessing the value of its pipeline security program. TSA officials reported that they collect and analyze data and information collected from CSRs and CFSRs to, among other things, determine strengths and weaknesses at critical pipeline facilities, areas to target for risk reduction strategies, and pipeline industry implementation of the voluntary Pipeline Security Guidelines. For example, TSA officials reported that they analyzed information from approximately 734 CFSR recommendations that were made during fiscal years 2012 through 2016. They found that pipeline operators had made the strongest improvements in security training, public awareness outreach and law enforcement coordination, and site specific security measures. The most common areas in need of improvement were 24x7 monitoring, frequency of security vulnerability assessments, and proper signage. However, as described above, we found those measures also did not comport with key attributes for successful measures and we report below on reliability concerns for underlying data supporting those measures. In addition, while the Pipeline Security Branch may not rely on the measures included in the 2018 NSTS Pipeline Security Plan and the fiscal year 2019 congressional budget justification, they are important for reporting the status of pipeline security efforts to TSA as a whole and to external stakeholders such as Congress. Taking steps to ensure that the pipeline security program performance measures exhibit key attributes of successful performance measures could allow TSA to better assess the program’s effectiveness at reducing pipeline physical and cybersecurity risks. This could include steps such as modifying its suite of measures so they are clear, have measurable targets, and add baseline and trend data. Further examples include the following: Adding measurable targets consisting of numerical goals could allow TSA to better determine if the pipeline security program is meeting expectations. For example, measurable targets could be added to TSA’s existing measures by developing annual goals for the percentage of recommendations implemented to the CFSR status database and then reporting annual results. To make measures clearer, TSA could verify that each measure has a clearly stated name, definition, and methodology for how the measure is calculated. For example, the NSTS objective for security training mentioned above could have more specific language explaining how the measure is calculated and whether it applies to pipeline operators’ implementation of the training-related portions of the TSA Pipeline Security Guidelines or overall implementation. Finally, adding baseline and trend data could allow TSA to identify, monitor, and report changes in performance and help ensure that performance is viewed in context. For example, the NSTS measures, CFSR status database measures, and CSR goals and priorities database measures could have annual results from prior years. This could help TSA and external stakeholders evaluate the effectiveness of the pipeline security program and whether it is making progress toward its goals. According to TSA officials, the primary means for assessing the effectiveness of the agency’s efforts to reduce pipeline security risks is through conducting pipeline security reviews— Corporate Security Reviews (CSRs) and Critical Facility Security Reviews (CFSRs). However, TSA has not tracked the status of CSR recommendations for over 5 years and related security review data are not sufficiently reliable. When conducting CSRs and CFSRs, TSA staff makes recommendations to operators, if appropriate. For example, a CSR recommendation might include a suggestion to conduct annual security-related drills and exercises, and a CFSR recommendation might include a suggestion to install barbed wire on the main gate of a pipeline facility. In response to recommendations that we made in our 2010 report, TSA developed three databases to track CSR and CFSR recommendations and their implementation status by pipeline facility, system, operator, and product type. In addition, the agency recently developed a fourth database to collect and analyze information gathered from pipeline operators’ responses to CSR questions. TSA officials reported that they use this database to assess the extent that TSA’s pipeline security program has met NSTS goals and Pipeline Security Branch priorities. TSA officials stated that they use the CSR goals and priorities database for follow-up on recommendations, indications of improvement in pipeline security, and as an input into TSA performance goals and measures, including the performance measures for the 2018 NSTS Pipeline Security Plan. We found several problems with the databases that indicate that the pipeline security program data are not sufficiently reliable and do not provide quality information that is current, complete, and accurate. First, the CSR recommendations database only included information for reviews conducted from November 2010 through February 2013. TSA officials stated that the agency stopped capturing CSR recommendations and status information in 2014. A TSA official stated that one factor was that the pipeline staffing level was one FTE in fiscal year 2014. However, the Pipeline Security Branch did not resume entering CSR recommendation-related information when staffing levels rose to 6 FTEs in the following year and beyond. As a result, TSA is missing over 5 years of data for the recommendations it made to pipeline operators when conducting CSRs. The agency collected some information from CSRs conducted in fiscal years 2016 and 2017 in the separate CSR goals and priorities database. However, this database does not include all of the information that TSA collects when conducting CSRs. Specifically, the CSR goals and priorities database does not state which companies were reviewed, what specific recommendations were made, or the current status of those recommendations, and only records operators’ responses to 79 of the 222 CSR questions. Second, our review identified instances of missing data, inconsistent data entry formats, and data entry errors in the four databases. For example: The CSR recommendations database had missing data in all 13 of the included fields and a data entry error shifted 50 observations into the wrong fields, impacting both the Status Date and Completion Code fields. The CSR goals and priorities database had seven entries with inconsistent data formatting and five of those entries were not taken into account when calculating summary figures. The CFSR recommendations database had missing data in 3 of 9 fields. There was also inconsistent data entry formats in 3 fields. The CFSR status database had missing data in 7 of 29 fields and inconsistent data entry formats in 4 fields. Finally, TSA has not documented its data entry and verification procedures, such as in a data dictionary or user manual, and does not have electronic safeguards for out-of-range or inconsistent entries for any of the databases it uses to track the status of CSR or CFSR recommendations and analyze operator responses to the CSR. TSA Pipeline Security Branch officials told us that they had not documented data entry and verification procedures and did not have electronic safeguards. This was for two reasons. First, the officials stated that the databases are small and maintained in a commercial spreadsheet program that does not allow for electronic safeguards. However, based on our review of the databases, the spreadsheet program does allow for a variety of electronic safeguards. For example, entries can be restricted to only allow selections from a drop-down list or only allow dates to be entered. Second, only a small number of TSA employees enter information into these databases. TSA officials explained that typically one TSA employee is responsible for entering information from pipeline security reviews, and another individual, usually whoever conducted the review, is tasked to verify the accuracy of the data entered. As a result, according to the officials, any errors would be self-evident and caught during these TSA employees’ reviews. Our work has emphasized the importance of quality information for management to make informed decisions and evaluate agencies’ performance in achieving key objectives and addressing risks. The Standards for Internal Control in the Federal Government states that management should use quality information to achieve agency objectives, where “quality” means, among other characteristics, current, complete, and accurate. In addition, DHS’s Information Quality Guidelines state that all DHS component agencies should treat information quality as integral to every step of the development of information, including creation, collection, maintenance, and dissemination. The guidelines also state that agencies should substantiate the quality of the information disseminated through documentation or other appropriate means. Without current, complete, and accurate information, it is difficult for TSA to evaluate the performance of the pipeline security program. Until TSA monitors and records the status of these reviews’ recommendations, it will be hindered in its efforts to determine whether its recommendations are leading to significant reduction in risk. By entering information on CSR recommendations and monitoring and recording their status, developing written documentation of its data entry and verification procedures and electronic safeguards, and improving the quality of its pipeline security program data, TSA could better ensure it has the information necessary to effectively monitor pipeline operators’ progress in improving their security posture, and evaluate its pipeline security program’s effectiveness in reducing security risks to pipelines. A successful pipeline attack could have dire consequences on public health and safety, as well as the U.S. economy. Recent coordinated campaigns by environmental activists to disrupt pipeline operations, and the successful attempts by nation-state actors to infiltrate and obtain sensitive information from pipeline operators’ business and operating systems, demonstrate the dynamic and continuous threat to the security of our nation’s pipeline network. To help ensure the safety of our pipelines throughout the nation, it is important for TSA to address weaknesses in the management of its pipeline security program. TSA’s Pipeline Security Branch revised its security guidelines in March 2018 to, among other things, reflect the dynamic threat environment and incorporate NIST’s Cybersecurity Framework cybersecurity principles and practices. However, without a documented process defining how frequently TSA is to review and, if deemed necessary, revise its guidelines, TSA cannot ensure that its guidelines reflect the latest known standards and best practices for physical and cybersecurity, or address the persistent and dynamic security threat environment currently facing the nation’s pipeline system. Further, without clearly defined criteria for determining pipeline facilities’ criticality, TSA cannot ensure that pipeline operators are applying guidance uniformly and that all of the critical facilities across the pipeline sector have been identified; or that their vulnerabilities have been identified and addressed. TSA could improve its ability to conduct pipeline security reviews and the means that it uses to prioritize which pipeline systems to review based on their relative risk ranking. Establishing a strategic workforce plan could help TSA ensure that it has identified the necessary skills, competencies, and staffing allocations that the Pipeline Security Branch needs to carry out its responsibilities, including conducting security reviews of critical pipeline companies and facilities, as well as their cybersecurity posture. Better considering threat, vulnerability, and consequence elements in its risk assessment and incorporating an independent, external peer review in its process would provide more assurance that the Pipeline Security Branch ranks relative risk among pipeline systems using comprehensive and accurate data and methods. We are making 10 recommendations to TSA: The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to implement a documented process for reviewing, and if deemed necessary, for revising TSA’s Pipeline Security Guidelines at regular defined intervals. (Recommendation 1) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to clarify TSA’s Pipeline Security Guidelines by defining key terms within its criteria for determining critical facilities. (Recommendation 2) The TSA Administrator should develop a strategic workforce plan for its Security Policy and Industry Engagement’s Surface Division, which could include determining the number of personnel necessary to meet the goals set for its Pipeline Security Branch, as well as the knowledge, skills, and abilities, including cybersecurity, that are needed to effectively conduct CSRs and CFSRs. (Recommendation 3) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to update the Pipeline Relative Risk Ranking Tool to include up-to-date data to ensure it reflects industry conditions, including throughput and threat data. (Recommendation 4) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to fully document the data sources, underlying assumptions and judgments that form the basis of the Pipeline Relative Risk Ranking Tool, including sources of uncertainty and any implications for interpreting the results from the assessment. (Recommendation 5) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to identify or develop other data sources relevant to threat, vulnerability, and consequence consistent with the NIPP and DHS critical infrastructure risk mitigation priorities and incorporate that data into the Pipeline Relative Risk Ranking Tool to assess relative risk of critical pipeline systems, which could include data on prior attacks, natural hazards, feedback data on pipeline system performance, physical pipeline condition, and cross-sector interdependencies. (Recommendation 6) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to take steps to coordinate an independent, external peer review of its Pipeline Relative Risk Ranking Tool, after the Pipeline Security Branch completes enhancements to its risk assessment approach. (Recommendation 7) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to ensure that it has a suite of performance measures which exhibit key attributes of successful performance measures, including measurable targets, clarity, and baseline and trend data. (Recommendation 8) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to take steps to enter information on CSR recommendations and monitor and record their status. (Recommendation 9) The TSA Administrator should direct the Security Policy and Industry Engagement’s Surface Division to improve the quality of its pipeline security program data by developing written documentation of its data entry and verification procedures, implementing standardized data entry formats, and correcting existing data entry errors. (Recommendation 10) We provided a draft of this report to DHS, DOE, DOT, and FERC. DHS provided written comments which are reproduced in appendix III. In its comments, DHS concurred with our recommendations and described actions planned to address them. DHS, DOE, DOT, FERC, also provided technical comments, which we incorporated as appropriate. We also provided draft excerpts of this product to the American Petroleum Institute (API), the Association of Oil Pipe Lines, the American Gas Association (AGA), the Interstate Natural Gas Association of America (INGAA), the American Public Gas Association, and the selected pipeline operators that we interviewed. For those who provided technical comments, we incorporated them as appropriate. With regard to our first recommendation, that TSA implement a documented process for reviewing, and if deemed necessary, for revising its Pipeline Security Guidelines at regular defined intervals, DHS stated that TSA will implement a documented process for reviewing and revising its Pipeline Security Guidelines at regular defined intervals, as appropriate. DHS estimated that this effort would be completed by March 31, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our second recommendation, that TSA clarify its Pipeline Security Guidelines by defining key terms within its criteria for determining critical facilities, DHS stated that TSA will clarify its Pipeline Security Guidelines by defining key terms within its criteria for determining critical facilities. DHS estimated that this effort would be completed by May 31, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our third recommendation, that TSA develop a strategic workforce plan for its Security Policy and Industry Engagement's Surface Division, DHS stated that TSA will develop a strategic workforce plan for the division, which includes determining the number of personnel necessary to meet the goals set for the Pipeline Security Branch, as well as the knowledge, skills, and abilities, including cybersecurity, that are needed to effectively conduct CSRs and CFSRs. DHS estimated that this effort would be completed by June 30, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our fourth recommendation, that TSA update the Pipeline Relative Risk Ranking Tool to include up-to-date data in order to ensure it reflects industry conditions, including throughput and threat data, DHS stated that TSA will update the Pipeline Relative Risk Ranking Tool to include up-to-date data in order to ensure it reflects industry conditions, including throughput and threat data. DHS estimated that this effort would be completed by February 28, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our fifth recommendation, that TSA fully document the data sources, underlying assumptions, and judgements that form the basis of the Pipeline Relative Risk Ranking Tool, including sources of uncertainty and any implications for interpreting the results from the assessment, DHS stated that TSA will fully document the data sources, underlying assumptions, and judgements that form the basis of the Pipeline Relative Risk Ranking Tool. According to DHS, this will include sources of uncertainty and any implications for interpreting the results from the assessment. DHS estimated that this effort would be completed by February 28, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our sixth recommendation, that TSA identify or develop other data sources relevant to threat, vulnerability, and consequence consistent with the NIPP and DHS critical infrastructure risk mitigation priorities and incorporate that data into the Pipeline Relative Risk Ranking Tool to assess relative risk of critical pipeline systems, DHS stated that TSA will identify and/or develop other sources relevant to threat, vulnerability, and consequence consistent with the NIPP and DHS critical infrastructure risk mitigation priorities. DHS also stated that TSA will incorporate that data into the Pipeline Risk Ranking Tool to assess relative risk of critical pipeline systems, which could include data on prior attacks, natural hazards, feedback data on pipeline system performance, physical pipeline condition, and cross-sector interdependencies. DHS estimated that this effort would be completed by June 30, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our seventh recommendation, that TSA take steps to coordinate an independent, external peer review of its Pipeline Relative Risk Ranking Tool, after the Pipeline Security Branch completes enhancements to its risk assessment approach, DHS stated that, after completing enhancements to its risk assessment approach, TSA will take steps to coordinate an independent, external peer review of its Pipeline Relative Risk Ranking Tool. DHS estimated that this effort would be completed by November 30, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our eighth recommendation, that TSA ensure that the Security Policy and Industry Engagement's Surface Division has a suite of performance measures which exhibit key attributes of successful performance measures, including measurable targets, clarity, baseline, and trend data, DHS stated that TSA’s Surface Division’s Pipeline Section will develop both physical and cyber security performance measures, in consultation with pipeline stakeholders, to ensure that it has a suite of performance measures which exhibit key attributes of successful performance measures, including measurable targets, clarity, baseline, and trend data. DHS estimated that this effort would be completed by November 30, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our ninth recommendation, that TSA take steps to enter information on CSR recommendations and monitor and record their status, DHS stated that TSA will enter information on CSR recommendations and monitor and record their status. DHS estimated that this effort would be completed by October 31, 2019. This action, if fully implemented, should address the intent of the recommendation. With regard to our tenth recommendation, that TSA take steps to improve the quality of its pipeline security program data by developing written documentation of its data entry and verification procedures, implementing standardized data entry formats, and correcting existing data entry errors, DHS stated that TSA will develop written documentation of its data entry and verification procedures, implementing standardized data entry formats, and correcting existing data entry errors. DHS estimated that this effort would be completed by July 31, 2019. This action, if fully implemented, should address the intent of the recommendation. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until one day from the report date. At that time, we will send copies to the appropriate congressional committees; the Secretaries of Energy, Homeland Security, and Transportation; the Executive Director of the Federal Energy Regulatory Committee; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Chris Currie at (404) 679-1875 or curriec@gao.gov, and Nick Marinos at (202) 512-9342 or marinosn@gao.gov. Key contributors to this report are listed in appendix IV. This appendix lists security guidance and guidance-related tools that the pipeline operators and industry association officials we interviewed identified as adopted or available in order to secure their physical and cyber operations. This list should not be considered to include all physical and cybersecurity guidance that may be available or used by all pipeline operators nor do all operators use all guidance listed. The Transportation Security Administration’s (TSA) Pipeline Security Branch developed the Pipeline Relative Risk Ranking Tool (risk assessment) in 2007. The risk assessment calculates threat, vulnerability, and consequence on variables such as the amount of throughput in the pipeline system (consequence input). Pipeline Security Branch officials told us that they use the pipeline risk assessment to rank relative risk of the top 100 critical pipeline systems, and the standard operating procedures for conducting Corporate Security Reviews (CSR) state the results of the risk ranking are the primary factor considered when prioritizing CSRs of pipeline companies. However, we identified several factors that likely limit the usefulness of the current assessment in calculating threat, vulnerability, and consequence to allow the Pipeline Security Branch to effectively prioritize reviews of pipeline systems. For example, because the risk assessment has not changed since 2014, information on threat may be outdated. Additionally, sources of data and underlying assumption and judgments regarding certain threat and vulnerability inputs to the assessment are not fully documented. For example, threats to cybersecurity are not specifically accounted for in the description of the risk assessment methodology, making it unclear if cybersecurity is part of the assessment’s threat factor. Further, the risk assessment does not include information that is consistent with the National Infrastructure Protection Plan (NIPP) and other Department of Homeland Security (DHS) priorities for critical infrastructure risk mitigation, such as information on natural hazards and the ability to measure risk reduction (feedback data). According to Pipeline Security Branch officials, the risk ranking assessment is not intended to be a fully developed risk model detailing all pipeline factors influencing risk. Rather, officials said they are primarily interested in assessing risk data that impacts security. However, because TSA’s Pipeline Security Program is designed to enhance the security preparedness of the pipeline systems, incorporating additional factors that enhance security into their risk calculation of the most critical pipeline systems would better align their efforts with Presidential Policy Directive 21 (PPD-21). For example, PPD-21 calls for agencies to integrate and analyze information to prioritize assets and manage risks to critical infrastructure, as well as anticipate interdependencies and cascading impacts. Below we present the various shortfalls in the risk assessment—outdated data, limited description of sources and methodology, and opportunities to better align with the NIPP and other DHS priorities for critical infrastructure risk mitigation—in the context of the components that comprise a risk assessment: threat, vulnerability, and consequence. Whereas in 2010 we made recommendations to improve the consequence component in the pipeline relative risk ranking tool, we have currently identified shortfalls that cut across all risk components: threat, vulnerability, and consequence. We identified several shortfalls in the pipeline risk assessment’s calculation of threat. First, while the risk assessment assesses consequence and vulnerability by pipeline system through use of multiple variables, it currently ranks threat for pipeline systems equally. Second, the evolving nature of threats to pipelines may not be reflected, since the risk assessment was last updated in 2014. Third, the threat calculation does not take into account natural hazards. Pipeline Security Branch officials said they currently rank threat equally across pipeline systems because they do not have granular enough threat information to distinguish threat by pipeline. However, ranking threat equally effectively has no effect on the risk calculation for pipeline systems. Further, this judgment is not documented in the risk assessment’s methodology. According to the NIPP, a risk assessment’s methodology must clearly document what information is used and how it is synthesized to generate a risk estimate, including any assumptions and judgments. Additionally, our analysis of the pipeline risk assessment found that it includes at least one field that TSA could use to differentiate threat by pipeline. Specifically, the risk assessment includes a field that accounts for whether a pipeline experienced a previous security threat (including failed attacks), and information provided by Pipeline Security Branch suggests some pipeline systems have experienced such threats. However, the Pipeline Security Branch did not capture these events in the risk assessment’s calculation, which Pipeline Security Branch officials said should be part of the threat calculation, but could not account for why they were not calculated for the systems in the risk assessment. These officials also clarified that incidents such as suspicious photography or vandalism do not constitute an attack to be accounted for in the threat calculation. Documenting such assumptions, judgments, or decisions to exclude information could provide increased transparency to those expected to interpret or use the results. Pipeline Security Branch officials also said that they ranked threat equally because TSA Intelligence and Analysis data show that threats to the oil and natural gas sector have been historically low, and Intelligence and Analysis does not conduct specific threat analysis against individual pipeline systems. However, the Pipeline Security Branch has not updated the risk assessment since June 2014; therefore, the threat information it used to determine threat calculations—and decide to rank threat equally—may be outdated and not reflect the threats to the industry that have emerged in recent years. In fact, pipeline operators we interviewed indicated that the types of threats that concern pipeline operators have evolved. For example, 5 of the 10 operators we interviewed indicated that environmental activists were an increased threat to the pipeline industry because they use sabotage techniques, such as valve turning and cutting in service pipelines with blow torches, against pipelines. Additionally, 6 of 10 pipeline operators we interviewed said cyber attacks from nation-state actors were a primary threat to their industry. Further, when TSA issued its revised Pipeline Security Guidelines in March 2018, it stated that its revisions to the guidelines were made to reflect the ever-changing threat environment in both the physical and cybersecurity realms. However, threats to cybersecurity are not specifically accounted for in the description of the risk assessment methodology. Recent Pipeline Modal and Cyber Modal Threat Assessments include cyber threats to the pipeline industry, but the description of the pipeline risk assessment’s methodology does not specify what types of threat assessments (sources) are used to calculate its threat score. To better align with the guidance in the NIPP for documenting sources of information when conducting risk assessments, the Pipeline Security Branch should document the information used. Keeping the risk assessment updated with current information, as well as documenting those data sources, could help the Pipeline Security Branch ensure it is using its limited resources to review the pipeline systems with greater risk. Natural Hazard Threats to Pipelines The Transportation Systems Sector, of which pipelines are a part, is critical to the Pacific Northwest, but also at risk from natural hazards, like earthquakes. For example, according to the Department of Homeland Security, an earthquake in the Puget Sound region—which relies on the transportation of crude oil from Alaska—could cripple the ports of Seattle and Tacoma, as well as the Olympic and Williams Pipelines greatly impacting the Pacific Northwest Economic Region. Hurricanes are the most frequent disruptive natural hazard for the oil and natural gas subsector and can cause the shutdown of facilities in an area, even when the facilities themselves are not directly affected by the storms. For example, according to the U.S. Energy Information Administration, the flow of petroleum into the New York area via pipeline from the Gulf Coast relies on the ability to move it through major terminals. In August 2017, Hurricane Harvey caused major disruptions to crude oil and petroleum product supply chains, including those to New York Harbor from Houston, Texas via the Colonial Pipeline. Due to the hurricane, decreased supplies of petroleum products available for the pipeline in Houston forced Colonial Pipeline to limit operations temporarily. Finally, another shortfall in the current pipeline risk assessment methodology is that it does not account for natural hazards in its threat calculation, even though DHS’s definition of threat includes natural hazards, and security and resilience of critical infrastructure are often presented in the context of natural hazards. According to the NIPP, threat is a natural or manmade occurrence, individual, entity, or action that has or indicates the potential to harm life, information, operations, the environment, and/or property. As such, along with terrorism, criminal activity and cybersecurity, natural disasters are a key element of DHS’s critical infrastructure security and resilience mission. According to Pipeline Security Branch officials, there is not sufficient historical data available that would indicate a significant impact from natural disasters on specific pipeline systems. However, we identified possible sources of data for the Pipeline Security Branch to consider. For example, a 2016 RAND Corporation study examined national infrastructure systems’ exposure to natural hazards, including pipelines. Additionally, the Federal Emergency Management Agency (FEMA) has collaborated with stakeholders to develop the National Risk Index to, among other things, establish a baseline of natural hazards risk for the United States While there may not be historical data of natural hazard impact for every pipeline system, consulting other sources or experts could provide regional data or analysis to build a more comprehensive threat picture to help distinguish threats by pipeline system. According to the NIPP, hazard assessments should rely not only on historical information, but also future predictions about natural hazards to assess the likelihood or frequency of various hazards. We also identified multiple shortfalls in the vulnerability factors used in the risk assessment methodology, such as the potential uncertainty of the number of critical facilities and incorporating a feedback mechanism to calculate overall risk reduction. Other considerations for vulnerability calculations include physical condition of the pipeline system, cybersecurity activities, and interdependencies among sectors. The number of critical facilities a pipeline system has identified is used as an input for its vulnerability calculation in the Pipeline Security Branch’s risk assessment methodology. As discussed earlier, we identified deficiencies in TSA’s criteria for identifying critical facilities, and found that well-defined criteria and consistent application of the criteria for identifying critical facilities could improve the results of the Pipeline Security Branch’s risk assessment. Nevertheless, communicating in the risk assessment the uncertainty that may be inherent in this self-reported information would better align the risk assessment with the NIPP. Measuring Effectiveness in a Voluntary Environment According to the National Infrastructure Protection Plan, the use of performance metrics is an important step in the critical infrastructure risk management process to enable assessment of improvements in critical infrastructure security and resilience. The metrics provide a basis for the critical infrastructure community to establish accountability, document actual performance, promote effective management, and provide a feedback mechanism to inform decision making. By using metrics to evaluate the effectiveness of voluntary partnership efforts to achieve national and sector priorities, critical infrastructure partners can adjust and adapt their security and resilience approaches to account for progress achieved, as well as changes in the threat and other relevant environments. Metrics are used to focus attention on areas of security and resilience that warrant additional resources or other changes through an analysis of challenges and priorities at the national, sector, and owner/operator levels. Metrics also serve as a feedback mechanism for other aspects of the critical infrastructure risk management approach. Another shortfall in the risk assessment is its inability to reliably measure the progress a pipeline system made in addressing vulnerability gaps between security reviews. The current risk assessment includes a CSR score as part of its vulnerability calculation, which was developed in part in response to our 2010 recommendation to use more reliable data to measure a pipeline system’s vulnerability gap. However, during our review, Pipeline Security Branch officials said they plan to remove pipeline companies’ CSR scores from the risk assessment calculations, because they and industry partners do not have confidence that the score appropriately measures a pipeline system’s vulnerability. For example, Pipeline Security Branch officials explained that pipeline companies consider security factors differently, which can lead to variation in implementing risk reduction activities and by extension lead to different CSR scores. However, removing the CSR score eliminates the only feedback mechanism in the risk assessment from a pipeline company’s actual security review conducted by the Pipeline Security Branch. The NIPP and DHS’s Risk Management fundamentals emphasize the important role that such feedback mechanisms play in risk management. Officials from the Pipeline Security Branch agree on the importance of a feedback mechanism tying results of reviews to a revised vulnerability metric, but said they need a better measure than the current CSR score which is unreliable for comparative and analytic purposes. Developing a feedback mechanism based on implementation of TSA’s Pipeline Security Guidelines could be an important input to the risk assessment’s vulnerability calculation. This information would also inform the amount of risk pipeline companies are reducing by implementing the guidelines and could be used to inform overall risk reduction. The physical and cyber environments in which the pipeline sector operates also present vulnerabilities not accounted for in the pipeline risk assessment. In recent years, DHS has listed the potential for catastrophic losses to dramatically increase the overall risk associated with failing infrastructure and highlighted risks due to climate change and natural hazards to pipelines. For example, DHS reported extreme temperatures—such as higher and lower temperatures over prolonged periods of time—increase vulnerability to the critical infrastructure by causing elements to break and cease to function. Pipelines that freeze and then rupture can affect the energy and transportation systems sectors. As noted above, according to the NIPP, a natural or man-made occurrence or action with the potential to harm life is considered a threat, whereas vulnerability is defined as a physical feature or operational attribute that renders an entity open to exploitation or susceptible to a given threat or hazard. While pipeline physical condition is typically thought of in context of safety, pipeline condition or location (such as above or below ground) could touch upon pipeline security as it relates to system vulnerability. For example, a pipeline system or segment of a system with a compromised physical condition due to corrosion or age could affect the system’s vulnerability to threats and affect its ability to recover from such threats by potentially increasing the time a system is offline. According to the Transportation Systems Sector-Specific Plan, vulnerabilities to damage in aging transportation infrastructure—of which pipelines are a part—are projected to increase with the continued effects of climate change. Further, according to TSA’s Pipeline Security and Incident Recovery Protocol Plan, pipeline integrity efforts—including the design, construction, operation, and maintenance of pipelines—are important to pipeline security because well-maintained, safe pipelines are more likely to tolerate a physical attack. The Pipeline Security Branch already collects information from the Pipeline and Hazardous Materials Safety Administration (PHMSA) for its risk assessment, specifically information on High Consequence Area and High Threat Urban Area mileage. By considering additional information PHMSA collects on pipeline integrity, the Pipeline Security Branch could also use the information to help pipeline operators identify security measures to help reduce the consequences related to the comparatively higher vulnerability of an aging or compromised system. This would align with the Pipeline Security Branch’s efforts to improve security preparedness of pipeline systems and could better inform its vulnerability calculations for relative risk ranking of pipeline systems. Capturing cybersecurity in the risk assessment is also an area for improvement. Pipeline Security Branch officials told us they consulted with the National Cybersecurity and Communications Integration Center to revise TSA’s Pipeline Security Guidelines to align with the National Institute of Standards and Technology (NIST) Cybersecurity Framework and that absent data specific to pipelines on their cybersecurity vulnerabilities, they are unable to include a pipelines’ vulnerability to cyber attack in the risk assessment. However, the Pipeline Security Branch recently updated the security review questions asked of pipeline operators during corporate and critical facility reviews based on the recently updated Pipeline Security Guidelines. Using these updated questions related to companies’ cybersecurity posture, the Pipeline Security Branch could collect additional information on cybersecurity vulnerabilities which could inform the risk assessment. This could be an element of the feedback mechanism described above and emphasized in the NIPP. Additionally, NIST identified several supply chain vulnerabilities associated with cybersecurity, which are not currently accounted for in TSA’s Pipeline Security Guidelines. As pipeline operators implement increasing levels of network technologies to control their systems, the Pipeline Security Branch may not be fully accounting for pipeline systems’ cybersecurity posture by not including the cybersecurity-related vulnerabilities in its risk assessment inputs. Finally, we identified shortfalls in cross-sector interdependencies, which could affect vulnerability calculations. According to the NIPP, understanding and addressing risks from cross-sector dependencies and interdependencies is essential to enhancing critical infrastructure security and resilience. The Pipeline Security Branch’s pipeline risk assessment currently considers the effects of a pipeline system’s ability to service assets such as major airports, the electric grid, and military bases. However, consequence is calculated on the loss or disruption of the pipeline system to these other assets and does not capture the dependency of the pipeline system on other energy sources, such as electricity. Weather events such as Gulf of Mexico hurricanes and Superstorm Sandy highlighted the interdependencies between the pipeline and electrical sectors. Specifically, according to a 2015 DHS annual report on critical infrastructure, power failures during Superstorm Sandy in 2012 closed major pipelines for 4 days, reducing regional oil supplies by 35 to 40 percent. The report goes on to say that the interconnected nature of infrastructure systems can lead to cascading impacts and are increasing in frequency. Pipeline Security Branch officials are considering cross-sector interdependencies and said they discuss these factors with operators as they relate to system resiliency. Considering interdependencies of sectors in both directions—such as calculating the likelihood that an input like electricity could fail and cause disruptions to critical pipelines—could improve the calculations in the pipeline risk assessment. As previously discussed, the Pipeline Security Branch last calculated relative risk among the top 100 pipeline systems in 2014. When doing so, it used pipeline systems’ throughput data from 2010 to assess relative risk. According to Pipeline Security Branch officials, the amount of throughput in pipeline systems does not change substantially year to year. However, Standards for Internal Control in the Federal Government calls for management to use quality information to achieve the entity’s objectives, including using relevant data from reliable sources obtained in a timely manner. The Pipeline Security Branch uses throughput data as a consequence factor in the risk assessment to determine a pipeline system’s relative risk score. Throughput changes could affect relative risk ranking and the Pipeline Security Branch’s ability to accurately prioritize reviews based on relative risk. Chris P. Currie at (404) 679-1875 or curriec@gao.gov Nick Marinos at (202) 512-9342 or marinosn@gao.gov. In addition to the contacts named above, Ben Atwater, Assistant Director; Michael W. Gilmore, Assistant Director; and Michael C. Lenington, Analyst-in-Charge, managed this assignment. Chuck Bausell, David Blanding, Dominick Dale, Eric Hauswirth, Kenneth A. Johnson, Steve Komadina, Susanna Kuebler, Thomas Lombardi, David Plocher, and Janay Sam made significant contributions to this report.	[ "More than 2.7 million miles of pipeline transport and distribute oil, natural gas, and other hazardous products throughout the United States. Interstate pipelines run through remote areas and highly populated urban areas, and are vulnerable to accidents, operating errors, and malicious physical and cyber-based attack or intrusion. The energy sector accounted for 35 percent of the 796 critical infrastructure cyber incidents reported to DHS from 2013 to 2015. Several federal and private entities have roles in pipeline security. TSA is primarily responsible for the oversight of pipeline physical security and cybersecurity. GAO was asked to review TSA's efforts to assess and enhance pipeline security and cybersecurity. This report examines, among other objectives: (1) the guidance pipeline operators reported using to address security risks and the extent that TSA ensures its guidelines reflect the current threat environment; (2) the extent that TSA has assessed pipeline systems' security risks; and (3) the extent TSA has assessed its effectiveness in reducing pipeline security risks. GAO analyzed TSA documents, such as its Pipeline Security Guidelines ; evaluated TSA pipeline risk assessment efforts; and interviewed TSA officials, 10 U.S. pipeline operators—selected based on volume, geography, and material transported—and representatives from five industry associations. Pipeline operators reported using a range of guidelines and standards to address physical and cybersecurity risks, including the Department of Homeland Security's (DHS) Transportation Security Administration's (TSA) Pipeline Security Guidelines , initially issued in 2011. TSA issued revised guidelines in March 2018 to reflect changes in the threat environment and incorporate most of the principles and practices from the National Institute of Standards and Technology's Framework for Improving Critical Infrastructure Cybersecurity . However, TSA's revisions do not include all elements of the current framework and TSA does not have a documented process for reviewing and revising its guidelines on a regular basis. Without such a documented process, TSA cannot ensure that its guidelines reflect the latest known standards and best practices for physical security and cybersecurity, or address the dynamic security threat environment that pipelines face. Further, GAO found that the guidelines lack clear definitions to ensure that pipeline operators identify their critical facilities. GAO's analysis showed that operators of at least 34 of the nation's top 100 critical pipeline systems (determined by volume of product transported) deemed highest risk had identified no critical facilities. This may be due, in part, to the guidelines not clearly defining the criteria to determine facilities' criticality. To assess pipeline security risks, TSA conducts pipeline security reviews—Corporate Security Reviews and Critical Facility Security Reviews—to assess pipeline systems' vulnerabilities. However, GAO found that the number of TSA security reviews has varied considerably over the last several years, as shown in the table on the following page. TSA officials stated that staffing limitations have prevented TSA from conducting more reviews. Staffing levels for TSA's Pipeline Security Branch have varied significantly since fiscal year 2010 with the number of staff ranging from 14 full-time equivalents in fiscal years 2012 and 2013 to 1 in 2014. Further, TSA does not have a strategic workforce plan to help ensure it identifies the skills and competencies—such as the required level of cybersecurity expertise—necessary to carry out its pipeline security responsibilities. By establishing a strategic workforce plan, TSA can help ensure that it has identified the necessary skills, competencies, and staffing. GAO also identified factors that likely limit the usefulness of TSA's risk assessment methodology for prioritizing pipeline system reviews. Specifically, TSA has not updated its risk assessment methodology since 2014 to reflect current threats to the pipeline industry. Further, its sources of data and underlying assumptions and judgments regarding certain threat and vulnerability inputs are not fully documented. In addition, the risk assessment has not been peer reviewed since its inception in 2007. Taking steps to strengthen its risk assessment, and initiating an independent, external peer review would provide greater assurance that TSA ranks relative risk among pipeline systems using comprehensive and accurate data and methods. TSA has established performance measures to monitor pipeline security review recommendations, analyze their results, and assess effectiveness in reducing risks. However, these measures do not possess key attributes—such as clarity, and having measurable targets—that GAO has found are key to successful performance measures. By taking steps to ensure that its pipeline security program performance measures exhibit these key attributes, TSA could better assess its effectiveness at reducing pipeline systems' security risks. Pipeline Security Branch officials also reported conducting security reviews as the primary means for assessing the effectiveness of TSA's efforts to reduce pipeline security risks. However, TSA has not tracked the status of Corporate Security Review recommendations for the past 5 years. Until TSA monitors and records the status of these reviews' recommendations, it will be hindered in its efforts to determine whether its recommendations are leading to significant reduction in risk. GAO makes 10 recommendations to TSA to improve its pipeline security program management (many are listed on the next page), and DHS concurred. GAO recommends, among other things, that the TSA Administrator take the following actions: implement a documented process for reviewing, and if deemed necessary, for revising TSA's Pipeline Security Guidelines at defined intervals; clarify TSA's Pipeline Security Guidelines by defining key terms within its criteria for determining critical facilities; develop a strategic workforce plan for TSA's Security Policy and Industry Engagement‘s Surface Division; update TSA's pipeline risk assessment methodology to include current data to ensure it reflects industry conditions and threats; fully document the data sources, underlying assumptions and judgments that form the basis of TSA's pipeline risk assessment methodology; take steps to coordinate an independent, external peer review of TSA's pipeline risk assessment methodology; ensure the Security Policy and Industry Engagement‘s Surface Division has a suite of performance measures which exhibit key attributes of successful performance measures; and enter information on Corporate Security Review recommendations and monitor and record their status." ]	15,361	gov_report	en	null	37467ea4bcf78ffd3bd34e630bc61477f73142fa0dce8cd5
Global defense posture is an enabler of U.S. defense activities and military operations overseas and is a central means of defining and communicating U.S. strategic interests to allies, partners, and adversaries. It is driven by a hierarchy of national-level and DOD-specific guidance, which includes the National Defense Strategy and the National Military Strategy. Under DOD Instruction 3000.12, global defense posture includes three elements: Forces: forward stationed or rotationally deployed forces, U.S. military capabilities, equipment, and units (assigned or allocated). Footprint: networks of U.S. foreign and overseas locations, infrastructure, facilities, land, and prepositioned equipment. Agreements: treaties and access, transit, support, and status- protection agreements and arrangements with allies and partners that set the terms regarding the U.S. military’s presence within the territory of the host country. EUCOM is one of six geographic combatant commands and is responsible for missions in all of Europe, large portions of Asia, parts of the Middle East, and the Arctic and Atlantic Oceans (see figure 1). EUCOM evaluates the adequacy of posture in Europe to support relevant plans and achieve military objectives. EUCOM shares responsibility with the Chairman of the Joint Chiefs of Staff and the Office of the Secretary of Defense for U.S. military relations with allies and partners in Europe and the North Atlantic Treaty Organization (NATO). The number of U.S. military sites located in EUCOM’s area of responsibility and the number of military personnel assigned to Europe have decreased substantially since the end of the Cold War, and two heavy combat brigades had been deactivated by the end of fiscal year 2014. As of May 2016, EUCOM supported one airborne infantry brigade and one Stryker brigade, as well as approximately 62,000 military personnel across approximately 250 sites. Since 2009, we have reported on issues related to DOD’s efforts to estimate and report on the total cost of its global defense posture. In 2009, we identified weaknesses in DOD’s approach for adjusting its global defense posture and recommended, among other things, that DOD issue guidance for estimating total costs for global defense posture and modify its annual report to Congress to include the total cost to complete each planned posture initiative. In February 2011, we reported that EUCOM lacked comprehensive cost data in a key posture planning document and that therefore decision makers lacked critical information that they needed to make fully informed posture decisions. We recommended that the Chairman of the Joint Chiefs of Staff revise the Joint Staff’s posture planning guidance to include direction on how the combatant commands should analyze costs and benefits when considering changes to posture and to require that posture plans include comprehensive cost estimates. DOD agreed with the recommendations in both reports and subsequently took steps to implement them. In June 2012, we reported that DOD did not fully understand the cost implications of two posture initiatives in Europe—including its decision to return two heavy brigades from Europe to the United States—and that key posture planning documents did not completely and consistently include cost data. We recommended that DOD fully estimate the cost implications of these two initiatives, clarify components’ roles and responsibilities for estimating costs, and develop a standard reporting format for cost data. DOD generally agreed with our recommendations and has taken steps to implement two of them. Following the President’s June 2014 announcement of ERI, EUCOM identified five lines of effort that it would pursue under ERI, as described in table 1. Three of ERI’s lines of effort are expected to enhance DOD’s posture in Europe. For example, DOD is using ERI to increase the forces present in Europe by rotating an armored brigade combat team and elements of a combat aviation brigade to Europe every nine months. DOD also plans to enhance its footprint in Europe by using ERI funding to make infrastructure improvements and establish locations for prepositioned equipment. Finally, in order to implement ERI’s lines of effort and support U.S. activities, DOD is partnering with the State Department to negotiate host nation agreements that, among other things, establish protections for U.S. military personnel and provide DOD the authority to improve host nation installations and infrastructure. DOD is also supporting additional exercises and training to improve interoperability with partner countries while providing them with the capability and capacity to defend themselves, but these efforts are not expected to affect DOD’s long-term posture in Europe. Since 2014, DOD has expanded ERI’s objectives, increased its funding, and planned enhancements to posture in Europe. In fiscal years 2015 and 2016, ERI’s objective was to provide short-term reassurance to allies, and the initiative had little funding for long-term enhancements to posture. DOD focused its efforts on bolstering the security and capacity of NATO allies and partners by funding training, conducting exercises, and temporarily rotating Army and Air Force units to Eastern Europe. In fiscal year 2017, DOD expanded ERI’s objectives to include deterring Russian aggression in the long term and developing the capacity to field a credible combined force should deterrence fail. Recognizing that ERI’s expanded objectives would require DOD to alter its posture in Europe, DOD has requested increased ERI funding. DOD will have requested approximately $4.5 billion in ERI funding for posture enhancements through the end of fiscal year 2017; about $3.2 billion of this was requested for use in fiscal years 2017. During the time of our review, EUCOM had identified a need for additional funding over the next several years for additional posture enhancements in Europe. Specific details about EUCOM’s future posture plans and funding requirements were omitted because they are classified. DOD has requested increased funding to support planned enhancements to all three posture elements—forces, footprint, and agreements—in Europe: Force deployments to Eastern Europe: In fiscal years 2015 and 2016, the Army deployed armored brigade combat teams to Eastern Europe to provide short-term reassurance to allies and partners, which DOD officials said included Estonia, Latvia, Lithuania, and Poland, among other countries. These short-duration deployments were intermittent and focused on demonstrating U.S. commitment to allies and partners. Additionally, the Air Force deployed air units on 4- month rotations to help protect allies’ and partners’ air space. In the fiscal year 2017 budget justification materials provided to Congress, as ERI’s objectives expanded, DOD requested funding to retain Air Force fighter units in Europe. It also began deploying a rotational armored brigade combat team so that one such brigade would be present in Europe at all times (see figure 2). The first deployment, in January 2017, included approximately 4,000 personnel, 90 Abrams tanks, 90 Bradley Infantry fighting vehicles, and 112 supporting vehicles. Additionally, DOD began procuring and prepositioning equipment for two planned armored brigades in Europe, one of which will include modernized tanks, as an additional deterrent. According to Army officials, these force enhancements in Europe give the Army the ability to quickly deploy a substantial ground force in the event of a conflict. As of April 2017, DOD was still evaluating force enhancements in Europe as part of its fiscal year 2018 budget submission. Specific details were omitted because they are classified. New locations and improvements to infrastructure: Since ERI was announced in 2014, DOD has established new enduring locations in Europe. An enduring location is designated by DOD and is a geographic site that DOD expects to access and use to support U.S. security interests for the foreseeable future. During our review, DOD had not yet determined whether additional enduring locations would be needed to support ERI. In addition to establishing new enduring locations, DOD plans to improve installations and infrastructure. From fiscal years 2015 through 2017, DOD requested funding in its budget justification submissions to Congress for major military construction projects in nine European countries and to improve support infrastructure—such as roads, railheads, and airbasing—at these locations. Major military construction projects are those projects specified in National Defense Authorization Acts. During the time of our review, DOD was considering addition improvements to existing infrastructure, specific details of which are classified. According to DOD and State Department officials, DOD is also working with U.S. allies and partners to determine what infrastructure improvements to roads, railroads, and bridges need to occur outside enduring locations to allow rapid response to a conflict. New host nation agreements: Since ERI was announced, DOD and the State Department have completed host nation agreements with six European nations in support of ERI efforts: Romania, Bulgaria, and Poland, implementing previous agreements, in order to facilitate U.S. construction on installations and areas in the host country (June and July 2015 and June 2016). Estonia, Latvia, and Lithuania, providing an overarching framework for protections for U.S. personnel and U.S. access to installations in host nations (January 2017). DOD is using a separate process instead of its established posture planning process to plan for ERI’s posture initiatives because of the emergent nature of ERI requirements and their having been funded through the OCO budget. DOD has established global defense posture management and base budget development processes that plan for posture initiatives and collectively support the department’s efforts to establish priorities, evaluate resource requirements, and develop strategy and policy. As a result of its not using its established processes, DOD is not prioritizing posture initiatives funded under ERI against posture initiatives funded through its base budget, estimating these initiatives’ long-term sustainment costs, or communicating their future costs to Congress. DOD is planning ERI posture initiatives outside of its established processes and is funding these enduring initiatives—including rotational deployments and infrastructure projects—out of its OCO budget. We have previously identified risks associated with DOD’s practice of completing construction projects outside of its established processes. For example, in September 2016 we reported that DOD had not issued implementing guidance to establish a formal process for reevaluating ongoing contingency construction projects when missions change and that as a result DOD risked completing unnecessary construction projects. We also found that DOD lacked visibility into the amount of funding it was spending on operations and maintenance-funded construction projects in U.S. Central Command and that this increased financial risk and duplication risk for the department. Like U.S. Central Command, EUCOM is using DOD’s OCO budget to fund construction projects and is planning those projects outside of its established processes. Based on our analysis, DOD plans to spend approximately $503 million from fiscal year 2015 through the end of fiscal year 2017 on ERI-related construction projects—about $279 million for major military construction projects and $224 million for minor military construction and facilities maintenance and repair projects (hereafter, minor construction and repair), as shown in table 2. DOD has established global defense posture management and base budget development processes that plan for posture initiatives and collectively support the department’s efforts to establish priorities, evaluate resource requirements, and develop strategy and policy. According to DOD Instruction 3000.12, DOD’s global defense posture processes apply to DOD forces, footprint, and agreements that support joint and combined global operations and plans in foreign countries. According to the instruction, DOD’s components use these processes to address planning for global defense posture, resource requirements, and policy development, among other things. Further, it states that these processes are overseen by an executive council that provides recommendations, inputs, and expertise on global defense posture to key national strategy products. DOD’s Planning, Programming, Budgeting, and Execution Process serves as the annual resource allocation process for DOD and is intended to enable DOD to align resources to prioritized capabilities; balance necessary warfighting capabilities with risk, affordability, and effectiveness; and provide mechanisms for making and implementing fiscally sound decisions in support of the national security strategy and the national defense strategy. DOD is using a separate and evolving process to plan ERI’s posture initiatives—rather than following its established processes—because ERI is being funded through DOD’s OCO budget. According to officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation, the department has recognized that the short-term planning process used to develop DOD’s OCO budget can create problems when it is used to plan for enduring initiatives. As a result, DOD has developed a separate process to plan for ERI. As part of the fiscal year 2018 planning process, EUCOM provided a prioritized list of potential requirements and an estimate of its annual costs by appropriation account to the Director for Cost Assessment and Program Evaluation. According to officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation, DOD completed its review and provided recommendations to DOD’s senior leaders for approval in October 2016 and final decisions were made within DOD in April 2017. The specific criteria by which DOD assessed EUCOM’s potential requirements are classified. DOD is requesting funds for ERI’s posture initiatives as part of its OCO budget, which is generally intended to be short-term funding for ongoing contingency operations. In February 2009, the Office of Management and Budget, in collaboration with DOD, issued criteria to assist in determining whether funding properly belonged in DOD’s base budget or in its OCO budget. These criteria were updated in September 2010 and currently indicate that funding requests should be for specific geographic areas where combat or direct combat support operations occur (such as Iraq and Afghanistan). Further, budget items must meet other criteria. For example, OCO funding requests may be for constructing facilities and infrastructure in the theater of operations in direct support of combat operations. In these cases, the level of construction should be the minimum needed to meet operational requirements, and construction completed at enduring locations must be tied to surge operations or major changes in operational requirements. In January 2017, we reported that DOD did not apply the OCO criteria to ERI prior to deciding to budget for its requirements using its OCO budget. We recommended that DOD, in consultation with the Office of Management and Budget, reevaluate and revise the criteria for determining what can be included in OCO budget requests. DOD concurred with our recommendation and noted that it plans to propose revised OCO criteria. As of May 2017, the department has not implemented our recommendation. DOD’s planning for ERI’s posture initiatives does not establish priorities for ERI initiatives relative to those in the base budget, estimate long-term sustainment costs for some posture initiatives funded under ERI, or communicate future ERI costs to Congress. When planning ERI’s posture initiatives, DOD establishes priorities among ERI’s initiatives but does not review posture initiatives funded under ERI relative to those funded in the military services’ base budgets. DOD’s posture management process is intended to establish priorities among global posture elements and is overseen by a Global Posture Executive Council. According to DOD Instruction 3000.12, the Executive Council is responsible for reviewing, prioritizing, and endorsing across the combatant commands key posture elements such as military construction projects and international agreements. The Executive Council’s endorsements inform the military services’ budget deliberations. For the fiscal year 2017 ERI budget, EUCOM requested funding for several posture initiatives, including the continuous, rotational deployment of an armored brigade combat team and the establishment of prepositioned equipment in Europe. Officials representing the Under Secretary of Defense for Policy and the Director, Cost Assessment and Program Evaluation said that as part of its planning process for ERI the Deputy’s Management Action Group evaluated and prioritized posture initiatives funded under ERI. However, DOD could not provide documentation that it had established priorities relative to posture initiatives funded through the base budget. Further, the Global Posture Executive Council did not review or prioritize posture initiatives funded under ERI relative to posture initiatives funded through DOD’s base budget. Similarly, as DOD prepared the fiscal year 2018 ERI budget request, the Global Posture Executive Council did not prioritize EUCOM’s proposed ERI posture initiatives relative to initiatives funded through DOD’s base budget. More detailed information about these proposals, and their potential funding requirements, are classified. According to officials from the Office of the Under Secretary of Defense for Policy and the Joint Staff, DOD did not prioritize posture initiatives funded under ERI against base-budget funded posture initiatives, because ERI is funded through DOD’s OCO budget—which does not directly affect the services’ base budgets. However, because it does not prioritize ERI initiatives against other initiatives funded through the base budget, DOD lacks an understanding of the relative importance of initiatives funded under ERI and may begin investing in projects that it would not support in the absence of funding from DOD’s OCO budget. For example, Army officials noted that if funding were to become unavailable in DOD’s OCO budget, the Army is unsure how initiatives funded under ERI would rank in importance relative to other posture initiatives funded in its base budget. Consequently, the Army would be forced to make critical—and potentially costly—decisions quickly and without a clear idea of which posture initiatives were most important to the department. In planning for posture initiatives funded under ERI, EUCOM and the military services have not fully estimated the long-term sustainment costs of ERI’s posture initiatives to establish prepositioned equipment and construct new facilities. DOD’s global defense posture guidance indicates that, when evaluating potential changes to posture, the combatant commands should work with the military services to estimate the full cost of planned posture initiatives, including sustainment costs. DOD’s guidance on economic analysis also notes the importance of understanding both the size and timing of costs. Finally, our prior work has demonstrated that comprehensive cost estimates of current and future resource requirements are critical to making funding decisions and assessing program affordability. DOD leadership emphasized throughout the fiscal year 2018 budget review process that the services would need to fund ERI posture sustainment costs through their respective base budgets, but DOD did not direct the services and EUCOM to estimate these costs as they would have under their established processes. Officials from the Office of the Secretary of Defense, Cost Assessment and Program Evaluation said that DOD leadership emphasized that the military services would need to fund all future sustainment costs for ERI projects from their base budgets. Based on DOD’s approach for calculating rough order sustainment costs, we determined that ERI sustainment costs for prepositioned equipment and construction could be substantial. Army and Air Force officials said that they were working to identify and incorporate these costs into future base budget submissions. DOD officials said that we correctly applied DOD’s approach for estimating sustainment costs, but noted that actual costs may be lower than the estimated costs, because the military services may not fully fund sustainment. Additionally, officials said that EUCOM is trying to negotiate burden sharing agreements with host nations; however, it is unclear whether these negotiations will be successful or how any resulting agreements would affect DOD’s future costs. Without comprehensive estimates of the sustainment costs for the prepositioned equipment and major military construction projects in Europe, DOD decision makers have been limited in their ability to evaluate the affordability of these initiatives. Further, in the absence of these estimates, the services have been limited in their ability to plan for costs in future budgets, because they have an incomplete understanding of the magnitude of those costs and of when they are likely to be incurred. The funding plan that DOD submits to Congress for ERI does not contain information about ERI’s future costs. This is in contrast to the way DOD submits its funding plan for its base budget, where DOD provides Congress with cost projections over a 5-year period, by appropriation, leaving Congress with a better understanding of how and when to allocate resources. In reviewing the fiscal year 2018 ERI request, the Director for Cost Assessment and Program Evaluation assessed future costs associated with posture initiatives funded under ERI. We previously reported that DOD was not developing enduring requirements funded through its OCO budget as part of its budget and programming process. Officials from the Office of the Under Secretary of Defense (Comptroller) and the Office of the Secretary of Defense, Cost Assessment and Program Evaluation told us that DOD has not been required to provide estimates for future OCO costs for ERI to Congress previously. An official from the Office of the Under Secretary of Defense (Comptroller) told us that DOD does not plan to provide these future costs to Congress along with its fiscal year 2018 ERI budget submission. Additionally, in preparing its posture requirements, EUCOM did not identify assumptions regarding host nation and NATO burden sharing. For example, officials from the Office of the Under Secretary of Defense for Policy said that DOD has submitted a request to the NATO Security Investment Programmé for $200 million in funding to build a facility in Poland to store Army equipment. Officials told us that, as a result, this construction project was identified as a lesser priority in EUCOM’s fiscal year 2018 request for funding. A senior Army officer told us that completion of a facility in Poland was critical to its plans in Europe. Officials from the U.S. Mission to NATO told us that as of July 2016 NATO had approved funding to complete preliminary architectural and engineering design for this project. Officials expect additional funding will be made available in July 2017 to complete final design and site preparation and the full cost of the project will be approved in early 2019. However, these officials noted that additional funding beyond what has been approved by NATO may be required to meet U.S.-specific requirements. Similarly, EUCOM officials said that they are working to identify opportunities to defray future costs through host nation contributions, but it is unclear how much funding—if any—host nations will provide moving forward. Congress has expressed interest in knowing the future costs of enduring activities being funded through DOD’s OCO budget. The Senate Appropriations Committee’s report accompanying a bill for DOD’s fiscal year 2015 appropriations stated that the committee does not have an understanding of enduring activities funded by the OCO budget. The committee further noted that there is a potential for risk in continuing to fund non-contingency-related activities through the OCO budget. Both GAO’s and other federal standards emphasize that agencies should provide complete and reliable information on the costs of programs externally, so that decision makers can make informed decisions when allocating resources. DOD has not provided Congress projections of future costs for posture initiatives funded under ERI because it is reviewing those requirements outside of its budget and programming processes, and DOD officials said that the department is not required to provide this information. As a result, DOD is limiting congressional visibility into the resources needed to achieve ERI’s objectives. If DOD does not provide Congress with projections of the future costs of posture initiatives funded under ERI and information on its assumptions pertaining to host nation support and burden sharing, it will continue to impede congressional visibility into the resources that are needed to fully implement these initiatives. Russia’s annexation of Crimea and the subsequent threat of further aggression led DOD to establish and later expand ERI’s objectives and enhance posture in Europe to support a new U.S. strategy toward Russia. DOD has requested funding for these enhancements using its OCO budget; however, the processes DOD uses to develop its OCO budget were not designed to plan for and fund long-term, enduring initiatives such as ERI. By following a separate planning process when funding ERI with OCO, DOD is taking on risk by not reviewing and prioritizing ERI posture plans against other posture initiatives, estimating the costs for sustaining ERI initiatives, and providing Congress with estimates of ERI’s future costs. DOD risks making decisions that lack a strategic vision in comparison to other DOD priorities and may fund initiatives that cannot be sustained over the long term. Furthermore, Congress is likely to face challenges in assessing DOD’s estimated costs for ERI and the affordability of initiatives funded under ERI over the long term. To better ensure that DOD can target resources to its most critical initiatives and establish priorities across its base budget and overseas contingency operations budget, we recommend that the Secretary of Defense prioritize posture initiatives under ERI relative to those funded in its base budget as part of its established posture-planning processes. (Recommendation 1) To better enable decision makers to evaluate the full long-term costs of posture initiatives under ERI, we recommend that the Secretary of Defense direct EUCOM and the military services to develop estimates for the sustainment costs of prepositioned equipment and other infrastructure projects under ERI and ensure that the services plan for these long-term costs in future budgets. (Recommendation 2) To support congressional decision making, we recommend that the Secretary of Defense provide to Congress, along with the department’s annual budget submission, estimates of the future costs for posture initiatives funded under ERI and other enduring costs that include assumptions such as those pertaining to the level of host nation support and burden sharing. (Recommendation 3) We provided a draft of the classified report to DOD for review and comment. DOD partially concurred with all three of our recommendations, and we have reproduced DOD’s comments on the classified report in appendix II. DOD also provided technical comments, which we incorporated as appropriate. DOD partially concurred with our first recommendation to use its established posture-planning processes to prioritize ERI’s posture initiatives relative to those funded in DOD’s base budget. In its comments, DOD stated that it will continue to prioritize the negotiation of international agreements supporting ERI through the Global Posture Executive Council, and that an on-going Strategic Review will inform ERI and guide both EUCOM and the services in their program planning efforts. These are positive steps. DOD also stated it will adjudicate its ERI-funded force requirements through its global force management process, adding that it will continue to resource OCO funds for ERI requirements until there is a sufficient increase in DOD’s base budget to do so. However, we continue to believe, as noted in our report, that DOD could improve its planning for posture initiatives funded under ERI, whether or not they are funded through OCO, by using DOD’s established posture planning processes. Although DOD’s global force management process directly affects overseas military posture in the near term, this process is not designed to evaluate long-term posture priorities. If DOD does not prioritize the forces and infrastructure projects funded under ERI against those funded using the military services’ base budgets, it will continue to lack an understanding of the relative importance of the posture initiatives funded under ERI. Without such an understanding, DOD increases the risk that the services will need to make critical and potentially costly decisions without a clear idea of which posture initiatives are most critical to the department. DOD partially concurred with our second recommendation that EUCOM and the military services develop estimates for future sustainment costs and plan for these costs in future budgets. In its comments, DOD stated that its components will continue to estimate the sustainment costs for prepositioned stocks and other infrastructure projects during DOD’s annual program and budget review process. DOD also commented that without additional topline base budget funding, some portion of the associated sustainment costs will need to be financed with OCO funds. However, as we noted in our report, neither the Army nor the Air Force has fully estimated these potentially significant future costs, nor had either service incorporated them into their future budgets. Using OCO funds would mark a departure from DOD leadership’s emphasis that the services would need to fund ERI posture sustainment costs through their respective base budgets. Additionally, not developing robust estimates for sustaining these initiatives could increase long-term fiscal risk for the department if DOD shifts more ERI-associated enduring costs into its OCO budget. In the absence of robust cost estimates and deliberate planning to address those costs in future budgets, DOD will continue to be limited in its ability to evaluate the affordability of posture initiatives funded under ERI, and the military services may not plan adequate funding to sustain posture investments in Europe. DOD partially concurred with our third recommendation, to provide Congress with estimates of the future costs for posture initiatives funded under ERI and information on any underlying assumptions, such as those pertaining to the level of host nation support and burden sharing. In its comments, DOD stated that it does not currently prepare a formal 5-year Future Years Defense Program for OCO-related costs. Moreover, DOD commented that it factors in host nation support and burden sharing when preparing budget estimates for Congress. However, DOD does not state whether it will begin to provide Congress future estimates and any underlying assumptions with its budget submission. It is critical that DOD increase congressional visibility into ERI’s future costs and its underlying assumptions to facilitate congressional oversight and reasonably ensure that initiatives can be sustained over the long-term. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Commander, U.S. European Command. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (404) 679-1816 or pendletonj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in Appendix III. The Army and Air Force identified approximately $224 million in unspecified minor military construction and facilities maintenance and repair projects (hereafter, minor construction and repair) that were programmed or obligated for the European Reassurance Initiative (ERI) in fiscal years 2015 through 2017. This includes $157 million for minor construction and repair projects identified by the Army and nearly $67 million for minor construction and repair projects identified by the Air Force. According to U.S. European Command officials, Navy and Marine Corps construction projects funded under ERI were either major military construction or exercise-related construction projects. The tables below do not include Navy and Marine Corps exercise-related construction projects. Using the data provided by the military services, we compiled the programmed and obligated funding for these minor construction and repair projects by fiscal year, country, location, and project name in tables 3 and 4. The information in these tables was provided by U.S. Army Europe and U.S. Air Force Europe in response to our request for a list of minor military construction and repair projects. The data provided did not identify the appropriations used for each project. Accordingly, we have not conducted a review to examine whether funds were appropriately used for a given project. In addition to the contact named above, Kevin O’Neill, Assistant Director; Alex Winograd, Analyst-in-Charge; Scott Bruckner, Adrianne Cline, Martin De Alteriis, Joanne Landesman, Jennifer Leotta, Carol Petersen, Michael Shaughnessy, and Jena Sinkfield all made key contributions to this report.	[ "In response to Russia's annexation of Crimea in March 2014, the President announced the ERI, to reassure allies in Europe of U.S. commitment to their security. This initiative has been funded using OCO appropriations, which Congress provides in addition to DOD's base budget appropriations. The Joint Explanatory Statement accompanying the Continuing Appropriations and Military Construction, Veterans Affairs, and Related Agencies Appropriations Act, 2017, included a provision for GAO to review matters related to ERI. In this report, we (1) describe changes in ERI's objectives, funding under ERI, and DOD's posture in Europe since 2014 and (2) evaluate the extent to which DOD's planning processes for posture initiatives funded under ERI prioritize those initiatives, estimate their long-term costs, and communicate their estimated costs to Congress. GAO analyzed DOD strategy documentation, budget and cost analysis guidance, budget justification materials, and cost and obligations data. GAO also interviewed knowledgeable officials within the Office of the Secretary of Defense, U.S. European Command, the military services, and the State Department. Since 2014, the Department of Defense (DOD) has expanded the European Reassurance Initiative's (ERI) objectives, increased its funding, and planned enhancements to European posture. DOD expanded ERI's objectives from the short-term reassurance of allies and partners to include deterring Russian aggression in the long term and developing the capacity to field a credible combined force should deterrence fail. With respect to funding, DOD will have requested approximately $4.5 billion for ERI's posture enhancements through the end of fiscal year 2017 (about $3.2 billion for fiscal year 2017 alone), and in July 2016 EUCOM identified funding needs for future posture initiatives. The expansion of ERI's objectives has contributed to DOD's enhancing its posture in Europe. Specifically, DOD has increased the size and duration of Army combat unit deployments, planned to preposition Army equipment in Eastern Europe, added new enduring locations (e.g., locations that DOD expects to access and use to support U.S. security interests for the foreseeable future), improved infrastructure, and negotiated new agreements with European nations. As of April 2017, DOD was considering further force enhancements under ERI as part of the department's ERI budget request. DOD also was reviewing whether new enduring locations to support ERI were needed and was considering other improvements to existing infrastructure. DOD's process for planning ERI has not established priorities among posture initiatives funded under ERI relative to those in its base budget, nor estimated long-term sustainment costs for some posture initiatives funded under ERI, nor communicated future costs to Congress. ERI is being planned using a separate process from DOD's established processes and is funded from DOD's overseas contingency operations (OCO) appropriations. GAO found several weaknesses: Lack of prioritization : DOD establishes priorities among ERI posture initiatives but has not evaluated them against base budget initiatives using its posture management process. As a result, DOD lacks an understanding of the relative importance of ERI initiatives and may be investing in projects that it will not continue should OCO funding become unavailable. Lack of sustainment costs : EUCOM and the military services have not fully estimated the long-term costs to sustain equipment and construction funded under ERI. Based on DOD's approach for calculating rough order sustainment costs, GAO determined that these costs could be substantial. DOD officials said that GAO correctly applied DOD's approach for estimating sustainment costs, but noted that actual costs may be lower, because the military services may not fully fund sustainment. In the absence of comprehensive estimates, DOD has been limited in its ability to assess affordability and plan for future costs. Not communicating future costs : DOD limits Congress's visibility into the resources needed to implement ERI and achieve its objectives because it does not include future costs in its ERI budget request. This is a public version of a classified report issued in August 2017. Information on specific posture planning, guidance, and budget estimates that DOD deemed to be classified have been omitted from this report. GAO recommends that DOD prioritize ERI posture initiatives against initiatives in its base budget, develop cost estimates for sustaining initiatives, and communicate future costs to Congress. DOD partially concurred with GAO's recommendations. GAO continues to believe that these recommendations are warranted." ]	5,106	gov_report	en	null	d4f5454b64bf353d6cb971ab69def4910ee970b07733fe60
Federal and state Medicaid spending on long-term care continues to increase; for example it increased from $146 billion in 2013 to $158 billion in 2015. Individuals seeking long-term care generally need care that is, by definition, longer term in nature and more costly than other types of care. Spending on long-term care services provided in home and community settings, including assisted living facilities, exceeds the amount spent on institutional settings such as nursing homes. State Medicaid programs may cover certain medical and non-medical services that assisted living facilities provide; however, the Medicaid statute does not provide for coverage of room and board charges of an assisted living facility. In their federal-state partnership, both CMS and states play important roles in the oversight of Medicaid. CMS is responsible for oversight of state Medicaid programs. To conduct this oversight, CMS issues program requirements in the form of regulations and guidance, approves changes states make to their programs, provides technical assistance to states, collects and reviews required information and data from states and, in some cases, reviews individual state programs. States are responsible for the day-to-day administration of their Medicaid programs, including monitoring and oversight of the different HCBS programs through which they cover assisted living services, within broad federal rules and requirements. Each state is required to identify and designate a single state agency to administer or supervise the administration of its Medicaid program. The state Medicaid agency may partially or fully delegate the administration and oversight of the state’s HCBS programs to another state agency or other entity, such as a state unit on aging, a mental health department, or other state departments or agencies with jurisdiction over a specific population or service. However, the state Medicaid agency is ultimately accountable to the federal government for compliance with the HCBS requirements. Under different authorizing provisions of federal law, states have considerable flexibility to establish multiple HCBS programs including those covering assisted living services. A state Medicaid program can have multiple HCBS programs operating under different federal authorities. CMS is responsible for ensuring that states meet the requirements associated with their HCBS programs under these different authorities. Key to states’ monitoring of the health and welfare of Medicaid beneficiaries is their tracking of, and response to, incidents that may cause harm to a beneficiary’s health or welfare, such as abuse, neglect, or exploitation—commonly referred to as critical incidents. Such monitoring is required for most HCBS programs; however, we previously found that requirements for states related to oversight of the health and welfare of beneficiaries in different types of HCBS programs varied, and recommended that CMS take steps to harmonize those requirements across programs. The most common HCBS programs with the most stringent federal requirements are HCBS waiver programs. These programs serve beneficiaries who are eligible for an institutional level of care; that is, beneficiaries must have needs that rise to the level of care usually provided in a nursing facility, hospital, or other institution. CMS oversees states’ HCBS waiver programs specifically by reviewing and approving applications and reviewing HCBS program reports that states submit. HCBS waiver program applications include specific requirements implementing various statutory and regulatory provisions. (See text box below.) One requirement is that states have the necessary safeguards in place to protect the health and welfare of beneficiaries receiving services covered by HCBS waiver programs. For each of their HCBS waiver programs, states must demonstrate to CMS that they are meeting various requirements CMS has established regarding beneficiary health and welfare. The Six Requirements States Must Demonstrate for Home- and Community-Based Services Waiver Programs 1. Administrative authority: The Medicaid agency retains ultimate administrative authority and responsibility for the operation of the waiver program by exercising oversight of the performance of waiver functions by other state and local/regional non-state agencies (if appropriate) and contracted entities. 2. Level of care: The state demonstrates that it implements the processes and instrument(s) specified in its approved waiver for evaluating/re-evaluating an applicant’s/waiver participant’s level of care consistent with care provided in a hospital, nursing facility, or intermediate care facility. 3. Qualified providers: The state demonstrates that it has designed and implemented an adequate system for assuring that all waiver services are provided by qualified providers. 4. Service plan: The state demonstrates it has designed and implemented an effective system for reviewing the adequacy of service plans for the waiver participants. 5. Health and welfare: The state demonstrates it has designed and implemented an effective system for assuring waiver participant health and welfare. 6. Financial accountability: The state must demonstrate that it has designed and implemented an adequate system for insuring financial accountability of the waiver program. CMS also provides ongoing oversight of state HCBS programs through annual reports that states must submit for each of their HCBS waiver programs as well as renewal reports submitted about two years before an HCBS waiver is scheduled to end. The state reports are intended to provide CMS with information on the operation of state HCBS waiver programs. In contrast to long-term care services provided in nursing facilities, less is known at the federal level about the oversight and quality of care in assisted living facilities. Generally, states establish their own licensing and oversight requirements for assisted living facilities. As a result, the requirements for assisted living facilities and the type and frequency of oversight can vary across states. In contrast, nursing homes must meet a comprehensive set of federal requirements in order to receive payment for long-term care services for Medicaid and Medicare beneficiaries in addition to state requirements. CMS contracts with state entities to regularly inspect nursing facilities and investigate complaints to assess whether nursing homes meet these federal quality requirements. Annually CMS publishes a comprehensive report on nursing homes that serve Medicaid and Medicare beneficiaries, including the extent that beneficiaries are at risk for harm, based on these investigations and inspections. In addition, CMS publicly reports a summary of each nursing home’s quality data using a five-star quality rating based on health inspection results, staffing data, and quality measure data. The goal of this rating system is to help consumers make meaningful distinctions among high- and low-performing nursing homes. This type of standardized framework for oversight, investigation and inspections, and reporting on quality of care concerns does not exist for assisted living facilities and other types of HCBS providers. Forty-eight state Medicaid agencies reported collectively spending about $10 billion in state and federal Medicaid funds for assisted living services in 2014, according to our survey. The other 3 states reported that they did not pay for assisted living services. We estimate that this spending for services provided by assisted living facilities represents 12.4 percent of the $80.6 billion Medicaid spent on HCBS in all settings that year. More than 330,000 Medicaid beneficiaries received assisted living services, based on data reported to us by the 48 states. Nationally, the average spending per beneficiary on assisted living services in the 48 states in 2014 was about $30,000; states provided these HCBS services through fee-for-service and managed care delivery models. Fee-for-service spending comprised 81 percent of total spending on assisted living services and managed care spending was about 19 percent of the total. The cost per beneficiary reported by surveyed states also varied based on payment type; average per beneficiary cost was $31,000 for fee-for-service and $27,000 for managed care. About 21 percent of Medicaid assisted living enrollment was for beneficiaries receiving these services under a managed care delivery model. (See table 1.) Average per-beneficiary spending varied significantly across the states. For example, for the nine states with the lowest spending per beneficiary, average Medicaid spending ranged from about $1,700 to about $9,500 per beneficiary. In contrast, in the nine states with the highest per- beneficiary spending, the average spending ranged from about $43,000 to $108,000 per beneficiary. (See Figure 1.) For more information on each state’s enrollment, total spending, and average per beneficiary spending on assisted living services, see appendix I. The 48 states that reported covering assisted living services in 2014 said they did so through 132 different programs. The majority of the states, 31 of the 48, reported administering more than one program that covered assisted living services. As illustrated in table 2 below, of the different types of HCBS programs under which states can provide coverage for assisted living services, HCBS waivers were the most common type of program they used. Specifically, 39 states and 69 percent of the programs that provided assisted living services, were operated under the HCBS waiver program. (See appendix II for additional details on each state’s number of programs by program type and total number of HCBS programs that covered assisted living facility services in 2014.) Almost all of the 48 states that covered assisted living services did so for two groups of Medicaid beneficiaries eligible through their programs. In 45 of 48 states, aged beneficiaries received services provided by assisted living facilities. Similarly, in 43 of 48 states, physically disabled beneficiaries received services. (See Figure 2.) In 38 or more of the 48 states that covered assisted living services, six types of services were provided. For example, 45 states covered assistance with activities of daily living, such as bathing and dressing; 44 states covered medication administration; and 41 states covered coordination of meals. (See Figure 3.) State Medicaid agency approaches for oversight of assisted living services varied widely in terms of who provided the oversight for their largest programs, according to their responses to our survey. Thirteen of the 48 state Medicaid agencies reported delegating administrative responsibilities, including oversight of beneficiary health and welfare, to other state or local agencies. State Medicaid agencies may delegate the administration of programs to government or other agencies through a written agreement; however, state Medicaid agencies retain the ultimate oversight responsibility for those delegated functions. For example, among the 13 states that delegated HCBS program administration, the administering agencies were those that provided services to the aged, disabled, or both of these populations, such as the states’ Departments of Aging. (See text box, below, for examples of states’ delegation.) Examples of State Medicaid Agencies’ Delegation of Authority for Administration of Home- and Community-based Services’ Programs Covering Assisted Living Services Georgia’s Elderly & Disabled Waiver Program was operated in 2014 by the Georgia Department of Human Services Division of Aging Services, a separate agency of the state that was not a division/unit of the Medicaid agency. The Georgia Medicaid Agency maintained a formal interagency agreement with the Division of Aging Services which describes by function the required deliverables to support compliance and a schedule for delivery of reports. Nebraska’s Waiver for Aged and Adults and Children with Disabilities is operated by the state Medicaid agency Division of Medicaid and Long Term Care. The majority of services are provided by independent contractors in order to allow service delivery in the rural and frontier areas of the state. The state Medicaid agency contracts with the Area Agencies on Aging, Independent Living Centers, and Early Development Network agencies to perform a variety of operational and administrative functions including authorizing services and monitoring the delivery of services. States also varied in the types of information they reported reviewing as part of the oversight of assisted living services, and the extent to which state Medicaid agencies review the information when another agency is responsible for administration. For example, other entities outside the state Medicaid agency—such as the agency delegated to administer an HCBS program, or a contractor that manages provider enrollment—may check to ensure a provider is allowed to deliver services to Medicaid beneficiaries; in such cases, however, the state Medicaid agency might not be aware of the results of such checks. As illustrated in table 3, in all 48 states the types of information generally reviewed by either the state Medicaid agency, the agency delegated administrative responsibilities, or other agencies were: critical incident reports, the HHS Office of Inspector General’s list of excluded providers, patient service plans, and information on concerns about care received directly from patients, relatives, caregivers or the assisted living facility itself. In many cases, the state Medicaid agency did not review all information sources reviewed by other agencies. For example, although all critical incident reports were reviewed in the 48 states by either the state Medicaid agency, the agency delegated administrative responsibilities, or another agency; in 16 of those states, the state Medicaid agency was not involved in those reviews, according to responses to our survey. Instead, the critical incident reports were reviewed by another entity designated responsible for the HCBS program in the state or another state entity with regulatory responsibility over the assisted living facility. Such reviews, including any critical incidents found, may not have been communicated back to the state Medicaid agency, according to responses to our survey. State Medicaid agencies also varied in reporting the extent to which they were made aware or notified when enforcement actions were taken as a result of concerns with beneficiary care identified by other entities. Various oversight actions may be taken by the state Medicaid agency, the agency delegated to administer an HCBS program, or a state regulatory agency, such as a state agency responsible for licensing and inspecting various types of HCBS providers. When delegated agencies or other licensing agencies take corrective action, the state Medicaid agency may not be aware unless notified by the agencies taking that action. For example, in 23 states, the investigation of potential incidents related to beneficiary health and welfare was delegated to another agency but in only 6 of these states was the state Medicaid agency always notified of such an investigation based on our survey. (See table 4 and text box below.) Example of a Collaborative Approach to Monitoring and Ensuring Quality Care Specifically for Assisted Living Facilities In 2009, the Wisconsin Coalition for Collaborative Excellence in Assisted Living was formed to redesign the way quality is ensured and improved for individuals residing in assisted living communities. This public/private coalition utilizes a collective impact model approach that brings together the state, the industry, the consumer, and academia to identify and implement agreed upon approaches designed to improve the outcomes of individuals living in Wisconsin assisted living communities. The core of the coalition is the implementation of an association developed, department approved, comprehensive quality assurance, quality improvement program. For their largest HCBS programs that covered assisted living services, the 48 states varied in how they monitored “critical incidents” that caused actual or potential harm to Medicaid beneficiaries in assisted living facilities. Specifically, the 48 states varied in their ability to report the number of critical incidents; how they defined incidents, and the extent to which they made information on such incidents readily available to the public. These states varied in whether they could provide us the number of critical incidents involving beneficiaries for their largest programs covering assisted living services, and for those that could report, the number of incidents they reported varied widely. In 26 of the 48 states the Medicaid agencies were unable to report, for their largest program covering assisted living services, the number of critical incidents that had occurred in assisted living facilities in 2014. The remaining 22 states reported a total of 22,921 critical incidents involving Medicaid beneficiaries in their largest programs covering assisted living services. The number of critical incidents reported in these states ranged from 1 to 8,900. For six of these states the number of critical incidents reported was more than 1,000, (See text box, below, for examples of selected state processes managing critical incidents.) Selected States’ Processes for Managing Beneficiary Harm or Potential Harm in Assisted Living Facilities Georgia: According to state officials in 2014 there was no centralized or comprehensive system for capturing and tracking the data on actual and potential violations. State officials acknowledged the lack of a centralized system prevents the Division of Community Health from tracking the status of each problem. Nebraska: According to state officials, Nebraska’s Adult Protective Services operates an electronic system that coordinates across state social service programs. When Adult Protective Services initiates an investigation of reported harm to an assisted living resident, the state Medicaid agency is automatically notified. Reasons state Medicaid agencies reported for being unable to provide us with the number of critical incidents included limitations in the data or data systems for tracking them. Nine states reported an inability to track incidents by provider type, and thus distinguish critical incidents in assisted living facilities from other providers of home and community based services. States also cited lacking a system to collect critical incidents (9 states), and that the system for reporting could not identify whether a resident was a Medicaid beneficiary (5 states). Even in the 32 states where the state Medicaid agencies reported reviewing information about critical incidents, 20 states were unable to provide the actual number of critical incidents that occurred in assisted living facilities. State Medicaid agencies’ definitions of critical incidents also varied. As illustrated in Figure 4, all 48 states cited physical assault, emotional abuse, and sexual assault or abuse as a critical incident in their largest programs providing assisted living services in 2014. However, for other types of incidents, several states did not identify the incident as critical, including discharge and eviction from the facility (not a critical incident in 24 states), medication errors (not a critical incident in 7 states), and unauthorized use of seclusion, (not a critical incident in 6 states). For other serious incidents, a relatively small number of states did not identify the incident as critical, such as unexplained death (not a critical incident in 3 states) and missing beneficiaries (not a critical incident in 2 states). See appendix IV for a full list of the beneficiary-related incidents and the number of states that identify each as critical. Although half of the 48 states that cover assisted living services did not consider discharges or evictions to be critical incidents, according to state responses to our survey, 42 states offered certain protections related to involuntary discharge of Medicaid residents who live in assisted living facilities. The majority of protections consisted of a lease agreement requirement that applied to other housing contracts in the state, such as providing residents with eviction notices. Other protections included an appeals process (10 states) and a requirement for the facility to find an alternative location for the resident (10 states). State Medicaid agencies also varied in whether they made information on critical incidents and other key information readily available to the public. (See table 5.) Beneficiaries seeking care in an assisted living facility may want to know the number of critical incidents related to a particular facility. Through our survey we found that states differed in the availability of information related to health and welfare that was available to the public. For example, 34 of the 48 states reported that they made critical incident information available to the public by phone, website, or in person, and the remaining 14 states did not have such information available at all. Although all 48 states had information in some form on which assisted facilities accepted Medicaid beneficiaries, 8 states could not provide this information by phone and 22 states could not provide the information in person. In recent years, CMS has taken steps to improve oversight of beneficiary health and welfare in HCBS programs by adding new HCBS waiver application requirements for state monitoring of beneficiary health and welfare. CMS requires state waiver applications to include specific requirements that implement various statutory and regulatory provisions, including a provision that states assure that they will safeguard the health and welfare of Medicaid beneficiaries. In March 2014, CMS added unexplained death to the events that states must be able to identify and address on an ongoing basis, as part of their efforts to prevent instances of abuse, neglect, and exploitation, and added four new requirements for states to protect beneficiary health and welfare. (See table 6.) In its guidance implementing the 2014 requirements, CMS noted that state associations and state representatives’ work groups had agreed that “health and welfare is one of the most important assurances to track, and requires more extensive tracking to benefit the individuals receiving services, for instance by using data to prevent future incidents.” As a condition for approval of their HCBS waiver applications for each of the requirements, states must identify and agree with CMS on the type of information they will collect to provide as evidence that they will meet the requirements. However, according to CMS officials, each state Medicaid agency has wide discretion over the information it will collect and report to demonstrate that it is meeting the health and welfare requirements and protecting beneficiaries. Although CMS added the additional requirements in 2014 for safeguarding beneficiary health and welfare, the agency generally did not change requirements for how it oversees state monitoring efforts once HCBS waivers are approved. We found a number of limitations in CMS’s oversight of approved HCBS waivers that undermine the agency’s ability to effectively monitor state oversight of HCBS waivers. These limitations include: unclear guidance on what states should identify and report annually related to any identified program deficiencies; lack of requirements on states to regularly provide CMS information on critical incidents; and CMS’s inconsistent enforcement of the requirement that states submit annual reports. Unclear guidance on what states should identify and report annually related to any identified program deficiencies. Federal law requires states to provide CMS with information annually on an HCBS waiver’s impact on (1) the type and amount, and cost of services provided and (2) the health and welfare of Medicaid beneficiaries receiving waiver services. CMS reporting requirements give states latitude to determine what to report as health and welfare deficiencies found through state monitoring of their HCBS programs. With respect to health and welfare, CMS’s State Medicaid Manual directs states when preparing their annual reports to “check the appropriate boxes regarding the impact of the waiver on the health and welfare” of beneficiaries and to describe relevant information. States are required to provide a brief description of the state process for monitoring beneficiary safeguards, use check boxes to indicate that beneficiary health and welfare safeguards have been met, and identify whether deficiencies were detected during the monitoring process. If states determine that deficiencies were identified through monitoring, states are required to “provide a summary of the significant areas where deficiencies were detected” and an explanation of the actions taken to address deficiencies and ensure the deficiencies do not recur. CMS’s written instructions for completing the HCBS annual report do not provide further guidance regarding reporting of deficiencies. For example, the reporting instructions do not describe or identify 1) what states are supposed to report as deficiencies, 2) how they are to identify which deficiencies are most significant, and 3) the extent to which states need to explain the steps taken to ensure that deficiencies do not recur. The lack of clarity is inconsistent with federal internal control standards, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk. Without clear instructions as to what states must report, states’ annual reports may not identify deficiencies with states’ HCBS waiver programs that may affect the health and welfare of beneficiaries. States may determine that issues or problems they identified through monitoring do not represent reportable deficiencies and therefore may not report those deficiencies to CMS, increasing the risk that problems are not elevated to CMS’s attention. In the case of one of the selected states we reviewed, no problems were included on the annual reports submitted to CMS between 2011 and 2015. However, when CMS completed its review in the fourth year of the state’s waiver— for purpose of renewing the waiver—it determined the state was not assuring beneficiary health and welfare. CMS found that the information the state submitted for purpose of renewal suggested a “pervasive failure” by the state to assure the health and welfare of beneficiaries receiving services, including assisted living services. In particular, CMS noted the state provided insufficient information regarding the number of unexpected or suspicious beneficiary deaths. CMS concluded that the state failed to demonstrate that it has effective systems and processes for ensuring the health and welfare of beneficiaries. Lack of requirements on states to annually provide CMS information on critical incidents. Despite the importance of state critical incident management and reporting systems to protecting the health and welfare of beneficiaries, CMS lacks written requirements that states provide information needed for the agency oversight of state monitoring of critical incidents. According to CMS, a critical element of effective state oversight is the operation of data systems that support the identification of trends and patterns in the occurrence of critical incidents to identify needed improvements. Such a system is also consistent with federal internal controls standards which specify, in particular, the need for federal agencies to have processes that identify information needed to achieve objectives and address risk. CMS requires states to operate a critical incident reporting system. On their waiver applications states must check a box indicating they operate a system and also describe their system—including who must report and when, and what must be reported. Despite this requirement for states to have critical incident reporting systems, CMS does not require states to report to CMS any data from these systems on critical incidents as part of their required annual reports. Specifically, states are not required to include, in their annual reports, the number of critical incidents reported or substantiated that involve Medicaid beneficiaries. As a result, CMS does not have a method to confirm what states describe about critical incident management systems, which is a required component of states’ waiver applications or to assess the capabilities of states’ systems. For example, CMS cannot confirm whether the state systems can report incidents by location or type of residential provider, such as assisted living facilities; the type and severity of critical incidents that occurred; and the number of incidents that involved Medicaid beneficiaries. Without annual critical incident reporting, CMS may be at risk of (1) not having adequate evidence that states are meeting CMS requirements to have an effective critical incident management and reporting system and of (2) being unaware of problems with states’ abilities to identify, track, and address critical incidents involving Medicaid beneficiaries. Our prior work has shown that the lack of explicit reporting requirements on critical incidents not only impacts HCBS waiver programs but also impacts other types of Medicaid long-term services programs as well. Specifically, In a November 2016 report, we found that CMS requirements for states to report on their critical incident monitoring systems for the HCBS waiver program were more stringent than those for other types of HCBS programs, potentially leaving those other programs at even greater risk. We recommended that CMS take steps to harmonize requirements across different types of HCBS programs. HHS concurred with the recommendation stating it would seek input from states, stakeholders, and the public regarding harmonizing requirements across programs. In an August 2017 report we found similar issues in critical incident reporting requirements for other types of long term services programs, particularly those used to provide HCBS and other long term services under managed care. We found that CMS was not always requiring states that contracted with managed care organizations to provide long term services and supports to report to CMS sufficient information on critical incidents and other key areas needed to monitor beneficiary access and quality. We recommended that CMS take steps to identify and obtain key information needed to better oversee states’ efforts to monitor beneficiary access to quality services in their managed long-term services and supports programs. HHS concurred with this recommendation and stated that the agency would take this recommendation into account as part of an ongoing review of its 2016 Medicaid managed care rule. We continue to believe that the implementation of our prior recommendations is needed to help improve CMS oversight of states monitoring of beneficiary safety. CMS’s inconsistent enforcement of the requirement that states submit annual reports. States must prepare and submit an annual report for each HCBS waiver as a condition of waiver approval. According to CMS guidance, the agency’s review of the annual report is part of the ongoing oversight of HCBS waiver programs and not submitting an annual report jeopardizes the states renewal of HCBS waiver programs. However, some states have not been timely in submitting the required annual reports for their HCBS waivers. A review of 2013 HCBS annual reports by a CMS contractor, published in 2016, found that annual reports were missing for 29 HCBS waivers and multiple years’ of annual reports were missing for 8 waivers. In 2014, CMS adopted new strategies to ensure compliance with HCBS waiver requirements, including the requirement that states submit annual reports on a timely basis. These strategies include withholding federal funding, placing a moratorium on enrollment in the waiver, or other actions the agency determines necessary. CMS officials reported that the agency had not used these new strategies with states that were delinquent in submitting their annual reports. Officials said they were in the process of reviewing how to implement these new strategies in the case of one state; however, as of August 2017 officials had not finalized a decision. CMS’s ability to provide effective oversight of state programs and protect beneficiary health and welfare is undermined by the lack of enforcement and receipt of required annual waiver reports. Effective state and federal oversight is necessary to ensure that the health and welfare of Medicaid beneficiaries receiving assisted living services are protected, especially given the particular vulnerability of many of these beneficiaries to abuse, neglect, or exploitation. CMS has taken steps to strengthen beneficiary health and welfare protections in states’ HCBS waiver programs, the most common type of program that covers assisted living services and one that serves the most vulnerable beneficiaries. In particular, CMS now has multiple requirements for states to safeguard beneficiaries’ health and welfare, including requirements to operate an effective critical incident management and reporting system to identify, investigate, and address incidents of beneficiary abuse, neglect, exploitation, and unexplained death. However, CMS’s ability to effectively monitor how well states are assuring beneficiary health and welfare is limited by gaps in state reporting to CMS. CMS has not provided clear guidance to states on what information to include in annual reports on deficiencies they identify. As a result, CMS lacks assurance that it is receiving consistent, complete, and relevant information on deficiencies that is needed to oversee beneficiary health and welfare. Lacking clear guidance on the reporting of deficiencies may result in a delayed recognition of problems that may affect beneficiary health and welfare. Further, for years, states have been required to check a box attesting that they operate a critical incident management system, but have not always been required to report information on incidents of potential or actual harm to beneficiaries. Given the increasing prevalence of assisted living facilities as a provider of services to Medicaid beneficiaries, it is unclear why more than half of states responding to our survey could not provide us information on the number of critical incidents that occurred in these facilities in their states. Reporting data from their critical incident systems, such as the number of incidents, the type and severity of the incidents, or the location or type of facility in which the incident occurred would provide evidence that an effective system is in place, provide information on the extent beneficiaries are subject to actual or potential harm, and allow for tracking trends over time. Finally, CMS has not ensured that all states submit annual reports on their HCBS waiver programs as required. Without improvements to state reporting, CMS cannot ensure states are meeting their commitments to protect the health and welfare of Medicaid beneficiaries receiving assisted living services, potentially jeopardizing their care. We are making the following three recommendations to CMS: The Administrator of CMS should provide guidance and clarify requirements regarding the monitoring and reporting of deficiencies that states using HCBS waivers are required to report on their annual reports. (Recommendation 1) The Administrator of CMS should establish standard Medicaid reporting requirements for all states to annually report key information on critical incidents, considering, at a minimum, the type of critical incidents involving Medicaid beneficiaries, and the type of residential facilities, including assisted living facilities, where critical incidents occurred. (Recommendation 2) The Administrator of CMS should ensure that all states submit annual reports for HCBS waivers on time as required. (Recommendation 3) We provided a draft of this report to HHS for review and comment. HHS provided written comments, which are reproduced in Appendix V. The department also provided technical comments, which we incorporated as appropriate. In its written comments, the department concurred with two of our three recommendations, specifically, that CMS will clarify requirements for state reporting of program deficiencies and ensure that all states submit required annual reports on time. HHS did not explicitly agree or disagree with our third recommendation to require all states to report information on critical incidents to CMS annually. The department noted it has established a workgroup to learn more about states’ health and welfare systems and that it will use the results of this workgroup to determine which additional reporting requirements would be beneficial. The workgroup’s review will continue through calendar year 2018. In technical comments, HHS indicated that after the workgroup’s review is complete it will consider annual reporting of critical incidents. We believe establishing the workgroup is a positive first step towards improving oversight and state reporting and encourage HHS to require annual reporting on critical incidents when developing additional reporting requirements. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Health and Human Services, the Administrator of CMS, the Administrator of the Administration for Community Living, appropriate congressional committees, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff members have any questions about this report, please contact me at (202) 512-7114 or at iritanik@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff that made key contributions to this report are listed in appendix VI. Our survey of state Medicaid agencies regarding coverage, spending, enrollment, and oversight of assisted living services in 2014, obtained information on challenges for Medicaid beneficiaries to access assisted living services in their states. States provided information related to factors that create challenges for Medicaid beneficiaries’ ability to access and receive assisted living services and the extent states had policies to help beneficiaries with the cost of room and board. A number of states in our survey cited common factors as creating the greatest challenges to a beneficiary’s ability to access assisted living services, including the number of assisted living facilities willing to accept Medicaid beneficiaries (13 states or 27 percent of the 48 states) program enrollment caps (9 states or 19 percent of the 48 states) beneficiaries’ inability to pay for assisted living facility room and board (9 states or 19 percent of the 48 states), which Medicaid typically does not cover low rates the state Medicaid program paid assisted living facilities (8 states or 17 percent of the 48 states). A number of states reported that they had policies to assist Medicaid beneficiaries with the costs of room and board charged by assisted living facilities, which Medicaid does not typically cover. Two common policies, cited by at least half of the states, were aimed at limiting how much assisted living facilities could charge Medicaid beneficiaries for room and board. For example, 30 of 48 states, limited the amount facilities could charge for room and board to the amount of income certain beneficiaries receive as Supplemental Security Income. The other commonly cited policies focused on providing financial assistance to the beneficiaries to defray the room and board costs. (See table 9.) In addition to the contact named above, Tim Bushfield and Christine Brudevold (Assistant Directors), Jennie Apter, Shirin Hormozi, Anne Hopewell, Kelsey Kreider, Perry Parsons, Vikki Porter, and Jennifer Whitworth made key contributions to this report.	[ "The number of individuals receiving long term care services from Medicaid in community residential settings is expected to grow. These settings, which include assisted living facilities, provide a range of services that allow aged and disabled beneficiaries, who might otherwise require nursing home care, to remain in the community. State Medicaid programs and CMS, the federal agency responsible for overseeing the state programs, share responsibility for ensuring that beneficiaries' health and welfare is protected. GAO was asked to examine state and federal oversight of assisted living services in Medicaid. This report (1) describes state spending on and coverage of these services, (2) describes how state Medicaid agencies oversee the health and welfare of beneficiaries in these settings, and (3) examines the extent that CMS oversees state Medicaid agency monitoring of assisted living services. GAO surveyed all state Medicaid agencies and interviewed officials in a nongeneralizeable sample of three states with varied oversight processes for their assisted living programs. GAO reviewed regulations and guidance, and interviewed CMS officials. State Medicaid agencies in 48 states that covered assisted living services reported spending more than $10 billion (federal and state) on assisted living services in 2014. These 48 states reported covering these services for more than 330,000 beneficiaries through more than 130 different programs. Most programs were operated under Medicaid waivers that allow states to target certain populations, limit enrollment, or restrict services to certain geographic areas. With respect to oversight of their largest assisted living programs, state Medicaid agencies reported varied approaches to overseeing beneficiary health and welfare, particularly in how they monitored critical incidents involving beneficiaries receiving assisted living services. State Medicaid agencies are required to protect beneficiary health and welfare and operate systems to monitor for critical incidents—cases of potential or actual harm to beneficiaries such as abuse, neglect, or exploitation. Twenty-six state Medicaid agencies could not report to GAO the number of critical incidents that occurred in assisted living facilities, citing reasons including the inability to track incidents by provider type (9 states), lack of a system to collect critical incidents (9 states), and lack of a system that could identify Medicaid beneficiaries (5 states). State Medicaid agencies varied in what types of critical incidents they monitored. All states identified physical, emotional, or sexual abuse as a critical incident. A number of states did not identify other incidents that may indicate potential harm or neglect such as medication errors (7 states) and unexplained death (3 states). State Medicaid agencies varied in whether they made information on critical incidents and other key information available to the public. Thirty-four states made critical incident information available to the public by phone, website, or in person, while another 14 states did not have such information available at all. Oversight of state monitoring of assisted living services by the Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), is limited by gaps in state reporting. States are required to annually report to CMS information on deficiencies affecting beneficiary health and welfare for the most common program used to provide assisted living services. However, states have latitude in what they consider a deficiency. States also must describe their systems for monitoring critical incidents, but CMS does not require states to annually report data from their systems. Under federal internal control standards, agencies should have processes to identify information needed to achieve objectives and address risk. Without clear guidance on reportable deficiencies and no requirement to report critical incidents, CMS may be unaware of problems. For example, CMS found, after an in-depth review in one selected state seeking to renew its program, that the state lacked an effective system for assuring beneficiary health and welfare, including reporting insufficient information on the number of unexpected or suspicious beneficiary deaths. The state had not reported any deficiencies in annual reports submitted to CMS in 5 prior years. GAO recommendations to CMS include clarifying state requirements for reporting program deficiencies and requiring annual reporting of critical incidents. HHS concurred with GAO's recommendations to clarify deficiency reporting and stated that it would consider annual reporting requirements for critical incidents after completing an ongoing review." ]	6,063	gov_report	en	null	27d885cb5ea10bfe6a9123867b285a9850aa8415d960493b
In the United States, both FRA and FTA regulate rail transportation safety. FRA oversees safety of railroads operating on what is known as the general system, a network of standard gage track over which goods may be transported and passengers may travel. This system includes freight railroads, which typically own their own tracks and locomotives, transporting products among states and regions. FRA also oversees safety of intercity passenger and commuter railroads that operate over tracks owned by freight railroads and other entities. FTA oversees safety of rail transit systems that typically serve individual metropolitan areas, using track not shared with freight and other passenger trains. Rail transit includes a variety of modes, such as heavy and light rail, streetcars, automated guideways, cable cars, and others. Rail transit is an important component of the nation’s transportation network, particularly in large metropolitan areas. Rail transit systems provided over 4.4 billion passenger trips in 2016. “Heavy rail” systems in large cities account for much of the total rail transit activity, including 88 percent of passenger trips in 2016. According to FTA, 61 rail transit systems within 28 states, the District of Columbia, and Puerto Rico are subject to safety oversight by one of the 31 agencies in FTA’s state safety oversight program (see fig. 1). The states have long played a central role in conducting safety oversight of rail transit systems. The Intermodal Surface Transportation Efficiency Act of 1991 required, among other things, that states with rail transit operators designate an agency to oversee the safety of those systems, known as a state safety oversight agency. In overseeing state safety agencies, FTA designed the program as one in which FTA, states, and rail transit operators collaborate to ensure the safety and security of rail transit systems. However, limitations have been identified in the state safety oversight program. In 2006, we reported on some state safety agency challenges in overseeing rail transit safety. Specifically, we found many of the state safety agencies lacked enough qualified staff and adequate levels of training to meet their responsibilities. In a 2009 hearing before the Subcommittee on Highways and Transit of the House Committee on Transportation and Infrastructure, then Secretary Ray LaHood of the Department of Transportation discussed some of the weaknesses under the current state safety oversight program and introduced a public transportation safety legislative proposal. In 2010, various bills were introduced in both houses of Congress that would have provided FTA with various enforcement mechanisms and with the authority to issue safety regulations. Additionally, the bills would have required the Secretary to establish a federal certification program for employees and contractors who carry out a state public transportation safety program. In the 112th Congress, the Senate amended a House bill to include a public transportation safety provision, which eventually became section 20021 of MAP-21, the federal public transportation safety program. MAP-21 enhanced FTA’s authority to oversee the safety of rail transit, potentially addressing some of the weaknesses identified by various stakeholders. Specifically, MAP-21 established a comprehensive Public Transportation Safety Program, which continues to rely on state safety agencies to monitor rail transit systems’ safety operations. MAP-21 required that, within 3 years of the effective date of a final state safety oversight program rule, each eligible state have in place a state safety oversight program certified by FTA. An eligible state must, among other things, establish a state safety agency and determine, in consultation with FTA, an appropriate staffing level for this state agency that is commensurate with the number, size, and complexity of the rail transit systems within the state. Additionally, a state safety agency must be financially and legally independent from any rail transit system it oversees and have investigative and enforcement authority with respect to the safety for its rail transit systems, among other things. Each eligible state has until April 15, 2019, to receive FTA approval of its state safety oversight program, or else FTA will be prohibited from obligating certain federal financial assistance to any entity in the state that is otherwise eligible to receive that federal financial assistance. After that approval, state safety agencies will be evaluated for continued compliance with FTA regulations a minimum of once every 3 years through a triennial review process. According to FTA, these requirements represent a dramatic increase in federal expectations for state safety oversight and for the rail transit industry. MAP-21 also established a state safety oversight grant program, offering federal funding to states for their state safety activities. FTA’s Office of Transit Safety and Oversight administers the state safety oversight program. Freight and passenger railroads have played a transformational role in the development of America and continue to be an important part of the economy. The general railroad system consists of a vast network of operations (see fig. 2). The $60 billion freight rail industry is operated by seven Class I, and hundreds of smaller, railroads. In addition, about 40 railroads move passengers, which carry greater than 670 million passengers per year. The federal government has long provided regulatory oversight of railroad safety, both passenger and freight, that operate on the general system. The Interstate Commerce Commission, the first federal regulatory commission in U.S. history, was established in 1887 to regulate interstate commerce by rail. The Commission’s safety functions were transferred to FRA, which was created by the Department of Transportation Act in 1966. In its role as federal regulator and overseer of railroad safety, FRA prescribes and enforces railroad safety regulations and conducts research and development in support of improved railroad safety and rail transportation policy. FRA utilizes safety inspectors and specialists, primarily covering five safety disciplines, to review and enforce compliance with these regulations. FRA’s safety disciplines are track, signal, and train control; motive power and equipment; operating practices; and hazardous materials. Following several fatal rail accidents between 2002 and 2008, the Rail Safety Improvement Act of 2008 was enacted, the first authorization of FRA’s safety programs since 1994. This act directed FRA to, among other things, issue new safety regulations for different aspects of railroad safety, such as hours of service requirements for passenger railroad workers, positive train control implementation, track inspection rules, and safety at highway-rail grade crossings. FRA’s Office of Railroad Safety administers the agency’s safety program. Rail transportation is a relatively safe way to transport people and products though serious incidents continue to occur on railroads and rail transit. According to an analysis of DOT’s Bureau of Transportation Statistics data by the American Public Transportation Association, travel by rail transit is far safer than automobile travel. From 2000-2014, for instance, there were 6.53 and 0.33 fatalities per billion passenger-miles traveled in cars or light trucks and rail transit, respectively. Within rail travel, the fatality rates on both railroads and rail transit operators have remained similar in recent years. Further, the rate of accidents and incidents—including collisions and derailments—also do not appear to differ substantially between railroads and rail transit in recent years. Nevertheless, serious incidents continue to occur on railroads and rail transit, posing safety risks to passengers, railroad employees, and the public. For example, in June 2009, two WMATA trains collided, resulting in 52 injuries and 9 deaths. A smoke incident on WMATA’s Metrorail system in January 2015 also resulted in the death of 1 person and injured over 90. In a 10-month period from May 2013 to March 2014, the Metro- North commuter railroad, which serves New York and Connecticut, was involved in five accidents that resulted in the death of 6 people and 126 injured. In June 2016, two BNSF Railway freight trains collided near Panhandle, Texas, resulting in the death of three crew members. Incidents such as these have prompted investigations into both the causes and contributing factors of the specific accidents as well as broader rail safety oversight. FRA has a more centralized safety oversight program for railroads, while FTA is implementing changes to the rail transit oversight program, established in federal statute, which relies on states to monitor and enforce safety. Key characteristics of both programs include: (1) the establishment of safety regulations, (2) inspections and other oversight activities, such as audits and investigations, based on those regulations, and (3) enforcement mechanisms to ensure that safety deficiencies are addressed (see fig. 3). FRA has developed extensive railroad safety regulations over decades. FRA’s railroad safety regulations include requirements governing track design and inspection, grade crossings, signal and train control, mechanical equipment including locomotives, and railroad-operating practices including worker protection rules. For example, FRA’s regulations for track and equipment include detailed, prescriptive minimum requirements, such as formulas that determine the maximum allowable speeds on curved track. Many of FRA’s rail safety regulations establish minimum safety requirements, though railroads can apply for waivers. As FRA updates its safety regulations, it has proposed more performance-based regulations in recent years. Many of FRA’s current safety regulations specify the behavior or manner of compliance that railroads must adopt, such as inspecting each locomotive at least every 92 days. Performance-based regulations, however, specify a desired outcome rather than a behavior or manner of compliance. For example, FRA’s recent rulemaking to amend its passenger equipment safety regulations proposes performance-based crashworthiness and occupant protection requirements, rather than explicit targets or tolerances. According to FRA, establishing performance requirements in these areas would allow a more open rail market that incorporates recent technologies. FTA is currently assessing the need for rail transit safety regulations, having been provided the authority to issue safety regulations in 2012. Since MAP-21 was enacted, FTA has finalized regulations implementing the public transportation safety program authorized by statute. These include regulations that establish rules for FTA’s administration of a comprehensive safety program to improve rail transit safety as well as updated regulations governing state safety oversight of rail transit. In addition to its public transportation safety program regulations, FTA also has regulations governing its drug and alcohol testing program. MAP-21 also authorized FTA, for the first time, to issue rail transit safety regulations, which would establish minimum safety performance requirements for rail transit operators, as part of its requirement to develop a National Public Transportation Safety Plan. FTA initiated a regulatory development effort after the passage of MAP-21, which included a compilation and evaluation of existing transit safety standards, guidance, and best practices from the federal government, states, industry, and other sources. After the evaluation, FTA issued a report that concluded there was limited documentation or evidence of the effectiveness of these existing rail transit safety standards. The report included recommendations that are intended to enable FTA to undertake further data-driven, risk-based analysis of rail transit safety performance and the applicability and effectiveness of the identified safety standards. FTA is also currently analyzing specific focus areas to determine any areas that should be addressed by federal safety regulations. For example, FTA is studying the need for regulations related to rail transit vehicle crashworthiness. Since no federal rail transit safety regulations that establish minimum safety performance requirements for rail transit operators currently exist, rail transit operators are subject to different safety standards, depending largely on what voluntary standards they have chosen to adopt, according to American Public Transportation Association officials we spoke with. The American Public Transportation Association, for instance, has issued a variety of rail transit safety standards, addressing various aspects of the industry including operations, training, and inspections. In addition, states vary in the extent to which they have regulations for rail transit operators. For example, officials from the California Public Utilities Commission noted that it has issued a variety of safety regulations applicable to rail transit operators within the state of California to improve safety of rail operations. Both FRA and FTA have mechanisms to gather the input of stakeholders—including rail operators, labor unions, industry associations, and others—when considering development of safety regulations. In developing most of its safety regulations, FRA seeks input from stakeholders through its Railroad Safety Advisory Committee. In 1996, FRA established this committee to develop new regulations through a collaborative process, with the rail community working together to create mutually satisfactory solutions to safety issues. FTA is collaborating with stakeholders as it assesses the need for rail transit safety regulations. More specifically, FTA’s research partner, the Center for Urban Transportation Research, established a working group to collaborate with industry stakeholders to inform the safety regulations development process. FTA also solicited comments from industry stakeholders on its compilation of existing rail transit safety standards. More broadly, FTA also has a Transit Advisory Committee for Safety, which provides information, advice, and recommendations to FTA on safety matters. FRA fulfills its mission, in part, through safety compliance audits and inspections, and investigations. FRA ensures compliance with its safety regulations through inspections, using a staff of railroad safety experts, inspectors, and other professionals assigned to eight regional offices across the nation. For example, to determine a railroad’s compliance with FRA safety regulations, inspectors examine track, equipment, signal devices, employee actions, and procedures and review maintenance and accident records. Additionally, 31 states have rail safety programs that partner with FRA. Under this approach, FRA enters into agreements with states to allow state inspectors to participate in investigative and surveillance activities concerning federal railroad safety laws. State inspectors who participate in this program submit inspection reports to FRA. More broadly, FRA’s inspections are guided by a risk-based model. Under this approach, FRA focuses its inspections on locations that, according to the data-driven model, are likely to have safety problems. Like other operating administrations within DOT, FRA has relatively few resources for overseeing railroads, compared with the size of the general system. The risk-based model is designed to help FRA target the greatest safety risks. FRA has begun utilizing automated inspections as well. In particular, according to FRA, new imaging technologies have the potential to better inspect track for cracks in the rail that could lead to breakage as well as measure the track’s geometry to ensure that rails are positioned to meet standards. To further promote safety in railroad operations, FRA conducts accident investigations. Separate from investigations conducted by NTSB, FRA investigates select railroad accidents to determine root causation, and any contributing factors, so that railroad properties can implement corrective actions to prevent similar incidents in the future. Resources for railroad safety oversight activities have increased in recent years. FRA was appropriated about $218 million in fiscal year 2017, an increase over the approximately $187 million it received in fiscal year 2015, for safety and operations, which funds FRA’s personnel, including inspectors, and safety programs. According to FRA, Congress provided FRA with increased funding in recent years for the purpose of increasing staffing related to specific safety issues, such as trespasser prevention and passenger rail safety. As part of this effort, FRA has hired additional inspectors, going from 347 inspectors in fiscal year 2013 to over 360 currently, out of the nearly 930 total full-time equivalent staff. FRA officials told us, as we have reported in the past, that it can be difficult to recruit, train, and certify qualified inspectors in a timely manner, especially in certain areas of expertise. Further, according to FRA, its inspectors have the ability to inspect less than 1 percent of the general system annually. Though FTA now has more robust inspection authorities, states will continue to conduct front-line rail transit safety oversight activities. MAP- 21 provided FTA with new authorities to inspect, audit, and investigate practices at rail transit agencies, including safety practices, while also preserving the role of state safety agencies to monitor rail transit systems’ safety operations. According to FTA officials, any federal inspections of rail transit operators are intended to supplement a state safety agency’s oversight activities, except where FTA assumes temporary, direct oversight of a rail transit system from an inadequate state safety agency. FTA officials told us that establishing a nationwide safety inspection program at the federal level is inconsistent with the statutory framework of the state safety oversight program and with congressional intent, which contemplates preserving the primary role of state safety agencies in providing direct safety oversight of rail transit systems. The officials also noted that the state-based approach to rail transit safety oversight is valuable because states are generally closer to, and more familiar with, rail transit operators. To date, FTA has utilized its new inspection authorities only on WMATA’s rail system. As part of oversight activities, some state safety agencies have conducted inspections of the rail transit systems they oversee, though they were not required to do so, according to FTA officials we spoke with. To strengthen states’ abilities to conduct oversight activities, FTA has recommended that state safety agencies develop risk-based inspection programs. Further, to ensure the independence of state safety agencies, these agencies cannot receive funding from the rail transit entities they oversee. Resources for FTA’s rail transit safety oversight administrative expenses have remained relatively stable in recent years, though more are needed, according to FTA. Since fiscal year 2012, FTA’s appropriations for administrative expenses, which funds FTA personnel and support activities including the Office of Transit Safety and Oversight, has increased $14 million, to about $113 million in fiscal year 2017, according to FTA. However, for several years, FTA has averaged about 508 total full-time equivalent staff agency-wide, and a little over 30 safety staff in the Office of Transit Safety and Oversight. According to FTA, the Office of Transit Safety and Oversight has been under-resourced since it was established in response to new safety authority provided in MAP-21. For fiscal year 2018, FTA requested in their submission for the President’s Budget proposal funding to hire up to an additional 20 positions for various lines of safety work. FRA’s and FTA’s oversight activities also include regular audits of, and communication with, the rail operators under their oversight. Given finite resources and large rail networks, FRA and FTA audit rail operators’ own inspections rather than conducting comprehensive federal inspections. More specifically, FRA inspectors, and state safety agencies in FTA’s oversight program, regularly examine records of rail operators’ internal inspections to identify safety deficiencies. Officials from FRA, FTA, and five rail stakeholders we spoke with told us that FRA and FTA rail safety oversight programs also rely on collaboration and communication between rail operators and regulators to ensure safety. For example, regular meetings between FRA and railroad staff to discuss safety trends and industry developments are important to ensuring safety, according to officials we spoke with from FRA and the railroads. FRA specialists and inspectors participate, with representatives of railroad labor and management, in the implementation of voluntary safety programs. For example, FRA sponsors the Confidential Close Call Reporting System, a voluntary, confidential program allowing railroads and their employees to report accident and incident “close calls.” According to FRA officials, voluntary programs such as this increase industry awareness of railroad safety and engagement with it. FTA also collaborates with state safety agencies as rail transit safety issues arise, according to FTA officials, using federal oversight and enforcement authorities as a “back-stop” against the oversight of state safety agencies. Additionally, according to officials we spoke with from FTA and two rail transit operators, state safety agency staff meet with rail transit operators regularly, using knowledge of local operating conditions to help ensure safety. FRA uses a variety of tools, including civil penalties, to resolve safety issues. While some safety issues are resolved informally through discussion and collaboration between FRA and railroads, as noted above, some defects identified during inspections are classified as violations and subject to financial penalties. More specifically, when railroads do not resolve issues in a timely manner or identified defects are serious, FRA has the authority to cite violations and assess civil penalties, against either railroads or individuals. Further, as authorized by law, FRA negotiates settlements with railroads and other entities subject to its safety jurisdiction to resolve claims for civil penalties. In fiscal year 2016, FRA assessed over $11.8 million in civil penalties against railroads. According to FRA, fiscal year 2016 was the second year in a row that it took steps to increase penalty amounts paid by railroads, as part of a continued effort to increase consequences for violations that negatively affect safety. To ensure the safety of rail transit systems, states will continue to be the primary enforcers of safety requirements, according to FTA officials, though FTA now has more enforcement tools. MAP-21 preserved the role of state safety agencies as the primary enforcement body for rail transit. FTA has now required that state safety agencies have enforcement authorities sufficient to compel action from rail transit entities to address safety deficiencies. Though no specific authorities are required, FTA has suggested that a variety of mechanisms could be appropriate, such as the ability to remove deficient equipment from service or assess fines. According to FTA, this requirement is designed to overcome a long- standing vulnerability in state safety oversight, which allowed safety deficiencies to remain for long periods of time. MAP-21 and the FAST Act also provided FTA with more options for enforcement when rail transit operators are found to be out of compliance with safety requirements. In particular, FTA can withhold federal funding for rail transit operators or direct a rail transit operator to use federal funding for a specific purpose. Additionally, after FTA assumes temporary direct oversight of an inadequate state safety agency, FTA can withhold federal funds from the state until the state safety oversight program has been certified. To date, FTA has utilized this authority only with the states responsible for safety oversight of WMATA’s rail system. In February 2017, FTA announced that it would withhold 5 percent of fiscal year 2017 urbanized area formula funds from Maryland, Virginia, and the District of Columbia until a new state safety oversight program is certified for WMATA’s rail system. This action built upon FTA’s determination that WMATA’s state safety agency was ineffective at “providing adequate oversight consistent with prevention of substantial risk of death or personal injury.” FRA and FTA also have the authority to directly intervene in rail operations. In particular, both FRA and FTA can suspend the service of rail operators in response to certain safety concerns. Additionally, FTA can assume direct safety oversight of a rail transit operator if FTA determines the state safety oversight program is not adequate, among other things. In response to safety incidents on WMATA’s rail system, FTA assumed temporary and direct safety oversight of WMATA in October 2015, as previously noted. FRA and FTA’s approaches to their rail safety oversight missions each have strengths and limitations, including how the agencies develop safety regulations, conduct inspections, and carry out enforcement. Compared to FRA’s long-standing role in providing safety oversight over railroads, FTA is in the process of implementing significant changes to its program for rail transit safety oversight after being granted new authorities in MAP- 21 and the FAST Act. With respect to regulations, FRA’s extensive and well-established safety regulations are a strength. FTA has made some progress toward developing appropriate safety regulations, such as identifying subjects for potential regulatory action. With respect to inspections, FRA’s use of a risk-based approach to distributing inspection resources is a strength. FTA has sought to address previously identified deficiencies in state safety oversight by recommending that state safety agencies develop risk-based inspection programs. FTA, though, has not provided states guidance for these efforts. With respect to enforcement, FRA’s use of its enforcement authorities is a strength. FTA is also implementing new statutory requirements that state safety agencies have enforcement authorities but does not have a process or methodology to evaluate the effectiveness of these enforcement practices. Extensive and well-established safety regulations are a strength of FRA’s safety oversight program based on studies we reviewed and discussions with rail operators and stakeholder organizations. According to NTSB, FRA’s railroad safety regulations are an important and effective part of its oversight program. Our previous work reported that according to stakeholders, the Railroad Safety Advisory Committee provides a collaborative environment where stakeholders in the rail community work with FRA to identify issues and proposals for safety standards and regulations that improved the quality of railroads’ safety initiatives and fostered a greater level of compliance with safety regulations. This is consistent with views of stakeholders we spoke with, who characterized FRA’s safety regulations as a strength. An industry association told us that FRA’s regulations promote safety by helping to ensure that no operator falls below a minimum threshold for safe operations, while a rail operator told us that federal regulations help to standardize the operating environment and prevent a patchwork of various state regulations. Four stakeholders also characterized the Railroad Safety Advisory Committee, which plays a large role in crafting FRA’s railroad safety regulations, as effective and inclusive. However, based on studies we reviewed and discussions with rail operators’ and stakeholders’ organizations, FRA faces limitations in its efforts to regulate safety across railroad systems that differ from one another and sometimes change more quickly than the federal regulatory process. Five railroad operators and an industry association told us that some of FRA’s safety regulations do not account for differences in railroads or innovation in safety practices, with three railroad operators stating that this approach requires the extensive use of waivers for particular regulations. Further, two railroad operators and a rail transit operator we spoke with stated that additional federal regulations are needed to provide minimum baseline requirements in specific areas of railroad safety such as medical fitness for duty. In 2014, NTSB also found that FRA needs to do more to regulate particular safety issues including medical fitness for duty and signal protection. FRA officials acknowledged that time and resources are two of the primary challenges that the agency faces when developing safety regulations but also noted additional ways in which the agency can require railroads to adopt safety practices. FRA officials described the process of creating or significantly amending a regulation as involving years of work, even before the agency commences with the process of drafting a rule. The officials also noted that the agency has additional tools to compel railroads to adopt safety practices. For example, FRA officials discussed the use of compliance agreements, in which railroads can have fines reduced in exchange for adopting safety measures that go beyond what FRA regulations require. FRA officials are considering the use of performance-based regulations as they update their safety regulations. As noted above, FRA’s proposed regulations regarding passenger equipment safety incorporates performance -based safety requirements, rather than explicit safety targets or tolerances. FRA has promulgated performance-based regulations about the implementation of positive train control, a communications-based system designed to prevent certain types of train accidents, as well as system safety programs that set general safety parameters and thresholds by which successful performance is governed. FRA’s consideration of performance-based regulations is in line with federal guidance. OMB’s Circular A-4 states that performance standards “are generally superior to engineering or design standards because performance standards give the regulated parties the flexibility to achieve regulatory objectives in the most cost-effective way.” Additionally, under Executive Order 12866, agencies should (to the extent permitted by law and where applicable) identify and assess alternative forms of regulation and specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt. However, as the language of OMB’s Circular A-4 and Executive Order 12866 suggest that performance-based regulations are not always feasible, studies of performance-based regulations find that as with any other form of regulation, performance-based standards have trade-offs. FRA officials told us that under certain circumstances, performance- based regulations are appropriate for issues regarding design, maintenance, operation, and technology-driven safety requirements. FRA officials we spoke with did not think performance-based standards are appropriate for areas that require standardization. One example is track safety standards, where the need for different operators to use the same equipment precludes a performance-based approach that allows railroads to meet requirements through different means. FRA officials added that a key aspect of the success of performance-based regulations concerns how railroads demonstrate compliance. This concern is consistent with other studies of performance-based regulations, which find that these regulations are most appropriate when regulators have capacity to measure and monitor performance. Though FTA has made progress assessing the state of rail transit safety standards, a limitation of FTA’s rail transit safety oversight program is the lack of federal rail transit safety regulations, which may contribute to inconsistent safety practices across the rail transit industry, according to studies we reviewed and discussions with rail operators and stakeholder organizations. NTSB reported that the structure of FTA’s oversight process leads to inconsistent practices, inadequate standards, and marginal effectiveness. In addition, a 2016 DOT OIG report found that because FTA’s safety standards are voluntary, they are unenforceable. In 2012, FTA gained the authority to issue safety regulations, though it has not done so yet, and NTSB and other stakeholders we spoke with indicated that the lack of such federal safety regulations is a weakness in federal rail transit safety oversight. Despite differences across rail transit systems, there is value in establishing federal rail transit safety regulations, according to stakeholders from all categories of those we interviewed, including a state safety agency, three rail transit operators, a railroad operator, and two industry associations. Some stakeholders identified specific areas that would benefit from federal rail transit regulations. For example, two rail transit agencies called for federal regulations to address operator fatigue. Some of these officials stated that federal rail transit safety regulations could help ensure safety by establishing clear and consistent minimum standards. Officials from a rail transit entity and an industry association stated that voluntary standards are not enough to ensure that transit entities will adopt appropriate safety measures. According to our analysis, a past study, and stakeholders we spoke with, FTA’s ability to develop and implement performance-based regulations is limited by its lack of capacity to collect and analyze rail safety performance data. In 2017, DOT OIG found that data limitations of FTA’s National Transit Database results in limited safety performance criteria in FTA’s National Public Transportation Safety Plan. Further, two rail transit entities as well as a state safety agency we spoke with stated that they face challenges in analyzing data due to either the size of their systems or their capacity. FTA officials told us that they need more data to inform their decisions regarding whether to establish rail transit safety regulations, and also added that a limitation to their ongoing assessment of potential areas for rail transit safety regulation is the concern about public disclosure of safety data provided to FTA and its potential use in private litigation. According to FTA officials, they need more information to do a comprehensive evaluation of efficacy of current safety standards and practices. As required by the FAST Act, FTA has entered into an agreement with the National Academies of Sciences, Engineering, and Medicine, to conduct a study to evaluate whether it is in the public interest to withhold from federal or state court proceedings any information collected by DOT through its public transportation safety program oversight activities. The National Academies of Sciences is expected to complete this study in 2018. FTA is taking positive steps toward developing safety regulations that may address inconsistent safety practices across rail transit operators. FTA officials stated that the agency is considering issuing rail transit safety regulations and also employs additional tools to compel rail transit entities to adopt safety measures. As noted above, FTA is currently studying whether federal regulations are appropriate for specific areas of rail transit safety. Executive Order 12866 and OMB’s Circular A-4 direct federal agencies to consider performance-based regulations when developing regulations. Further, as the Transportation Research Board recently reported, any decision to use performance-based regulations “must take into account the regulator’s own ability to enforce and motivate compliance (through methods such as auditing and field inspections) as well as the capacity of regulated entities to meet their obligations.” FTA officials noted that they are actively engaged with members of the Transportation Research Board in reviewing and discussing these recent findings related to safety regulations for high-hazards industries. In January 2017, FTA issued its National Public Transportation Safety Plan, which FTA officials noted is one component of their transit safety standard development program. According to FTA officials, the plan identifies a list of issue areas that the agency is currently studying to determine whether national regulations are needed. FTA officials also stated that the plan includes “voluntary standards,” which are intended to put the industry “on notice” that federal safety regulations may be proposed in those areas. FTA officials stated that they view the National Public Transportation Safety Plan as iterative and more easily updated compared with official regulations. Additional tools that FTA officials stated the agency employs in its approach to safety oversight include general directives as well as the requirements associated with FTA grants. Based on our assessment and studies we reviewed, a strength of FRA’s safety oversight program is its risk-based approach to distributing inspection resources, which may serve as an example for FTA and state safety agencies. According to NTSB, FRA’s qualified inspectors are a strength of its oversight program. To help target these inspectors to the areas of highest risk, FRA developed the National Inspection Plan, which includes a quantitative model for allocating inspection resources in a way that tries to minimize railroad accidents. This model utilizes data including: (1) accident and incident data that railroads are required to report, (2) data from FRA inspection activity, and (3) information on railroad activities such as train miles and other data. Based on our assessment of FRA’s model, we believe that it can be an appropriate and useful tool for directing its inspection resources based on risk because it relies on statistical methods commonly used to predict the risk of a violation for regulated entities. While we did not review FRA’s entire modeling process, nor did we validate the results it generates, we do believe that FRA’s approach to using these statistical models as a key part of its inspection program is appropriate. However, a potential limitation of FRA’s inspection program is the flexibility granted to individual inspectors and whether the manner and extent to which inspectors implement this discretion may be inconsistent with the risk-based National Inspection Plan. FRA’s National Inspection Plan provides guidance for inspectors about how much time they should spend inspecting individual railroads. According to FRA officials, FRA inspectors have considerable flexibility to deviate from the National Inspection Plan based on their judgment regarding where to more effectively use their resources. FRA officials stated that situations arise that call for deviations in planned inspections. For example, a particular railroad may experience a serious accident and therefore require more oversight from FRA. According to FRA officials, regional offices make these decisions based on their understanding of emerging issues. Inspectors are expected to know their region and decide which locations to go to, and are in part evaluated based on these decisions. When a region’s record of total inspection time spent on a particular railroad differs from the National Inspection Plan by more than 5 percent, the region’s leadership submits an explanation to FRA’s Office of Railroad Safety. This practice, if not monitored, could allow inspectors to deviate from the data-driven model results in ways that undermine the goal of the National Inspection Plan to deploy FRA’s limited resources efficiently and based on risk. However, FRA officials told us that flexibility for individual inspectors is important, and that FRA is continuously monitoring the model’s performance and making changes as appropriate. Further, OECD’s Best Practice Principles for Regulatory Policy note that it is important to ensure “that sufficient flexibility is left to enforcement and inspection officials to adapt their response in proportion to the facts on the ground.” A strength of FTA’s approach to rail transit safety oversight is that it is working to overcome weaknesses in state oversight of rail transit identified in our prior work and stakeholders we spoke with. For example, FTA has noted that in the past some state safety agencies lacked sufficient oversight authorities. To now be certified by FTA, state safety agencies must demonstrate that they have authority to review, approve and oversee the implementation of rail transit operator’s safety plans. Additionally, we have found, and FTA has also noted, that some state safety agencies would benefit from more training and additional staff. To now be certified by FTA, state safety agencies must be capable of directly hiring and developing staff and contract support, as well as have a training plan for certain staff. Though FTA is seeking to implement stronger safety oversight activities, a limitation of its program is that state safety agencies have not received the guidance and support necessary to develop effective inspection programs. FTA does not currently plan to conduct widespread inspections itself and recommends that state safety agencies develop risk-based inspection programs. According to FTA, states have discretion to establish their inspection programs in accordance with their program standards, and are not required to actually conduct inspections as the method of verifying rail transit operators’ compliance with safety rules. However, direct observation, audits, and performance indicator tracking are useful methods for an oversight agency in assessing a regulated entity’s safety culture. Officials we spoke with from selected state safety agencies say that they have received little guidance from FTA on what their risk-based inspection programs should look like. In the materials FTA provided to states, it said that it intends to provide guidance to states on risk-based inspections but did not provide us with a plan or timeline for doing so. Without guidance from FTA, state safety agencies may not develop effective risk-based inspection programs and thus not use their resources efficiently. Effective risk-based inspection programs are particularly important given state safety agencies’ limited resources. We have reported in the past that some state safety agencies lack sufficient resources, including training and staff. Officials from two rail transit operators and all four industry associations we spoke with stated that state safety agencies continue to have limited resources and capacity. Several state safety agencies we spoke with rely on contractors or employees with other responsibilities besides oversight of rail transit to meet their increased oversight responsibilities and achieve certification from FTA. Federal standards for internal control as well as leading practices for regulatory inspections state that agency objectives, including those related to inspections and enforcement, should be clearly communicated. Specifically, federal standards for internal control require that management communicate the necessary quality information to achieve the agency’s objectives. Additionally, the OECD’s Best Practice Principles for Regulatory Policy recommends that governments ensure clarity of rules and processes for enforcement and inspections and clearly articulate rights and obligations of officials. According to OECD, the frequency of inspections and the resources employed should be proportional to the level of risk. A strength of FRA’s safety oversight program is that the agency has and utilizes clear enforcement authority, according to NTSB and stakeholders we spoke with. As previously discussed, FRA has several enforcement tools available when inspectors find that railroads are noncompliant with applicable regulations, including civil penalties, individual liability, compliance orders, and emergency orders. According to NTSB, this array of specific enforcement tools helps ensure safety deficiencies are addressed by railroads. FRA officials also told us that the process of adjudicating civil penalties provides a forum for FRA and railroad officials to meet to discuss safety issues. Four rail operators also told us that FRA’s authority to issue civil penalties is necessary to ensure railroads’ compliance with regulations. However, a potential limitation of FRA’s approach to enforcement is that it is difficult to quantify the effectiveness of FRA’s civil penalties. FRA has reported that it cannot determine whether observable safety improvements are directly attributable to discrete civil penalties or whether the amount of civil penalties has any effect on safety. We have reported in the past about the challenges of determining the effect of penalties on compliance in tax policy, though we also noted that, despite these challenges, some analyses likely would be useful for better understanding the effect of penalties on compliance. FRA also reported, though, that according to the judgments of its inspectors, issuing civil penalties yields observable improvements in safety practices and compliance with the law. Further, according to FRA, though it does not quantify the impact of civil penalties, FRA monitors railroad responses to its enforcement activity and adjusts its oversight as necessary. More broadly, civil penalties are not meant, by themselves, to ensure railroad safety. Instead, FRA reported that it uses its entire regulatory regime as a whole to try and ensure safety. FRA officials also noted that the agency has additional tools, apart from civil penalties, to compel railroads to adopt safety practices. A strength of FTA’s rail transit safety oversight is that it seeks to improve historically weak state safety agency enforcement authorities, as described in our previous report as well stakeholders we spoke with. FTA requires state safety agencies to adopt enforcement authorities that are sufficient to enable states to compel action from rail transit agencies to address identified deficiencies. FTA has also communicated to states that it is focusing its evaluation of each state’s enforcement authorities in two major areas: ensuring that the state can carry out its primary responsibility for rail transit safety in response to (1) an imminent threat to public safety on the rail transit system and (2) a lack of action or non- compliance from the rail transit operator in carrying out certain safety plans. FTA has provided states with examples of the enforcement authorities and policies state safety agencies could establish to address these specific concerns. Authorities to address imminent safety threats may include the authority to suspend rail transit agencies’ operations, inspect and remove deficient equipment or system infrastructure from service, or issue an order requiring the rail transit agency to correct an unsafe condition prior to placing equipment or infrastructure back into passenger service. FTA has also provided state safety agencies with examples of authorities to address a lack of action or cooperation by the rail transit operator, including the authority to withhold or redirect funds, levy civil or criminal fines or penalties, and a formal citation or ticketing program. Though federal law requires that state safety agencies have enforcement authorities over the safety of the rail transit entities they oversee, a limitation of FTA’s approach is that FTA has not developed a method to evaluate the effectiveness of states’ enforcement practices. Certified state safety agencies will be evaluated for continued compliance with FTA regulations every 3 years. This triennial review process (for rail transit safety) seeks to ensure that states are effectively carrying out their responsibilities. While FTA officials told us that they will evaluate state safety agencies’ enforcement during the triennial reviews, FTA has not developed a process or methodology to evaluate whether state enforcement authorities and practices as a whole are effective. Without a method for determining the effectiveness of state safety agencies’ enforcement, FTA may not have the information needed to identify ineffective safety enforcement. As a result, deficiencies may remain for long periods of time, potentially contributing to safety incidents. Federal standards for internal control maintain that agency managers should perform a range of practices that would facilitate the establishment of a system to monitor the effectiveness of agency activities, which in the context of FTA’s mission includes the effectiveness of its rail transit safety oversight. Agency managers should define objectives clearly to enable the identification of risks, establish activities to monitor performance measures and indicators, and externally communicate the necessary quality information to achieve the entity’s objectives. Internal control standards further stipulate that agency managers should perform monitoring activities regarding their internal control system and evaluate the results. To do so, federal standards for internal control state that agency managers should monitor ongoing operations and effectiveness, evaluate the results of this monitoring, and identify any changes that need to be made to achieve improvement in agency operations. The effectiveness of state safety agency enforcement is especially important because questions have been raised about the efficacy of FTA’s own enforcement mechanisms, including its ability to withhold funds from and assume direct control over safety oversight for a rail transit entity. Rail transit operators and industry association representatives we spoke with stated that FTA’s authority to withhold funding from states is overly punitive, and two stakeholders said the FTA needs more precise tools. Officials from an industry association added that withholding funds can be counterproductive, as most state safety agencies are already underfunded and understaffed. FTA officials pointed to examples in which the agency successfully supported state safety agencies in compelling action from rail transit agencies as evidence that the state safety oversight model, in which FTA backs up state safety agencies, is effective. Additionally, officials from numerous state safety agencies and others questioned whether FTA has the capacity to effectively assume direct safety oversight of rail transit operators. FTA has not assumed direct safety oversight of any rail transit operators outside of WMATA, and FTA officials noted that they intend to continue supporting state safety agencies in their oversight wherever possible. The approaches to rail safety oversight utilized by FRA and FTA each have strengths and limitations. However, FTA’s program is currently in transition as the agency implements new authorities and responsibilities provided in federal law. Though FTA has made progress by evaluating existing rail transit safety standards and providing some guidance to states as part of the certification process, limitations in FTA’s approach may still hinder the success of the state-based rail transit safety oversight program. Given the looming 2019 deadline for state safety oversight programs to achieve FTA certification, FTA can improve its efforts to implement its new rail transit safety oversight program. In particular, without guidance from FTA on how to develop and carry out risk-based inspection programs, state safety agencies may not use limited resources efficiently, risking that important safety issues will go undetected. Further, without a method for how it will monitor the effectiveness of states safety agencies’ enforcement, FTA will lack the information needed to identify ineffective state enforcement, which risks allowing safety deficiencies to remain for long periods of time. By providing this additional guidance and direction to the state safety agencies, FTA would help ensure that states are able to effectively identify and resolve rail transit safety issues. We are making the following two recommendations to FTA: The Office of Transit Safety and Oversight should create a plan, with a timeline, for developing guidance for state safety agencies about how to develop and implement a risk-based inspection program. (Recommendation 1) The Office of Transit Safety and Oversight should develop and communicate a method for how it will monitor the effectiveness of the enforcement authorities and practices of state safety agencies. (Recommendation 2) We provided a draft copy of this report to DOT, NTSB, and WMATA for review and comment. In written comments, reproduced in appendix I, DOT agreed with both our recommendations. DOT also provided technical comments, which we incorporated as appropriate. In e-mails, NTSB and WMATA provided technical comments, which we incorporated as appropriate. NTSB noted that we do not discuss the role of system safety initiatives, such as safety management systems, in the FRA and FTA rail safety oversight programs. We agree with NTSB that system safety concepts are increasingly influencing the FRA and FTA approaches to rail safety oversight but, as NTSB also noted, both FRA and FTA lack finalized regulations codifying their approaches to system safety initiatives. Because the extent of rail entities’ implementation of these initiatives varies and is not complete we did not include an assessment of the strengths and limitations of those initiatives in our scope. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies to the Secretary of Transportation, Chairman of NTSB, General Manager of WMATA, and the appropriate congressional committees. In addition, the report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Individuals who made key contributions to this report are listed in appendix II. In addition to the contact named above, Steve Cohen (Assistant Director); Kyle Browning (Analyst in Charge); Melissa Bodeau; Lacey Coppage; Serena Lo; Sean Miskell; and Josh Ormond made key contributions to this report.	[ "In 2012 and 2015, DOT was provided with additional authority to oversee the safety of rail transit. Within DOT, FTA is now implementing this authority. The DOT's Office of Inspector General has reported, though, that FTA faces challenges in carrying out its enhanced safety oversight. FRA, also in DOT, has long carried out safety oversight of freight, intercity passenger, and commuter railroads. GAO was asked to review various rail safety and oversight issues, including the differences between FRA's and FTA's rail safety oversight programs. This report examines (1) key characteristics of FRA's and FTA's rail safety oversight programs and (2) strengths and limitations of FRA's and FTA's rail safety oversight programs. GAO assessed FRA's and FTA's information about rail safety oversight activities against guidance from the Office of Management and Budget, leading practices developed by the transit industry, and federal standards for internal control. GAO also interviewed stakeholders, including rail operators chosen based on mode, size, and location. The Department of Transportation's (DOT) Federal Railroad Administration (FRA) and Federal Transit Administration (FTA) carry out different approaches to rail safety oversight. FRA has a more centralized safety oversight program for railroads, while FTA's program for oversight of rail transit safety largely relies on state safety agencies to monitor and enforce rail transit safety, as established in federal statute. Key characteristics of both programs include: (1) safety regulations, (2) inspections and other oversight activities, and (3) enforcement mechanisms to ensure that safety deficiencies are addressed (see figure). There are strengths and limitations to FRA's and FTA's approaches to their safety oversight missions, including how the two agencies develop safety regulations, conduct inspections, and carry out enforcement. The National Transportation Safety Board has reported, and stakeholders GAO spoke with generally agreed, that strengths of FRA's rail safety oversight program include its safety regulations, its risk-based inspection program, and its enforcement authorities. FRA also has potential limitations in its oversight framework, though, such as difficulty evaluating the effectiveness of its enforcement mechanisms. FTA has made some progress implementing changes to the rail transit safety program. However, FTA has not provided all the necessary guidance and support to states' safety agencies to ensure they develop appropriate and effective rail transit safety inspection programs. In particular, FTA has not provided states with guidance on how to develop and implement risk-based inspection programs. Though FTA has said that it will develop such guidance, it does not have a plan or timeline to do so. Without guidance from FTA on how to develop and carry out risk-based inspections, state safety agencies may not allocate their limited resources efficiently, and important safety issues may go undetected. In addition, FTA has not developed a process or methodology to evaluate whether state safety agency enforcement authorities and practices are effective. Without clear evidence that state safety agencies' enforcement is effective, states and FTA may not be able to compel rail transit operators to remedy safety deficiencies. As a result, deficiencies may remain for long periods, potentially contributing to safety incidents. GAO recommends that FTA (1) create a plan, with timeline, for developing risk-based inspection guidance for state safety agencies, and (2) develop and communicate a method for how FTA will monitor whether state safety agencies' enforcement practices are effective. DOT agreed with our recommendations. DOT, NTSB, and WMATA provided technical comments that we incorporated as appropriate." ]	8,086	gov_report	en	null	883edf7565d5edca481345d4c0362e08adbcc64a9a665794
NASA’s Commercial Crew Program is a multi-phased effort that began in 2010. Across the phases, NASA has engaged several companies, using both agreements and contract vehicles to develop and demonstrate crew transportation capabilities. As the program has passed through these phases, NASA has generally narrowed down the number of participants. The early phases of the program were under Space Act agreements, which is what NASA calls the agreements entered into pursuant to its other transaction authority. These types of agreements are generally not subject to the Federal Acquisition Regulation (FAR) and allow the government and its contractors greater flexibility in many areas. Under these Space Act agreements, NASA relied on the commercial companies to propose specifics related to their crew transportation systems, including their design, the capabilities they would provide, and the level of private investment. In these phases, NASA provided technical support and determined whether the contractors met certain technical milestones. In most cases, NASA also provided funding. For the final two phases of the program, NASA awarded FAR-based contracts. By using FAR-based contracts, NASA gained the ability to procure missions to the ISS, while continuing to provide technical expertise and funding to the contractors. NASA levied two sets of requirements on the contractors: the ISS program requirements, which must be met by all spacecraft visiting the ISS whether they carry cargo or crew; and the Commercial Crew Program requirements, which have a focus on system capabilities and safety rather than design. The program also established a verification closure notice process, in which the contractors submit data to NASA to verify they have met all the requirements to be certified. This certification must occur before contractors are allowed to fly initial crewed missions to the ISS. In September 2014, NASA awarded firm-fixed-price contracts to Boeing and SpaceX, valued at up to $4.2 billion and $2.6 billion, respectively, for the Commercial Crew Transportation Capability phase. Under a firm- fixed-price contract, the contractor must perform a specified amount of work for the price negotiated by the contractor and government. This is in contrast to a cost-reimbursement contract, in which the government generally agrees to pay the contractor’s allowable costs regardless of whether work is completed. During this phase, the contractors will complete development of crew transportation systems. Boeing’s spacecraft—CST-100 Starliner—is composed of a crew module and a service module. The crew module will carry the crew and cargo. It also includes communication systems, docking mechanisms, and return systems for Earth landing. The service module provides propulsion on-orbit and in abort scenarios as well as radiators for thermal control. SpaceX’s spacecraft—Dragon 2—is composed of a capsule, which we refer to as the crew module, and a trunk, which we refer to as the support module. The crew module is composed of a pressure section and a service section. This module will carry the crew and cargo. It also includes avionics, docking mechanisms, and return systems for a water landing. The support module includes solar arrays for on-orbit power and guidance fins for escape abort scenarios. Figure 1 shows the spacecraft and launch vehicles for Boeing and SpaceX’s crew transportation systems. The Commercial Crew Transportation Capability phase contracts include three types of services: Contract Line Item 001 encompasses the firm-fixed-price design, development, test, and evaluation work needed to support NASA’s certification of the contractor’s spacecraft, launch vehicle, and ground support systems. Contract Line Item 002 covers any service missions that NASA orders to transport astronauts to and from the ISS. Under this indefinite-delivery, indefinite-quantity line item, NASA has ordered six post-certification missions from each contractor. Each service mission is its own firm-fixed-price task order. NASA must certify the contractors’ systems before they can fly these missions. Contract Line Item 003 is an indefinite-delivery, indefinite-quantity line item for any special studies, tests, and analyses that NASA may request. These tasks do not include any work necessary to accomplish the requirements under contract line item 001 and 002. As of April 2018, NASA had funded studies worth approximately $30 million to Boeing, including approximately $27 million for additional testing of the parachute system. NASA had funded studies worth approximately $44 million to SpaceX, including approximately $34 million for additional testing of the parachute system. For each contractor, the maximum value of this contract line item is $150 million. NASA has made changes to the contracts that have increased their value. While the contracts are fixed-price, their values can increase if NASA adds work or otherwise changes requirements, among other means. As of April 2018, NASA requirement changes had increased the value of contract line item 001 for Boeing by approximately $191 million and for SpaceX by approximately $91 million. NASA divided the certification work under contract line item 001 into two acceptance events: the design certification review and the certification milestone. An acceptance event occurs when NASA approves a contractor’s designs and acknowledges that the contractor’s work is complete and meets the requirements of the contract. The first acceptance event—the design certification review—verifies the contractor’s crew transportation system’s capability to safely approach, dock, mate, and depart from the ISS, among other requirements. After the contractor has successfully completed all of its flight tests, as well as various other activities, the second acceptance event—the certification milestone—determines whether the crew transportation system meets the Commercial Crew Program’s requirements. Following this contract milestone is an agency certification review, which authorizes the use of a contractor’s system to transport NASA crew to and from the ISS. Figure 2 shows a notional path leading up to the agency certification review. The Commercial Crew Program’s certification plan outlines how the program will incrementally review required deliverables leading up to, and supporting, the agency certification review. For each review, the plan describes the information that the contractor and the program will present. At the agency certification review, which is chaired by the Associate Administrator of the Human Exploration and Operations Mission Directorate, the agency will review the program’s formal recommendation to certify the contractor’s crew transportation system. Program officials said that their goal is to develop and review certification evidence incrementally in order to reduce the risk that issues will be identified during the agency certification review. In our February 2017 report, we evaluated the progress made by the two contractors on the Commercial Crew Program and found the following: Both of the Commercial Crew Program’s contractors had made progress developing their crew transportation systems, but both also had aggressive development schedules that were increasingly under pressure. We reported that both Boeing and SpaceX had determined that they would not be able to meet their original 2017 certification dates, and both expected certification to be delayed until 2018. We found that the schedule pressures were amplified by NASA’s need to provide a viable crew transportation option because its contract with Russia’s space agency was to provide crew transportation to the ISS for six astronauts through 2018 with rescue and return through late spring 2019. Purchasing additional seats from Russia involves a contracting process that typically takes 3 years. Without a viable contingency option for ensuring uninterrupted access to the ISS in the event of further Commercial Crew delays, we concluded that NASA was at risk of not being able to maximize the return on its multibillion dollar investment in the space station. The Commercial Crew Program was using mechanisms laid out in its contracts to gain a high level of visibility into the contractors’ crew transportation systems, but maintaining that level of visibility through certification could add schedule pressures. We noted that, for example, due to NASA’s acquisition strategy for this program, its personnel were less involved in the testing, launching, and operation of the crew transportation system. While the program developed productive working relationships with both contractors, obtaining the level of visibility that the program required had also taken more time than the program or contractors had anticipated. Ultimately, we noted that the program had the responsibility for ensuring the safety of U.S. astronauts, and its contracts gave it deference to determine the level of visibility required to do so. We concluded that the program office could face difficult choices moving forward about how to maintain the level of visibility it feels it needs without adding to the program’s schedule pressures. In order to ensure that the United States had continued access to the ISS if the Commercial Crew Program’s contractors experienced additional schedule delays, we recommended in our February 2017 report that the NASA Administrator develop a contingency plan for maintaining a presence on the ISS beyond 2018, including options to purchase additional Russian Soyuz seats, and report to Congress on the results. NASA concurred with this recommendation, and in February 2017, NASA executed a contract modification that purchased two seats and included an option to purchase three additional crewmember seats from Boeing on the Russian Soyuz vehicle. These seats represent a contingency plan for U.S. access to the ISS through 2019. In April 2017, NASA informed the Congress of this action. Boeing and SpaceX continue to make progress developing their crew transportation systems, but both contractors have further delayed the certification milestone to early 2019. These changes have occurred as the contractors continue to work to aggressive schedules, and they have had to delay key events regularly. Further delays are likely as the Commercial Crew Program’s schedule risk analysis shows that the certification milestone is likely to further slip. In addition, as of mid-June 2018, NASA officials told us that these dates may change soon but that both contractors have not yet provided official updates to their schedules to NASA. NASA has not fully shared information with Congress regarding the risks of future schedule delays for the contractors and, as a result, Congress lacks insight into when the contractors will be certified. Also, there may be a gap in access to the ISS if the Commercial Crew Program experiences additional delays. While NASA has begun to discuss potential options, it currently does not have a contingency plan for how to ensure an uninterrupted presence on the ISS beyond 2019. Boeing and SpaceX have continued to make progress finalizing their designs and building hardware as they work toward their certification milestones. The contractors are manufacturing test articles to demonstrate system performance and flight spacecraft to support the uncrewed and crewed flight tests, which are expected to demonstrate the ability to meet contract requirements. As table 1 shows, these test articles and spacecraft vary in levels of completion. Some are built and undergoing testing while others are starting the manufacturing phase. Should any issues arise during integration and test or the flight tests, the contractors may have to complete rework on the spacecraft already under construction. While both contractors are making progress, the Commercial Crew Program is tracking risks that each contractor has to address through testing and other means as they work towards the certification milestone. As we have previously reported, these types of risks are inherent in NASA’s major acquisitions, which are highly complex, specialized, and often pushing the state of the art in space technology, but they could also delay the contractors’ progress if issues arise during testing. The Commercial Crew Program’s top programmatic risks identified for Boeing include challenges related to its abort system performance, parachutes, and launch vehicle. Abort System: Boeing is addressing a risk that its abort system, which it needs for human spaceflight certification, may not meet the program’s requirement to have sufficient control of the vehicle through an abort. In some abort scenarios, Boeing has found that the spacecraft may tumble, which could pose a threat to the crew’s safety. To validate the effectiveness of its abort system, Boeing has conducted extensive wind tunnel testing and plans to complete a pad abort test in July 2018. Parachute System: Boeing is also addressing a risk that during descent, a portion of the spacecraft’s forward heat shield may re- contact the spacecraft after it is jettisoned and damage the parachute system. Boeing’s analysis indicates the risk exists only if one of two parachutes that pull the forward heat shield away from the spacecraft does not deploy as expected, and that potential re-contact is non- detrimental. However, NASA’s independent analysis indicates that this may occur even if both parachutes deploy as expected. If the program determines this risk is unacceptable, Boeing would need to redesign the parachute system, which the program estimates could result in at least a 6-month delay. Launch Vehicle Data: One of the program’s top programmatic and safety concerns is that it may not have enough information from Boeing’s launch vehicle provider, United Launch Alliance, to assess whether the Atlas V launch vehicle prevents or controls cracking that could lead to catastrophic failures. NASA estimates that unfinished work in this area could take Boeing and the United Launch Alliance until the fourth quarter of 2018 to complete. Additionally, the first stage of the Atlas V is powered by the Russian built RD-180 engine, and, according to program and Boeing officials, access to its data is highly restricted by agreements between the U.S. and Russian governments. Since our last report, the Commercial Crew Program has lowered the risk that certification of the launch vehicle might not occur by negotiating steps to access necessary data, but work is still ongoing. The Commercial Crew Program’s top programmatic risks identified for SpaceX are in part related to ongoing design and development efforts related to its launch vehicle design, the Falcon 9 Block 5. Composite Overwrap Pressure Vessel: This Block 5 design includes SpaceX’s redesign of the composite overwrap pressure vessel, which is intended to contain a gas under high pressure. SpaceX officials stated the newly designed vessel aims to eliminate risks identified in the older design, which was involved in an anomaly that caused a mishap in September 2016. SpaceX plans to qualify the updated design for flight prior to the uncrewed flight test design certification review. Engine Turbine Cracking: The Block 5 design also includes design changes to address cracks in the turbine of its engine identified during development testing. NASA program officials told us that they had informed SpaceX that the cracks were an unacceptable risk for human spaceflight. SpaceX officials told us that they have made design changes to this Block 5 upgrade that did not result in any cracking during initial testing. However, this risk will not be closed until SpaceX successfully completes qualification testing in accordance with NASA’s standards without any cracks. As of March 2018, SpaceX had not yet completed this testing. Propellant Loading Procedures: Both the program and a NASA advisory group have raised SpaceX’s plan to fuel the launch vehicle after the astronauts are on board the spacecraft to be a potential safety risk. In the May 2018 meeting minutes, however, the Aerospace Safety Advisory Panel stated that with appropriate controls in place, this approach could be a viable option for the program to consider. SpaceX’s perspective is that this operation may be a lower risk to the crew because it reduces the crew exposure time while the launch vehicle is being loaded with propellant. To better understand the propellant loading procedures, the program and SpaceX agreed to demonstrate the loading process five times from the launch site in the final crew configuration prior to the crewed flight test. The five events include the uncrewed flight test and the in-flight abort test. Therefore, delays to those events would lead to delays to the agreed upon demonstrations, which could in turn delay the crewed flight test and certification milestone. Both contractors have notified NASA that their certification milestones have slipped to January 2019 for Boeing and February 2019 for SpaceX, but the Commercial Crew Program’s schedule risk analysis indicates more delays are likely. This analysis identifies a range for each contractor, with an earliest and latest possible completion date, as well as an average. In April 2018, the program’s schedule risk analysis found there was zero percent chance that either contractor would achieve its current proposed certification milestone. The analysis’s average certification date was December 2019 for Boeing and January 2020 for SpaceX. Figure 3 shows the original Boeing and SpaceX contract schedules and the current proposed schedule for five key events in each contract, as well as NASA’s schedule risk analysis for the certification milestone. Each month, the program updates its schedule risk analysis based on the contractors’ internal schedules as well as program officials’ perspectives and insight into specific technical risks. The Commercial Crew Program manager told us that differences between the contractors’ proposed schedules and the program’s schedule risk analysis include: The contractors are aggressive and use their schedule dates to motivate their teams, while NASA adds additional schedule margin for testing. Both contractors assume an efficiency factor in getting to the crewed flight test that NASA does not factor into its analysis. The program manager also told us that the program meets with each contractor monthly to discuss schedules and everyone agrees to the relationships between events in the schedule even if they disagree on the length of time required to complete events. The program manager added, however, that she relies on her prior experience to estimate schedule time frames as opposed to relying on the contractors’ schedules, which are often optimistic. Our analysis also shows that the contractors often delay their schedules. Both contractors have repeatedly stated that their schedules are aggressive and have set ambitious—rather than realistic—dates, only to frequently delay them. Since the current contracts were awarded in 2014, the Commercial Crew Program has held 13 quarterly reviews for each contractor. For the five key events identified above, Boeing has reported a delay at 7 of those quarterly reviews and SpaceX has reported a delay at 9 of them. In mid-June 2018, NASA officials told us that the dates for these key events may change soon. The information presented in Figure 3 above is based on first quarter calendar year 2018 data. NASA officials stated both contractors have not yet officially communicated new schedule dates to NASA as of the second quarter calendar year 2018. We found that both contractors have updated schedules that indicate delays are forthcoming for at least one key event, but NASA officials told us they lack confidence in those dates until they are officially communicated to NASA by the contractors. As a result, NASA is managing a multibillion dollar program without confidence in its schedule information as it approaches several big events, including uncrewed and crewed flight tests. The risk of future delays in the contractors’ schedules is critical information that NASA has not fully shared with Congress. Moreover, NASA has not yet developed a contingency plan to address the potential gaps that these delays could have on U.S. access to the ISS after 2019. Specifically, in the Explanatory Statement accompanying the fiscal year 2018 Consolidated and Further Continuing Appropriations Act, the House Appropriations Committee stated its expectation that NASA report quarterly to the Senate and House Committees on Appropriations on the status of the Commercial Crew Program contracts. Previously, members of Congress had asked for this information in order to ensure that Congress had adequate insight into this program. While NASA includes both contractors’ proposed schedules in its quarterly report to Congress, NASA does not include the results of its own schedule risk analysis. Given the frequency with which the contractors delay key events in their schedules, the program’s schedule risk assessment provides valuable insight into potential delays that NASA currently is not providing to Congress. In addition, as previously mentioned, NASA executed a contract modification that purchased two seats and included an option to purchase three additional crew member seats through Boeing for an undisclosed value and reported this action to Congress in April 2017. Ultimately, the option was exercised, and NASA purchased a total of five seats on four different Soyuz flights. Boeing obtained these seats through a separate settlement with the Russian firm RSC Energia, which manufactures the Soyuz. These seats were intended to serve as a contingency plan based on schedule information available at that time. However, subsequent delays, as well as the risk of future delays as discussed above, indicate that this contingency plan will likely no longer be sufficient. The earliest and latest possible completion dates for certification in NASA’s April 2018 schedule risk analysis indicate it is possible that neither contractor would be ready before August 2020, leaving a potential gap in access of at least 9 months. We calculated the potential gap based on the contractor certification milestone dates, but there could be some additional time required between that review and the first post-certification service mission to the ISS. As seen in figure 4, if the contractors can maintain their current proposed schedules for their respective certification milestones, a gap in access to the ISS is not expected. However, there would be a gap in access to the ISS if neither contractor has its certification milestone before November 2019, which is when NASA expects the final Russian Soyuz seat for a U.S. astronaut to return. Senior NASA officials told us that sustaining a U.S. presence on the ISS is essential to maintain and operate integral systems, without which the ISS cannot function. Given the importance of maintaining a U.S. presence on the ISS, NASA officials have stated they are working on options to address the potential gap in access. However, officials told us that planning for contingencies is difficult given the extensive international negotiations required for some options. Obtaining additional Soyuz seats seems unlikely, as the process for manufacturing the spacecraft and contracting for those seats typically takes 3 years—meaning additional seats would not be available before 2021. As a result, according to NASA’s Associate Administrator for Human Exploration and Operations, the options NASA is considering include: Refine the remaining Soyuz launch schedule to allow for a return in January 2020, as opposed to November 2019. This would provide 2 additional months of access to the ISS before the commercial crew flights need to start. Use the crewed flight tests as operational flights to transport U.S. astronauts to and from the ISS. In March 2018, NASA modified Boeing’s contract to allow NASA to add a third crew member and extend the length of the flight test, if NASA chooses to do so. This would have limited usefulness, however, in filling a potential gap in access to the ISS if the schedule for Boeing’s crewed flight test slips past the return date for the last Soyuz flight and SpaceX also continues to experience delays. NASA’s Associate Administrator for Human Exploration and Operations stated that he is “brainstorming” other options to ensure access to the ISS but does not have a formal plan. While options are not unlimited and decisions have to be made within the context of the current geopolitical environment, Congress stated in the NASA Authorization Act of 2005 that it is U.S. policy to possess the capability for human access to space on a continuous basis. In 2010, Congress further stated that one of the key objectives of the United States’ human spaceflight policy is to sustain the capability for long-duration presence in low-Earth orbit through full utilization of the ISS. If NASA does not develop options for ensuring access to the ISS in the event of further Commercial Crew delays, it will not be able to ensure that the U.S. policy goal and objective for the ISS will be met. The Commercial Crew Program relies on several contractual mechanisms to assess safety throughout the certification process, and those mechanisms are in varying stages of completion. The program itself, its contractors, and two of NASA’s independent review organizations have raised concerns about the program’s ability to assess and evaluate all of the deliverables in a timely manner. In addition, one of the key safety requirements levied by the program is loss of crew, which captures the probability of death or disability to a crew member. NASA does not have a consistent approach for how to incorporate key inputs to assess this metric, which means the agency as a whole may not clearly capture or document its risk tolerance with respect to loss of crew. Further, the program’s chief safety and mission assurance officer is dual hatted to serve simultaneously in a programmatic position as well as the program’s safety technical authority. This approach creates an environment of competing interests because it relies on the same individual to manage technical and safety aspects on behalf of the program while also serving as the independent oversight of those same areas. The contractors are required to provide several key deliverables to the Commercial Crew Program, which inform the agency certification review and help NASA determine the level of risk it is accepting with respect to safety of each spacecraft. As described below, these deliverables are in varying stages of completion and the program itself, its contractors, and two of NASA’s independent review organizations have raised concerns about the program’s ability to assess and evaluate all of the deliverables in a timely manner. Certification Data Package. Among other things, the certification data package includes a list of seven system safety assessments. For example, the certification data package includes a fault tolerance assessment, which describes the system’s ability to sustain a certain number of undesired events, such as software or operational anomalies. A human error analysis—one of the seven assessments in the data package—evaluates human errors to minimize their negative effects on the system. Boeing held its uncrewed flight test design certification review in December 2017 and submitted its certification data package for NASA approval. Boeing plans three more updates to this data package prior to the final certification milestone. SpaceX has begun to submit data and plans to submit its final certification data package as part of its crewed flight test design certification review, which is scheduled for September 2018. According to the program’s certification review plan, program officials will review and approve the contractors’ certification data packages, which will be used to inform the agency certification review. Phased Safety Review Process. A three-phased safety review process informs the program’s quality assurance activities, and it is intended to ensure that the contractors have identified all safety-critical hazards and implemented associated controls prior to the first crewed flight test. In phase one, the contractors identified risks in their designs and developed reports on potential hazards, the controls they put in place to mitigate them, and explanations for how the controls will mitigate the hazards. In phase two, which is nearing completion, the program reviews and approves the contractors’ hazard reports and develops strategies to verify and validate that the controls are effective. For example, if a control requires that an item be waterproofed, verification and validation strategies could include inspections and tests to confirm that the item is waterproof. As of April 2018, the program had yet to complete this phase, having approved 97 percent of Boeing’s phase two reports and 72 percent of SpaceX’s phase two reports. In phase three, the contractors will conduct the verification activities and submit the hazard reports to the program for approval. The program has begun phase three, including approving 19 percent of Boeing’s phase three reports. Program Requirements. While the program manager told us that all of the requirements contribute to the safety of the commercial systems, safety officials are required to approve a subset of these requirements. Examples of requirements approved by safety officials include the ability to leave the spacecraft in an emergency or to abort a launch. When a contractor is ready for NASA to verify that it has met a requirement, the contractor submits data for NASA to review through a verification closure notice. We define “safety-specific notices” as those requiring safety officials’ approval. As shown in table 2, as of March 2018, the program had approved 2 percent of Boeing’s safety-specific notices and 0 percent of SpaceX’s safety-specific notices. Testing. The program also requires testing to verify and validate the crew transportation system. Agency officials emphasized the importance of testing to safety, stating that testing reduces uncertainty about a system’s performance and can uncover unknown problems. As noted above, both contractors will be conducting an uncrewed and a crewed flight test prior to being certified. While a certain level of risk needs to be accepted to conduct human spaceflight, these flight tests help to mitigate this risk by validating the integrated performance of the hardware and software. Agency and program officials stated that the contractors’ flight tests are critical evidence to support certification of a safe and reliable system. As evidenced by the data above, the program still has a significant amount of work ahead with respect to approving certification packages and closing hazard reports and verification closure notices. We have previously found that the program’s workload was an emerging schedule risk, and the contractors have continued to express concern about program officials’ ability to process and approve certification paperwork in a timely manner. Workload has also been a concern for two of NASA’s independent review organizations. For example, the Aerospace Safety Advisory Panel noted in its January 2018 annual report that the sheer volume of work that remains for the program in terms of closing hazard reports and verification closure notices is significant. In addition, the program’s safety and mission assurance office identified the upcoming bow wave of work in a shrinking time period as a top risk to achieving certification. One mechanism the program put in place to assess the overall safety of each spacecraft—loss of crew—has been a focus of the Aerospace Safety Advisory Panel, Members of Congress, our prior work, and the program itself. Loss of crew captures the probability of death or permanent disability to one or more crew members. It has received a lot of attention, in part, because it has been a top risk for the program since 2015. Specifically, the program has been concerned that neither contractor would be able to meet the contract requirement of a 1 in 270 probability of incurring loss of crew. We identified two key concerns with how NASA is using the loss of crew metric: (1) inconsistent approaches to assess the loss of crew metric and (2) no identified plan to share lessons learned about using the loss of crew metric as a safety threshold. A loss of crew value is generated through a probabilistic safety analysis, which models scenarios that could result in the loss of crew using various inputs. According to the program’s analysis, the probability of on-orbit debris damaging the vehicle has the greatest effect on a loss of crew value. This probability is informed by an orbital debris (debris) model, which was updated in 2014, after the loss of crew requirement was established. The updated debris model makes it harder to meet a loss of crew value, in part, because the modeling environment where the contractors’ systems will operate has changed. For example, the updated model includes a larger span of orbit, greater range of debris sizes, and the addition of material density classifications, which were not included in the former model. Further, the probabilistic safety analysis may include operational mitigations, such as on-orbit inspections that would include using cameras on the ISS to visually survey the spacecraft for damage, which, according to officials, makes it easier to meet a loss of crew value. NASA describes the probabilistic safety analysis as a powerful tool that should be used as part of the overall risk management process to ensure the risk associated with development and operation of a system is understood, evaluated, managed, and mitigated. However, we found differences in the approaches that officials plan to use to assess loss of crew as well as in the loss of crew value being measured that could limit the usefulness of this tool. Agency Certification. The agency certification review for each contractor will include an assessment of whether its crew transportation system meets a loss of crew threshold of 1 in 150 for missions to the ISS, which is based on a May 2011 safety memo from the Office of Safety and Mission Assurance. A loss of crew value with a higher denominator, such as 1 in 270, is harder to meet than with a lower denominator, such as 1 in 150. According to the Chief of the Office of Safety and Mission Assurance, he will assess the 1 in 150 threshold using a probabilistic safety analysis that includes the updated debris model and operational mitigations, such as the on- orbit inspections cited above. Program Office. According to program officials, they will assess whether either contractor meets a 1 in 270 loss of crew value based on a probabilistic safety analysis using the former debris model (not the updated model) and not including operational mitigations. Contracting Officer. According to the contracting officer, each contractor’s loss of crew requirement is 1 in 270 without including operational mitigations. The contracting officer stated that SpaceX’s contract requirement uses the updated debris model in the probabilistic safety analysis, whereas Boeing’s contract requirement uses the former debris model in the probabilistic safety analysis. Program’s Chief Safety and Mission Assurance Officer. According to the program’s chief safety and mission assurance officer, he will conduct a probabilistic safety analysis using the updated debris model and will not include operational mitigations to assess whether each contractor meets a 1 in 200 loss of crew value. This loss of crew value stems from a program update that occurred after the initial contracts were signed. These different approaches are summarized in table 3 below. Agency policy requires human spaceflight programs to set a safety threshold, which NASA did for the Commercial Crew Program when it identified the 1 in 150 loss of crew threshold in the May 2011 safety memo. Subsequently, the program set more rigorous loss of crew values in contract and program documents. NASA also updated the debris model, which we previously noted makes it more difficult to meet a loss of crew value. As a result, NASA does not have a consistent approach for how to incorporate key inputs to the probabilistic safety analysis, including changes to the debris model. Instead, the risk tolerance that NASA is accepting with loss of crew varies based upon which entity is presenting the results of its probabilistic safety analysis. For example, it is possible that the program’s assessment will determine that neither contractor will meet the 1 in 270 contract requirement, but that the agency’s assessment will determine that the contractors meet the 1 in 150 agency certification value because that analysis will include operational mitigations. Or the program’s assessment could determine that Boeing meets the 1 in 270 contractual loss of crew requirement, but the agency’s assessment may determine that Boeing does not meet the 1 in 150 agency certification value because that analysis will use the updated debris model. Federal internal controls state that agency management should define objectives clearly to enable the identification of risks and define risk tolerances. Specifically, management should define risk tolerances in specific and measurable terms, so they are clearly stated and can be measured. In this case, because there will be multiple analyses conducted using different inputs, NASA risks not clearly capturing or documenting, in a coherent manner, its overall risk tolerance with respect to loss of crew before a final decision must be made on whether to certify either crew transportation system. Moreover, capturing the challenges and lessons learned from using the loss of crew metric is critical, particularly because agency officials told us that this is the first time this metric has been used as a safety threshold. Also, there are different viewpoints about the utility of the metric as a safety threshold across the agency. The program manager repeatedly told us that loss of crew is best used as a design tool. For example, program officials told us that both contractors incorporated additional orbital debris shielding into their designs to mitigate the orbital debris risk and improve their loss of crew values. In addition, the Aerospace Safety Advisory Panel reported in 2018 that loss of crew should not be viewed as an absolute measure of actual risk during operations. However, the May 2011 agency safety memo states that a breach of the loss of crew threshold would initiate a termination review of the Commercial Crew Program, which is a more strict application of the loss of crew metric. Both program and safety officials told us that, after the agency certification is complete and lessons learned are available to be compiled, sharing those lessons learned across NASA would be a good idea given the complexities associated with assessing the loss of crew metric. As of April 2018, however, agency officials said they did not have a plan for loss of crew knowledge-sharing. We have previously found that lessons learned provide a powerful method of sharing good ideas for improving work processes, facility or equipment design and operation, quality, safety, and cost-effectiveness. Further, according to NASA’s Knowledge Policy on Program and Projects, which is managed through the Office of the Chief Engineer, a principle of each center and mission directorate’s knowledge strategy is that knowledge is the cornerstone of NASA’s ability to achieve mission success. The policy acknowledges that NASA faces continuous challenges in using what it knows effectively. These challenges include, but are not limited to, enabling the identification and flow of knowledge across organizational boundaries; preserving knowledge at risk of being lost; and providing means for individuals, teams, and the organization to learn from experiences. If NASA does not capture lessons learned from the Commercial Crew Program on using the loss of crew requirement to set a program’s safety threshold and whether it met the agency’s intended goal, future programs will not be able to benefit from the knowledge gained from this multibillion dollar investment. NASA’s governance model prescribes a management structure that employs checks and balances among key organizations to ensure that decisions have the benefit of different points of view and are not made in isolation. As part of this structure, NASA established the technical authority process as a system of checks and balances to provide independent oversight of programs and projects in support of safety and mission success through the selection of specific individuals with delegated levels of authority. The technical authority process has been used in other parts of the government for acquisitions, including the Department of Defense and Department of Homeland Security. The Commercial Crew Program is organizationally connected to three technical authorities within NASA: the Office of the Chief Engineer technical authority, the Office of Chief Health and Medical technical authority, and the Office of Safety and Mission Assurance (safety) technical authority. The safety technical authority is responsible for ensuring from an independent standpoint that the program’s products and processes satisfy NASA’s safety, reliability, and mission assurance policies. The NASA safety technical authority has delegated authority through the Kennedy Space Center Director to the Chief Safety and Mission Assurance Officer for the Commercial Crew Program. We have previously reviewed how NASA has organized its technical authorities for its Exploration Systems Development organization—an organization that oversees the development of the Space Launch System, Orion crew capsule, and associated ground systems that have the goal of extending human presence beyond low-Earth orbit. In October 2017, we found that the Exploration Systems Development organization had established an organizational structure in which the technical authorities for engineering and safety and mission assurance were dual hatted simultaneously in programmatic positions. We found that having the same individual simultaneously fill both a technical authority role and a program role created an environment of competing interests, where the technical authority’s ability to impartially and objectively assess the programs while at the same time acting on behalf of the Exploration Systems Development organization in programmatic capacities may be subject to impairments. We found that this was in contrast to a recommendation from the Columbia Accident Investigation Board report—the result of an in-depth assessment of the technical and organizational causes of the 2003 Space Shuttle Columbia accident—for NASA to establish a technical authority to serve independently of the Space Shuttle program, so that employees would not feel hampered to bring forward safety concerns or disagreements with programmatic decisions. The board’s findings that led to this recommendation included a broken safety culture in which it was difficult for minority and dissenting opinions to percolate up through the hierarchy; dual center and programmatic roles vested in one person that had confused lines of authority, responsibility, and accountability and made the oversight process susceptible to conflicts of interest; and oversight personnel in positions within the program, increasing the risk that these staffs’ perspectives would be hindered by too much familiarity with the programs they were overseeing. In October 2017, we recommended that the division no longer dual hat two individuals who had both programmatic and technical authority responsibilities. As of April 2018, NASA had taken steps to separate the engineering technical authority position from the programmatic position, and NASA’s Chief of Safety and Mission Assurance said he planned to separate the safety position but had not yet completed that action. The Commercial Crew Program employs a similar structure to the Exploration Systems Development organization in that the safety technical authority is dual hatted simultaneously in a programmatic position as the Commercial Crew Program’s Safety and Mission Assurance Manager. According to the program’s safety technical authority, in his programmatic role for the program, he helps set priorities for safety issues, including how staff will be utilized to meet those priorities. In the technical authority role, he provides independent oversight in support of safety and mission success. In his dual-hatted role, this official will be responsible for endorsing the program’s certification recommendations in two different capacities: as the technical authority and as a program authority. As a result, this structure relies on the same individual to completely separate two roles—one to manage the Commercial Crew Program’s safety issues within programmatic cost and schedule constraints, and the other to assess the same issues in an independent oversight role. While the Commercial Crew Program may have an additional level of separation between the safety technical authority and the program’s involvement in the design of commercial systems due to its shared assurance model with the commercial providers, the Commercial Crew Program still maintains a structure where one individual simultaneously serves in both technical authority and programmatic roles. Figure 5 describes some of the conflicting roles and responsibilities of this official in his two different positions. During our review, officials cited several factors in support of a dual- hatted approach: The safety technical authority retains independence because his technical authority reporting path and performance reviews are not under the purview of the Commercial Crew Program chain of command. Due to the Commercial Crew Program’s shared assurance model with commercial providers, the program is operating in a quality assurance role that provides an additional level of separation between the safety technical authority and the program’s involvement in the design of commercial systems. For safety decisions involving cost and schedule where the individual who is dual hatted with both technical authority and programmatic responsibilities may feel conflicted, he stated that he would discuss these matters with his management to validate the logic behind his decision. There are cost and knowledge efficiencies gained from one individual serving in both programmatic and safety technical authority capacities. NASA’s Chief of Safety and Mission Assurance stated that he has great confidence in the individual currently serving in the dual hatted role for the Commercial Crew Program, but acknowledged there is inherent conflict even with the program’s shared assurance model. In December 2017, he stated that, based on our previous work and current discussions, he intends to decouple the programmatic and technical authority responsibilities for the Commercial Crew Program but had not done so as of April 2018. Federal internal control standards state that an agency should design control activities to achieve objectives and respond to risks, which includes segregation of key duties and responsibilities to reduce the risk of error, misuse, or fraud. By overlapping technical authority and programmatic responsibilities, NASA will continue to run the risk of creating an environment of competing interests for the Commercial Crew Program’s safety technical authority. NASA’s Commercial Crew Program is a multibillion dollar effort to facilitate the commercial development of a crew transportation system that can end the United States’ reliance on Russia to maintain an uninterrupted presence on the ISS. Boeing and SpaceX continue to make progress developing a capability to fly to the ISS, but both have continued to experience delays. Program analysis indicates risks of further delays in each contractor’s current schedule, but NASA has not provided that information to Congress in its routine briefings. Without this information, Congress does not know the full extent of potential delays to inform decision making. Additional delays could also disrupt U.S. access to the ISS. While NASA is working on potential solutions, there is no contingency plan in place to address this potential gap. Without a viable contingency plan, NASA puts at risk achievement of the U.S. goal and objective for the ISS. NASA must balance safety with acceptable risk for human spaceflight. As part of the certification process for each contractor’s spacecraft, NASA has developed one key safety metric, loss of crew. However, the complicated nature of this metric is further muddled by the inconsistent approaches being used across NASA about what inputs to be considered. As a result, there is no clear articulation of what level of risk NASA will accept with respect to this program. In addition, NASA does not have plans to capture lessons learned from how the Commercial Crew Program has used this metric to assess safety and is missing an opportunity to capture this knowledge for future human spaceflight programs. Finally, a space program’s management and oversight approach is an integral part of ensuring that human spaceflight is as safe and successful as possible. Independence of the program management and oversight functions is key to achieving the balance between safety and success. The Commercial Crew Program’s approach, however, burdens the safety technical authority with both programmatic and independent technical authority responsibilities. As a result, NASA has limited assurance that independence can be maintained as part of its institutional process to ensure safety and success. We are making the following five recommendations to NASA: The NASA Associate Administrator for Human Exploration and Operations should direct the Commercial Crew Program to include the results of its schedule risk analysis in its mandatory quarterly reports to Congress. (Recommendation 1) The NASA Administrator should develop and maintain a contingency plan for ensuring a presence on the ISS until a Commercial Crew Program contractor is certified. (Recommendation 2) The NASA Administrator should direct the Chief of Safety and Mission Assurance, the NASA Associate Administrator for Human Exploration and Operations, the Commercial Crew Program Manager, and the Commercial Crew Program Contracting Officer to collectively determine and document before the agency certification review how the agency will determine its risk tolerance level with respect to loss of crew. (Recommendation 3) After completing the agency certification review, NASA’s Chief Engineer and Chief of Safety and Mission Assurance, with support from the NASA Associate Administrator for Human Exploration and Operations and the Commercial Crew Program Manager, should document lessons learned related to loss of crew as a safety threshold for future crewed spaceflight missions, given the complexity of the metric. (Recommendation 4) The NASA Chief of Safety and Mission Assurance should restructure the technical authority within the Commercial Crew Program to ensure that the technical authority for the Office of Safety and Mission Assurance is no longer dual hatted with programmatic and independent technical authority responsibilities. (Recommendation 5) We provided a draft of this report to NASA for review and comment. NASA provided written comments that are reprinted in appendix II. In its response, NASA concurred with three of our recommendations, did not concur with one, and partially concurred with another. NASA concurred with our recommendation to develop and maintain a contingency plan to ensure a U.S. presence on the ISS and expects to take action to close this recommendation by the end of December 2018. NASA concurred with our recommendation to document lessons learned related to the loss of crew requirement and expects to take action to close this recommendation by the end of May 2019. NASA concurred with our recommendation to restructure the safety technical authority so that it is no longer dual hatted with programmatic and independent technical authority responsibilities. NASA expects to take action to close this recommendation by the end of August 2018. NASA did not concur with our recommendation that the Commercial Crew Program should include the results of its schedule risk analysis in its quarterly reports to Congress. NASA stated that it uses the contractors’ schedules as a baseline to provide qualitative statements in the NASA summary that accompanies each contractor’s quarterly reports to Congress. NASA believes that this approach is appropriate and is in accordance with the explanatory statement accompanying the Consolidated and Further Continuing Appropriations Act, 2015. NASA also stated that it will be working to ensure that the contractors’ schedules and the program’s internal assessments sync up as the program gets closer to launch. As a result, NASA explained that there will not be a requirement for a detailed NASA assessment, because the contractors’ schedule will either match NASA’s analysis or NASA will discuss its position as it has done in previous reports to Congress. We continue to believe the recommendation is valid because the program’s schedule risk analysis would provide Congress with valuable insight into potential delays, which are likely. Both contractors have repeatedly stated that their schedules are aggressive and that the dates are ambitious. As a result, we found that the contractors frequently delay dates for key events. For example, Boeing has delayed its certification milestone by 17 months and SpaceX by 22 months since the original schedules were established. The program’s recent schedule risk analysis indicates that more delays to certification are likely, but that information is not presented to Congress in NASA’s quarterly reports. Without this information, Congress does not know the full extent of potential delays to inform decision making. NASA partially concurred with our recommendation that the Chief of Safety and Mission Assurance, the NASA Associate Administrator for Human Exploration and Operations, the Commercial Crew Program Manager, and the Commercial Crew Program Contracting Officer should collectively determine and document how the agency will determine its risk tolerance level with respect to loss of crew before the agency certification review. In its response, NASA stated that it documented the agency’s risk tolerance level with respect to loss of crew for the program in its May 2011 safety memo. Further, NASA stated that it documented the requirement to limit risks to the loss of crew in a certification requirements document. NASA stated that ultimately the Commercial Crew Program is accountable for ensuring that the contractors’ systems meet the loss of crew value in this certification requirements document, which is a loss of crew value of 1 in 270. If a contractor’s system cannot meet that loss of crew value, or any other requirement, the program will request a waiver as part of the human rating certification process to ensure transparency. NASA acknowledged in its response that the existence of multiple documents defining residual risk requirements and an agency threshold for loss of crew can be confusing. NASA’s response, however, does not address our finding that it does not have a consistent approach for how to incorporate key inputs, including which debris model should be used or whether to include operational mitigations. NASA stated that it had taken action to address this recommendation; however, NASA did not outline any steps it took to resolve the concern that the risk tolerance for the loss of crew requirement depends on which entity is presenting the results of its analysis. We continue to believe that, before the agency certification review, the key parties must collectively determine how the agency will determine its risk tolerance with respect to loss of crew. We believe this approach will reduce confusion and increase transparency. We are sending copies of this report to NASA Administrator and interested congressional committees. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202)512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix III. The objectives of our review were to assess (1) the extent to which the contractors have made progress towards meeting the National Aeronautics and Space Administration’s (NASA) certification requirements and NASA’s plans to help ensure continued access to the International Space Station (ISS); and (2) how NASA’s certification process addresses safety of the contractors’ crew transportation systems. To assess the contractors’ progress towards certification, we obtained and reviewed program and contractor documents, including monthly and quarterly updates from April 2017 through May 2018. We interviewed program and contractor officials to discuss the contractors’ recent progress, including upcoming events and any expected delays, and to understand technical risks, potential consequences, and planned mitigation activities. To identify total delays to date, we compared original contract schedules to Boeing and SpaceX’s calendar year 2018 first quarter proposed schedules, which are the most recent. Based on our review of program and contractor documents, we defined the contractors’ key events as: the uncrewed and crewed flight tests, the design certification reviews for each of those flights, and the certification milestone. We selected the two flight tests for each contractor as key events because they are intended to test key system capabilities, including the ability to launch, dock with the ISS, and return safely to Earth. We selected the design certification reviews because they verify the contractors’ crew transportation systems’ capability to safely approach, dock, mate, and depart from the ISS, among other requirements. We selected the certification milestone because it determines whether the crew transportation system meets the Commercial Crew Program’s requirements. To determine the extent to which contractors have delayed these key events over time, we analyzed the contractors’ schedule data from the 13 quarterly progress reports to date, from first quarter 2015 through first quarter calendar year 2018. We also obtained the results of the program’s April 2018 schedule risk analysis. We presented the schedule analysis range from the end of the month of the earliest possible completion date to the end of the month of the latest possible completion date. We reviewed the program’s Congressional requirements to report on cost, schedule, and technical status. Finally, to assess the potential effects of any certification delays on NASA’s access to ISS, we reviewed NASA’s contracts with Boeing and the Russian Federal Space Agency for transportation on the Soyuz vehicle. We interviewed officials from the ISS program and NASA’s Human Exploration and Operations Mission Directorate to determine if the agency had developed contingency plans to mitigate the effects of any certification delays on its access to the ISS. To assess how NASA’s certification process addresses safety of the contractors’ crew transportation systems, we reviewed agency safety policies, program plans, and contract documents to identify what safety assessments were required of the program, which safety factors would be considered in certification reviews, and when certification approval would be granted. We also interviewed program officials and the contractors about their safety policies and procedures as well as about the certification process. We identified the loss of crew requirements for the program and the contractors, and interviewed program and agency officials to determine how loss of crew would be assessed and considered throughout the certification process. To gain a broader understanding of the relative importance of loss of crew, we reviewed NASA safety policies, prior GAO reports, and annual reports from the Aerospace Safety Advisory Panel. To determine how the Orbital Debris Engineering Model (ORDEM) was updated and to assess differences between the former and updated models, we reviewed NASA documentation about the ORDEM 2000 and ORDEM 3.0 models and obtained information about the models from NASA’s Orbital Debris Program Office. To assess the program’s progress in closing requirements, including those requirements specifically related to safety, we reviewed program data for each contractor on contract requirements and closure status. We limited this analysis to requirements included in the CCT-REQ-1130 ISS Crew Transportation and Services Requirements Document because these requirements are verified by the Commercial Crew Program, whereas requirements contained within SSP 50808 ISS to Commercial Orbital Transportation Services Interface Requirements Document are managed by the ISS Transportation and Integration Office. We classified requirements as “safety-specific” when the program’s Office of Safety and Mission Assurance was listed as a verification closure notice signatory (i.e., approver). We then analyzed the program’s data to determine how many verification closure notices had been approved for all requirements and for the subset of safety-specific requirements. We reviewed program and agency documentation, such as organizational charts, program plans, and safety policies as well as interviewed program and agency officials, to determine the role of the safety and mission assurance technical authority in the program. We also reviewed the 2003 Columbia Accident Investigation Board’s Report’s findings and recommendations related to culture and organizational management of human spaceflight programs. We reviewed annual briefings and reports and met with representatives from two organizations that provide NASA with independent assessments of the program, the program’s standing review board and the Aerospace Safety Advisory Panel, to gain their perspectives on the contractor’s progress and how NASA addresses safety in its certification process. We also met with representatives from the National Transportation Safety Board and three experts with background on safety in human spaceflight in order to increase our contextual understanding of the role of safety in human spaceflight missions. We conducted this performance audit from April 2017 to July 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov. In addition to the contact named above, Molly Traci, Assistant Director; Kazue Chinen; Lorraine Ettaro; Lisa Fisher; Laura Greifner; Kurt Gurka; Miranda Riemer; Juli Steinhouse; Roxanna T. Sun; Hai Tran; Kristin Van Wychen; and Alyssa Weir made significant contributions to this report.	[ "In 2014, NASA awarded two firm-fixed-price contracts to Boeing and SpaceX, worth a combined total of up to $6.8 billion, to develop crew transportation systems and conduct initial missions to the ISS. In February 2017, GAO found that both contractors had made progress, but their schedules were under mounting pressure. The contractors were originally required to provide NASA all the evidence it needed to certify that their systems met its requirements by 2017. A House report accompanying H.R. 5393 included a provision for GAO to review the progress of NASA's human exploration programs. This report examines the Commercial Crew Program, including (1) the extent to which the contractors have made progress towards certification and (2) how NASA's certification process addresses safety of the contractors' crew transportation systems. GAO analyzed contracts, schedules, and other documentation and spoke with officials from NASA, the Commercial Crew Program, Boeing, SpaceX, and two of NASA's independent review bodies that provide oversight. Both of the Commercial Crew Program's contractors, Boeing and Space Exploration Technologies Corporation (SpaceX), are making progress finalizing designs and building hardware for their crew transportation systems, but both contractors continue to delay their certification milestone (see figure). Certification is the process that the National Aeronautics and Space Administration (NASA) will use to ensure that each contractor's system meets its requirements for human spaceflight for the Commercial Crew Program. Further delays are likely as the Commercial Crew Program's schedule risk analysis shows that the certification milestone is likely to slip. The analysis identifies a range for each contractor, with an earliest and latest possible completion date, as well as an average. The average certification date was December 2019 for Boeing and January 2020 for SpaceX, according to the program's April 2018 analysis. Since the Space Shuttle was retired in 2011, the United States has been relying on Russia to carry astronauts to and from the International Space Station (ISS). Additional delays could result in a gap in U.S. access to the space station as NASA has contracted for seats on the Russian Soyuz spacecraft only through November 2019. NASA is considering potential options, but it does not have a contingency plan for ensuring uninterrupted U.S. access. NASA's certification process addresses the safety of the contractors' crew transportation systems through several mechanisms, but there are factors that complicate the process. One of these factors is the loss of crew metric that was put in place to capture the probability of death or permanent disability to an astronaut. NASA has not identified a consistent approach for how to assess loss of crew. As a result, officials across NASA have multiple ways of assessing the metric that may yield different results. Consequently, the risk tolerance level that NASA is accepting with loss of crew varies based upon which entity is presenting the results of its assessment. Federal internal controls state that management should define risk tolerances so they are clear and measurable. Without a consistent approach for assessing the metric, the agency as a whole may not clearly capture or document its risk tolerance with respect to loss of crew. GAO is making five recommendations, including that NASA develop a contingency plan for ensuring a U.S. presence on the ISS and clarify how it will determine its risk tolerance for loss of crew. NASA concurred with three recommendations; partially concurred on the recommendation related to loss of crew; and non-concurred with a recommendation to report its schedule analysis to Congress. GAO believes these recommendations remain valid, as discussed in the report." ]	9,763	gov_report	en	null	8e6583b38d624cfe487c0bb7445e9d35cca888a11f28ee4f
The leaders of the eight legislative branch agencies and entities—the Government Accountability Office, the Library of Congress, the Government Publishing Office (formerly Government Printing Office), the Office of the Architect of the Capitol, the U.S. Capitol Police, the Congressional Budget Office, the Congressional Research Service, and the Office of Compliance—are appointed in a variety of manners. The first four agencies are led by a person appointed by the President, with the advice and consent of the Senate. The next two are appointed by Congress, the next by the Librarian of Congress, and the last by a board of directors. Congress has periodically examined the procedures used to appoint legislative branch officers with the aim of protecting the prerogatives of, and ensuring accountability to, Congress within the framework of the advice and consent appointment process established in Article II, Section 2 of the Constitution. Legislation to alter the appointment process for legislative branch agencies and entities has periodically been introduced for many years. Questions remain about various reform proposals, including the ability of Congress to remove the President from the appointment process for some of these positions. These may depend upon the implication or interpretation of the Appointments Clause of the Constitution, the definition of an "officer of the United States," the specific office or agency in question, and whether or not a change in appointing authority would require any revision in the powers and duties of legislative branch agency leaders. Some previous reforms and proposals have also attempted to find a role for the House of Representatives, which does not play a formal role in the confirmation of presidential nominees, in the search for legislative branch officials. The report also briefly addresses legislation considered, but not enacted, in the 115 th Congress to change the appointment process for the Register of Copyrights. The following sections contain information on the legislative branch agency heads' appointment processes, length of tenures (if terms are set), reappointment or removal provisions (if any), salaries and benefi ts, and most recent appointments. Information is provided on each agency and summarized in Table 1 . Pursuant to the Legislative Branch Appropriations Act, 1990, the Architect is "appointed by the President by and with the advice and consent of the Senate for a term of 10 years." The act also established a congressional commission responsible for recommending individuals to the President for the position of Architect of the Capitol. The commission, originally consisting of the Speaker of the House of Representatives, the President pro tempore of the Senate, the majority and minority leaders of the House of Representatives and the Senate, and the chairs and the ranking minority Members of the Committee on House Administration and the Senate Committee on Rules and Administration, was expanded in 1995 to include the chairs and ranking minority Members of the House and Senate Appropriations Committees. Prior to 1989, the Architect was selected by the President for an unlimited term without any formal involvement of Congress. The FY1990 act, however, followed numerous attempts dating at least to the 1950s to alter the appointment procedure to provide a role for Congress. The proposals included requiring the advice and consent of the Senate, establishing a commission to recommend names to the President, and removing the appointment process from the President and instead making the Architect appointed solely by Congress. In the 111 th Congress, two measures ( H.R. 2185 and H.R. 2843 ) were introduced to remove the President from the Architect appointment process and shift it to congressional leaders and chairs and ranking Members of specific congressional committees. Under both measures, the Architect would still serve a 10-year term. Under H.R. 2843 , as reported, the Architect would have been appointed jointly by the same 14-member panel, equally divided between the House and Senate, that currently is responsible for recommending candidates to the President. This bill was reported by the Committee on House Administration ( H.Rept. 111-372 ) on December 10, 2009. The Committee on Transportation and Infrastructure was discharged from further consideration the same day. The House agreed to the bill, as amended to include an 18-member panel, also equally divided between the House and Senate, by voice vote on February 3, 2010. H.R. 2843 was received in the Senate and referred to the Committee on Rules and Administration, although no further action was taken. Under the earlier bill ( H.R. 2185 , 111 th Congress), which was introduced on April 30, 2009, the Architect would have been appointed jointly by the Speaker of the House, the Senate majority leader, the minority leaders in the House and Senate, the chairs and ranking minority Members of the House and Senate Committees on Appropriations, and the chairs and ranking minority Members of the Committee on House Administration and Senate Committee on Rules and Administration. This bill followed similar legislation ( H.R. 6656 , 110 th Congress), with the same 12-member appointing panel, introduced on July 30, 2008. Both bills were referred to two committees, but no further action was taken. The Architect of the Capitol is compensated at an "annual rate which is equal to the lesser of the annual salary for the Sergeant at Arms of the House of Representatives or the annual salary for the Sergeant at Arms and Doorkeeper of the Senate." Stephen T. Ayers was nominated by President Obama for a 10-year term on February 24, 2010. He was the second Architect nominated pursuant to the new commission procedure. The nomination was referred to the Senate Committee on Rules and Administration. The committee held a hearing on April 15, 2010, and Ayers was confirmed by unanimous consent in the Senate on May 12, 2010. Ayers was previously the Deputy Architect/Chief Operating Officer and had served as Acting Architect of the Capitol following the February 4, 2007, retirement of former Architect of the Capitol Alan Hantman. Upon the retirement of Ayers on November 23, 2018, Christine Merdon, the Deputy Architect of the Capitol/Chief Operating Officer, became the Acting Architect of the Capitol. Pursuant to 31 U.S.C. 703(a)(1), the Comptroller General shall be "appointed by the President, by and with the advice and consent of the Senate." This procedure dates to the establishment of the agency in 1921. Additionally, a commission procedure established in 1980 recommends individuals to the President in the event of a vacancy. The commission consists of the Speaker of the House, the President pro tempore of the Senate, the majority and minority leaders of the House and Senate, the chairs and ranking minority Members of the Senate Committee on Homeland Security and Governmental Affairs and the House Committee on Oversight and Government Reform. The commission is to recommend at least three individuals for this position to the President, although the President may request additional names. The Comptroller General is appointed to a 15-year term and may not be reappointed. The Comptroller General may be removed by "(A) impeachment; or (B) joint resolution of Congress, after notice and an opportunity for a hearing" and only by reason of permanent disability; inefficiency; neglect of duty; malfeasance; or a felony or conduct involving moral turpitude. The salary of the Comptroller General is equal to Level II of the Executive Schedule. Additionally, a law enacted in 1953 established a separate retirement system for the Comptroller General. Gene L. Dodaro, then-Chief Operating Officer at GAO, became the acting Comptroller General on March 13, 2008, upon the resignation of David M. Walker, who had previously been confirmed on October 21, 1998. The White House announced Dodaro's nomination to a 15-year term as Comptroller General on September 22, 2010. The Senate Committee on Homeland Security and Governmental Affairs held a hearing on the nomination on November 18, 2010, and Dodaro was confirmed by the Senate by unanimous consent on December 22, 2010. The Government Publishing Office (formerly Government Printing Office) was established in 1861. The U.S. Code , at 44 U.S.C. 301, states that the President "shall nominate and, by and with the advice and consent of the Senate, appoint a suitable person to take charge of and manage the Government Publishing Office. The title shall be Director of the Government Publishing Office." The current appointment language was enacted in 2014, although the use of the advice and consent procedure for this position can be traced back much further. There is no set term of office for the Director. The Director's pay is equivalent to Level II of the Executive Schedule. Robert C. Tapella was nominated to be Director of the Government Publishing on June 18, 2018. The nomination was referred to the Committee on Rules and Administration. No further action was taken prior to the end of the 115 th Congress, and the nomination was returned to the President pursuant to Senate Rule XXXI. President Trump renominated Tapella on January 16, 2019. The nomination was referred to the Committee on Rules and Administration. Previously, Tapella served in this role from October 4, 2007 (confirmed by the Senate by voice vote) until December 28, 2010. GPO's Chief Administrative Officer, Herbert H. Jackson Jr., has served as Acting Deputy Director since July 1, 2018, following the retirement of Andrew M. Sherman. Sherman, formerly GPO's Chief of Staff, had been serving as Acting Deputy Director since the retirement of Acting GPO Director Jim Bradley on March 6, 2018. Bradley, previously the GPO Deputy Director, had assumed this role following the departure of the previous Director, Davita Vance-Cooks, in November 2017. Vance-Cooks had been nominated by President Obama on May 9, 2013, to be Public Printer, as the head of the GPO was then known, and confirmed by the Senate by voice vote on August 1, 2013. The Library of Congress was established in 1800. The U.S. Code , at 2 U.S.C. 136, states: "The Librarian of Congress shall make rules and regulations for the government of the Library." Until an act of February 19, 1897, which made the appointment subject to the advice and consent of the Senate, the Librarian was appointed solely by the President. Recent changes to the appointment statute, at 2 U.S.C. 136-1, amended the tenure of the Librarian. The Librarian of Congress Succession Modernization Act of 2015, S. 2162 , was introduced in the Senate on October 7, 2015, and agreed to the same day by unanimous consent. It was agreed to in the House without objection on October 20 and signed by President Obama on November 5, 2015 ( P.L. 114-86 ). The act establishes a term limit of 10 years, with the possibility of reappointment by the President, by and with the advice and consent of the Senate. Previously, there was no set term of office for the Librarian. The U.S. Code , at 2 U.S.C. 136a-2, states: "the Librarian of Congress shall be compensated at an annual rate of pay which is equal to the annual rate of basic pay payable for positions at Level II of the Executive Schedule under section 5313 of title 5." Carla D. Hayden was nominated to a 10-year term as Librarian of Congress by President Obama on February 24, 2016. The Senate Committee on Rules and Administration held a hearing on the nomination on April 20, 2016, and ordered the nomination favorably reported on June 9. Hayden was confirmed as the 14 th Librarian of Congress on July 13, 2016 (74-18, record vote number 128). Hayden succeeded James H. Billington who retired effective September 30, 2015. Billington had been confirmed as Librarian of Congress by the Senate on July 24, 1987. The Legislative Reorganization Act of 1970 provides that the Librarian of Congress appoint the Director of the Congressional Research Service (CRS) "after consultation with the Joint Committee on the Library." The basic rate of pay for the director is equivalent to Level III of the Executive Schedule. There is no set term of office. Mary B. Mazanec, who served as Acting Director of CRS following the retirement of former Director Daniel P. Mulhollan on April 2, 2011, was appointed Director by the Librarian of Congress on December 5, 2011. 2 U.S.C. 1901 states: "There shall be a captain of the Capitol police and such other members with such rates of compensation, respectively, as may be appropriated for by Congress from year to year. The Capitol Police shall be headed by a Chief who shall be appointed by the Capitol Police Board and shall serve at the pleasure of the Board." The last sentence was inserted in 1979, struck by the FY2003 Consolidated Appropriations Resolution, and restored in 2010 by the U.S. Capitol Police Administrative Technical Corrections Act. Pursuant to the FY2003 act, the chief of the Capitol Police receives compensation "equal to $1,000 less than the lower of the annual rate of pay in effect for the Sergeant-at-Arms of the House of Representatives or the annual rate of pay in effect for the Sergeant-at-Arms and Doorkeeper of the Senate." Pay for the chief has been adjusted multiple times in recent years: it formerly was (1) equal to Level IV of the Executive Schedule under 1979 legislation, (2) linked to the Senior Executive Service under an act from 2000, and (3) equal to $2,500 less than these officers pursuant to a 2002 law. On February 24, 2016, the Capitol Police Board announced the appointment of Matthew R. Verderosa as the new Chief of the U.S. Capitol Police, effective March 20, 2016. Previously, Chief Kim Dine was sworn in on December 17, 2012. The director of the Congressional Budget Office (CBO) has been appointed wholly by Congress since the creation of the post with the passage of the Congressional Budget Act in 1974. The act stipulates that the director is appointed for a four-year term "by the Speaker of the House of Representatives and the President pro tempore of the Senate after considering recommendations received from the Committees on the Budget of the House and the Senate, without regard to political affiliation and solely on the basis of his fitness to perform his duties." The director may be reappointed, and either chamber can remove the director by simple resolution. Additionally, a director appointed "to fill a vacancy prior to the expiration of a term shall serve only for the unexpired portion of that term" and an "individual serving as Director at the expiration of a term may continue to serve until his successor is appointed." The director of CBO receives compensation at an annual rate that is equal to the lower of the highest annual rate of compensation of any officer of the House or any officer of the Senate. Keith Hall, the current director of CBO, began his service on April 1, 2015. He follows Douglas W. Elmendorf, who began his term on January 22, 2009. 2 U.S.C. 1382 states that the chair of the board of directors of the Office of Compliance, "subject to the approval of the Board, shall appoint and may remove an Executive Director. Selection and appointment of the Executive Director shall be without regard to political affiliation and solely on the basis of fitness to perform the duties of the Office." The executive director must be "an individual with training or expertise in the application of laws referred to in section 1302(a)" of Title II of the U.S. Code . The FY2008 Consolidated Appropriations Act altered the compensation for the Office's statutorily established positions, including that of the executive director. The chair of the board may fix the annual rate of pay for the executive director, although the level may not exceed the lesser of House or Senate officers. Prior to the FY2008 act, the maximum pay for this position had been Level V of the Executive Schedule. Separate legislation, P.L. 110-164 , amended the Congressional Accountability Act and altered eligibility and tenure restrictions for the executive director by allowing current or former Office of Compliance employees to serve in this capacity. The legislation also permits the executive director, deputy executive directors, and general counsel, who formerly were limited to one five-year term in their positions, to serve up to two terms. Susan Tsui Grundmann was appointed to a five-year term as executive director commencing January 2017. She succeeded Barbara J. Sapin, who was appointed in 2013. During the 115 th Congress, the House and Senate considered legislation that would alter the appointment of one position within one of these agencies—the Register of Copyrights. Under current law pertaining to the copyright office (17 U.S.C. 701): All administrative functions and duties ... are the responsibility of the Register of Copyrights as director of the Copyright Office of the Library of Congress. The Register of Copyrights, together with the subordinate officers and employees of the Copyright Office, shall be appointed by the Librarian of Congress, and shall act under the Librarian's general direction and supervision. H.R. 1695 and S. 1010 , the Register of Copyrights Selection and Accountability Act, would have made the Register of Copyrights a presidential appointment, subject to the advice and consent of the Senate. The legislation would have established a seven-person panel to recommend at least three candidates for this position to the President. The panel would consist of the Speaker of the House, President pro tempore of the Senate, majority and minority leaders in the House and Senate, and Librarian of Congress. The bills would have established a 10-year term of office for the Register. H.R. 1695 was reported by the House Judiciary Committee on April 20, 2017 ( H.R. 1695 , H.Rept. 115-91 ), and passed in the House, as amended, on April 26 (378–48, Roll no. 227). The Senate Committee on Rules and Administration held a hearing on September 26, 2018. A Senate committee markup of S. 1010 initially scheduled for December 12, 2018, was postponed. No further action was taken during the 115 th Congress. The office is currently led by Acting Register of Copyrights Karyn A. Temple, who was named to the position by Librarian of Congress Carla Hayden on October 21, 2016.	[ "The leaders of the legislative branch agencies and entities—the Government Accountability Office (GAO), the Library of Congress (LOC), the Congressional Research Service (CRS), the Government Publishing Office (GPO, formerly Government Printing Office), the Office of the Architect of the Capitol (AOC), the U.S. Capitol Police (USCP), the Congressional Budget Office (CBO), and the Office of Compliance—are appointed in a variety of manners. Four agencies are led by a person appointed by the President, with the advice and consent of the Senate; two are appointed by Congress; one is appointed by the Librarian of Congress; and one is appointed by a board of directors. Congress has periodically examined the procedures used to appoint these officers with the aim of protecting the prerogatives of, and ensuring accountability to, Congress within the framework of the advice and consent appointment process established in Article II, Section 2 of the Constitution. This report contains information on the legislative branch agency heads' appointment processes, length of tenures (if terms are set), reappointment or removal provisions (if any), salaries and benefits, and most recent appointments. This report also briefly addresses legislation considered, but not enacted, in the 115th Congress to change the appointment process for the Register of Copyrights." ]	2,992	gov_report	en	null	8c3ed82219b5ce824caa122936cd075839906e8c3d81d3af
Banks play a central role in the financial system by connecting borrowers to savers and allocating available funds across the economy. As a result, banking is vital to the U.S. economy's health and growth. Nevertheless, banking is an inherently risky activity involving extending credit and undertaking liabilities. Therefore, banking can generate tremendous societal and economic benefits, but banking panics and failures can create devastating losses. Over time, a regulatory system designed to foster the benefits of banking while limiting risks has developed, and both banks and regulatio n have coevolved as market conditions have changed and different risks have emerged. For these reasons, Congress often considers policies related to the banking industry. The last decade has been a transformative period for banking. The 2007-2009 financial crisis threatened the total collapse of the financial system and the real economy. Many assert only huge and unprecedented government interventions staved off this collapse. Others argue that government interventions were unnecessary or potentially exacerbated the crisis. In addition, many argue the crisis revealed that the financial system was excessively risky and the regulatory regime governing the financial system had serious weaknesses. Policymakers responded to the perceived weaknesses in the pre-crisis financial regulatory regime by implementing numerous changes to financial regulation, including to bank regulation. Most notably, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203 ) in 2010 with the intention of strengthening regulation and addressing risks. In addition, U.S. bank regulators have implemented changes under their existing authorities, many of which generally adhere to the Basel III Accords—an international framework for bank regulation agreed to by U.S. and international bank regulators—that called for making certain bank regulations more stringent. In the ensuing years, some observers raised concerns that the potential benefits of those regulatory changes (e.g., better-managed risks, increased consumer protection, greater systemic stability, potentially higher economic growth over the long term) were outweighed by the potential costs (e.g., compliance costs incurred by banks, reduced credit availability for consumers and businesses, potentially slower economic growth). In response to these concerns, Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act; P.L. 115-174 ). Among other things, the law modified certain (1) regulations facing small banks; (2) regulations facing banks large enough to be subjected to Dodd-Frank enhanced regulation but still below the size thresholds exceeded by the very largest banks; and (3) mortgage regulations facing lenders including banks. In addition, federal banking regulatory agencies—the Federal Reserve (the Fed), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC)—have proposed further changes in regulation. Implementing the regulatory changes prescribed in the aftermath of the crisis and made pursuant to the Dodd-Frank Act occurred over the course of years. In recent years—a period in which the leadership of the regulators has transferred from Obama Administration to Trump Administration appointees—the banking regulators have expressed the belief that, after having viewed the effects of the regulations, they now have the necessary information to determine which regulations may be ineffective or inefficient as currently implemented. Recently, these regulators have made of number of proposals with the aim of reducing regulatory burden. A key issue surrounding regulatory relief made pursuant to the EGRRCP Act and regulator-initiated changes is whether regulatory burden can be reduced without undermining the goals and effectiveness of the regulations. Meanwhile, market trends and economic conditions continue to affect the banking industry coincident with the implementation of new regulation. Some of the more notable conditions include the development of new technologies used in financial services (known as "fintech") and a rising interest rate environment following an extraordinarily long period of very low rates. This report provides a broad overview of selected banking-related issues, including issues related to "safety and soundness" regulation, consumer protection, community banks, large banks, what type of companies should be able to establish banks, and recent market and economic trends. This report is not an exhaustive look at all bank policy issues, nor is it a detailed examination of any one issue. Rather, it provides concise background and analyses of certain prominent issues that have been the subject of recent discussion and debate. In addition, this report provides a list of Congressional Research Service reports that examine specific issues. Banks face a number of regulations intended to increase the likelihood that banks are profitable without being excessively risky and prone to failures; decrease the likelihood that bank services are used to conceal the proceeds of criminal activities; and to protect banks and their customers' data from cyberattacks. This section provides background on these "safety and soundness" regulations and analyzes selected issues related to them, including prudential regulation related to capital requirements and the Volcker Rule (which restricts proprietary trading); requirements facing banks related to anti-money laundering laws, such as the Bank Secrecy Act (P.L. 91-508); and challenges related to cybersecurity. Bank failures can inflict large losses on stakeholders, including taxpayers via government "safety nets" such as deposit insurance and Federal Reserve lending facilities. Failures can cause systemic stress and sharp contraction in economic activity if they are large or widespread. To make such failures less likely—and to reduce losses when they do occur—regulators use prudential regulation designed to ensure banks are safely profitable and to reduce the likelihood of bank failure. In addition, banks are subject to regulations intended to reduce the prevalence of crime. Some of those are anti-money laundering measures aimed at stopping criminals from using the banking system to conduct or hide illegal operations. Others are cybersecurity regulations aimed at protecting banks and their customers from becoming victims of cybercrime, such as denial-of-service attacks or data theft. Banks profit in part because their assets are generally riskier, longer term, and more illiquid than their liabilities, which allows the banks to earn more interest on their assets than they pay on their liabilities. The practice is usually profitable, but does expose banks to risks that can potentially lead to failure. Failures can be reduced if (1) banks are better able to absorb losses or (2) they are less likely to experience unsustainably large losses. One tool regulators use to increase a bank's ability to absorb losses is to require banks to hold a minimum level of capital. Another tool regulators use to reduce the likelihood and size of potential losses is to prohibit banks from engaging in activities that could create excessive risks. For example, the Volcker Rule prohibits banks from engaging in proprietary trading —the buying and selling of securities that the bank itself owns with the aim of profiting from price changes. The EGRRCP Act mandated certain changes to these prudential regulations, and regulators have proposed changes under existing authorities. Regulators are to promulgate these changes through the rulemaking process in the coming months and years. In addition, whether policymakers have calibrated these regulations such that their benefits and costs are appropriately balanced is likely to be an area of ongoing debate. For these reasons, prudential regulation issues will likely continue to draw congressional attention. A bank's balance sheet is composed of assets, liabilities, and capital. Assets are largely the value of loans owed to the bank and securities owned by the bank. To make loans and buy securities, a bank secures funding by either issuing liabilities or raising capital. A bank's liabilities are largely the value of deposits and borrowings the bank owes savers and creditors. Capital is raised through various methods, including issuing equity to shareholders or special types of bonds that can be converted into equity. Banking is an inherently risky activity, because banks may suffer losses on assets but face rigid obligations on the liabilities owed to depositors and creditors. In contrast to liabilities, capital generally does not obligate the bank to repay or distribute a specified amount of money at a specified time. This characteristic means that, in the event a bank suffers losses, capital gives the bank the ability to absorb some amount of losses while meeting its obligations. Thus, banks can avoid failures if they hold sufficient capital. Banks are required to satisfy several requirements to ensure they hold enough capital. In the United States, these requirements are generally aligned with the Basel III standards developed as part of a nonbinding agreement between international bank regulators. In general, these are expressed as minimum ratios between certain balance sheet items that banks must maintain. A detailed examination of how these ratios are calculated and what levels must be met is beyond the scope of this report. This examination of policy issues only requires noting that capital ratios fall into one of two main types—a leverage ratio or a risk-weighted ratio. A leverage ratio treats all assets the same, requiring banks to hold the same amount of capital against assets regardless of how risky each asset is. A risk-weighted ratio assigns a risk weight—a percentage based on the riskiness of the asset that the asset value is multiplied by—to account for the fact that some assets are more likely to lose value than others. Riskier assets receive a higher risk weight, which requires banks to hold more capital to meet the ratio requirement. Whether the benefits of capital requirements (e.g., increased bank and financial system stability) are generally outweighed by the potential costs (e.g., reduced credit availability) is an issue subject to debate. Capital is typically a more expensive source of funding for banks than liabilities. Thus, requiring banks to hold higher levels of capital may make funding more expensive, and so banks may choose to reduce the amount of credit available. Some studies indicate this could slow economic growth. However, no economic consensus exists on this issue, because a more stable banking system with fewer crises and failures may lead to higher long-run economic growth. In addition, estimating the value of regulatory costs and benefits is subject to considerable uncertainty, due to difficulties and assumptions involved in complex economic modeling and estimation. Lack of consensus also surrounds questions over whether or under what circumstances risk-weighted ratios are necessary, effective, and efficient. Proponents of risk-based measures assert that it is important to use both risk-weighted and leverage ratios because each addresses weaknesses of the other. For example, riskier assets generally offer a greater rate of return to compensate the investor for bearing more risk. Without risk weighting, banks would have an incentive to hold riskier assets because the same amount of capital must be held against risky and safe assets. However, the use of risk-weighted ratios could be problematic for a number of reasons. Risk weights assigned to particular classes of assets could potentially be an inaccurate estimation of some assets' true risk, which could incent banks to misallocate available resources across asset classes. For example, banks held a high level of seemingly low-risk, mortgage-backed securities (MBSs) before the crisis, in part because those assets offered a higher rate of return than other assets with the same risk weight. MBSs then suffered unexpectedly large losses during the crisis. Another criticism is that the risk-weighted requirements involve "needless complexity" and their use is an example of regulatory micromanagement. The complexity could benefit the largest banks that have the resources to absorb the added regulatory cost compared with small banks that could find compliance costs more burdensome. (Small or "community" bank compliance issues will be covered in more detail in the " Regulatory Burden on Community Banks " section later in the report.) Section 201 of the EGRRCP Act is aimed at addressing concerns over the complexity of risk-weighted ratios and the costs they impose on community banks. This provision created an option for banks with less than $10 billion in assets to meet a higher leverage ratio—the Community Bank Leverage Ratio (CBLR)—in order to be exempt from having to meet the risk-based ratios described above. Bank regulators have issued a proposal to implement this provision wherein banks (1) below the threshold that (2) meet at least a 9% leverage ratio measure of equity and certain retained earnings to assets and (3) had limited off-balance sheet exposures and limited securities trading activity (among other requirements) would qualify for the exemption. The FDIC estimates that more than 80% of community banks will be eligible for the CBLR. However, this new optional exemption does not entirely settle the issue. One bank industry group has argued that 9% is set higher than is necessary, excluding deserving banks from the exemption. In addition, bills in the 115 th Congress, notably H.R. 10 , proposed a high-leverage-ratio option be available to banks regardless of size that would exempt qualifying banks from a wider range of prudential regulations. There are also specific policy issues relating to capital requirements for large banks, which are discussed in the " Regulator Proposals Related to Large Bank Capital Requirements " section below. Section 619 of Dodd-Frank—often referred to as the Volcker Rule—generally prohibits depository banks from engaging in proprietary trading or sponsoring a hedge fund or private equity fund. Proprietary trading refers to owning and trading securities for a bank's own portfolio with the aim of profiting from price changes. Put simply, if a bank is engaged in proprietary trading, it is itself an investor in stocks, bonds, and derivatives, which is commonly characterized as "playing the market" or "speculating." The rule includes exceptions for when bank trading is deemed appropriate—such as (1) when a bank is hedging against risks the bank has assumed as a part of its traditional business and (2) market-making (i.e., buying available securities with the intention of quickly selling them to meet market demand). Proprietary trading is an inherently risky activity, and banks have faced varying degrees of restrictions over engaging in this activity for a number of decades. Sections 16, 20, 21, and 32 of the Banking Act of 1933 (P.L. 73-66)—commonly referred to as the Glass-Steagall Act—generally prohibited certain deposit-taking banks from engaging in certain securities markets activities. Over time, regulator interpretation of Glass-Steagall and legislative changes expanded permissible activities for certain banks, allowing them to make certain securities investments and authorizing bank-holding companies to own depositories and securities firms within the same organization. The financial crisis increased debate over whether banks were engaging in unnecessarily risky activities. Ultimately, certain provisions in Dodd-Frank placed restrictions on permissible activities to reduce banks' riskiness, and the Volcker Rule was designed to prohibit proprietary trading by depository banking organizations. One of the Volcker Rule's proponents' main rationales for the separation of deposit-taking and certain securities investments is that when banks analyze and assume risks, they may be subject to moral hazard —the willingness to take on excessive risk due to some outside protection from losses. Deposits are an important source of bank funding and insured (up to a limit on each account) by the government. This arguably reduces depositors' incentive to monitor their banks' riskiness. Thus, a bank could potentially take on excessive risk without concern about losing this funding because, in the event of large losses that lead to failure, at least part of the losses will be borne by the FDIC's Deposit Insurance Fund (which is backed by the full faith and credit of the U.S. government and so ultimately the taxpayer). Thus, supporters of the Volcker Rule have characterized it as preventing banks from "gambling" in securities markets with taxpayer-backed deposits. However, critics of the Volcker Rule doubt its necessity and efficiency. In regard to necessity, they assert that proprietary trading at commercial banks did not play a substantive role in the financial crisis. They note the rule would not have prevented a number of the major events that played a direct role in the crisis—including failures or bailouts of large investment banks and insurers and losses on loans held by commercial banks. On this point, they also argue that proprietary trading risks are no greater than those posed by "traditional" banking activities, such as mortgage lending, and allowing banks to take on risks in different markets might diversify their risk profiles, making them less likely to fail. Debates relating to the efficiency of the Volcker Rule involve its complexity, compliance burden, and potential to lead banks to reduce their engagement in beneficial market activities. Recall that the Volcker Rule is not a ban on all trading, as banks are still allowed to trade to hedge risks or make markets. This poses practical supervisory problems. For example, how can regulators determine whether a broker-dealer is holding a security for market-making, as a hedge against another risk, or as a speculative investment? Differentiating among these motives creates the aforementioned complexity and compliance costs that could affect banks' trading behavior, and so could reduce financial market efficiency. Another criticism of the Volcker Rule in its original form was that it unnecessarily subjected all banks to the rule and their associated compliance costs. Critics of this aspect asserted that the vast majority of community banks are not involved in complex trading activity, but nevertheless must incur costs in evaluating the rule to ensure they are in compliance. Both Congress and regulators have recently taken actions in response to concerns over the complexity of the Volcker Rule and its compliance burden for small banks. Section 203 of the EGRRCP Act exempted banks with less than $10 billion in assets that fell below certain trading activity limits from the rule. Independent of that mandate, the agencies that implemented and enforced the Volcker Rule released and called for public comment on a proposal to simplify the rule in May 2018. Under the proposal, the agencies would clarify certain of the rule's definitions and criteria in an effort to reduce or eliminate uncertainties related to how certain trading activity can qualify for exemption. The proposal would also further tailor the compliance requirements facing banks based on the size of an institution's trading activity. Proponents of the Volcker Rule are generally wary of size-based exemptions. They contend that community banks typically do not face compliance obligations under the rule and do not face an excessive burden by being subject to it. They argue that community banks that are subject to compliance requirements can comply by having clear policies and procedures in place for review during the normal examination process. In addition, Volcker Rule supporters are generally critical of the regulators' proposal, asserting that the changes would undermine "the effective supervision and enforcement" of the rule. Anti-money laundering (AML) regulation refers to efforts to prevent criminal exploitation of financial systems to conceal the location, ownership, source, nature, or control of illicit proceeds. The U.S. Department of the Treasury estimates domestic financial crime, excluding tax evasion, generates $300 billion in illicit proceeds that might involve money laundering. Despite robust AML efforts in the United States, the ability to counter money laundering effectively remains challenged by factors including (1) the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system; (2) the introduction of new and emerging threats such as cyber-related financial crimes; (3) gaps in legal, regulatory, and enforcement regimes; and (4) the costs associated with financial institution compliance with global AML guidance and national laws. In the United States, the statutory foundation for domestic AML originated in 1970 with the Bank Secrecy Act (BSA; P.L. 91-508) and its major component, the Currency and Foreign Transaction Reporting Act. Amendments to the BSA and related provisions in the 1980s and 1990s expanded AML policy tools available to combat crime, particularly drug trafficking, and prevent criminals from laundering their illicitly derived profits. Key elements to the BSA/AML legal framework include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering abuses. In general, banking regulators examine institutions for compliance with BSA/AML. When a regulator finds BSA violations or deficiencies in AML compliance programs, it may take informal or formal enforcement action, including possible civil fines. The BSA/AML policy framework is premised on banks and other covered financial entities filing a range of reports with the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), when their clients either engage in suspicious financial transactions, large cash transactions, or certain other transactions. For example, a bank generally must file a Suspicious Activity Report (SAR) if, among other reasons, it conducts a transaction of $5,000 or more that the bank suspects involves money laundering or other criminal activity. A bank must file a Currency Transaction Report (CTR) if it conducts a currency (i.e., cash) transaction of $10,000 or more as to which it has the same suspicions. The accurate, timely, and complete reporting of such activity to FinCEN flags situations that may warrant further investigation for law enforcement. Whether this regulatory framework adequately hinders criminals from using the banking system to launder their criminal proceeds and whether it does so efficiently without unduly burdening banks are debated issues. One aspect of this debate is whether current reporting requirements are inefficient and overly costly to the banking industry. Some industry observers—including officials from the OCC—have indicated that they believe certain areas of the current framework could be reformed in a way that reduces compliance costs without unduly weakening the ability to prevent money laundering. In contrast, officials from other agencies involved in AML and law enforcement—including FinCEN and the FBI—have stressed the importance of the information gathered under the current reporting requirements in combating money laundering. Another area of concern involves beneficial owners —that is, the natural person(s) who own or control a legal entity, such as a corporation or limited liability company. When such entities are set up without physical operations or assets, they are often referred to as shell companies . Shell companies can be used to conceal beneficial ownership and facilitate anonymous financial transactions. In recent years, policymakers have become increasingly concerned regarding potential risks posed by shell companies whose beneficial ownership is not transparent. This is due in part to a series of leaks to the media regarding the use of shell companies to facilitate criminal activity (such as "the Panama Papers") and sustained multilateral criticism of current U.S. practices by the Financial Action Task Force, an international standard-setting body. In May 2018, a new FinCEN regulation came into effect that increased the requirements for banks to conduct customer due diligence (CDD) and ascertain the identity of beneficial owners in certain cases. Central to the CDD rule is a requirement for financial institutions to establish and maintain procedures to identify and verify beneficial owners of a legal entity opening a new account. If Congress decides that reporting requirements facing banks are not appropriately calibrated, it could pass legislation amending those requirements. For example, Congress could change the CTR or SAR reporting threshold or index the threshold levels to inflation. Certain bills introduced in the 115 th Congress would have increased financial transparency and reporting requirements for beneficial owners in other nonbank fields, such as real estate, but could potentially indirectly impact the banking industry as well. Cybersecurity is a major concern of banks, other financial services providers, and federal regulators. In many ways, it is an important extension of physical security. For example, banks are concerned about both physical and electronic theft of money and other assets, and they do not want their businesses shut down by weather events or electronic denial-of-service attacks. Maintaining the confidentiality, security, and integrity of physical records and electronic data held by banks is critical to sustaining the level of trust that allows businesses and consumers to rely on the banking industry to supply services on which they depend. The federal government has increasingly recognized the importance of cybersecurity in the financial services industry, as evidenced by the inclusion of financial services in the government's list of critical infrastructure sectors. The basic authority that federal regulators use to establish cybersecurity standards emanates from the organic legislation that established the agencies and delineated the scope of their authority and functions. As previously discussed, federal banking regulators are required to promulgate safety and soundness standards for all federally insured depository institutions to protect the stability of the nation's banking system. Some of these standards pertain to cybersecurity issues, including information security, data breaches, and destruction or theft of business records. In addition, certain laws (at both the state and federal levels) have provisions related to cybersecurity of financial services that are often performed by banks, including the Dodd-Frank Act, the Gramm-Leach-Bliley Act of 1999 (GLBA; P.L. 106-102 ), and the Sarbanes-Oxley Act of 2002 ( P.L. 107-204 ). For example, Section 501 of GLBA imposes obligations on financial institutions to "respect the privacy of ... [their] customers and to protect the security and confidentiality of those customers' nonpublic personal information." Federal banking regulators require the entities that they regulate to protect customer privacy of physical and electronic records as mandated by the privacy title of GLBA. Federal bank regulators also issue guidance in a variety of forms designed to help banks evaluate their risks and comply with cybersecurity regulations. Regulators bring adjudicatory enforcement actions on a case-by-case basis related to banks' violations of cybersecurity protocols. Banks often view these actions as signaling how an agency interprets aspects of its regulatory authority. For example, a number of recent consent orders issued by the FDIC have directed banks to perform assessments or audits of information technology programs and management to identify risks and ensure compliance with cybersecurity requirements. Thus, oversight of financial services and bank cybersecurity reflects a complex and sometimes overlapping array of state and federal laws, regulators, regulations, and guidance. However, whether this framework is effective and efficient, resulting in adequate protection against cyberattacks without imposing undue cost burdens on banks, is an open question. The occurrence of successful hacks of banks and other financial institutions, wherein huge amounts of individuals' personal information are stolen or compromised, highlights the importance of ensuring bank cybersecurity. For example, in 2014, JPMorgan Chase, the largest U.S. bank, experienced a data breach that exposed financial records of 76 million households. However, no consensus exists on how best to reduce the occurrence of such incidents. Financial products can be complex and potentially difficult for consumers to fully understand. Consumers seeking loans or financial services could be vulnerable to deceptive or unfair practices. To reduce the occurrence of bad outcomes, laws and regulations have been put in place to protect consumers. This section provides background on consumer financial protection and the Bureau of Consumer Financial Protection's (CFPB) authority. The section also analyzes related issues, including whether the CFPB has used its authorities and regulations of banking institutions appropriately; concerns relating to the lack of consumer access to banking services; and whether the Community Reinvestment Act as currently implemented is effectively and efficiently meeting its goal of ensuring banks provide credit to the areas in which they operate. Banks are subject to consumer compliance regulation, intended to ensure that banks are in compliance with relevant consumer-protection and fair-lending laws. Federal laws and regulations in this area take a variety of approaches and address different areas of concern. Certain laws provide disclosure requirements intended to ensure consumers adequately understand the costs and other features and terms of financial products. Other laws prohibit unfair, deceptive, or abusive acts and practices. Fair lending laws prohibit discrimination in credit transactions based upon certain borrower characteristics, including sex, race, religion, or age, among others. The financial crisis raised concerns among policymakers that regulators' mandates lacked sufficient focus on consumer protection. In response, the Dodd-Frank Act established the CFPB with the single mandate to implement and enforce federal consumer financial law, while ensuring consumers can access financial products and services. The CFPB also seeks to ensure the markets for consumer financial services and products are fair, transparent, and competitive. For banks with more than $10 billion in assets, the CFPB is the primary regulator for consumer compliance, whereas safety and soundness regulation continues to be performed by the prudential regulator. As a regulator of larger banks, the CFPB has rulemaking, supervisory, and enforcement authorities. A large bank, therefore, has different regulators for consumer protection and safety and soundness. For banks with $10 billion or less in assets, the rulemaking, supervisory, and enforcement authorities for consumer protection are divided between the CFPB and a prudential regulator. The CFPB may issue rules that apply to smaller banks, but the prudential regulators maintain primary supervisory and enforcement authority for consumer protection. The CFPB has limited supervisory and enforcement powers over small banks. Consumer protection and fair lending compliance continue to be important issues for banks for numerous reasons. Noncompliance can result in regulators taking enforcement actions that may involve substantial penalties. In addition, even in the absence of enforcement actions, an institution faces reputational risks if it comes to be perceived as dealing badly with customers. For example, the CFPB maintains a consumer complaints database that makes public consumer complaints against individual companies readily available, potentially affecting prospective customers' decisions on which companies to use for financial services. The recent public reaction to and enforcement actions pertaining to Wells Fargo's unauthorized opening of customer accounts show the importance of strong consumer protection compliance. Recently, banks and other nonbank financial institutions that provide financial products to consumers (e.g., mortgages, credit cards, and deposit accounts) have been affected by the implementation of new CFPB regulations. For example, banks and other lenders have begun to comply with major new mortgage rules such as the Ability-to-Repay and Qualified Mortgage Standards Rule (ATR/QM) and Truth in Lending Act/Real Estate Settlement Act Integrated Disclosure Rule (TRID). The ATR/QM encourages lenders to gather more information on prospective borrowers than they otherwise might have in order to reduce the likelihood that a borrower would receive an inappropriate loan. TRID requires lenders to provide borrowers with certain information about the mortgages for which they are applying. In addition to these and other new regulations, the CFPB also provides information on its supervisory activities related to banks, such as instances where its examiners found that certain financial institutions misrepresented service fees associated with deposit and checking accounts. Compliance with these new rules has increased banks' operational costs, which some argue potentially leads to higher costs for consumers in certain markets or a reduction in the availability of credit. Others stress that CFPB's regulatory, supervisory, and enforcement efforts reduce the likelihood of consumer harm in financial markets. Debates about how best to achieve the appropriate balance between consumer protection, credit access, and industry costs are unlikely to be resolved easily, and thus may continue to be an area of congressional interest. The banking sector provides valuable financial services for households that allow them to save, make payments, and access credit. Safe and affordable financial services allow households to avoid financial hardship, build assets, and achieve financial security. However, many U.S. households (often those with low incomes, lack of credit histories, or credit histories marked with missed debt payments) do not use banking services. According to the FDIC's National Survey of Unbanked and Underbanked Households, in 2017, 6.5% of households in the United States were unbanked (i.e., did not have an account at an insured institution) and 18.7% of households were underbanked (i.e., obtained financial products and services outside of the banking system in the past year). Lack of bank access leads some households to rely on alternative financial service providers and consumer credit products outside of the formal banking sector, such as payday or auto title loans. According to an FDIC estimate, 12.9% of households had unmet demand for mainstream small-dollar credit. Certain observers believe that financial outcomes for the unbanked and underbanked would be improved if banks—which may be more likely to be a stable source of relatively inexpensive financial services relative to certain alternatives—were more active in meeting this demand. For this reason, prudential regulators, like the OCC and the FDIC, are currently exploring ways to encourage banks to offer small-dollar credit products to consumers, and other policymakers and observers will likely continue to explore ways to make banking more accessible to a greater portion of the population. The Community Reinvestment Act of 1977 (CRA; P.L. 95-128 ) addresses how banking institutions meet the credit needs of the areas they serve, notably in low- and moderate-income (LMI) neighborhoods. The federal prudential banking regulators (the Fed, the OCC, and the FDIC) conduct examinations to evaluate how banks are fulfilling the objectives of the CRA. The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within an assigned assessment area . These credits are then used to issue each bank a performance rating, from Outstanding to Substantial Noncompliance. The CRA requires regulators to take these ratings into account when banks request to merge with other banking institutions or otherwise expand their operations into new areas. Whether regulations as currently implemented are effectively and efficiently meeting the CRA's goals has been the subject of debate. The banking industry and other observers assert that CRA regulations can be altered in a way that would reduce regulatory burden while still meeting the law's goals. Recently, the OCC and Treasury have made proposals to address those concerns. However, consumer and community advocates argue that efforts to provide relief to banks may potentially be at the expense of communities that the CRA is intended to help. Treasury made a number of recommendations to the bank regulators for changes to CRA regulations in a memorandum it sent to those agencies in April 2018. Regarding the need for modernization, the memorandum recommends revisiting the approach for determining banks' assessment areas, given that geographically defined areas arguably may not fully reflect the community served by a bank because of technology developments. Treasury also recommends establishing clearer standards for CRA-eligible activities that provide flexibility and expand the types of loans, investments, and services that are eligible for CRA credit. Regarding aspects of CRA compliance that may be unnecessarily burdensome, Treasury recommends increasing the timeliness of the CRA performance examination process. Regarding improving the outcomes that the CRA was intended to encourage, such as increasing the availability of credit to LMI neighborhoods, Treasury recommendations include incorporating performance incentives that might result in more efficient lending activities. In September 2018, the OCC published an advance notice of proposed rulemaking (ANPR) seeking public comment on 31 questions pertaining to issues to consider and possible changes to CRA regulation. The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry. The OCC received more than 1,300 comment letters in response to the ANPR that were alternatively supportive or critical of the various possible alterations to CRA regulation. Although some banks hold a very large amount of assets, are complex, and operate on a national or international scale, the vast majority of U.S. banks are relatively small, have simple business models, and operate within a local area. This section provides background on these simpler banks—often called community bank s —and analyzes issues related to them, including regulatory relief for community banks and the long-term decline in the number of community banks. Although there is no official definition of a community bank, policymakers and the public generally recognize that the vast majority of U.S. banks differ substantially from a relatively small number of very large and complex banking organizations in a number of ways. Community banks tend to hold a relatively small amount of assets (although asset size alone need not be a determining factor); be more concentrated in core bank businesses of making loans and taking deposits and less involved in other, more complex activities; and operate within a smaller geographic area, making them generally more likely to practice relationship lending wherein loan officers and other bank employees have a longer standing and perhaps more personal relationship with borrowers. Therefore, community banks may serve as particularly important credit sources for local communities and underserved groups of which large banks may have little familiarity. In addition, relative to large banks, community banks generally have fewer employees, less resources to dedicate to regulatory compliance, and individually pose less of a systemic risk to the broader financial system. Congress often faces policy issue questions related to community banks. Community bank advocates often assert the tailoring of regulations currently in place does not adequately balance the benefits and costs of the regulations when applied to community banks. Concerns have also been raised about the three-decade decline in the number and market presence of these institutions, and the predominant cause of that decline is a matter of debate. In recent decades, community banks, under almost any common definition, have seen their numbers decline and their collective share of banking industry assets fall in the United States. Overall, the number of FDIC-insured institutions fell from a peak of 18,083 in 1986 to 5,477 in 2018. The number of institutions with less than $1 billion in assets fell from 17,514 to 4,704 during that time period, and the share of industry assets held by those banks fell from 37% to 7%. Meanwhile, the number of banks with more than $10 billion in assets rose from 38 to 138, and the share of total banking industry assets held by those banks increased from 28% to 84%. The decrease in the number of community banks occurred mainly through three methods: mergers, failures, and lack of new banks. Most of the decline in the number of institutions in the past 30 years was due to mergers, which averaged more than 400 a year from 1990 to 2016. Failures were minimal from 1999 to 2007, but played a larger role in the decline during the late 1980s and following the 2007-2009 financial crisis and subsequent recession. As economic conditions have improved, failures have declined, but the number of n ew r eporters —new chartered institutions providing information to the FDIC for the first time—has been extraordinarily small in recent years. For example, in the 1990s, an average of 130 new banks reported data to the FDIC per year. Through September 30, five new banks reported data to the FDIC in 2018. Observers have cited several possible causes for this industry consolidation. Some observers argue the decline indicates that the regulatory burden on community banks is too onerous, driving smaller banks to merge to create or join larger institutions, an argument covered in more detail in the following section, " Regulatory Burden on Community Banks ." However, mergers—the largest factor in consolidation—could occur for a variety of reasons. For example, a bank that is struggling financially may look to merge with a stronger bank to stay in business. Alternatively, a community bank that has been outperforming its peers may be bought by a larger bank that wants to benefit from its success. In addition, other fundamental changes besides regulatory burden in the banking system could be driving consolidation, making it difficult to isolate the effects of regulation. Through much of the 20 th century, federal and state laws restricted banks' ability to open new branches and banking across state lines was restricted. Thus, many more banks were needed to serve every community. Branching and banking across state lines was not substantially deregulated at the federal level until 1997 through the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ( P.L. 103-328 ). When these restrictions were relaxed, it became easier for community banks to consolidate or for mid-size and large banks to spread operations to other markets. In addition, there may be economies of scale, not only in compliance, but in the business of banking in general. Furthermore, the economies of scale may be growing over time, which would also drive industry consolidation. For example, information technology has become more important in banking (e.g., cybersecurity and mobile banking), and certain information technology systems may be subject to economies of scale. Finally, the slow growth coming out of the most recent recession, and macroeconomic conditions more generally (such as low interest rates), may make it less appealing for new firms to enter the banking market. Community banks receive special regulatory consideration to minimize their regulatory burden. For example, many regulations—including a number of regulations implemented pursuant to the Dodd-Frank Act—include exemptions for community banks or are otherwise tailored to reduce compliance costs for community banks. Title I and Title II of the EGRRCP Act contained numerous provisions that provided new exemptions to community banks or raised the thresholds for existing exemptions, such as the Community Bank Leverage Ratio and Volcker Rule exemptions discussed above in the " Prudential Regulation " section. In addition, bank regulators are required to consider the effect of rules on community banks during the rulemaking process pursuant to provisions in the Regulatory Flexibility Act ( P.L. 96-354 ) and the Riegle Community Development and Regulatory Improvement Act ( P.L. 103-325 ). Supervision is also structured to pose less of a burden on small banks than larger banks, such as by requiring less-frequent bank examinations for certain small banks and less intensive reporting requirements. However, Congress often faces questions related to whether tailoring in general or tailoring provided in specific regulations is sufficient to ensure that an appropriate trade-off has been struck between the benefits and costs of regulations facing community banks. Advocates for further regulatory relief argue that certain realized benefits are likely to be relatively small, whereas certain realized costs are likely to be relatively large. One area where the benefits of regulation may be relatively small for community banks relative to large banks is regulations aimed at improving systemic stability, because community banks individually pose less of a risk to the financial system as a whole than a large, complex, interconnected bank. Many recent banking regulations were implemented at least in part in response to the systemic nature of the 2007-2009 crisis. Some community bank proponents argue that because small banks did not cause the crisis and pose less systemic risk, they need not be subject to new regulations made in response to the crisis. Opponents of these arguments note that systemic risk is only one of the goals of regulation, along with prudential regulation and consumer protection, and that community banks are exempted from many of the regulations aimed at systemic risk. They note that hundreds of small banks failed during and after the crisis, suggesting the prudential regulation in place prior to the crisis was not stringent enough. Another potential rationale for easing regulations on community banks would be if there are economies of scale to regulatory compliance costs, meaning that regulatory compliance costs may increase as bank size does but decrease as a percentage of overall costs or revenues. Put another way, as regulatory complexity increases, compliance may become relatively more costly for small institutions. Empirical evidence on whether compliance costs are subject to economies of scale is mixed, thus consider this illustrative example to show the logic behind the argument. Imagine a bank with $100 million in assets and 25 employees and a bank with $10 billion in assets and 1,250 employees each determine they must hire an extra employee to ensure compliance with new regulations. The relative burden is larger on the small institution that expands its workforce by 4% than on the large bank that expands by less than 0.1%. From a cost-benefit perspective, if regulatory compliance costs are subject to economies of scale, then the balance of costs and benefits of a particular regulation will differ depending on the size of the bank. For the same regulatory proposal, economies of scale could potentially result in costs outweighing benefits for smaller banks. Due to a lack of empirical evidence of the exact benefits and costs of each individual regulation at each individual bank (and even lack of consensus over which banks should qualify as community banks), debates over the appropriate level of tailoring of regulations is a debate over calibration involving qualitative assessments. Where should the lines be drawn? Should exemption thresholds be set high so that regulations apply only to the very largest, most complex banks? Should thresholds be set relatively low, so that only very small banks are exempt? At what point does a bank cease to have the characteristics associated with community banks? Often at issue in this debate are the so-called regional banks —banks that are larger and operate across a greater geographic market than the community banks but are also smaller and less complex than the largest, most complex organizations with hundreds of billions or trillions of dollars in assets. Should regulators provide regional banks the same exemptions as those provided to community banks? Policymakers, in the 116 th Congress, continue to face these and other questions concerning community banks. Along with the thousands of relatively small banks operating in the United States, there are a handful of banks with hundreds of billions of dollars of assets. The 2007-2009 financial crisis highlighted the problem of "too big to fail" (TBTF) financial institutions—the concept that the failure of a large financial firm could trigger financial instability, which in several cases prompted extraordinary federal assistance to prevent the failure of certain of these institutions. In response to the crisis, policymakers took a number of steps through the Dodd-Frank Act and the Basel III Accords to eliminate the TBTF problem, including subjecting the largest banks to enhanced prudential regulations, a new resolution regime to unwind these banks in the event of failure, and higher capital requirements. This section provides background on these large banks and examines issues related to them, including reductions in the application of enhanced prudential regulations facing certain large banks made pursuant to P.L. 115-174 and changes to capital requirements proposed by regulators that would reduce the amount of capital certain large banks would have to hold. As regulators implement these statutory changes and their proposed rules move forward, Congress faces questions about whether relaxing these regulations appropriately eases overly stringent requirements or unnecessarily increases the likelihood that large banks take on excessive risks. Some bank holding companies (BHCs) have hundreds of billions or trillions of dollars in assets and are deeply interconnected with other financial institutions. A bank may be so large that its leadership and market participants may believe that the government would save it if it became distressed. This belief could arise from the determination that the institution is so important to the country's financial system—and that its failure would be so costly to the economy and society—that the government would feel compelled to avoid that outcome. An institution of this size and complexity is said to be TBTF. In addition to fairness issues, economic theory suggests that expectations that a firm will not be allowed to fail creates moral hazard —if the creditors and counterparties of a TBTF firm believe that the government will protect them from losses, they have less incentive to monitor the firm's riskiness because they are shielded from the negative consequences of those risks. As a result, TBTF institutions may have incentives to be excessively risky, gain unfair advantages in the market for funding, and expose taxpayers to losses. Several market forces likely drive banks and other financial institutions to grow in size and complexity, thereby potentially increasing efficiency and improving financial and economic outcomes. For example, marginal costs can be reduced through economies of scale; risk can be diversified by spreading exposures over multiple business lines and geographic markets; and a greater array of financial products could be offered to customers allowing a bank to potentially attract new customers or strengthen relationships with existing ones. These market forces and the relaxation of certain interstate banking and branching regulations described in the " Reduction in Community Banks " section may have driven some banks to become very large and complex in the years preceding the crisis. At the end of 1997, two insured depository institutions held more than $250 billion in assets, and together accounted for about 9.3% of total industry assets. By the end of 2007, six banks held more than $250 billion in assets, accounting for 40.9% of industry assets. The trend has generally continued, and as of the third quarter of 2018, nine banks held more than $250 billion in assets, accounting for 49.5% of industry assets. Many assert that the worsening of the financial crisis in fall 2008 was a demonstration of TBTF-related problems. Large institutions had taken on risks that resulted in large losses, causing the institutions to come under threat of failure. In some cases, the U.S. government took actions to stabilize the financial system and individual institutions. Wachovia and Washington Mutual were large institutions that were acquired by other institutions to avoid their failure during the crisis. Bank of America and Citigroup received extraordinary assistance through the Troubled Asset Relief Program (TARP) to address financial difficulties. Other large (and small) banks participated in emergency government programs offered by the Treasury (TARP), the Federal Reserve, and the FDIC. In response, the Dodd-Frank Act attempted to end TBTF through (1) a new regulatory regime to reduce the likelihood that large banks would fail; (2) a new resolution regime to make it easier to safely wind down large bank holding companies that are at risk of failing; and (3) new restrictions on regulators' use of emergency authority to prevent "bail outs" of failing large banks. In addition, the Federal Reserve imposed additional capital requirements on the largest banks that largely aligned with proposed standards set out by the Basel III Accords, with some exceptions. To make it less likely that large banks would fail, certain large banks are now subject to an enhanced prudential regulatory regime administered by the Federal Reserve. Under this regime, large banks are subject to more stringent safety and soundness standards than other banks. They must comply with higher capital and liquidity requirements, undergo stress tests, produce living wills and capital plans, and comply with counterparty limits and risk management requirements. To make it easier to wind down complex BHCs with nonbank subsidiaries, the Dodd-Frank Act created the Orderly Liquidation Authority (OLA), a resolution regime administered by the FDIC that is similar to how the FDIC resolves bank subsidiaries. This replaced the bankruptcy process, focused on the rights of creditors, with an administrative process, focused on financial stability, for winding down such firms. To date, OLA has never been used. The Dodd-Frank Act initially applied enhanced prudential regulation requirements to all BHCs with more than $50 billion in assets, although more stringent standards were limited to banks with more than $250 billion in assets or $10 billion in foreign exposure, and the most stringent standards were limited to U.S. globally systemically important banks (G-SIBs), the eight most complex U.S. banks. Subsequent to the enactment of Dodd-Frank, critics of the $50 billion asset threshold argued that many banks above that size are not systemically important and that Congress should raise the threshold. In particular, critics distinguished between regional banks (which tend to be at the lower end of the asset range and, some claim, have a traditional banking business model comparable to community banks) and Wall Street banks ( a term applied to the largest, most complex organizations that tend to have significant nonbank financial activities). Opponents of raising the threshold disputed this characterization, arguing that some regional banks are involved in sophisticated activities, such as being swap dealers, and have large off-balance-sheet exposures. In response to concerns that the enhanced prudential regulation threshold was set too low, P.L. 115-174 exempted banks with between $50 billion and $100 billion in assets from enhanced prudential regulation, leaving them to be regulated in general like any other bank. Under the proposed rule implementing the P.L. 115-174 changes, the Fed has increased the tiering of enhanced regulation for banks with more than $100 billion in assets. The proposed rule would create four categories of banks based on size and complexity, and impose increasingly stringent requirements on each category. From most to least stringent, Category I would currently include the eight G-SIBs, Category II would include one bank, Category III would include four banks, and Category IV would include 11 banks. Compared with current policy, banks in all categories would face reduced regulatory requirements under this rule, other proposed rules, and forthcoming rules required by Section 402 of P.L. 115-174 , if finalized. In addition, P.L. 115-174 created new size-based exemptions from various regulations, increasing the tendency to subject larger banks to more stringent requirements than smaller banks. These changes include exemptions from the Volcker Rule and risk-weighted capital requirements for banks with less than $10 billion in assets (meeting certain criteria). Proponents of the changes assert they provide necessary and targeted regulatory relief. Opponents argue they needlessly pare back important Dodd-Frank protections to the benefit of large and profitable banks. As discussed in the " Capital Requirements " section, all banks must hold enough capital to meet certain capital ratio requirements. Broadly, those requirements take two forms—risk-weighted requirements and unweighted leverage requirements. In addition, a small subset of very large and very complex banks also face additional capital ratio requirements implemented by the U.S. federal bank regulators. The Federal Reserve has made two proposals to simplify and relax certain aspects of these additional requirements, and these proposals are subject to debate. All banks must hold additional high-quality capital on top of the minimum required levels—called the capital conservation buffer (CCB)—to avoid limitations on their capital distributions, such as dividend payments. In addition, certain large banks are subject to the Federal Reserve's stress tests, the results of which can lead to restrictions on the bank's capital distributions. Stress tests are intended to ensure that banks hold enough capital to withstand a hypothetical market stress scenario, but arguably have the effect of acting as additional capital requirements with which banks must comply. Advanced approaches banks must maintain a fixed minimum supplementary leverage ratio (SLR), an unweighted capital requirement that is more stringent than the leverage ratio facing smaller banks because it incorporates off-balance sheet exposures. A Congressional Research Service (CRS) analysis of large holding companies' regulatory filings indicates that, currently, 19 large and complex U.S. bank or thrift holding companies are classified as advanced approaches banks. G-SIBs must meet fixed enhanced SLR (eSLR) requirements, which sets the SLR higher for these banks. In addition, the G-SIBs are subject to an additional risk-weighted capital surcharge (on top of other risk-weighted capital requirements that all banks must meet) of between 1% and 4.5% based on the systemic importance of the institution. Whether these requirements are appropriately calibrated is a debated issue. Proponents of recalibrating some of these capital requirements argue that those requirements set at a fixed number—including the CCB and eSLR—are inefficient, because they do not reflect varying levels of risk posed by individual banks. Recalibration proponents also argue that compiling with these requirements in addition to stress test requirements is unnecessarily burdensome for banks. Opponents of proposals to relax current capital requirements facing large and profitable banks assert that doing so needlessly pares back important safeguards against bank failures and systemic instability. In response to concerns that fixed requirements do not adequately account for risk differences between institutions, the Fed has issued two proposals for public comment that would link individual large banks' requirements with other risk measures. One proposal would make bank CCB requirements a function of their stress tests results, and the other proposal would link large banks' eSLR requirements with individual G-SIB systemic importance scores. The Fed estimates that the new CCB requirement would generally reduce the amount of capital large banks would have to hold, but that some G-SIBs would see their required capital levels increase. The Fed estimates that the new eSLR requirement would generally reduce the amount of capital held by G-SIB parent companies by $400 million and the amount held by insured depository subsidiaries by $121 billion. To legally operate as a bank and perform the relevant activities, an institution generally must have a charter granted by either the OCC at the federal level or a state-level authority. In addition, to engage in certain activities, the institution must have federal deposit insurance granted by the FDIC. Currently, these requirements raise a number of policy questions, including whether companies established primarily as financial technology companies should be able to receive a national bank charter, as has been offered by the OCC; and whether the application process and determinations made by the FDIC as they relate to institutions seeking a specific type of state charter, called an industrial loan company (ILC) charter, is overly restrictive. An institution that makes loans and takes deposits—the core activities of traditional commercial banking—must have a government issued charter. Numerous types of charters exist, including national bank charters; state bank charters; federal savings association charters, and state savings association charters (saving associations are also referred to as thrifts ). Each charter type determines what activities are permissible for the institution, what activities are restricted, and which agency will be the institution's primary federal regulator (see Table 1 ). One of the main rationales for this system is that it gives institutions with different business models and ownership arrangements the ability to choose a regulatory regime appropriately suited to the institution's business needs and risks. The differences between institution business models and the attendant regulations are numerous, varied, and beyond the scope of this report. The issues examined in this section arise from each charter's granting an institution the right to engage in certain banking related activities, and thus generating the potential benefits and risks of those activities. Broadly, these issues relate to questions over whether companies that differ from traditional banks should be allowed to engage in traditional banking activities given the types and magnitudes of benefits and risks the companies might present. Recent advances in technology, including the proliferation of available data and internet access, have altered the way financial activities are performed in many ways. These innovations in financial technology, or fintech, have created the opportunity for certain activities that have traditionally been the business of banks to instead be performed by technology-focused, nonbank companies. Lending and payment processing are prominent examples. This development has raised questions over how these fintech companies should be regulated, and the appropriate federal and state roles in that regulation. One possible, though contested, proposal for addressing a number of these questions would be to make an OCC national bank charter available to certain fintech companies. Many nonbank fintech companies performing bank-like activities are regulated largely at the state level. They may have to obtain lending licenses or register as money transmitters in every state they operate and may be subject to the consumer protection laws of that state, such as interest rate limits. Proponents of fintech companies argue that subjecting certain technology companies to 50 different state level regulatory regimes is unnecessarily burdensome and hinders companies that hope to achieve nationwide operations quickly using the internet. In addition, a degree of uncertainty surrounding the applicability of certain laws and regulations to certain fintech firms and activities has arisen. For example, whether federal preemption of state interest rate limits apply to loans made through a marketplace lender —that is, online-only lenders that exclusively use automated, algorithmic underwriting—but originated by a bank faces legal uncertainty due to certain court decisions, including Madden v Midlands . One possible avenue to ease the state-by-state regulatory burdens and resolve the uncertainties facing some fintech firms would be to allow those firms that perform bank-like activities to apply for and (provided they meet necessary requirements) to grant them national bank charters. First proposed in 2016 by then-Comptroller of the Currency Thomas Curry, and following subsequent examination of the issue and review of public comments, the OCC announced in July 2018 that it would consider "applications for special purpose bank charters from financial technology (fintech) companies that are engaged in the business of banking but do not take deposits." OCC argues that companies with such a charter would be explicitly subject to all laws and regulations (including those that preempt state law, a contentious issue addressed below) applicable to national banks. The OCC stated that fintech firms granted the charter "will be subject to the same high standards of safety and soundness and fairness that all federally chartered banks must meet," and also that the OCC "may need to account for differences in business models and activities, risks, and the inapplicability of certain laws resulting from the uninsured status of the bank." Thus, the argument goes, establishing a fintech charter would mean a new set of innovative companies would no longer face regulatory uncertainty and could safely and efficiently provide beneficial financial services, perhaps to populations and market-niches that banks with traditional cost structures do not find cost-effective to serve. Until the OCC actually grants such charters and fintech firms operate under the national bank regime for some amount of time, how well this policy fosters potential innovations and benefits while guarding against risks is the subject of debate. Proponents of the idea generally view the charter as a mechanism for freeing companies from what they assert is the unnecessarily onerous regulatory burden of being subject to numerous state regulatory regimes. They further argue that this would be achieved without overly relaxing regulations, as the companies would become subject to the OCC's national bank regulatory regime and its rulemaking, supervisory, and enforcement authorities. Opponents generally assert both that the OCC does not have the authority to charter these types of companies, as discussed below, and that doing so would inappropriately allow marketplace lenders to circumvent important state-level consumer protections. The OCC's assertion that it has the authority to grant such charters has been challenged. Shortly after the initial 2016 announcements that the OCC was examining the possibility of granting the charters, the Conference of State Bank Supervisors and the New York State Department of Financial Services sued the OCC to prevent it from issuing the charters on the grounds that it lacked the authority to do so. A federal district court dismissed the case after concluding that because the OCC had not yet issued charters to nonbanks, the plaintiffs (1) lacked standing to challenge the OCC's purported decision to move forward with chartering nonbanks, and (2) had alleged claims that were not ripe for adjudication. Subsequent to the OCC's July 2018 announcement, state regulators have again filed lawsuits. Industrial loan companies (ILCs) hold a particular type of charter offered by some states that generally allows ILCs to engage in certain banking activities. Depending on the state, those activities can include deposit-taking, but only if they are granted deposit insurance by the FDIC. Thus, ILCs that take deposits are state regulated with the FDIC acting as the primary federal regulator. Importantly, a parent company that owns an ILC that meets certain criteria is not necessarily considered a BHC for legal and regulatory purposes. This means ILC charters create an avenue for commercial firms (i.e., companies not primarily focused on the financial industry, such as manufacturers, retailers, or possibly technology companies) to own a bank. Nonfinancial parent companies of ILCs generally are not subject to Fed supervision and other regulations pursuant to the Bank Holding Company Act of 1956 (P.L. 84-511). A commercial firm may want to own a bank for a number of economic reasons. For example, an ILC can provide financing to the parent company's customers and clients and thus increase sales for the parent. In recent decades, household-name manufacturers have owned ILCs, including but not limited to General Motors, Toyota, Harley Davidson, and General Electric. However, while they can generate profits and potentially increase credit availability, ILCs pose a number of potential risks. The United States has historically adopted policies to generally separate commerce and banking, because allowing a single company to be involved in both activities could potentially result in a number of bad outcomes. A mixed organization's banking subsidiary could make decisions based on the interests of the larger organization, such as making overly risky loans to customers of a commerce subsidiary or providing funding to save a failing commerce subsidiary. Such conflicts of interest could threaten the safety and soundness of the bank. Relatedly, some have argued that having a federally insured bank within a commercial organization is an inappropriate expansion of federal banking safety nets (such as deposit insurance). Certain observers, including community banks, have concerns over whether purely commercial or purely banking organizations would be able to compete with combined organizations that could potentially use economies of scale and funding advantages to exercise market power. These arguments played a prominent role in the public debate that was sparked when Walmart and Home Depot made unsuccessful efforts to secure an ILC charter between 2005 and 2008. Amid this debate, the FDIC imposed a moratorium in 2006 on the acceptance, approval, or denial of ILC applications for deposit insurance while the agency reexamined its policies related to these companies. That moratorium ended in January 2008. Subsequently, concerns over ILCs led Congress to mandate another moratorium (this one lasting three years, ending in July 2013) on granting new ILCs deposit insurance in the Dodd-Frank Act. No consensus has been reached on the magnitude of these risks and validity of the concerns surrounding deposit-taking ILCs. Recently, two financial technology companies, Square and SoFi, have applied for ILC charters and renewed debates over ILCs. Even though the moratoriums on granting ILCs deposit insurance have expired, the FDIC has not approved any new ILC applications since the 2013 expiration. However, since becoming FDIC chairman in June 2018, Jelena McWilliams has made statements indicating that under her leadership the FDIC will again consider ILC applications. Given the interest in and debate surrounding this charter type, policymakers will likely examine questions over the extent to which ILCs create innovative sources of credit and financial services subject to appropriate safeguards or inadvisably allow commercial organizations to act as banks with federal safety nets while exempting them from certain bank regulation and supervision. In addition to regulation issues, market and economic conditions and trends continually affect the banking industry. This section analyzes such trends that may affect banks, including migration of financial activity from banks into nonbanks or the "shadow banking" system; increasing capabilities and market presence of financial technology or fintech; and a higher interest rate environment following a long period of extraordinarily low rates. Credit intermediation is a core banking activity and involves transforming short-term, liquid, safe liabilities into relatively long-term, illiquid, higher-risk assets. In the context of traditional banking, credit intermediation is performed by taking deposits from savers and using them to fund loans to borrowers. Nonbank institutions can also perform similar credit intermediation to banks—sometimes called shadow banking —using certain instruments such as money market mutual funds, short-term debt instruments, and securitized pools of loans. When illiquid assets are funded by liquid liabilities, an otherwise-solvent bank or nonbank might experience difficulty meeting short-term obligations without having to sell assets, possibly at "fire sale" prices. If depositors or other funding providers feel their money is not safe with an institution, many of them may withdraw their funds at the same time. Such a "run" could cause an institution to fail. Long-established government programs mitigate liquidity- and run-risk in the banking industry. The Federal Reserve is authorized to act as a "lender of last resort" for a bank experiencing liquidity problems, and the FDIC insures depositors against losses. Banks are also subject to prudential regulation—as discussed in the " Prudential Regulation " section. However, nonbank intermediation is performed without the government safety nets available to banks or the prudential regulation required of them. The lack of an explicit government safety net in shadow banking means that taxpayers are less explicitly or directly exposed to risk, but it also means that shadow banking may be more vulnerable to a panic that could trigger a financial crisis. Some argue that the increased regulatory burden placed on banks in response to the financial crisis—such as the changes in bank regulation mandated by Dodd-Frank or agreed to in Basel III—could result in a decreased role for banks in credit intermediation and an increased role for relatively lightly regulated nonbanks. Many contend the financial crisis demonstrated how risks to deposit-like financial instruments in the shadow banking sector—such as money market mutual funds and repurchase agreements—can create or exacerbate systemic distress. Money market mutual funds are deposit-like instruments that are managed with the goal of never losing principal and that investors can convert to cash on demand. Institutions can also access deposit-like funding by borrowing through short-term funding markets—such as by issuing commercial paper and entering repurchase agreements. These instruments can be continually rolled over as long as funding providers have confidence in the borrowers' solvency. During the crisis, all these instruments—which investors had previously viewed as safe and unlikely to suffer losses—experienced run-like events as funding providers withdrew from markets. Moreover, nonbanks can take on exposure to long-term loans through investing in mortgage-backed securities (MBS) or other asset-backed securities (ABS). During the crisis, as firms faced liquidity problems, the value of these assets decreased quickly, possibly in part as a result of fire sales. Since the crisis, many regulatory changes have been made related to certain money market, commercial paper, and repurchase agreement markets and practices. For example, in the United States, certain money market mutual funds now must have a floating net asset value . Among other benefits, this may signal to fund investors that a loss of principal is possible and thus reduce the likelihood that investors would "run" at the first sign of possible small losses. However, some observers are still concerned that shadow banking poses risks, because the funding of relatively long-term assets with relatively short-term liabilities will inherently introduce run-risk absent certain safeguards. As discussed above, f intech usually refers to technologies with the potential to alter the way certain financial services are performed. Banks are affected by technological developments in two ways: (1) they face choices over how much to invest in emerging technologies and to what extent they want to alter their business models in adopting technologies, and (2) they potentially face new competition from new technology-focused companies. Such technologies include online marketplace lending, crowdfunding, blockchain and distributed ledgers, and robo-advising, among many others. Certain financial innovations may create opportunities to improve social and economic outcomes, but there is also potential to create risks or unexpected financial losses. Potential benefits from fintech are greater efficiency in financial markets that creates lower prices and increased customer and small business access to financial services. These can be achieved if innovative technology replaces traditional processes that are outdated or inefficient. For example, automation may be able to replace employees, and digital technology can replace physical systems and infrastructure. Cost savings from removing inefficiencies may lead to reduced prices, making certain services affordable to new customers. Some customers who previously did not have access to services—due to such things as the lack of information about creditworthiness or geographic remoteness—could also potentially gain access. Increased accessibility may be especially beneficial to traditionally underserved groups, such as low-income, minority, and rural populations. Fintech could also create or increase risks. Many fintech products have only a brief history of operation, so it can be difficult to predict outcomes and assess risk. It is possible certain technologies may not in the end function as efficiently and accurately as intended. Also, the stated aim of a new technology is often to bring a product directly to consumers and eliminate a "middle-man." However, that middle-man could be an experienced financial institution or professional that can advise consumers on financial products and their risks. In these ways, fintech could increase the likelihood that consumers engage in a financial activity and take on risks that they do not fully understand. Policymakers debate whether (and which) innovations can be integrated into the financial system without additional regulatory or policy action. Technology in finance largely involves reducing the costs or time involved in providing existing products and services, and the existing regulatory structure was developed to address risks from these financial products and activities. Existing regulation may be able to accommodate new technologies while adequately protecting against risks. However, there are two other possibilities. One is that some regulations may be stifling beneficial innovation. Another is that existing regulation does not adequately address risks created by new technologies. Some observers argue that regulation could potentially impede the development and introduction of beneficial innovation. For example, companies incur costs to comply with regulations. In addition, companies are sometimes unsure how regulators will treat the innovation once it is brought to market. A potential solution being used in other countries is to establish a regulatory "sandbox" or "greenhouse" wherein companies that meet certain requirements work with regulators as products are brought to market under a less onerous regulatory framework. In the United States, the CFPB has recently introduced a sandbox wherein companies can experiment with disclosure forms. Some are concerned that existing regulations may not adequately address certain risks posed by new technologies. Regulatory arbitrage—conducting business in a way that circumvents unfavorable regulations—may be a concern in this area. Fintech potentially could provide an opportunity for companies to claim they are not subject to certain regulations because of a superficial difference between how they operate compared with traditional banks. Another group of issues posed by fintech relates to cybersecurity (for general issues related to cybersecurity, see the " Cybersecurity " section above). As financial activity increasingly uses digital technology, sensitive data are generated. Data can be used to accurately assess risks and ensure customers receive the best products and services. However, data can be stolen and used inappropriately, and there are concerns over privacy issues. This raises questions over ownership and control of the data—including the rights of consumers and the responsibilities of companies in accessing and using data—and whether companies that use and collect data face appropriate cybersecurity requirements. The Federal Reserve's monetary policy response to the financial crisis, the ensuing recession, and subsequent slow economic growth was to keep interest rates unusually low for an extraordinarily long time. It accomplished this in part using unprecedented monetary policy tools such as quantitative easing —large-scale asset purchases that significantly increased the size of the Federal Reserve's balance sheet. Recently, as economic conditions improved, the Federal Reserve took steps to normalize monetary policy such as raising its target interest rate and reducing the size of its balance sheet. A rising interest rate environment—especially following an extended period of unusually low rates achieved with unprecedented monetary policy tools—is an issue for banks because they are exposed to interest rate risk . A portion of bank assets have fixed interest rates with long terms until maturity, such as mortgages, and the rates of return on these assets do not increase as current market rates do. However, many bank liabilities are short term, such as deposits, and can be repriced quickly. So although certain interest revenue being collected by banks is slow to rise, the interest costs paid out by banks can rise quickly. In addition to putting stress on net income, rising interest rates can cause the market value of fixed-rate assets to fall. Finally, banks incur an opportunity cost when resources are tied up in long-term assets with low interest rates rather than being used to make new loans at higher interest rates. The magnitude of interest rate risks should not be overstated, as rising rates can potentially increase bank profitability if they result in a greater difference between long-term rates banks receive and short-term rates they pay—referred to as net interest margin . However, thus far into the Federal Reserve interest rate normalization process, this has not materialized. During 2018, the difference between long-term rates and short-term rates has generally decreased (known as a flattening of the yield curve ). Whatever changes may occur to various interest rates in the coming months and years, banks and regulators typically recognize the importance of managing interest rate risk, carefully examine the composition of bank balance sheets, and plan for different interest rate change scenarios. While banks are well-practiced at interest rate risk management through normal economic and monetary policy cycles, managing bank risk through a period of interest rate growth could be more challenging because rates have been so low for so long and achieved through unprecedented monetary policy tools. Because rates have been low for so long, many loans made in different interest rate environments that preceded the crisis have matured. Meanwhile, all new loans made in the past 10 years were made in a low interest rate environment. This presents challenges to banks seeking to hold a mix of loans with different rates. In addition, because the Federal Reserve has used new monetary policy tools and grown its balance sheet to unprecedented levels, accurately controlling the pace of interest rate growth may be challenging.	[ "Regulation of the banking industry has undergone substantial changes over the past decade. In response to the 2007-2009 financial crisis, many new bank regulations were implemented pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203) or under the existing authorities of bank regulators to address apparent weaknesses in the regulatory regime. While some observers view those changes as necessary and effective, others argued that certain regulations were unjustifiably burdensome. To address those concerns, the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (P.L. 115-174) relaxed certain regulations. Opponents of that legislation argue it unnecessarily pared back important safeguards, but proponents of deregulation argue additional pare backs are needed. Meanwhile, a variety of economic and technological trends continue to affect banks. As a result, the 116th Congress faces many issues related to banking, including the following: Safety and Soundness. Banks are subject to regulations designed to reduce the likelihood of bank failures. Examples include requirements to hold a certain amount of capital (which enables a bank to absorb losses without failing) and the so-called Volcker Rule (a ban on banks' proprietary trading). In addition, anti-money laundering requirements aim to reduce the likelihood banks will execute transactions involving criminal proceeds. Banks are also required to take steps to avoid becoming victims of cyberattacks. The extent to which these regulations (i) are effective, and (ii) appropriately balance benefits and costs is a matter of debate. Consumer Protection, Fair Lending, and Access to Banking. Certain laws are designed to protect consumers and ensure that lenders use fair lending practices. The Consumer Financial Protection Bureau has authorities to regulate for consumer protection. No consensus exists on whether current regulations strike an appropriate balance between protecting consumers while ensuring access to credit and justifiable compliance costs. In addition, whether Community Reinvestment Act regulations as currently implemented effectively and efficiently encourage banks to provide services in their areas of operation is an open question. Large Banks and \"Too Big To Fail.\" Regulators also regulate for systemic risks, such as those associated with very large and complex financial institutions that may contribute to systemic instability. Dodd-Frank Act provisions include enhanced prudential regulation for certain large banks and changes to resolution processes in the event one fails. In addition, bank regulators imposed additional capital requirements on certain large, complex banks. Subsequently, some argued that certain of these additional regulations were too broadly applied and overly stringent. In response, Congress reduced the applicability of the Dodd-Frank measures and regulators have proposed changes to the capital rules. Whether relaxing these rules will provide needed relief to these banks or unnecessarily pare back important safeguards is a debated issue. Community Banks. The number of small or \"community\" banks has declined substantially in recent decades. No consensus exists on the degree to which regulatory burden, market forces, and the removal of regulatory barriers to interstate branching and banking are causing the decline. What Companies Should Be Eligible for Bank Charters. To operate legally as a bank, an institution must hold a charter granted by a state or federal government. Traditionally, these are held by companies generally focused on and led by people with experience in finance. However, recently companies with a focus on technology are interested in having legal status as a bank, either through a charter from the Office of the Comptroller of the Currency or a state-level industrial loan company charter. Policymakers disagree over whether allowing these companies to operate as banks would create appropriately regulated providers of financial services or inappropriately extend government-backed bank safety nets and disadvantage existing banks. Recent Market and Economic Trends. Changing economic forces also pose issues for the banking industry. Some observers argue that increases in regulation could drive certain financial activities into a relatively lightly regulated \"shadow banking\" sector. Innovative financial technology may alter the way certain financial services are delivered. If interest rates rise, it could create opportunities and risks. Such trends could have implications for how the financial system performs and influence debates over appropriate banking regulations." ]	12,828	gov_report	en	null	2c913d1165908b4ac453f06f423bfd592d01adf5894ca7e3
Colombia, one of the oldest democracies in the Western Hemisphere and the third most populous Latin American country, has endured a multisided civil conflict for more than five decades until President Juan Ma nuel Santos declared the conflict over in August 2017 at the end of a U.N.-monitored disarmament. According to the National Center for Historical Memory 2013 report, presented to the Colombian government as part of the peace process to end the fighting, some 220,000 Colombians died in the armed conflict through 2012, 81% of them civilians. The report also provided statistics quantifying the scale of the conflict, which has taken a huge toll on Colombian society: more than 23,000 selective assassinations between 1981 and 2012; internal displacement of more than 5 million Colombians due to land seizure and violence; 27,000 kidnappings between 1970 and 2010; and 11,000 deaths or amputees from anti-personnel land mines laid primarily by Colombia's main insurgent guerrilla group, the Revolutionary Armed Forces of Colombia (FARC). To date, more than 8 million Colombians, or roughly 15% of the population, have registered as conflict victims. Although the violence has scarred Colombia, the country has achieved a significant turnaround. Once considered a likely candidate to become a failed state, Colombia, over the past two decades, has overcome much of the violence that had clouded its future. For example, between 2000 and 2016, Colombia saw a 94% decrease in kidnappings and a 53% reduction in homicides (below 25 per 100,000 in 2016). Coupled with success in lowering violence, Colombia has opened its economy and promoted trade, investment, and growth. Colombia has become one of Latin America's most attractive locations for foreign direct investment. Yet, after steady growth over several years, Colombia's economy slowed to 3.1% growth in 2015 and declined to 1.7% in 2017. Many analysts identified Colombia's dependence on oil and other commodity exports as the primary cause. Between 2012 and 2016, the Colombian government held formal peace talks with the FARC, Colombia's largest guerrilla organization. Upon taking office for a second term in August 2014, President Santos declared peace, equality, and education as his top priorities, although achieving the peace agreement remained his major focus. In August 2016, the government and FARC negotiators announced they had concluded their talks and achieved a 300-page peace agreement. The accord was subsequently narrowly defeated in a popular referendum held in early October 2016, but was revised by the Santos government and agreed to by the FARC and then ratified by the Colombian Congress at the end of November 2016. The Colombian conflict predates the formal founding of the FARC in 1964, as the FARC had its beginnings in the peasant self-defense groups of the 1940s and 1950s. Colombian political life has long suffered from polarization and violence based on the significant disparities and inequalities suffered by landless peasants in the country's peripheral regions. In the late 19 th century and a large part of the 20 th century, the elite Liberal and Conservative parties dominated Colombian political life. Violence and competition between the parties erupted in a period of extreme violence in Colombia, known as La Violencia , set off in 1948 by the assassination of Liberal presidential candidate Jorge Gaitán. The violence continued for the next decade. After a brief military rule (1953-1958), the Liberal and Conservative parties agreed to a form of coalition governance, known as the National Front. Under the arrangement, the presidency of the country alternated between Conservatives and Liberals, each holding office in turn for four-year intervals. This form of government continued for 16 years (1958-1974). The power-sharing formula did not resolve the tension between the two historic parties, and many leftist, Marxist-inspired insurgencies took root in Colombia, including the FARC, launched in 1964, and the smaller National Liberation Army (ELN), which formed the following year. The FARC and ELN conducted kidnappings, committed serious human rights violations, and carried out a campaign of terrorist activities to pursue their goal of unseating the central government in Bogotá. Rightist paramilitary groups formed in the 1980s when wealthy ranchers and farmers, including drug traffickers, hired armed groups to protect them from the kidnapping and extortion plots of the FARC and ELN. In the 1990s, most of the paramilitary groups formed an umbrella organization, the United-Self Defense Forces of Colombia (AUC). The AUC massacred and assassinated suspected supporters of the insurgents and directly engaged the FARC and ELN in military battles. The Colombian military has long been accused of close collaboration with the AUC, accusations ranging from ignoring their activities to actively supporting them. Over time, the AUC became increasingly engaged in drug trafficking, and other illicit businesses. In the late 1990s and early 2000s, the U.S. government designated the FARC, ELN, and AUC as Foreign Terrorist Organizations (FTOs). The AUC was formally dissolved in a collective demobilization between 2003 and 2006 after many of its leaders stepped down. However, former paramilitaries joined armed groups (called criminal bands, or Bacrim, by the Colombian government) who continued to participate in the lucrative drug trade and commit other crimes and human rights abuses. When the FARC demobilized in 2017, other illegally armed groups began aggressive efforts to take control of former FARC territory and its criminal enterprises as FARC forces withdrew. (For more, see " The Current Security Environment ," below.) The inability of Colombia's two dominant parties to address the root causes of violence in the country led to the election of an independent, Álvaro Uribe, in the presidential contest of 2002. Uribe, who served two terms, came to office with promises to take on the violent leftist guerrillas, address the paramilitary problem, and combat illegal drug trafficking. During the 1990s, Colombia had become the region's—and the world's—largest producer of cocaine. Peace negotiations with the FARC under the prior administration of President Andrés Pastrana (1998-2002) had ended in failure; the FARC used a large demilitarized zone located in the central Meta department (see map, Figure 1 ) to regroup and strengthen itself. The central Colombian government granted the FARC this demilitarized zone, a traditional practice in Colombian peace negotiations, but the FARC used it to launch terror attacks, conduct operations, and increase the cultivation of coca and its processing, while failing to negotiate seriously. Many analysts, noting the FARC's strength throughout the country, feared that the Colombian state might fail and some Colombian citizens thought the FARC might at some point successfully take power. The FARC was then reportedly at the apogee of its strength, numbering an estimated 16,000 to 20,000 fighters under arms. This turmoil opened the way for the aggressive strategy advocated by Uribe. At President Uribe's August 2002 inauguration, the FARC showered the event with mortar fire, signaling the group's displeasure at the election of a hardliner, who believed a military victory over the Marxist rebels was possible. In his first term (2002-2006), President Uribe sought to shore up and expand the country's military, seeking to reverse the armed forces' losses by aggressively combating the FARC. He entered into peace negotiations with the AUC. President Pastrana had refused to negotiate with the rightist AUC, but Uribe promoted the process and urged the country to back a controversial Justice and Peace Law that went into effect in July 2005 and provided a framework for the AUC demobilization. By mid-2006, some 31,000 AUC paramilitary forces had demobilized. The AUC demobilization, combined with the stepped-up counternarcotics efforts of the Uribe administration and increased military victories against the FARC's irregular forces, helped to bring down violence, although a high level of human rights violations still plagued the country. Uribe became widely popular for the effectiveness of his security policies, a strategy he called "Democratic Security." Uribe's popular support was evident when Colombian voters approved a referendum to amend their constitution in 2005 to permit Uribe to run for a second term. Following his reelection in 2006, President Uribe continued to aggressively combat the FARC. For Uribe, 2008 was a critical year. In March 2008, the Colombian military bombed the camp of FARC's second-in-command, Raul Reyes (located inside Ecuador a short distance from the border), killing him and 25 others. Also in March, another of FARC's ruling seven-member secretariat was murdered by his security guard. In May, the FARC announced that their supreme leader and founder, Manuel Marulanda, had died of a heart attack. The near-simultaneous deaths of three of the seven most important FARC leaders were a significant blow to the organization. In July 2008, the Colombian government dramatically rescued 15 long-time FARC hostages, including three U.S. defense contractors who had been held captive since 2003 and Colombian senator and former presidential candidate Ingrid Bentancourt. The widely acclaimed, bloodless rescue further undermined FARC morale. Uribe's success and reputation, however, were marred by several scandals. They included the "parapolitics" scandal in 2006 that exposed links between illegal paramilitaries and politicians, especially prominent members of the national legislature. Subsequent scandals that came to light during Uribe's tenure included the "false positive" murders allegedly carried out by the military (primarily the Colombian Army) in which innocent civilians were executed and then dressed to look like guerilla fighters to increase the military's rebel body count. In 2009, the media revealed another scandal of illegal wiretapping and other surveillance by the government intelligence agency, the Department of Administrative Security (DAS), to discredit journalists, members of the judiciary, and political opponents of the Uribe government. (In early 2012, the tarnished national intelligence agency was replaced by Uribe's successor, Juan Manuel Santos.) Despite the controversies, President Uribe remained popular and his supporters urged him to run for a third term in 2010. Another referendum was proposed to alter the constitution to allow a third term; however, it was turned down by Colombia's Constitutional Court. Once it became clear that President Uribe was constitutionally ineligible to run again, Juan Manuel Santos of the pro-Uribe National Unity party (or Party of the U) quickly consolidated his preeminence in the 2010 presidential campaign. Santos, a centrist, who came from an elite family that once owned the country's largest newspaper, had served as Uribe's defense minister through 2009. In 2010, Santos campaigned on a continuation of the Uribe government's approach to security and its role encouraging free markets and economic opening, calling his reform policy "Democratic Prosperity." In the May 2010 presidential race, Santos took almost twice as many votes as his nearest competitor, Antanas Mockus of the centrist Green Party, but he did not win a majority. Santos won the June runoff with 69% of the vote. Santos's "national unity" ruling coalition formed during his campaign included the center-right National Unity and Conservative parties, the centrist Radical Change Party, and the center-left Liberal party. On August 7, 2010, President Santos said in his first inauguration speech that he planned to follow in the path of President Uribe, but that "the door to [peace] talks [with armed rebels] is not locked." The Santos government was determined to improve relations with Ecuador and Venezuela, which had become strained under Uribe. Santos sought to increase cooperation on cross-border coordination and counternarcotics. He attempted to reduce tensions with Venezuela that had become fraught under Uribe, who claimed that Venezuelan President Hugo Chávez had long harbored FARC and ELN forces. During his first two years in office, President Santos reorganized the executive branch and built on the market opening strategies of the Uribe administration and secured a free-trade agreement with the United States, Colombia's largest trade partner, which went into effect in May 2012. To address U.S. congressional concerns about labor relations in Colombia, including the issue of violence against labor union members, the United States and Colombia agreed to an "Action Plan Related to Labor Rights" (Labor Action Plan) in April 2011. Many of the steps prescribed by the plan were completed in 2011 while the U.S. Congress was considering the free trade agreement. Significantly, the Santos government maintained a vigorous security strategy and struck hard at the FARC's top leadership. In September 2010, the Colombian military killed the FARC's top military commander, Victor Julio Suárez (known as "Mono Jojoy"), in a bombing raid. In November 2011, the FARC's supreme leader, Guillermo Leon Saenz (aka "Alfonso Cano") was assassinated. He was replaced by Rodrigo Londoño Echeverri (known as "Timoleón Jiménez" or "Timochenko"), the group's current leader. While continuing the security strategy, the Santos administration began to re-orient the Colombian government's stance toward the internal armed conflict through a series of reforms. The first legislative reform that moved this new vision along, signed by President Santos in June 2011, was the Victims' and Land Restitution Law (Victims' Law), to provide comprehensive reparations to an estimated (at the time) 4 million to 5 million victims of the conflict. Reparations under the Victims' Law included monetary compensation, psycho-social support and other aid for victims, and the return of millions of hectares of stolen land to those displaced. The law was intended to process an estimated 360,000 land restitution cases. The government's implementation of this complex law began in early 2012. Between 2011 and 2016, there were more than 100,000 applications for restitution and 5,000 properties, or about 5%, were resolved by judges. The Victims' Law, while not a land reform measure, tackled issues of land distribution including the restitution of stolen property to displaced victims. Given the centrality of land issues to the rural peasant-based FARC, passage of the Victims' Law was a strong indicator that the Santos government shared its interest in addressing land and agrarian concerns. In June 2012, another government initiative—the Peace Framework Law, also known as the Legal Framework for Peace—was approved by the Colombian Congress, which signaled that congressional support for a peace process was growing. In August 2012, President Santos announced he had opened exploratory peace talks with the FARC and was ready to launch formal talks. The countries of Norway, Cuba, Venezuela, and Chile each held an international support role, with Norway and Cuba serving as peace talk hosts and "guarantors." Following the formal start in Norway, the actual negotiations began a month later in mid-November 2012 in Cuba, where the FARC-government talks continued until their conclusion in August 2016. In the midst of extended peace negotiations, Colombia's 2014 national elections presented a unique juncture for the country. During the elections, the opposition Centro Democrático (CD) party gained 20 seats in the Senate and 19 in the less powerful Chamber of Representatives, and its leader, former President Uribe, became a popular senator. His presence in the Senate challenged the new ruling coalition that backed President Santos. During his second-term inaugural address in August 2014, President Santos declared three pillars—peace, equality, and education—as his focus, yet his top priority was to conclude the peace negotiations with the FARC. In February 2015, the Obama Administration provided support to the peace talks by naming Bernard Aronson, a former U.S. assistant secretary of state for Inter-American Affairs, as the U.S. Special Envoy to the Colombian peace talks. Talks with the FARC concluded in August 2016. In early October, to the surprise of many, approval of the accord was narrowly defeated in a national plebiscite by less than a half percentage point of the votes cast, indicating a polarized electorate. Regardless, President Santos was awarded the Nobel Peace Prize in December 2016, in part demonstrating strong international support for the peace agreement. In response to the voters' criticisms, the Santos government and the FARC crafted a modified agreement, which they signed on November 24, 2016. Rather than presenting this agreement to a plebiscite, President Santos sent it directly to the Colombian Congress, where it was ratified on November 30, 2016. Although both chambers of Colombia's Congress approved the agreement unanimously, members of the opposition CD party criticized various provisions in the accord that they deemed inadequate and boycotted the vote. The peace process was recognized as the most significant achievement of the Santos presidency and lauded outside of Colombia and throughout the region. Over the course of two terms, the President's approval ratings rose and fell rather significantly. His crowning achievement, the accord negotiated over 50 rounds of talks, covered five substantive topics: rural development and agricultural reform; political participation by the FARC; an end to the conflict, including demobilization, disarmament and reintegration; a solution to illegal drug trafficking; and justice for victims. A sixth topic provided for mechanisms to implement and monitor the peace agreement. Colombians elected a new congress in March 2018 and a new president in June 2018. Because no presidential candidate won more than 50% of the vote on May 27, 2018, as required for a victory in the first round, a second-round runoff was held June 17 between the rightist candidate Iván Duque and the leftist candidate Gustavo Petro (see results for presidential contest, Figure 3 ). Duque was carried to victory with almost 54% of the vote. Runner-up Petro, a former mayor of Bogotá, a former Colombian Senator, and once a member of the M-19 guerilla insurgency, nevertheless did better than any leftist candidate in a presidential race in the past century; he won 8 million votes and nearly 42% of the votes cast. Around 4.2% were protest votes, signifying Colombian voters who cast blank ballots. Through alliance building, Duque achieved a functional majority or a "unity" government, which involved the Conservative Party, Santos's prior National Unity or Party of the U, joining the CD, although compromise was required to keep the two centrist parties in sync with the more conservative CD. In the new Congress, two extra seats, for the presidential and vice presidential runners up, became automatic seats in the Colombian Senate and House, due to a constitutional change in 2015, allowing presidential runner up Gustavo Petro to return to the Senate. The CD party, which gained seats in both houses in the March vote, won the majority in the Colombian Senate (see Figure 2 for seat breakouts by party). Duque, who was inaugurated on August 7, 2018, at the age of 42, was the youngest Colombian president elected in a century. He possessed limited experience in Colombian politics. Duque was partially educated in the United States and worked for at decade at the Inter-American Development Bank in Washington, DC. He was the handpicked candidate of former president Uribe, who vocally opposed many of Santos's policies. Disgruntled Colombians perceived Santos as an aloof president whose energy and political capital were expended accommodating an often-despised criminal group, the FARC. President Duque appeared to be technically oriented and interested in economic reform, presenting himself as a modernizer. During his campaign, Duque called for economic renewal and lower taxes, fighting crime, and building renewed confidence in the country's institutions through some reforms. On September 26, 2018, in a speech before the U.N. General Assembly, the new president outlined his policy objectives . Duque called for increasing legality, entrepreneurship, and fairness by (1) promoting peace; (2) combating drug trafficking and recognizing it as a global menace, and (3) fighting corruption, which he characterized as a threat to democracy. He also maintained that the humanitarian crisis in neighboring Venezuela, resulting in more than 1 million migrants fleeing to Colombia, was an emergency that threatened to destabilize the region. Duque proposed a leadership role for Colombia in denouncing the authoritarian government of President Nicolás Maduro and containing his government's damage. By late November 2018, 1.2 million Venezuelans already present in Colombia were putting increasing pressure on the government's finances, generating a burden estimated at nearly 0.5% of the country's gross domestic product (GDP). President Duque, along with his vice president, Marta Lucía Ramírez, who initially ran as the Conservative Party candidate in the first round, recommended that drug policy shift back to a stricter counterdrug approach rather than a model endorsed in the peace accord, which focuses on voluntary eradication and economic support to peasant farmers to transition away from illicit drug crops. Duque campaigned on returning to spraying coca crops with the herbicide glyphosate. This would reverse Colombia's decision in mid-2015 to end aerial spraying, which had been a central—albeit controversial—feature of U.S.-Colombian counter-drug cooperation for two decades. Colombians' concerns with corruption became particularly acute during the 2018 elections, as major scandals were revealed. Similar to many countries in the region, government officials, including Santos during his 2014 campaign for reelection and the opposition candidate during that campaign were accused of taking payoffs (bribes) from the Odebrecht firm, the Brazilian construction company that became embroiled in a region-wide corruption scandal. In December 2018, presidential runner up Gustavo Petro was accused of taking political contributions from Odebrecht in a video released by a CD senator, indicating that both the left and the right of the Colombian political spectrum has been tainted by corruption allegations. In June 2017, the U.S. Drug Enforcement Administration arrested Colombia's top anti-corruption official, Gustavo Moreno. In mid-September 2017, the former chief justice of Colombia's Supreme Court was arrested for his alleged role in a corruption scandal that involved other justices accused of taking bribes from Colombian congressmen, some with ties to illegal paramilitary groups. The series of corruption charges made against members of Colombia's judicial branch, politicians, and other officials made the issue a prominent one in Colombian politics and was the focus of a left-centrist candidate's campaign in the presidential contest. In late August 2018, an anti-corruption referendum was defeated by narrowly missing a high vote threshold by less than a half percentage point, although the actual vote favored all seven proposed changes on the ballot. President Duque endorsed the referendum and maintains he will seek to curb many of the abuses identified in the referendum through legislation that his administration will propose. The Duque Administration's first budget for 2019 presented in late October 2018 was linked to an unpopular tax reform that would expand a value-added tax to cover basic food and agricultural commodities (some 36 items in the basic basket of goods, such as eggs and rice, previously exempted). The 2019 budget totals $89.7 billion, providing the education, military and police, and health sectors with the biggest increases, and reducing funding for peace accord implementation. Duque's own Democratic Center party split with him on the value-added tax, which quickly sank his approval ratings from 53% in early September 2018 to a low of 27% in November 2018, among the lowest levels in the early part of a presidential mandate in recent Colombian history. Colombia's economy is the fourth largest in Latin America after Brazil, Mexico, and Argentina. The World Bank characterizes Colombia as an upper middle-income country, although its commodities-dependent economy has been hit by oil price declines and peso devaluation related to the erosion of fiscal revenue. Between 2010 and 2014, Colombia's economy grew at an average of more than 4%, but slowed to 3.1% GDP growth in 2015. In 2017, Colombia's GDP growth slowed further to 1.7%. Despite its relative economic stability, high poverty rates and inequality have contributed to social upheaval in Colombia for decades. The poverty rate in 2005 was slightly above 45%, but declined to below 27% in 2016. The issues of limited land ownership and high rural poverty rates remain a problem. According to a United Nations study published in 2011, 1.2% of the population owned 52% of the land, and data revealed in 2016 that about 49% of Colombians continued to work in the informal economy. Colombia is often described as a country bifurcated between metropolitan areas with a developed, middle-income economy, and some rural areas that are poor, conflict-ridden, and weakly governed. The fruits of the growing economy have not been shared equally with this ungoverned, largely rural periphery. Frequently these more remote areas are inhabited by ethnic minorities or other disadvantaged groups, such as Afro-Colombians, indigenous populations, or landless peasants and subsistence farmers, who are vulnerable to illicit economies due to few connections to the formal economy. The United States is Colombia's leading trade partner. Colombia accounts for a small percentage of U.S. trade (approximately 1%), ranking 22 nd among U.S. export markets and 27 th among foreign exporters to the United States in 2017. Colombia has secured free trade agreements with the European Union, Canada, and the United States, and with most nations in Latin America. Colombian officials have worked over the past decade to increase the attractiveness of investing in Colombia, and foreign direct investment (FDI) grew by 16% between 2015 and 2016. This investment increase came not only from the extractive industries, such as petroleum and mining, but also from such areas as agricultural products, transportation, and financial services. Promoting more equitable growth and ending the internal conflict were twin goals of the two-term Santos administration. Unemployment, which historically has been high at over 10%, fell below that double-digit mark during Santos's first term and remained at 9.2% in 2016 but rose slightly to an estimated 9.6% in 2018. Although Colombia is ranked highly for business-friendly practices and has a favorable regulatory environment that encourages trade across borders, it is still plagued by persistent corruption and an inability to effectively implement institutional reforms it has undertaken, particularly in regions where government presence is weak. According to the U.S. State Department in its analysis of national investment climates, Colombia has demonstrated a political commitment to create jobs, develop sound capital markets, and achieve a legal and regulatory system that meets international norms for transparency and consistency. Despite its macroeconomic stability, several issues remain, such as a still-complicated tax system, a high corporate tax burden, and continuing piracy and counterfeiting issues. Colombia's rural-sector protestors formed strikes and blockades beginning in 2013 with demands for long-term and integrated-agricultural reform in a country with one of the most unequal patterns of land ownership. In October and November 2018, Colombian secondary and university students protested in high numbers during six large mobilizations, taking place over 60 days, to demand more funding for education. The four-year peace talks between the FARC and the Santos administration started in Norway and moved to Cuba where negotiators worked through a six-point agenda during more than 50 rounds of talks that produced agreements on six major topics. The final topic—verification to enact the programs outlined in the final accord—all parties knew would be the most challenging, especially with a polarized public and many Colombians skeptical of whether the FARC would be held accountable for its violence and crimes during the years of conflict. Some analysts have estimated that to implement the programs required by the commitments in the accord to ensure stable post-conflict development may require 15 years and cost from $30 billion to $45 billion. The country faces steep challenges to underwrite the post-accord peace programs in an era of declining revenues. While progress has been uneven, some programs (those related to drug trafficking) had external pressure to move forward quickly and some considered urgent received "fast track" treatment to expedite their regulation by Congress. The revised peace accord that was approved by the Colombian Congress in late 2016 was granted fast track implementation by the Colombian Constitutional Court in a ruling on December 13, 2016, particularly applied to the FARC's disarmament and demobilization. However, in May 2017, a new ruling by the high court determined that all legislation related to the implementation of the accord needed to be fully debated rather than passed in an expedited fashion, which some analysts maintain started to slow the process of implementing the accord significantly. The Kroc Institute for International Peace Studies at the University of Notre Dame is responsible for monitoring and implementing the agreement. It issued two interim reports in November 2017 and August 2018. At the end of the last reporting period (June 2018), the Kroc Institute estimated that 63% of the 578 peace accord commitments have begun implementation. In relation to other peace accords it had studied, the Kroc Institute found that the implementation of Colombia's accord was on course as about average, although that progress took place prior to President Duque's election. The first provision undertaken was the demobilization of the FARC, monitored by a U.N. mission that was approved by the U.N. Security Council to verify implementation of the accords. U.N. monitors also emptied large arm caches identified by FARC leaders, seizing the contents of more than 750 of the reported nearly 1,000 caches by the middle of 2017. With the final disarmament, President Santos declared the conflict over in mid-August 2017. The U.S. State Department reported in its Country Reports on Terrorism 201 , that by September 25, 2017, the United Nations had verified the collection of 8,994 arms, 1.7 million rounds, and more than 40 tons of explosives. The report states that the Colombian government had accredited "roughly 11,000 ex-combatants for transition to civilian life." The FARC also revealed its hidden assets in September 2017, listing more than $330 million in mostly real estate investments. This announcement drew criticism from several analysts who note that the FARC assets are likely much greater. In July 2017, the U.N. Security Council voted to expand its mandate and launch a second mission for three years to verify the reintegration of FARC guerrillas into civil society beginning September 20, 2017. One of Colombia's greatest challenges continues to be ensuring security for ex-combatants and demobilized FARC. The FARC's reintegration into civil society is a charged topic because the FARC's efforts in the 1980s to start a political party, known as the Patriotic Union, or the UP by its Spanish acronym, resulted in more than 3,000 party members being killed by rightwing paramilitaries and others. As of the end of 2018, reportedly 85 FARC members and their close relatives had been killed. In addition to unmet government guarantees of security, the FARC also has criticized the government for not adequately preparing for the group's demobilization. According to observers, the government failed to provide basic resources to FARC gathered throughout the country in specially designated zones for disarmament and demobilization (later renamed reintegration zones). The demobilization areas or cantonments had been so little prepared in early 2017 that the FARC had in many cases to construct their own housing and locate food and other provisions. Reintegration of former combatants has proceeded slowly. The Constitutional Court's May 2017 ruling to restrict fast track, and controversy about the new court to try war crimes and other serious violations, the "Special Jurisdiction of Peace" led to further delays. Peace process advocates have cited limited attention to include ethnic Colombians, such as Afro-Colombian leaders and indigenous communities, into the accord's implementation, as required by the "ethnic chapter" of the peace accord. A U.N. deputy human rights official warned in October 2017 that after a successful demobilization it would be dangerous not to reintegrate FARC former combatants by providing them realistic options for income and delaying effective reintegration could undermine peace going forward. Under the peace accord, Territorially Focused Development Programs (PDETs in Spanish) are a tool for planning and managing a broad rural development process, with the aim of transforming170 municipalities (covering 16 subregions) most affected by the armed conflict. PDETs target those municipalities in Colombia with the highest number of displacements and those that have experienced the most killings, massacres, and forced disappearances. These marginal areas generally have experienced chronic poverty, high inequality, the presence of illicit crops such as coca, and low levels of local government institutional performance. Violence and forced displacements in some of the PDET municipalities increased in the last half of 2018. Colombia's Constitutional Court determined in October 2017 that over the next three presidential terms (until 2030), Colombia must follow the peace accord commitments negotiated by the Santos administration and approved by the Colombian Congress in 2016. The Special Jurisdiction of Peace, set up to adjudicate the most heinous crimes of Colombia's decades-long armed conflict, began to hear cases in July 2018. However, Colombians remain skeptical of its capacity. A key challenge is the case of a FARC leader and lead negotiator in the peace process, Jesús Santrich, alleged to have committed drug trafficking crimes in 2017 after the accord was ratified, who has been jailed. Colombia has confronted a complex security environment of armed groups: two violent leftist insurgencies, the FARC and the ELN, and groups that succeeded the AUC following its demobilization during the Uribe administration. The FARC, whittled down by the government's military campaign against it, continued to conduct a campaign of terrorist activities during peace negotiations with the government through mid-2015, but it imposed successive temporary unilateral cease-fires that significantly reduced violence levels. In August 2016, the FARC and the government concluded negotiations on a peace accord that was subsequently approved by Congress with modifications in November 2016. Authorities and some analysts maintain that since the peace accord was ratified, 5% to 10% of the FARC have become dissidents who reject the peace settlement, although other estimates suggest a higher percentage. These armed individuals remain a threat. As agreed in the peace accord, the demobilized rebels transitioned to a political party that became known as the Common Alternative Revolutionary Force (retaining the acronym FARC) in September 2017. On November 1, 2017, the FARC announced their party's presidential ticket: current FARC leader Rodrigo Londoño (aka Timochenko) for president and Imelda Daza for vice president. The FARC Party ran several candidates in congressional races but failed to win any additional congressional race for which it competed in the March 2018 legislative elections, so the automatic seats in Congress were the only ones that it filled. The ELN, like the FARC, became deeply involved in the drug trade and used extortion, kidnapping, and other criminal activities to fund itself. The ELN, with diminished resources and reduced offensive capability, according to government estimates, declined to fewer than 2,000 fighters, although some analysts maintain in 2018 the forces grew as high as 3,400, including former FARC who were recruited to join the ELN as the larger rebel group demobilized. In 2015, ELN leadership began exploratory peace talks with the Santos government in Ecuador, although the ELN continued to attack oil and transportation infrastructures and conduct kidnappings and extortions, at least periodically. Formal talks with the ELN finally opened in February 2017 in Quito, Ecuador. After the talks moved to Cuba in May 2018, at the request of Ecuador's President Lenín Moreno, several negotiating sessions took place. The ELN's central leadership, including Nicolás Rodríguez Bautista (aka "Gabino"), arrived in Cuba to continue the talks. However, President Duque in September 2018 suspended the talks and recalled the government negotiating team. The ELN is far more regionally oriented, decentralized, and nonhierarchical in its decisionmaking than the FARC. Late in 2018, a Colombian political online magazine claimed a meeting had been held two months earlier between FARC dissident groups and the ELN in Venezuela in which the parties discussed how to increase their coordination. On January 17, 2019, a car bomb attack at a National Police academy in southern Bogotá shattered illusions that Colombia's long internal conflict with insurgents was coming to an end. The bombing, allegedly carried out by an experienced ELN bomb maker, killed 20 police cadets and the bomber and injured more than 65 others. The ELN took responsibility for the attack in a statement published on January 21. Large demonstrations took place in Bogotá protesting the return of violence to Colombia's capital city. The Duque government ended peace talks with the ELN, which had been ongoing sporadically since 2017. The Duque government then requested extradition of the ELN's delegation of negotiators to the peace talks in Cuba on terrorism charges. The Cuban government, which condemned the bombing, responded that the protocols for the peace talks required that the negotiators be returned to Colombia without arrest. The Duque government has persisted in requesting the negotiators to be extradited. The AUC, the loosely affiliated national umbrella organization of paramilitaries, officially disbanded a decade ago. The organization was removed from the State Department's Foreign Terrorist Organizations list in July 2014. More than 31,000 AUC members demobilized between 2003 and 2006, and many AUC leaders stepped down. However, as noted, many former AUC paramilitaries continued their illicit activities or re-armed and joined criminal groups—known as Bacrim . Many observers view the Bacrim as successors to the paramilitaries, and the Colombian government has characterized these groups as the biggest threat to Colombia's security since 2011. The Bacrim do not appear to be motivated by the dream of defeating the national government, but they seek territorial control and appear to provide rudimentary justice in ungoverned parts of the country. In 2013, the criminal group Los Urabeños, launched in 2006, emerged as the dominant Bacrim. Over its lifetime, the group has been referred to as the Gaitanistas, the Clan Úsuga, and most recently El Clan del Golfo, growing to about 3,000 members by 2015. The Urabeños organization is heavily involved in cocaine trafficking as well as arms trafficking, money laundering, extortion, gold mining, human trafficking, and prostitution. Early leaders of the group, such as founder Daniel Rendón Herrera (alias "Don Mario") and his brother Feddy Rendón Herrera were designated drug kingpins under the U.S. Kingpin Act in 2009 and 2010, respectively. However, because these men had been part of the AUC peace process, they could not be extradited to the United States until they had served time and paid reparations. In June 2015, the Justice Department unsealed indictments against 17 alleged Urabeños members. The Colombian government's efforts to dismantle the Urabeños and interrupt its operations began to result in the capture of top leaders and gradually to disrupt its illicit activities. The Urabeños faced an intense enforcement campaign by the Colombian police and military, especially after the Urabeños reportedly advertised and paid rewards to its subcontracted assassins to murder Colombian police. In September 2017, the Urabeños top leader, Dairo Antonio Úsuga (alias "Otoniel"), requested terms of surrender from the Santos government after the arrest of his wife and the killing or arrest of siblings and co-leaders, but this offer was never formalized. Colombia captured a vast amount of cocaine, approximately 12 metric tons, linked to the the Urabeños in November 2017. Splinter groups of the large Colombian drug cartels of the 1980s and 1990s, such as the Medellin Cartel and Cali Cartel, have come and gone in Colombia, including the powerful transnational criminal organizations (TCOs) the Norte del Valle Cartel and Los Rastrajos. The U.S. Drug Enforcement Administration's 2018 National Drug Threat Assessment maintains "large-scale Colombian TCOs" work closely with Mexican and Central American TCOs to export large quantities of cocaine out of Colombia every year. Traditionally, the FARC and ELN had cooperated with Bacrim and other Colombian crime groups in defense of drug trafficking and other illicit activities despite the groups' ideological differences. Venezuela is a major transit corridor for Colombian cocaine. According to the State Department's 2018 International Narcotics Control Strategy Report , Venezuela's porous western border with Colombia, current economic crisis, weak judicial system, sporadic international drug control cooperation, and a permissive and corrupt environment make it a preferred trafficking route for illicit drugs. A May 2018 report by Insight Crime identified more than 120 high-level Venezuelan officials who have engaged in criminal activity. The report analyzes how the Venezuelan military, particularly the National Guard, has been involved in the drug trade since 2002 and colluded with other illegally armed groups. Another Bacrim, Los Rastrojos, reportedly controls important gasoline smuggling routes between Venezuela and Colombia in 2018. Similarly, in the past year, ELN guerrillas reportedly have moved from seeking safe haven in Venezuela to taking control of illicit gold mining areas near Venezuela's border with Guyana. Both the ELN, which is still engaged in armed conflict with the Colombian government, and its rival, the Popular Liberation Army (EPL), reportedly recruit Venezuelans to cultivate coca in Colombia. Human trafficking and sexual exploitation of Venezuelan migrants throughout Colombia is prevalent. Dissident FARC guerrillas are using border areas and other remote areas in the countryside to regroup and could eventually seek to consolidate into a more unified organization or coordinate with other criminal groups sheltering in Venezuela. The State Department's 2017 terrorism report published in April 2018 maintained that the number of terrorist incidents in Colombia—carried out by the FARC and ELN—decreased significantly, by 40%, over the already much-diminished level of 2016. ELN aggression included high-impact attacks, such as launching mortars at police stations and bombing pipelines, although the report also states that ELN demobilizations and surrenders have increased. The humanitarian crisis in Venezuela has set in motion a mass exodus of desperate migrants, who have come temporarily (or for extended stays) to Colombia. Although Venezuela has experienced hyperinflation (the highest in the world), a rapid contraction of its economy, and severe shortages of food and medicine, as of November 2018 Venezuelan President Nicolás Maduro has refused most international humanitarian assistance. Based on estimates from the U.N. High Commissioner for Refugees (UNHCR), as of November 2018, more than 3 million Venezuelans were living outside Venezuela; of these, an estimated 2.3 million left after 2015. As conditions in Venezuela have continued to deteriorate, increasing numbers of Venezuelans have left the country. Neighboring countries, particularly Colombia, are straining to absorb a migrant population that is often malnourished and in poor health. The spread of previously eradicated diseases, such as measles, is also a major regional concern. In January 2019, the Trump Administration announced backing for the president of the Venezuelan National Assembly, Juan Guaidó, as interim president of Venezuela. The Trump Administration has called for Maduro's departure, and Colombia joined many other countries in Latin America and Europe to recognize Guaidó. U.S. Secretary of State Michael Pompeo announced that the United States was prepared to provide $20 million in humanitarian assistance to the people of Venezuela. Colombia joined 11 countries in the Lima Group that declared on February 4, 2019, their desire to hasten a return to democracy in Venezuela by working with Guaidó for a peaceful transition without the use of force. Colombia's multisided internal conflict over the last half century generated a lengthy record of human rights abuses. Although it is widely recognized that Colombia's efforts to reduce violence, combat drug trafficking and terrorism, and strengthen the economy have met with success, many nongovernmental organizations (NGOs) and human rights groups continue to report significant human rights violations, including violence targeting noncombatants, that involves killings, torture, kidnappings, disappearances, forced displacements, forced recruitments, massacres, and sexual attacks. The Center for Historical Memory report issued to the Colombian government in July 2013 traces those responsible for human rights violations to the guerrillas (the FARC and ELN), the AUC paramilitaries and successor paramilitary groups, and the Colombian security forces. In analyzing nearly 2,000 massacres between 1980 and 2012 documented in the center's database, the report maintains that 58.9% were committed by paramilitaries, 17.3% by guerrillas, and 7.9% by public security forces. According to the U.S. State Department's annual report on human rights covering 2017, Colombia's most serious human rights abuses centered on extrajudicial and unlawful killings; torture and detentions; rape and sexual crimes. In addition to the State Department, numerous sources report regularly on human rights conditions in Colombia. (See Appendix .) Colombia continues to experience murders and threats of violence against journalists, human rights defenders, labor union members, social activists such as land rights leaders, and others. Crimes of violence against women, children, Afro-Colombian and indigenous leaders, and other vulnerable groups continue at high rates. In December 2018, the U.N. special rapporteur on human rights defenders came out with strong criticism of heightened murders of human rights defenders, which he maintained were committed by hitmen paid no more than $100 per murder, according to reports he heard from activists and other community members whom he met with during a trip to Colombia. These ongoing issues reflect constraints of the Colombian judicial system to effectively prosecute crimes and overcome impunity. For many years, human rights organizations have raised concerns about extrajudicial executions committed by Colombian security forces, particularly the military. In 2008, it was revealed that several young men from the impoverished community of Soacha—who had been lured allegedly by military personnel from their homes to another part of the country with the promise of employment—had been executed. When discovered, the Soacha murder victims had been disguised as guerrilla fighters to inflate military claims of enemy body counts, resulting in the term false positives . Following an investigation into the Soacha murders, the military quickly fired 27 soldiers and officers, including three generals, and the army's commander resigned. The Colombian prosecutor general's criminal investigations of soldiers and officers who allegedly participated in the Soacha executions have proceeded quite slowly. Some 48 of the military members eventually charged with involvement in the Soacha cases were released due to the expiration of the statute of limitations. Whereas some soldiers have received long sentences, few sergeants or colonels have been successfully prosecuted. In 2009, the false positive phenomenon was investigated by the U.N.'s Special Rapporteur on Extrajudicial Executions, who issued a report that concluded with no finding that such killings were a result of an official government policy. However, the Special Rapporteur did find, "the sheer number of cases, their geographic spread, and the diversity of military units implicated, indicate that these killings were carried out in a more or less systematic fashion by significant elements within the military." The majority of the cases took place between 2004 and 2008, when U.S. assistance to Colombia peaked. In recent years, the number of new alleged false positive cases declined steeply, but human rights NGOs still reported a few cases in 2012 through 2015. To address the military's human rights violations, the Santos administration proposed a change to policy that did not prevail. This reform was a constitutional change to expand the jurisdiction of military courts and, it was approved by the Colombian Congress in late December 2012 by a wide margin despite controversy. Human rights groups criticized the legislation's shift in the jurisdiction over serious human rights crimes allegedly committed by Colombia's public security forces from the civilian to the military justice system. In its review of the constitutional amendment, the Colombian Constitutional Court struck down the law over procedural issues in October 2013. Human Rights Watch in a 2015 report on the false positive cases noted that prosecutors in the Human Rights Unit of the Prosecutor General's Office conducted investigations into more than 3,000 false positive homicide cases allegedly committed by army personnel that resulted in about 800 convictions, mostly of lower-ranking soldiers. Only a few of those convictions involved former commanders of battalions or other tactical units, and none of the investigations of 16 active and retired army generals had produced charges. In 2016, the prosecutions against generals accused of responsibility for false positives continued, although a few were closed and 12 remained under investigation at year's end. Additionally, in October 2016, the Colombian prosecutor general indicted Santiago Uribe, the brother of former President Uribe, on charges of murder and association to commit crimes for his alleged role in the paramilitary group "The 12 Apostols" in the 1990s. The State Department human rights report covering 2017, maintains that during the year through July, four new cases involving "aggravated homicide" committed by security forces and 11 new convictions were reached for "simple homicide" by security force members. Although estimates diverge, the number of human rights defenders murdered in 2016 totaled 80 and another 51 in the first half of 2017, according to Somos Defensores ("We are Defenders"), a Colombian NGO that tracks violence against defenders and is cited by the State Department. Some groups, such as the Colombian think tank, Indepaz, say the numbers are higher, up to 117 murders in 2016. In the two years since the approval of the 2016 peace accord, social leaders, ethnic community leaders, and human rights defenders have suffered from continued high levels of violence. Human rights organizations cite the murders of more than 100 activists in 2017 and in 2018. Of the 109 human rights and civil society activists killed in 2018 through November, some were leaders of efforts to implement the 2016 peace accord. For instance, 13 social leaders were assassinated in the southwest department of Cauca in the first six months of the year, a department in Colombia with the fourth largest area devoted to coca cultivation in the country and host to several peace accord programs associated with rural development, including voluntary eradication of drug crops. Few, if any, of those accused of making threats and ordering or carrying out assassinations have been prosecuted. According to these activists, perpetrators still have little to fear of legal consequences. Since early 2012, violence against land rights activists has risen sharply with the start of implementation of the Victims' Law that authorized the return of stolen land. A September 2013 report by Human Rights Watch pointing to the rise in violence against land activists and claimants maintained that the environment had turned so threatening that claimants who had received land judgments were too frightened to return, and the government had received more than 500 serious threats against claimants in less than 18 months. According to Human Rights Watch, many of the threats and killings have been conducted by paramilitary-influenced Bacrim, although they may be operating at the behest of third-party "landowners," who are trying to protect their land from seizure. For more than a decade, the Colombian government tried to suppress violence against groups facing extraordinary risk through the National Protection Unit (UPN) programs. Colombia's UPN provides protection measures, such as body guards and protective gear, to individuals in at-risk groups, including human rights defenders, journalists, trade unionists, and others. However, according to international and Colombian human rights groups, the UPN has been plagued by corruption issues and has inadequately supported the prosecution of those responsible for attacks. According to the State Department's Report on Human Rights Practices covering 2017, the UPN protected roughly 6,067 at-risk individuals, including 575 human rights activists, with a budget of $150 million. Journalists, a group that has traditionally received protection measures from the UPN, continue to operate in a dangerous environment in Colombia. According to the Committee to Protect Journalists (CPJ), 47 journalists have been killed in work-related circumstances since 1992. Three Ecuadorian journalists were killed by a FARC dissident group close to the border of Ecuador in 2018, leading to the end of the Colombian government's peace talks with the ELN in Ecuador and their subsequent move to Cuba. To help monitor and verify that human rights were respected throughout implementation of the peace accord, the government formally renewed the mandate of the U.N.'s High Commissioner of Human Rights in 2016 for three years. The issue of violence against the labor movement in Colombia has sparked controversy and debate for years. Many human rights groups and labor advocates have maintained that Colombia's poor record on protecting its trade union members and leaders from violence is one reason to avoid closer trade relations with Colombia. The U.S.-Colombia Free Trade Agreement (also known as the U.S.-Colombia Trade Promotion Agreement) could not be enacted without addressing the deep concern of many Members of Congress that Colombia must enforce basic labor standards and especially measures to mitigate the alleged violence against trade union members and bring perpetrators of such violence to justice. In April 2011, the United States and Colombia agreed to an "Action Plan Related to Labor Rights" (the Labor Action Plan, LAP), which contained 37 measures that Colombia would implement to address violence, impunity, and workers' rights protection. Before the U.S.-Colombia Free Trade Agreement entered into force in April 2012, the U.S. Trade Representative determined that Colombia had met all the important milestones in the LAP to date. Despite the programs launched and measures taken to implement the LAP, human rights and labor organizations claim that violence targeting labor union members continues. (Some analysts continue to debate whether labor activists are being targeted because of their union activities or for other reasons.) The Colombian government has acknowledged that violence and threats continue, but points to success in reducing violence generally and the number of homicides of labor unionists specifically. Violence levels in general are high in Colombia, but have steadily been decreasing. According to the data reported by the U.N. Office on Drugs and Crime (UNODC) in its annual homicide report, rates have decreased dramatically since 2002, when the homicide rate was at 68.9 per 100,000. The Colombian Ministry of Defense reported in 2016 that the homicide rate had declined to 24.4 per 100,000. In this context of an overall steady decline in homicides, the number of labor union killings has also declined. For many years, the government and the leading NGO source that tabulates these crimes did not agree on the number of labor union murders because they used different methodologies. Both sources recorded a decline, but the government generally saw a steeper decline. According to the Colombian labor rights NGO and think tank, the National Labor School ( Escuela Nacional Sindical , ENS), there has been a significant decline from 191 labor union murders in 2001 to 20 reported in 2012. In 2017, through the month of August the ENS reported 14 labor murders. Of the cases covering homicides between January 2011 and August 2017, 162 homicide cases in which victims were labor union members, were 409 convictions, 31 for cases after 2011 and 378 for cases before 2011. In addition, labor advocates note that tracking homicides does not capture the climate of intimidation that Colombian labor unions face. In addition to lethal attacks, trade union members encounter increased death threats, arbitrary detention, and other types of harassment. Measures to strengthen the judicial system to combat impunity for such crimes are also part of the Labor Action Plan. Nevertheless, many analysts maintain there remains a large backlog of cases yet to be investigated involving violent crimes against union members. The internal conflict has been the major cause of a massive displacement of the civilian population that has many societal consequences, including implications for Colombia's poverty levels and stability. Colombia has one of the largest populations of internally displaced persons (IDPs) in the world. Most estimates place the total at more than 7 million IDPs, or more than 10% of Colombia's estimated population of 49 million. This number of Colombians, forcibly displaced and impoverished as a result of the armed conflict, continues to grow and has been described by many observers as a humanitarian crisis. Indigenous and Afro-Colombian people make up an estimated 15%-22% of the Colombian population. They are, however, disproportionately represented among those displaced. The leading Colombian NGO that monitors displacement, Consultancy for Human Rights and Displacement (CODHES), reports that 36% of the victims of forced displacement nationwide in 2012 came from the country's Pacific region where Afro-Colombian and indigenous people predominate. The Pacific region has marginal economic development as a result of weak central government presence and societal discrimination. (Some 84% of the land in the Pacific region is subject to collective-title rights granted to Afro-Colombian and indigenous communities. ) Illegal armed groups are active in usurping land in this region, which is valued for its proximity to a major port and drug trafficking routes, and the Afro- and indigenous communities are also caught in the middle of skirmishes between illegal groups and Colombian security forces. IDPs suffer stigma and poverty and are often subject to abuse and exploitation. In addition to the disproportionate representation of Colombia's ethnic communities among the displaced, other vulnerable populations, including women and children, have been disproportionally affected. Women, who make up more than half of the displaced population in Colombia, can become targets for sexual harassment, violence, and human trafficking. Displacement is driven by a number of factors, most frequently in more remote regions of the country where armed groups compete and seek to control territory or where they confront Colombian security forces. Violence that uproots people includes threatened or actual child recruitment or other forced recruitment by illegal armed groups, as well as physical, psychological, and sexual violence. Other contributing factors reported by NGOs include counternarcotics measures such as aerial spraying, illegal mining, and large-scale economic projects in rural areas. Inter-urban displacement is a growing phenomenon in cities such as Buenaventura and Medellin, which often results from violence and threats by organized crime groups. The Victims' Law of 2011, which began to be implemented in 2012, is the major piece of legislation to redress Colombian displacement victims with the return of their stolen land. The historic law provides restitution of land to those IDPs who were displaced since January 1, 1991. The law aims to return land to as many as 360,000 families (impacting up to 1.5 million people) who had their land stolen. The government notes that some 50% of the land to be restituted has the presence of land mines and that the presence of illegally armed groups in areas where victims have presented their applications for land restitution has slowed implementation of the law. Between 2011 and 2016, 100,000 applications for land restitution were filed and approximately 5,000 properties (roughly 5% of applications) were successfully returned following judgements on the cases. With the international support from U.S. Agency for International Development (USAID) and other donors, a Victims Unit was established to coordinate the range of services for victims, including financial compensation and psychosocial services, provided by a host of government agencies. The 2011 Victims' Law is considered a model and particularly the implementation of a Victims' registry, which was supported by USAID. Through its Victims Unit, the Colombian government had provided financial reparations to over 800,000 victims and psychosocial support to 700,000 as of October 2018. The Global Report on Internal Displacement from the Internal Displacement Monitoring Centre (IDMC) reported, however, displacement inside Colombia continued with more than 171,000 internally displaced in 2016. As the political crisis in Venezuela has grown, a wave of refugees and migrants have come across the border into Colombia reversing an earlier trend. Venezuelans were fleeing political instability and economic turmoil in Colombia's once-wealthy neighboring nation. Venezuela's economic crisis worsened throughout 2018, prompting a sharp increase in migrants seeking to escape into Colombia. In response to the growing flood of Venezuelans, former President Santos initially announced that he would impose stricter migratory controls and deploy thousands of new security personnel along the frontier. Nevertheless, he acknowledged that Venezuela had once served as a vital escape valve for Colombian refugees fleeing their half century internal conflict, for which he was grateful. Colombia shares long borders with neighboring countries, and some of these border areas have been described as porous to illegal armed groups that threaten regional security. Colombia has a 1,370-mile border with Venezuela, approximately 1,000-mile borders with both Peru and Brazil, and shorter borders with Ecuador and Panama. Much of the territory is remote and rugged and suffers from inconsistent state presence. Although all of Colombia's borders have been problematic and subject to spillover effects from Colombia's armed conflict, the most affected are Venezuela, Ecuador, and Panama. Over the years, Colombia's relations with Venezuela and Ecuador have been strained by Colombia's counterinsurgency operations, including cross-border military activity. The FARC and ELN insurgents have been present in shared-border regions and in some cases the insurgent groups used the neighboring countries to rest, resupply, and shelter. Former President Uribe accused the former Venezuelan government of Hugo Chávez of harboring the FARC and ELN and maintained that he had evidence of FARC financing the 2006 political campaign of Ecuador's leftist President Rafael Correa. Relations between Ecuador and Colombia remained tense following the Colombian military bombardment of a FARC camp inside Ecuador in March 2008. Ecuador severed diplomatic relations with Colombia for 33 months. Also in 2008, Ecuador filed a suit against Colombia in the International Court of Justice (ICJ), claiming damages to Ecuadorian residents affected by spray drift from Colombia's aerial eradication of drug crops. In September 2013, Colombia reached an out-of-court settlement awarding Ecuador $15 million. Once in office, President Santos reestablished diplomatic ties with both countries and in his first term (2010-2014) cooperation greatly increased between Colombia and Venezuela on border and security issues and with Ecuador's Correa. However, concerns about Venezuelan links to the FARC and the continued use of Venezuela by the FARC and ELN as a safe haven to make incursions into Colombia remained an irritant in Colombian-Venezuelan relations. Nevertheless, the Venezuelan and Colombian governments committed to jointly combat narcotics trafficking and illegal armed group activities along the porous Venezuelan-Colombian border and Venezuela remained a supporting government of the FARC-government peace talks (along with Chile, Norway, and Cuba) through 2016, even after former President Chávez died in office in March 2013. Ecuador's government hosted exploratory talks between the ELN and the Santos government beginning in 2015, which became formal talks hosted in Quito in February 2017, although Ecuador's president requested that the talks move to Cuba in May 2018, due to a spate of border violence that could have been related to the ELN. For many years, the region in Panama that borders Colombia, the Darien, was host to a permanent presence of FARC soldiers who used the remote area for rest and resupply as well to transit drugs north. By 2015, according to the State Department, the FARC was no longer maintaining a permanent militarized presence in Panamanian territory, in part due to effective approaches taken by Panama's National Border Service in coordination with Colombia. Nevertheless, the remote Darien region still faces challenges from smaller drug trafficking organizations and criminal groups such as Bacrim and experiences problems with human smuggling with counterterrorism implications. When Colombia hosted the Sixth Summit of the Americas in April 2012, President Obama and President Santos announced a new joint endeavor, the Action Plan on Regional Security Cooperation. This joint effort, built on ongoing security cooperation, addresses hemispheric challenges, such as combating transnational organized crime, bolstering counternarcotics, strengthening institutions, and fostering resilient communities. The Action Plan focuses on capacity building for security personnel in Central America and the Caribbean by Colombian security forces (both Colombian military and police). To implement the plan, Colombia undertook several hundred activities in cooperation with Panama, Costa Rica, El Salvador, Honduras, Guatemala and the Dominican Republic, and between 2013 and 2017 trained almost 17,000 individuals (see Figure 4 ). The Colombian government notes that this program grew dramatically from 34 executed activities in 2013 to 441 activities planned for 2018. Colombia has increasingly trained military and police from other countries both under this partnership and other arrangements, including countries across the globe. According to the Colombian Ministry of Defense, around 80% of those trained were from Mexico, Central America, and the Caribbean. U.S. and Colombian officials maintain that the broader effort is designed to export Colombian expertise in combating crime and terrorism while promoting the rule of law and greater bilateral and multilateral law enforcement cooperation. Critics of the effort to "export Colombian security successes" maintain that human rights concerns have not been adequately addressed. Some observers question the portion of these activities that are funded by the U.S. government and want to see more transparency. In one analysis of the training, a majority of the training was provided by Colombian National Police rather than the Colombian Army, in such areas as ground, air, maritime, and river interdiction; police testimony; explosives; intelligence operations; psychological operations; and Comando JUNGLA, Colombia's elite counternarcotics police program. Other analysts praise the Colombian training and maintain that U.S. assistance provided in this way has helped to improve, professionalize, and expand the Colombian military, making it the region's second largest. As that highly trained military shifts from combating the insurgency and the Colombian National Police take the dominant role in guaranteeing domestic security, Colombia may play a greater role in regional security and even in coalition efforts internationally. In September 2017, President Trump announced that he had considered designating Colombia in noncompliance with U.S. counternarcotics requirements, but noted that he had not proceeded with the step in part because of Colombian training efforts to assist others in the region with combating narcotics and related crime. Colombia is a key U.S. ally in the region. With diplomatic relations that began in the 19 th century following Colombia's independence from Spain, the countries have enjoyed close and strong ties. Because of Colombia's prominence in the production of illegal drugs, the United States and Colombia forged a close partnership over the past 16 years. Focused initially on counternarcotics, and later counterterrorism, a program called Plan Colombia laid the foundation for a strategic partnership that has broadened to include sustainable development, human rights, trade, regional security, and many other areas of cooperation. Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion in assistance from U.S. State Department and Department of Defense (DOD) accounts to carry out Plan Colombia and its follow-on strategies. During this time, Colombia made notable progress combating drug trafficking and terrorist activities and reestablishing government control over much of its territory. Its economic and social policies have reduced the poverty rate and its security policies have lowered the homicide rate. Counternarcotics policy has been the defining issue in U.S.-Colombian relations since the 1980s because of Colombia's preeminence as a source country for illicit drugs. Peru and Bolivia were the main global producers of cocaine in the 1980s and early 1990s. However, successful efforts there in reducing supply pushed cocaine production from those countries to Colombia, which soon surpassed both its Andean neighbors. The FARC and other armed groups in the country financed themselves primarily through narcotics trafficking, and that lucrative illicit trade provided the gasoline for the decades-long internal armed conflict at least since the 1990s. Colombia emerged to dominate the cocaine trade by the late 1990s. National concern about the crack cocaine epidemic and extensive drug use in the United States led to greater concern with Colombia as a source. As Colombia became the largest producer of coca leaf and the largest exporter of finished cocaine, heroin produced from Colombian-grown poppies was supplying a growing proportion of the U.S. market. Alarm over the volumes of heroin and cocaine being exported to the United States was a driving force behind U.S. support for Plan Colombia at its inception. The evolution of Plan Colombia took place under changing leadership and changing conditions in both the United States and Colombia. Plan Colombia was followed by successor strategies such as the National Consolidation Plan, described below, and U.S.-Colombia policy has reached a new phase anticipating post-conflict Colombia. Announced in 1999, Plan Colombia originally was a six-year strategy to end the country's decades-long armed conflict, eliminate drug trafficking, and promote development. The counternarcotics and security strategy was developed by the government of President Andrés Pastrana in consultation with U.S. officials. Colombia and its allies in the United States realized that for the nation to gain control of drug trafficking required a stronger security presence, the rebuilding of institutions, and extending state presence where it was weak or nonexistent. Initially, the U.S. policy focus was on programs to reduce the production of illicit drugs. U.S. support to Plan Colombia consisted of training and equipping counternarcotics battalions in the Colombian Army and specialized units of the Colombian National Police, drug eradication programs, alternative development, and other supply reduction programs. The original 1999 plan had a goal to reduce "the cultivation, processing, and distribution of narcotics by 50%" over the plan's six-year timeframe. The means to achieve this ambitious goal were a special focus on eradication and alternative development; strengthening, equipping, and professionalizing the Colombian Armed Forces and the police; strengthening the judiciary; and fighting corruption. Other objectives were to protect citizens from violence, promote human rights, bolster the economy, and improve governance. U.S. officials expressed their support for the program by emphasizing its counterdrug elements (including interdiction). The focus on counternarcotics was the basis for building bipartisan support to fund the program in the U.S. Congress because some Members of Congress were leery of involvement in fighting a counterinsurgency, which they likened to the "slippery slope" of the war in Vietnam. President George W. Bush came to office in 2001 and oversaw some changes to Plan Colombia. The primary vehicle for providing U.S. support to Plan Colombia was the Andean Counterdrug Initiative, which was included in foreign operations appropriations. The Bush Administration requested new flexibility so that U.S.-provided assistance would back a "unified campaign against narcotics trafficking, terrorist activities, and other threats to [Colombia's] national security" due to the breakdown of peace talks between the FARC and the Pastrana government in February 2002. Congress granted this request for a unified campaign to fight drug trafficking and terrorist organizations as Members of Congress came to realize how deeply intertwined the activities of Colombia's terrorist groups were with the illicit drug trade that funded them. However, Congress prohibited U.S. personnel from directly participating in combat missions. Congress placed a legislative cap on the number of U.S. military and civilian contractor personnel who could be stationed in Colombia, although the cap was adjusted to meet needs over time. The current limit (first specified in the FY2015 National Defense Authorization Act, as amended) caps total military personnel at 800 and civilian contractors at 600, although numbers deployed have been far below the 1,400-person cap for years and now total fewer than 200. President Uribe (2002-2010) embraced Plan Colombia with an aggressive strategy toward the insurgent forces that prioritized citizen security. His Democratic Security Policy, implemented first in a military campaign called Plan Patriota, relied on the military to push FARC forces away from the major cities to remote rural areas and the borderlands. Like his predecessor, President Pastrana, Uribe continued to expand the Colombian military and police. He enhanced the intelligence capacity, professionalization, and coordination of the forces, in part with training provided by U.S. forces. His strategy resulted in expanded state control over national territory and a significant reduction in kidnappings, terrorist attacks, and homicides. In 2007, the Uribe administration announced a shift to a "Policy of Consolidation of Democratic Security." The new doctrine was based on a "whole-of-government" approach to consolidate state presence in marginal areas that were historically neglected—vulnerable to drug crop cultivation, violence, and control by illegal armed groups. Called a strategic leap forward by then-Defense Minister Juan Manuel Santos, in 2009 the new strategy came to be called the National Consolidation Plan (see below). Colombian support for Plan Colombia and for the nation's security program grew under Uribe's leadership. President Uribe levied a "wealth tax" to fund Colombia's security efforts, taxing the wealthiest taxpayers to fund growing defense and security expenditures. Overall U.S. expenditures on Plan Colombia were only a modest portion of what Colombians spent on their own security. By one 2009 estimate, U.S. expenditures were not more than 10% of what Colombians invested in their total security costs. In 2000, Colombia devoted less than 2% of its GDP to military and police expenditures and in 2010 that investment had grown to more than 4% of GDP. One assessment notes "in the end there is no substitute for host country dedication and funding" to turn around a security crisis such as Colombia faced at the beginning of the millennium. In 2008, congressional support for Plan Colombia and its successor programs also shifted. Some Members of Congress believed that the balance of programming was too heavily weighted toward security. Prior to 2008, the emphasis had been on "hard side" security assistance (to the military and police) compared with "soft side" traditional development and rule of law programs. Members debated if the roughly 75%/25% mix should be realigned. Since FY2008, Congress has reduced the proportion of assistance for security-related programs and increased the proportion for economic and social aid. As Colombia's security situation improved and Colombia's economy recovered, the United States also began turning over to Colombians operational and financial responsibility for efforts formerly funded by the U.S. government. The Colombian government "nationalized" the training, equipping, and support for Colombian military programs, such as the counterdrug brigade, Colombian Army aviation, and the air bridge denial program. U.S. funding overall began to decline. The nationalization efforts were not intended to end U.S. assistance, but rather to gradually reduce it to pre-Plan Colombia levels, adjusted for inflation. A key goal of Plan Colombia was to reduce the supply of illegal drugs produced and exported by Colombia but the goals became broader over time. Bipartisan support for the policy existed through three U.S. Administrations—President Bill Clinton, President George W. Bush, and President Barack Obama. Plan Colombia came to be viewed by some analysts as one of the most enduring and effective U.S. policy initiatives in the Western Hemisphere. Some have lauded the strategy as a model. In 2009, William Brownfield, then-U.S. Ambassador to Colombia, described Plan Colombia as "the most successful nation-building exercise that the United States has associated itself with perhaps in the last 25-30 years." Other observers, however, were critical of the policy as it unfolded. Many in the NGO and human rights community maintained the strategy, with its emphasis on militarization and security, was inadequate for solving Colombia's persistent, underlying problems of rural violence, poverty, neglect and institutional weakness. Nevertheless, it appears that improvements in security conditions have been accompanied by substantial economic growth and a reduction in poverty levels over time. The National Consolidation Plan first launched during the Uribe Administration, (renamed the National Plan for Consolidation and Territorial Reconstruction), was designed to coordinate government efforts in regions where marginalization, drug trafficking, and violence converge. The whole-of-government consolidation was to integrate security, development, and counternarcotics to achieve a permanent state presence in vulnerable areas. Once security forces took control of a contested area, government agencies in housing, education, and development would regularize the presence of the state and reintegrate the municipalities of these marginalized zones into Colombia. The plan had been restructured several times by the Santos government. The United States supported the Colombian government's consolidation strategy through an inter-agency program called the Colombia Strategic Development Initiative (CSDI). CSDI provided U.S. assistance to "fill gaps" in Colombian government programming. At the U.S. Embassy in Colombia, CSDI coordinated efforts of the U.S. Agency for International Development (USAID), the State Department's Narcotics Affairs Section, the U.S. Military Group, and the Department of Justice to assist Colombia in carrying out the consolidation plan by expanding state presence and promoting economic opportunities in priority zones. It combined traditional counternarcotics assistance for eradication, interdiction, alternative development, and capacity building for the police, military, and justice sector institutions with other economic and social development initiatives. As the peace agreement between the FARC and the government moved forward into implementation, the focus of U.S. assistance to Colombia has shifted again. With a foundation of the work done to advance consolidation, U.S. assistance has begun to aid in post-conflict planning and support Colombia's transition to peace by building up democratic institutions, protecting human rights and racial and ethnic minorities, and promoting economic opportunity. USAID's country cooperation strategy for 2014-2018 anticipated the Colombian government reaching a negotiated agreement with the FARC, but remained flexible if an agreement was not signed. It recognized early implementation efforts, especially in the first 24 months after signature, would be critical to demonstrate or model effective practices. In the next five years, it envisioned Colombia evolving from aid recipient to provider of technical assistance to neighbors in the region. Consolidating state authority and presence in the rural areas with weak institutions remains a significant challenge following the FARC's disarmament in the summer of 2017. Reintegration of the FARC and possibly other insurgent forces, such as the ELN, will be expensive and delicate. In particular, critics of the consolidation efforts of the Colombian government maintain that the Santos administration often lacked the commitment to hand off targeted areas from the military to civilian-led development and achieve locally led democratic governance. Consolidation efforts suffered from low political support, disorganization at the top levels of government, and failure to administer national budgets effectively in more remote areas, among other challenges. In August 2018, shortly after President Duque took office, USAID announced a framework of priorities for U.S. economic development assistance to Colombia. Some of these priorities include promoting and supporting a whole-of-government strategy to include the dismantling of organized crime; increasing the effectiveness of Colombia's security and criminal justice institutions; promoting enhanced prosperity and job creation through trade; improving the investment climate for U.S. companies; and advancing Colombia's capacity to strengthen governance and transition to sustainable peace, including reconciliation among victims, ex-combatants, and other citizens. The U.S. Congress initially approved legislation in support of Plan Colombia in 2000, as part of the Military Construction Appropriations Act of 2001 ( P.L. 106-246 ). Plan Colombia was never authorized by Congress, but it was funded annually through appropriations. From FY2000 through FY2016, U.S. funding for Plan Colombia and its follow-on strategies exceeded $10 billion in State Department and Defense Department programs. From FY2000 to FY2009, the United States provided foreign operations assistance to Colombia through the Andean Counterdrug Program (ACP) account, formerly known as the Andean Counterdrug Initiative, and other aid accounts. In FY2008, Congress continued to fund eradication and interdiction programs through the ACP account, but funded alternative development and institution building programs through the Economic Support Fund (ESF) account. In the FY2010 request, the Obama Administration shifted ACP funds into the International Narcotics Control and Law Enforcement (INCLE) account. Since FY2008, U.S. assistance has gradually declined because of tighter foreign aid budgets and nationalized Plan Colombia-related programs. In FY2014, in line with other foreign assistance reductions, funds appropriated to Colombia from State Department accounts declined to slightly below $325 million. In FY2015, Congress appropriated $300 million for bilateral assistance to Colombia in foreign operation. The FY2016 Omnibus Appropriations bill ( P.L. 114-113 ) provided Colombia from U.S. State Department and U.S. Agency for International Development accounts, slightly under $300 million, nearly identical to that appropriated in FY2015 (without P.L. 480, the Food for Peace account, the total for FY2016 was $293 million as shown in Table 1 ). In FY2017, Congress funded a program the Obama Administration had proposed called "Peace Colombia" to re-balance U.S. assistance to support the peace process and implementation of the accord. In May 2017, Congress approved a FY2017 omnibus appropriations measure, the Consolidated Appropriations Act, 2017 ( P.L. 115-31 ), which funded the various programs of Peace Colombia at $391.3 million. In the FY2017 legislation, Congress appropriated the following: The ESF account increased to $187 million (from $134 million in FY2016) to build government presence, encourage crop substitution to replace drug crops, and provide other assistance to conflict victims, including Afro-Colombian and indigenous communities. However, only $180 million was subsequently allocated. INCLE funding increased to $143 million with a focus on manual eradication of coca crops, support for the Colombian National Police, and judicial reform efforts. INCLE funding also included $10 million for Colombian forces' training to counterparts in other countries. $38.5 million in Foreign Military Financing (FMF); and $21 million in Nonproliferation, Anti-Terrorism, Demining, and Related Programs (NADR), which was a relatively large increase from under $4 million in FY2016 to focus on the demining effort. How the Trump Administration will engage with the issues of supporting post-conflict stability in Colombia has not been clearly defined by either the State Department or other executive departments. For example, the Trump Administration's proposed foreign aid budget for FY2018 would have reduced assistance to Colombia to $251 million. However, the FY2018 omnibus appropriations measure, approved by Congress in March 2018 ( P.L. 115-114 ), again included $391.3 million to support Colombia's transition to peace. The Trump Administration's FY2019 budget request for Colombia is $265 million, approximately a 32% reduction from the $391.3 million appropriated by Congress in FY2018. However, the House and Senate appropriations bills, H.R. 6385 and S. 3108 , again would support the funding level of $391.3 million. The FY2019 Administration request would reduce post-conflict recovery programs and place greater emphasis on counternarcotics and security. Below, Table 1 provides account data from the annual international affairs congressional budget justification documents. The information about DOD-funded programs was provided to the Congressional Research Service by DOD analysts in December 2015 and October 2017 (and has not been updated). The breakout of DOD assistance to Colombia is shown in Table 2 . . Colombia also has received additional U.S. humanitarian funding to help it cope with more than 1 million Venezuelan migrants. As of September 30, 2018, U.S. government humanitarian funding for the Venezuela response totaled approximately $96.5 million for both FY2017 and FY2018 combined, of which $54.8 million was for Colombia. (Humanitarian funding is drawn primarily from the global humanitarian accounts in annual Department of State/Foreign Operations appropriations acts.) In addition, the U.S. Navy hospital ship USNS Comfort is on an 11-week medical support mission deployed through the end of 2018 to work with government partners, in part to assist with arrivals from Venezuela. In Colombia, the U.S. response aims to help the Venezuelan arrivals as well as the local Colombian communities that are hosting them. In addition to humanitarian assistance, the United States is providing $37 million in bilateral assistance to support medium- and longer-term efforts by Colombia. Some Members of Congress have been deeply concerned about human rights violations in Colombia—especially those perpetrated by any recipients or potential recipients of U.S. assistance. In Colombia's multisided, 50-year conflict, the FARC and ELN, the paramilitaries and their successors, and Colombia's security forces have all committed serious violations. Colombians have endured generations of noncombatant killings, massacres, kidnappings, forced displacements, forced disappearances, land mine casualties, and acts of violence that violate international humanitarian law. The extent of the crimes and the backlog of human rights cases to be prosecuted have overwhelmed the Colombian judiciary, which some describe as "inefficient" and overburdened. The United Nations and many human rights groups maintain that although some prosecutions have gone forward, most remain unresolved and the backlog of cases has been reduced slowly. In addition to the problem of impunity for such serious crimes, continued violations remain an issue. Since 2002, Congress has required in the annual foreign operations appropriations legislation that the Secretary of State certify annually to Congress that the Colombian military is severing ties to paramilitaries and that the government is investigating complaints of human rights abuses and meeting other human rights statutory criteria. (The certification criteria have evolved over time. ) For several years, certification was required before 30% of funds to the Colombian military could be released. The FY2014 appropriations legislation requires that 25% of funding under the Foreign Military Financing (FMF) program be held back pending certification by the Secretary of State. Some human rights groups have criticized the regular certification of Colombia, maintaining that evidence they have presented to the State Department has contradicted U.S. findings. However, even some critics have acknowledged the human rights conditions on military assistance to Colombia to be "a flawed but useful tool" because the certification process requires that the U.S. government regularly consult with Colombian and international human rights groups. Critics acknowledge that over time, conditionality can improve human rights compliance. Additional tools for monitoring human rights compliance by Colombian security forces receiving U.S. assistance are the so-called "Leahy Law" restrictions, which Congress first passed in the late 1990s prior to the outset of Plan Colombia. First introduced by Senator Patrick Leahy, these provisions deny U.S. assistance to a foreign country's security forces if the U.S. Secretary of State has credible information that such units have committed "a gross violation of human rights." The provisions apply to security assistance provided by the State Department and DOD. The Leahy Law under the State Department is authorized by the Foreign Assistance Act (FAA) of 1961, as amended, and is codified at 22 U.S.C. 2378d (§520M of the FAA). The DOD Leahy provisions, which for years applied just to DOD training, now include a broader range of assistance, as modified in the FY2014 appropriations legislation. The provision related to the Leahy Laws for DOD assistance is codified at 10 U.S.C. 362, and prohibits "any training, equipment, or other assistance," to a foreign security force unit if there is credible information that the unit has committed a gross violation of human rights. Both the State Department and DOD Leahy provisions require the State Department to review and clear—or vet—foreign security forces to determine if any individual or unit is credibly believed to be guilty of a gross human rights violation. Leahy vetting is typically conducted by U.S. embassies and State Department headquarters. Reportedly on an annual basis about 1% of foreign security forces are disqualified from receiving assistance under the Leahy provisions, although many more are affected by administrative issues and are denied assistance until those conditions are resolved. Tainted security force units that are denied assistance may be remediated or cleared, but the procedures for remediation differ slightly between the DOD and State (or FAA) provisions. Because of the large amount of security assistance provided to Colombian forces (including the military and police), the State Department reportedly vets more candidates for assistance in Colombia than in any other country. In the late 1990s, poor human rights conditions in Colombia were a driving concern for developing the Leahy Law provisions. The U.S. Embassy in Bogotá, with nearly two decades of experience in its vetting operations, has been cited as a source of best practices for other embassies seeking to bring their operations into compliance or enhance their performance. State Department officials have cited Colombia as a model operation that has helped Colombia to improve its human rights compliance. However, some human rights organizations are critical of the Leahy vetting process in Colombia, and cite the prevalence of extrajudicial executions allegedly committed by Colombian military units as evidence that these restrictions on U.S. assistance have failed to remove human rights violators from the Colombian military. A human rights nongovernmental organization, Fellowship of Reconciliation, has published reports alleging an association between false positive killings and Colombian military units vetted by the State Department to receive U.S. assistance. However, some have questioned the group's methodology. Some human rights organizations contend that the U.S. government has tolerated abusive behavior by Colombian security forces without taking action or withholding assistance. Measured exclusively in counternarcotics terms, Plan Colombia has been a mixed success. Colombia remains the dominant producer of cocaine and in the DEA's National Drug Threat Assessment for 2017 continued to be the source for 95% of cocaine seized in the United States. Enforcement, eradication, and improved security squeezed production in Colombia, so that in 2012, Peru reemerged as the global leader in cocaine production, surpassing Colombia, for a year or so. In the early 2000s, given Colombia's predominance as the source of cocaine destined for U.S. markets and its status as the second-largest producer of heroin consumed in the United States, eradication of coca bush and opium poppy (from which heroin is derived) was an urgent priority and became the preferred tool for controlling the production of these drugs. Another critical component of the drug supply reduction effort was alternative development programs funded by the U.S. Agency for International Development (USAID) to assist illicit crop cultivators with transitioning to licit crop production and livelihoods. Analysts have long debated how effective Plan Colombia and its follow-on strategies were in combating illegal drugs. Although Plan Colombia failed to meet its goal of reducing the cultivation, processing, and distribution of illicit drugs by 50% in its original six-year time frame, Colombia has sustained significant reductions in coca cultivation in recent years. According to U.S. estimates, cultivation of coca declined from 167,000 hectares in 2007 to 78,000 hectares in 2012. (Poppy cultivation declined by more than 90% between 2000 and 2009.) According to U.S. government estimates, Colombia's potential production of pure cocaine fell to 170 metric tons in 2012, the lowest level in two decades. However, it started to rise slightly in 2013, and more dramatically in 2014 through 2016. In those years, cultivation of coca and production of cocaine grew significantly in part due to ending the aerial eradication of coca crops. In 2015, following a U.N. agency determination that the herbicide used to spray coca crops was probably carcinogenic, Colombia's minister of health determined that aerial eradication of coca was not consistent with requirements of Colombia's Constitutional Court. In 2016, as noted above, the U.S. DEA reported that 95% of cocaine seized in the United States originated in Colombia. According to U.S. Office of National Drug Control Policy, Colombia in 2017 cultivated an unprecedented 209,000 hectares of coca, from which cocaine is derived, capable of generating 921 metric tons of cocaine. The United Nations estimates for 2017, which typically differ in quantity but follow the same trends as U.S. estimates, maintained that Colombia's potential production of cocaine reached nearly 1,370 metric tons, 31% above its 2016 estimate. Even with Colombia's economic stability and improving security, cocaine exports (primarily to the U.S. market) remain a major concern for U.S. lawmakers. However, in drug interdiction, Colombia has set records for many years and is considered a strong and reliable U.S. partner. The United Nations Office on Drugs and Crime ( Table 4 ), shows Colombia cultivating 146,000 hectares of coca in 2016, a 52% increase over 2015 and another increase to 171,000 hectares, a 17% increase, in 2017. Although cocaine seizures were quite high in both years, the interdiction of cocaine was insufficient to counter the large increases in production. Both manual eradication and aerial eradication were central components of Plan Colombia to reduce coca and poppy cultivation. Manual eradication is conducted by teams, usually security personnel, who uproot and kill the plant. Aerial eradication involves spraying the plants from aircraft with an herbicide mixture to destroy the drug crop, but it may not kill the plants. In the context of Colombia's continuing internal conflict, manual eradication was far more dangerous than aerial spraying. U.S. and Colombian policymakers recognized the dangers of manual eradication and, therefore, employed large-scale aerial spray campaigns to reduce coca crop yields, especially from large coca plantations. Colombia is the only country globally that aerially sprayed its illicit crops, and the practice has been controversial for health and environmental reasons, resulting in a Colombian decision to end aerial eradication in 2015. Since 2002, as a condition of fully funding the spraying program, Congress has regularly directed the State Department, after study and consultation with the U.S. Environmental Protection Agency and other relevant agencies, to certify that the spraying did not "pose unreasonable risks or adverse effects to humans or the environment." This certification requirement was included most years in the annual foreign operations appropriations legislation. Some analysts have also raised questions about the monetary and collateral costs of aerial eradication compared with other drug supply control strategies, its effectiveness, and its limited effect on the U.S. retail price of cocaine. U.S. State Department officials attribute Colombia's decline in coca cultivation after 2007 and prior to 2013 to the persistent aerial eradication of drug crops in tandem with manual eradication where viable. Between 2009 and 2013, Colombia aerially sprayed roughly 100,000 hectares annually. In 2013, however, eradication efforts declined. Colombia aerially eradicated roughly 47,000 hectares. It manually eradicated 22,120 hectares, short of the goal of 38,500 hectares. This reduction had a number of causes: the U.S.-supported spray program was suspended in October 2013 after two U.S. contract pilots were shot down, rural protests in Colombia hindered manual and aerial eradication efforts, and security challenges limited manual eradicators working in border areas. In late 2013, Ecuador won an out-of-court settlement in a case filed in 2008 before the International Court of Justice in The Hague for the negative effects of spray drift over its border with Colombia. In negotiations with the FARC, the government and the FARC provisionally agreed in May 2014 that voluntary manual eradication would be prioritized over forced eradication. Aerial eradication remained a viable tool in the government's drug control strategy, according to the agreement, but would be permitted only if voluntary and manual eradication could not be conducted safely. In April 2015, the Santos administration determined that glyphosate, a broad-spectrum, nonselective herbicide used commercially, but in Colombia sprayed on coca plants to eradicate them, was "probably carcinogenic" to humans in a review published by a World Health Organization (WHO) affiliate. In October 2015, the government ended spraying operations and began to implement a new public health approach toward illicit drugs, one that proponents suggested would reduce human rights violations. On the supply side, Colombia's new drug policy gives significant attention to expanding alternative development and licit crop substitution while intensifying interdiction efforts. The State Department in its 2015 International Narcotics Control Strategy Report (INCSR), however, warned that illicit cultivation was expanding in areas long off-limits to aerial spraying, including national parks, a buffer zone with Ecuador where aerial eradication has been restricted, and in indigenous or protected Afro-Colombian territories. Colombian interdiction practices are deemed some of the most effective in the world. The Colombian government reported seizing more than 207 metric tons (mt) of cocaine base in 2014 and that seizure total doubled by 2017 with capture of 442 mt of cocaine. According to the U.S. State Department's 2018 INCSR , Colombia also seized 197 mt of marijuana, 348 kilograms of heroin, and destroyed more than 3,400 cocaine base and hydrochloride labs. USAID funds and runs alternative development programs in Colombia to assist communities with transitioning from a dependency on illicit crops to licit employment and livelihoods. Alternative development was once focused narrowly on crop substitution and assistance with infrastructure and marketing. Since the Colombian government's shift to a consolidation strategy, USAID has supported "consolidation and livelihoods" programming in 40 of the 58 strategically located, conflict-affected municipalities targeted by the government's National Consolidation Plan. To facilitate economic development, USAID funds initiatives that assist farmers and others with shifting from coca growing to licit economic opportunities. These programs are designed to strengthen small farmer producer organizations, improve their productivity, and connect them to markets. Some observers maintain that poor and unsustainable outcomes from alternative development programs while the Colombian conflict was still under way resulted from ongoing insecurity and lack of timeliness or sequencing of program elements. The renewed commitment to alternative development and crop substitution in the 2016 peace accord with the FARC may be similarly challenged. Formal implementation of the peace accord on drug eradication and crop substitution began in late May 2017 with collective agreements committing communities to replace their coca crops with licit crops. In some regions, the program is extended to families who cultivate coca and also to producers of legal crops and landless harvesters. The Colombian government also committed to a combined approach of both voluntary and forced manual eradication. The government's goal set for 2017 was eradicating 100,000 hectares of coca, 50,000 through forced manual eradication and 50,000 through "crop substitution" accords reached with coca farming households who would voluntary eradicate. At the U.S.-Colombia High Level Dialogue held in Bogotá in March 2018, a renewed commitment to the enduring partnership between the United States and Colombia was announced. A major outcome was a U.S.-Colombia pledge to reduce illegal narcotics trafficking through expanded counternarcotics cooperation. The new goal set was to reduce Colombia's estimated cocaine production and coca cultivation to 50% of current levels by 2023. In addition, a memorandum of understanding was signed to combat the illegal gold mining that funds transnational criminal organizations. Although President Duque appears determined to pursue a more aggressive approach to drug policy, he has not clearly stated how his approach to counternarcotics will differ from that of his predecessor. The government may restart aerial eradication, a strategy that ended in 2015 due to the Colombian Health Ministry's concerns over cancer-causing potential of the herbicide glyphosate, but no precise plans for restarting the program have been announced in the Duque Administration's first three months in office. Experimentation with delivering glyphosate by drones (rather than planes) began in June 2018 under the Santos Administration and is continuing under the Duque government. On October 1, 2018, President Duque authorized police to confiscate and destroy any quantity of drugs found on persons in possession of them, resulting in the seizure of more than 7 metric tons of drugs in less than two weeks. This enforcement measure may violate a 1994 Colombian Constitutional Court ruling, however, in which Colombians may carry small doses of drugs for personal use, including marijuana, hashish, and cocaine. Several court challenges have been filed that seek to nullify the Duque decree on constitutional grounds of protected personal use. Drug trafficking continues to trigger conflict over land in Colombia while affecting the most vulnerable groups, including Afro-Colombian, peasant, and indigenous populations. Some analysts warn that national and international pressure for drug eradication could also lead to increased human rights violations, including health consequences by reviving aerial spraying of drug crops and government actions to forcibly break up demonstrations by coca producers who resist eradication. Some analysts have advocated that investments to lower drug supply need to go beyond eradication, which has not been a lasting approach to reducing drug crop cultivation. For instance, the government could provide economic and education opportunities to at-risk youth to enhance their role in peace building and to prevent their recruitment into the drug trade and other illegal activity. Economic relations between Colombia and the United States have deepened. The U.S.-Colombia Free Trade Agreement (FTA) entered into force in May 2012. By 2020, it will phase out all tariffs and other barriers to bilateral trade between Colombia and the United States, its largest trade partner. Since the U.S.-Colombia FTA went into force, the stock of U.S. investment in Colombia surpassed $7 billion in 2014 but dropped to $6.2 billion in 2016 (on a historical cost basis), concentrated mostly in mining and manufacturing. According to the U.S. Department of Commerce, U.S. exports to Colombia exceeded $26.8 billion in 2016 and Colombia was the 22 nd -largest market for U.S. exports; however, U.S. imports from Colombia declined between 2015 and 2016. Major U.S. exports to Colombia include oil (noncrude oil products including gasoline), machinery, cereals, organic chemicals, and plastic. Because 65% of U.S. imports from Colombia are crude oil imports, much of the decline in value was caused by the sharp fall in oil prices that began in 2014. Major U.S. imports beside crude oil, include gold, coffee, cut flowers, and fruits. Congressional interest in Colombia now extends far beyond security and counternarcotics and has grown in the area of bilateral trade following implementation of the U.S.-Colombia FTA, (also known at the U.S.-Colombia Trade Promotion Agreement). Colombia is a founding member of the Pacific Alliance, along with Chile, Mexico, and Peru, and has sought to deepen trade integration and cross-border investment with its partners in the alliance while reducing trade barriers. The Pacific Alliance aims to go further by creating a common stock market, allowing for the eventual free movement of businesses and persons, and serving as an export platform to the Asia-Pacific region. Colombia's leadership role in the Pacific Alliance and Colombia's accession to the Organization for Economic Cooperation and Development (OECD) in May 2018, following a review of the country's macroeconomic policies and changes, are major new developments. The accession to the OECD was approved by Colombia's lower house in October 2018 and the Senate in November 2018, but it remained under final review by Colombia's Constitutional Court in early February 2019. The Santos administration pushed to meet the criteria required for OECD membership because it maintained that such recognition signified Colombia's attainment of world-class development standards and policies. Colombia has made progress on trade issues such as copyright, pharmaceuticals, fuel and trucking regulations, and labor concerns (including subcontracting methods and progress on resolving cases of violence against union activists). Congress remains interested in Colombia's future because the country has become one of the United States' closest allies. With 17 years of investment in Colombia's security and stability, some maintain that there has already been a strong return on U.S. investment. Plan Colombia and its successor strategies broadened from counternarcotics to include humanitarian concerns, efforts to bolster democratic development and human rights protections, and trade and investment to spark growth. The record expansion of Colombia's coca crop and increasing cocaine exports to the United States, however, may significantly hinder the effort to consolidate peace in Colombia and could potentially increase corruption and extortion. A significant portion of the Colombian public remains skeptical of the peace process and the FARC's role in Colombia's democracy. Other Colombians maintain that support for peace programs in Colombia is important not only to benefit former FARC or other demobilized combatants but also to fulfill promises the government made in the peace accords to the country's 8.6 million victims of the five-decade conflict. As President Duque concluded his first 100 days in office, his government faced overlapping challenges: (1) an upsurge in illicit drug crops, which had set records in 2016 and 2017; (2) implementation of provisions of the peace accord negotiated by former president Santos but marred by slow implementation, attacks on land and human rights activists, and projected budgetary shortfalls; (3) renewed violent competition among criminal groups in rural areas, some of which reportedly are sheltering in Venezuela; and (4) Venezuela's humanitarian crisis, which resulted in a surge of migrants fleeing to or through Colombia. The annual level of foreign assistance provided by the U.S. Congress for Colombia began to decline in FY2008 and then gradually increased in FY2017 and FY2018 to support peace and implementation of the FARC-government peace accord. Some Members of Congress may want to build on cooperation with Colombian partners to continue to train Central Americans and other third-country nationals in counternarcotics and security, including programs in citizen security, crime prevention and monitoring, military and police capacity building, and hostage negotiation and cybersecurity. Congress may continue to closely monitor Colombia's domestic security situation. It also may continue to oversee issues such as drug trafficking; Colombia's effort to combat other illegal armed groups such as Bacrim; the status of human rights protections; and the expansion of health, economic, environmental, energy, and educational cooperation. Congress may seek to foster Colombian leadership in the region to counter growing political instability in Venezuela. The U.S. Congress has been interested in expanding investment and trade opportunities both bilaterally with Colombia and within regional groupings, such as the Pacific Alliance. Some analysts contend that U.S.-Colombian trade improvements rest on the strength of the overall relationship between Colombia and the United States.	[ "A key U.S. ally in the Latin American region, Colombia endured an internal armed conflict for half a century. Drug trafficking fueled the violence by funding both left-wing and right-wing armed groups. Some analysts feared Colombia would become a failed state in the late 1990s, but the Colombian government devised a new security strategy, known as Plan Colombia, to counter the insurgencies. Originally designed as a 6-year program, Plan Colombia ultimately became a 17-year U.S.-Colombian bilateral effort. The partnership focused initially on counternarcotics and later on counterterrorism; it then broadened to include sustainable development, human rights, trade, regional security, and many other areas of cooperation. Between FY2000 and FY2016, the U.S. Congress appropriated more than $10 billion to help fund Plan Colombia and its follow-on programs. For FY2018, Congress appropriated $391.3 million in foreign aid for Colombia, including assistance to promote peace and end the conflict. President Juan Manuel Santos (2010-2018) made concluding a peace accord with the Revolutionary Armed Forces of Colombia (FARC)—the country's largest leftist guerrilla organization—his government's primary focus. Following four years of formal peace negotiations, Colombia's Congress ratified the FARC-government peace accord in November 2016. During a U.N.-monitored demobilization effort in 2017, approximately 11,000 FARC disarmed and demobilized. This figure included FARC who had been held in prison for crimes of rebellion and those making up FARC militias, who were accredited by the Colombian government as eligible to demobilize. On August 7, 2018, Iván Duque, a senator from the conservative Democratic Center party, was inaugurated to a four-year presidential term. Duque, who also worked at the Inter-American Development Bank in Washington, DC, and is Colombia's youngest president in a century, campaigned as a critic of the peace accord with the FARC. His party objected to specific measures concerning justice and political representation. Some observers maintain that his election has generated uncertainty for implementation of the accord. Shortly after taking office, Duque suspended peace talks with the National Liberation Army (ELN), the country's second-largest rebel group, which had begun under President Santos. Since the ratification of the peace accord, Colombia's long-term strategy has evolved from defeating insurgents to post-conflict stabilization. Many considered Plan Colombia and its successor strategies a remarkable advance, given the country's improvements in security and economic stability. Nevertheless, recent developments have called into question Colombia's progress. The FARC's demobilization has triggered open conflict among armed actors (including FARC dissidents and transnational criminal groups), which seek to control drug cultivation and trafficking, illegal mining, and other illicit businesses that the demobilized FARC abandoned. The ongoing lack of governance in remote rural areas recalls the conditions that originally gave rise to the FARC and other armed groups. Many observers continue to raise concerns about the country's human-rights conditions, sharp increases in coca cultivation and cocaine production, and problems stemming from the failing authoritarian government of neighboring Venezuela, which shares a nearly 1,400-mile border with Colombia. Venezuela's humanitarian crisis has set in motion an exodus of migrants, many of whom have sought temporary residence (or extended stays) in Colombia. Political upheaval has added yet more uncertainty after the United States and many other Western Hemisphere and European nations, including Colombia, called for a democratic transition in Venezuela and recognized the president of the Venezuelan National Assembly, Juan Guaidó, as the country's interim president in January 2019. The U.S.-Colombia Trade Promotion Agreement went into force in May 2012. The United States remains Colombia's top trade partner. After several years of annual growth exceeding 4%, one of the steadiest expansion rates in the region, Colombia grew by an estimated 2.7% in 2018. The FARC-government peace accord is projected to cost more than $40 billion to implement over 15 years, adding to the polarization over the controversial peace process. For additional background, see CRS In Focus IF10817, Colombia's 2018 Elections, CRS Report R44779, Colombia's Changing Approach to Drug Policy, CRS Report R42982, Colombia's Peace Process Through 2016, and CRS Report RL34470, The U.S.-Colombia Free Trade Agreement: Background and Issues." ]	17,045	gov_report	en	null	9086b2ec6e1781a140d5062644f111e70fd4b738427c2250
The Commercial Space Launch Act Amendments of 1988 established the foundation for the current U.S. policy to potentially provide federal payment for a portion of claims by third parties for injury, damage, or loss that results from a commercial launch or reentry accident. A stated goal of the act was to provide a competitive environment for the U.S. commercial space launch industry. The act also provided for, among other things, government protection against some losses—referred to as indemnification—while still minimizing the cost to taxpayers. All FAA- licensed commercial launches and reentries by U.S. companies, whether unmanned or manned and from the United States or overseas, are covered by federal indemnification for third-party damages that result from the launch or reentry. According to agency officials, in 2016 FAA issued five active licenses, which had an average third-party MPL of about $51 million and ranged from $10 million to $99 million. The amount of insurance coverage that FAA requires launch companies to purchase—the MPL value—is intended to reflect the greatest dollar amount of loss to third parties and the federal government for bodily injury and property damage that can be reasonably expected to result from a launch or reentry accident. FAA calculates separate MPL values for potential damages to third parties and the federal government. For each launch license that it issues, FAA determines MPL values for third parties with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 10 million chance of occurring. For damages to the federal government, FAA determines MPL values with the intent of estimating the greatest dollar amount of losses that reasonably could be expected from a launch or reentry accident, which have no less than a 1 in 100,000 chance of occurring. According to FAA, the agency defines these probability thresholds to estimate the federal government’s exposure to losses above the MPL. Agency officials said that the current probability thresholds are set such that losses are very unlikely to exceed launch companies’ private insurance and become potential costs for the government under CSLCA. FAA’s process for determining the MPL value for a launch or reentry license generally includes three elements: 1. Number of casualties. Estimating the number of third-party casualties involves adding the number of direct and secondary casualties that could result from a launch accident. Direct casualty estimates include serious injuries and deaths. Secondary casualties include those resulting from fires and collapsing buildings. 2. Cost of casualties. FAA uses $3 million as an estimate of the average loss per casualty, which is multiplied by the number of estimated casualties. 3. Property damage. FAA applies a predetermined factor—which it recently changed from 50 percent to 25 percent—to the estimated cost of casualties to derive estimated losses from property damage. The total MPL is equal to the estimated cost of casualties plus property damage. FAA has revised two components of its MPL methodology since our 2012 report. For example, in April 2016, the agency adopted a new method for estimating the number of casualties, known as the risk profile method. This method uses different tools to simulate a range of possible scenarios to create a distribution of potential casualty numbers and the simulated probability of different levels of casualty numbers. The risk profile method replaced FAA’s “overlay method,” which was a method it had used since the early 1990s which the agency said did not work well for launches of small launch vehicles in remote areas, or for reentries. In addition, FAA reduced the factor it uses to estimate losses due to property damage, based on tests of a new process for estimating such losses that showed the previous factor was too high. We have previously reviewed FAA’s MPL methodology in 2012 and 2017. In 2012 we examined the U.S. government’s indemnification policy, the federal government’s potential costs for indemnification, and the effects of ending indemnification on the competitiveness of U.S. launch companies, among other aspects of FAA’s MPL methodology. In 2017 we examined the extent to which FAA had revised its MPL methodology since our 2012 report to address previously cited weaknesses and the potential effect of any changes to that methodology on financial liabilities for the federal government. The findings and recommendations of those reports, including any unaddressed weaknesses, are discussed later in this report. CSLCA required FAA to evaluate its MPL methodology incorporating three requirements, but the agency’s report did not fully address these requirements. First, the act required FAA to ensure a balance of risk between launch companies and the federal government. However, agency officials told us that they did not re-evaluate the probability thresholds—which are used to divide the risk of loss between launch companies and the federal government—as part of evaluating its MPL methodology when implementing the risk profile method due to resource constraints. Second, the act required FAA to consider the cost impact of implementing an updated MPL methodology, but the agency did not evaluate the impact of implementing its revised methodology on the direct costs to launch companies (insurance premiums) and to the federal government (indemnification liability). Third, the act required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL, but they did not consult such parties in response to the act. Without fully addressing CSLCA’s mandated requirements, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. In its report, FAA states that implementing an updated MPL methodology in April 2016—the risk profile method—helps ensure that the federal government is not exposed to greater liability costs than intended and that launch companies are not required to purchase more insurance coverage than necessary, as required under CSLCA. Further, agency officials told us that their updated methodology is technically more valid and improves their ability to avoid overestimating MPL values (which can cause launch companies to purchase more insurance coverage than necessary) or significantly underestimating MPL values (which can expose the federal government to greater costs than intended). While an improved model may provide a more realistic calculation of the MPL, by changing the resulting estimates it can also change the balance between the federal government’s exposure to liability costs and the amount of insurance launch companies are required to purchase. For example, if the more realistic results produced by the revised methodology increased the MPL estimates, this would increase insurance costs for the launch companies and reduce the federal government’s exposure, thereby shifting the balance of costs between the two and suggesting a reevaluation of the thresholds. In addition, FAA officials told us that they had not reevaluated the probability thresholds upon implementing the revised MPL methodology, although defining these thresholds is their primary mechanism for adjusting the balance of risk between launch companies and the federal government. Agency officials acknowledged that an examination of the thresholds’ continued appropriateness would be warranted in the future. However, they told us that changing the probability thresholds would require significant effort because it would require them to change federal regulations and that resources are currently allocated to other rulemaking priorities. Nevertheless, without evaluating the appropriateness of the probability threshold as part of the mandated evaluation of the MPL methodology, FAA cannot ensure that the federal government is not exposed to greater liability costs than intended or that launch companies are not required to purchase more insurance coverage than necessary. CSLCA also required FAA to consider the cost impact on both the commercial space launch industry and the federal government of implementing an updated MPL methodology. In its report to Congress, the agency discussed indirect costs to launch applicants and the federal government. For example, FAA discussed indirect data burden costs on launch company applicants and FAA analysts associated with the agency’s risk profile method implementation. The report states that the risk profile method requires more data from a launch applicant than the previous method, but that the added burden is minimal because the information is similar to the type of information required by FAA for a risk analysis. Agency officials also said that the risk profile method requires more of an FAA analyst’s time than the overlay method, but that the added burden is minimal because the work done by FAA on risk analysis provides much of the foundation for an MPL analysis. However, FAA’s report did not include an evaluation of the direct costs to launch companies and the federal government of implementing an updated MPL methodology. The report identifies the direct cost to the launch industry as insurance premiums, and the direct cost to the federal government include potential indemnification payments. Agency officials also told us that the agency does not track commercial space launch insurance costs, and that they do not have meaningful insights on insurance premiums paid by commercial launch companies. FAA officials told us that they only have a general notion of insurance premiums because the industry is reluctant to share such information. FAA officials also told us that, outside of the work done for the report, they have not evaluated the economic implications for launch companies of implementing an updated MPL methodology. Without evaluating direct costs to both the launch companies and the federal government, FAA will be limited in its ability to consider the impact of the cost to both the industry and the federal government of implementing an updated methodology. Although CSLCA required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology for the mandated report, it obtained limited input. For example, FAA officials told us that they obtained input from their Commercial Space Transportation Advisory Committee (COMSTAC) in April 2016 about what to include in their report to Congress, but did not consult with the commercial space sector and insurance providers to evaluate their MPL methodology in response to CSLCA. FAA officials also said that, to respond to CSLCA’s consultation requirement, they did not think they needed to repeat the consultations they took in 2013. In January 2013, the agency solicited input from COMSTAC’s Business/Legal Working Group about how to best conduct a review of FAA’s methodology for calculating MPL, in response to our July 2012 report. FAA also briefed the Business/Legal Working Group in May 2013 to solicit input on MPL methodologies, including the risk profile method. In the January 2013 meeting, a COMSTAC member suggested several contractors for a study by outside experts of the complete MPL methodology, and FAA subsequently hired one of these contractors to develop the risk profile method that it implemented in April 2016. However, the agency did not solicit input from COMSTAC about its risk profile methodology prior to its April 2016 implementation or following CSLCA’s November 2015 mandated evaluation. As a result, FAA lacks input on the effect of its revised MPL methodology on launch companies and the federal government, making it difficult to evaluate the balance of risk between the two. Our 2012 report identified concerns with all three components of FAA’s MPL methodology: estimating the number of casualties, estimating the cost of casualties, and deriving estimated property damage costs from estimated casualty costs. In that report we recommended that the agency reassess its methodology, including the reasonableness of several key elements. As noted in our 2017 report, FAA has since made improvements to its methodology. However, it still has not yet updated the cost of a casualty. In addition, in our 2017 report we also noted that there are instances where deriving estimated property damage from estimated casualty costs is inappropriate. As of November 2017, FAA does not have guidance to identify such instances or to guide decisions on which tools to use in developing the MPL estimate. FAA has taken steps designed to improve two of three elements of its MPL methodology, including revising its methodology for estimating the number of potential casualties for a given launch and changing the factor it uses to derive estimated property damage from estimated casualties. However, the agency has not updated the third element, the amount it uses for the cost of an individual casualty, leaving a previously identified weakness unaddressed. Our 2012 report raised concerns with each of the three components of FAA’s MPL calculation methodology. First, we found that FAA’s method for estimating the number of casualties involved use of a single loss scenario instead of applying the insurance industry’s standard practice of catastrophe modeling, and that the agency’s method might significantly understate the number of potential casualties. Catastrophe modeling, unlike the single-loss approach, generally estimates losses by using various tools to simulate tens of thousands of scenarios to create a distribution of potential losses and the simulated probability of different levels of loss. Second, we reported that FAA had been using an outdated and likely understated figure of $3 million to estimate the cost of a single casualty—including injury or death—which Office of Commercial Space Transportation officials said has not been updated since they began using it in 1988. Third, we reported that the agency’s approach of estimating potential property damage by adding a flat 50 percent to the estimated casualty damage could lead to estimates that were too high in some cases. Given these weaknesses, we recommended that FAA reassess its MPL methodology, including assessing the reasonableness of the cost-of- casualty amount and other assumptions used. Because the agency took actions to assess its MPL methodology, we closed the recommendation as implemented. In March 2017 we reported that FAA had taken steps to address weaknesses in two of these three areas. Specifically, we reported that FAA’s adoption of the risk profile method in April 2016 had improved its estimates of the number of potential casualties associated with a particular license launch. In addition, we reported that the agency had revised the factor it uses to estimate losses from property damage in the MPL calculation from 50 percent to 25 percent. This change has resulted in property damage estimates that FAA officials believe are still conservative but more realistic than previous estimates. However, in our March 2017 report we also determined that FAA had not yet addressed weaknesses in the cost-of-casualty amount we had previously identified; despite the conclusion by a contractor it had hired to study the cost-of-casualty that it was too low. Agency officials told us that they had not addressed this weakness because of other priorities. Given the significance of the cost-of-casualty amount to the MPL calculations, we recommended that FAA prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount, including setting time frames for action, and update the amount based on current information. In October 2017, FAA officials told us that they had not yet updated the cost-of-casualty because they have continued to prioritize completing other work with their limited resources, such as reviewing launch applications and fulfilling other safety responsibilities. As a result, our recommendation remains open. FAA officials told us that they have identified potential steps to update the cost-of-casualty amount, including seeking public input on whether and how to revise the amount, but that they do not expect to make a decision on whether to make any changes to the cost-of-casualty amount until June 30, 2018, at the earliest. FAA officials told us that in order to prioritize the development of a plan to address the identified weakness in the cost-of-casualty amount they will need to consult with both the commercial space and insurance industries about the necessity and implications of any potential increase in the cost-of-casualty amount. Agency officials said that they plan to do such consultations through COMSTAC. However, because COMSTAC was just reestablished in June 2017 after not having been active since November 2016 and new members had not been approved as of October 2017, the anticipated decision date of June 2018 could be further delayed. As we reported in March 2017, an understated cost-of-casualty amount can lead to an inaccurate loss calculation, which in turn understates the amount of insurance a launch company must obtain. This could increase the potential exposure to the federal government, as the insurance amount would be less than the potential losses associated with the launch activity and the property would be inadequately protected. Because of this potential exposure, we maintain that addressing this weakness is a priority. As noted above, in our 2012 report we raised concerns about the first element of FAA’s MPL methodology, which is estimating the number of potential casualties. FAA officials said that they have implemented two tools for estimating the number of potential casualties, and that each tool requires a different level of resources and is more appropriate for different launch scenarios. The Range Risk Analysis Tool creates physics-based simulations of possible accidents using launch vehicle data, such as launch trajectory and types of failures, and assigns each simulated accident a probability of occurrence based on the failure rates of the different elements of the launch vehicle. According to agency officials, the Range Risk Analysis Tool is a comprehensive, high-fidelity tool and is the most appropriate tool for coastal launch sites, which are often located in heavily populated areas, and is labor intensive. The Risk Estimator Sub- orbital and Orbital Launch Vehicle and Entry tool, which in contrast to the Range Risk Analysis Tool, is a medium-fidelity tool that can be used for low-risk launches, such as launch sites located in very sparsely populated areas and reentry operations that do not need the use of a high-fidelity tool. According to FAA, this tool significantly reduces the time required to estimate the risk from launch and reentry vehicle operations. In our 2017 report, we also reiterated that there are cases where the third element of FAA’s methodology, deriving estimated property damage from estimated casualties, could lead to misleading MPL calculations. Specifically, in March 2017 we reported that estimating losses from property damage as a percentage of losses from casualties could lead to overestimates. For example, FAA’s contractor found that, if a launch accident affected a residential area, the agency’s practice of estimating property damage based on casualties would likely overstate property damages because residential structures have relatively low values compared to losses from casualties. We also reported in March 2017 that in some accidents the number of casualties may be low but property losses could still be very large, in which case FAA’s estimating property losses based on casualties would likely understate potential property damage. For example, a launch vehicle could strike an unoccupied structure that is very expensive, such as a neighboring launch complex. Agency officials said that while deriving property losses from casualty losses is a simpler method that may be an effective use of limited FAA resources, it could be inappropriate in scenarios where the number of casualties might be low but property losses could still be very large. In October 2017, agency officials said that FAA had not developed guidance for determining, for a given launch license, which of the available tools would be most appropriate to estimate the number of potential casualties, and whether it would be more appropriate to estimate property losses separately rather than derive them from estimated casualties. While FAA officials said they believe their current decision process is adequate and that they do not need more formal guidance at this time, they also told us that they were in the process of developing internal guidance on the most appropriate tool to use for future launches. The officials said that they did not have a projected completion date for the guidance, primarily because the agency has other priorities and resource limitations. As noted earlier, these priorities include reviewing commercial space launch license applications and managing program safety. Federal internal control standards state that, as part of an entity’s risk assessment component, management should identify, analyze, and respond to risks to achieving objectives. For example, the standards state that management should design control activities in response to the entity’s objectives and risks to achieve an effective internal control system. Without such guidance, FAA could face challenges in ensuring that it is using the most appropriate method to calculate an MPL for a given launch and is making the most efficient use of its resources. Such guidance could become more important as the number of commercial space launches increases, potentially creating greater demands on its resources. We have previously reported that the commercial space launch industry has experienced significant growth in the number and complexity of launches in the past half-decade. FAA has also reported that its licensed launches have increased 60 percent and industry revenue has increased 471 percent since 2012. FAA’s MPL methodology is critical in balancing the encouragement of the U.S. commercial space industry with the need to manage the federal government’s risk exposure because it determines how much risk each party will bear for third-party damages resulting from potential space launch accidents. However, despite changes to the methodology, the probability threshold that the agency uses to achieve this balance of risk has been the same since the 1990s, and has not been reviewed for appropriateness. In addition, while FAA evaluated the effect of its MPL methodology on the indirect costs of launch companies and the federal government, it did not similarly evaluate direct costs. Further, although FAA has obtained input from some stakeholders on certain aspects of its MPL methodology, it has not consulted with launch providers and insurance companies to evaluate effects on key potential costs to launch companies and the federal government, as required under CSLCA. FAA officials told us that resource issues and pursuing other priorities have prevented them from taking these actions. However, the longstanding nature of these issues, as well as their importance in determining the federal government’s financial exposure, makes their completion a priority. FAA has also begun improving other aspects of its MPL process, but important actions remain incomplete. For example, the cost of a casualty, a key component of the methodology, has not been updated since 1988. While FAA has identified potential steps to update this amount, it has not implemented these steps and our March 2017 recommendation to prioritize the updating of this amount remains open. Further, agency officials said they have begun to develop internal guidance on how to determine which methodological tools should be used for a given launch, but are not sure when this process will be completed. These are important steps to help ensure the validity of the MPL methodology and the results obtained for each launch, which in turn determine the balance between the amount of insurance launch companies are required to purchase and the potential financial exposure for the federal government. We are making the following four recommendations to FAA: The FAA Administrator should fulfill the CSLCA mandate to include ensuring a balance of risk between the federal government and launch companies as part of FAA’s MPL methodology evaluation by reexamining the current probability thresholds. (Recommendation 1) The FAA Administrator should fulfill the CSLCA mandate to analyze the cost impact of implementing its revised MPL methodology by evaluating the impact on the direct costs of launch companies and the federal government. (Recommendation 2) The FAA Administrator should fulfill the CSLCA mandate to evaluate its MPL methodology in consultation with the commercial space sector and insurance providers by consulting with those entities on the cost impact of its revised MPL methodology, including an updated cost-of-casualty amount, on the launch industry and the federal government. (Recommendation 3) The FAA Administrator should establish an estimated completion date for developing and implementing a plan to establish guidance on the most appropriate MPL methodologies and tools to use for each launch. (Recommendation 4) We provided a draft of this report to the Department of Transportation for their review and comment. In its comments, reproduced in appendix I, the Department of Transportation concurred with our recommendations. The Department of Transportation also provided technical comments, which we incorporated as appropriate. We are sending copies of this report to interested congressional committees and the Secretary of the Department of Transportation. In addition, this report will be available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions or would like to discuss this work, please contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Individuals making key contributions to this report are listed in appendix II. In addition to the contact named above, Patrick Ward (Assistant Director), Jessica Artis, Isidro Gomez (Analyst in Charge), Courtney La Fountain, Maureen Luna-Long, Jessica Sandler, Jennifer Schwartz, Joseph Silvestri, and Shana Wallace made key contributions to this report.	[ "The federal government shares liability risks with the commercial space launch industry for accidents that result in damages to third parties or federal property. This arrangement requires space launch companies to have a specific amount of insurance to cover these damages. The government is potentially liable for damages above that amount, up to a cap GAO estimated to be $3.1 billion in 2017, subject to appropriations in advance. CSLCA, enacted in 2015, directed the Department of Transportation, of which FAA is a part, to evaluate its MPL methodology and, if necessary, develop a plan to update that methodology. The act also included a provision requiring GAO to assess FAA's evaluation and any actions needed to update the methodology. This report discusses the extent to which (1) FAA's evaluation report addresses the requirements in CSLCA and (2) FAA has addressed previously identified weaknesses in the MPL methodology. GAO reviewed documents and interviewed FAA on its loss methodology evaluation and actions to address weaknesses. The Federal Aviation Administration's (FAA) report evaluating its maximum probable loss (MPL) methodology did not fully address the evaluation and consultation requirements specified by the U.S. Commercial Space Launch Competitiveness Act (CSLCA). Balance of Risk. CSLCA required FAA to include ensuring that the federal government is not exposed to greater indemnification costs and that launch companies are not required to purchase more insurance coverage than necessary as a result of FAA's MPL methodology. FAA said that it ensured this balance by improving its methodology, but it did not reevaluate its probability thresholds after revising its methodology. These thresholds are used to divide the risk of loss between launch companies and the government. Impact on Costs. The act required FAA to consider the costs to both the industry and the federal government of implementing an updated methodology. FAA's report discussed the impact on indirect costs, such as data collection, but did not discuss direct costs: insurance premiums for launch companies and indemnification liability for the federal government. Consultation. The act also required FAA to consult with the commercial space sector and insurance providers in evaluating its MPL methodology in accordance with the preceding requirements. While the agency consulted with some stakeholders, these consultations were limited in scope. FAA officials said they have not been able to take the actions needed to fully satisfy the mandated elements because of issues such as resource limitations and the lack of available data. However, by not resolving these issues, FAA lacks assurance that launch companies are not purchasing more insurance than needed or that the federal government is not being exposed to greater indemnification costs than expected. FAA has addressed two of three previously identified weaknesses in its MPL methodology but has not yet dealt with the remaining weakness. Specifically, the agency has revised its methodology for estimating the number of potential casualties for a launch and changed the factor it uses to derive estimated property damage from estimated casualties. However, FAA has not updated the amount used for the cost of an individual casualty. GAO recommended in a March 2017 report (GAO-17-366) that FAA update this amount. Not doing so could understate the amount of insurance launch companies are required to purchase, exposing the federal government to excess risk. GAO also determined that while FAA has two tools and methods it can use in making its MPL estimates, it does not have guidance on determining which are most appropriate for a given launch scenario. For example, one tool is more comprehensive but also labor intensive to use, while the other is inappropriate for certain launch scenarios and could result in misleading MPL amounts. Officials said they have begun to create such guidance but do not have an estimated completion date. Without such guidance, FAA cannot ensure that the most appropriate MPL methodology is used for each launch. FAA should fully address mandated requirements in evaluating its MPL—probability thresholds, direct costs, and stakeholder consultations— and establish an estimated completion date for developing guidance on tools and methods to use for specific launch scenarios. The Department of Transportation concurred with the recommendations, and provided technical comments." ]	4,125	gov_report	en	null	a4a543df9ee25924cdf5f2f108147d2d11682f7611d612e2
With a staff of over 47,000 members, the Coast Guard operates a multimission fleet of 201 fixed and rotary-wing aircraft and over 1,400 boats and ships. Operational control of surface and air assets is divided into two geographic Areas (Pacific and Atlantic), within which are nine Districts consisting of 37 sectors and the stations within them. The Coast Guard’s program oversight, policy development, and personnel administration are carried out at the Coast Guard’s headquarters. As shown in table 1, the Coast Guard is responsible for 11 statutory missions identified in the Homeland Security Act of 2002, as amended. The Coast Guard manages these missions through six mission programs, also listed in table 1. As part of its marine safety mission, for example, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations, including those involving commercial fishing vessels, which are part of an industry with one of the highest death rates of any industry in the United States. For each of its 11 missions, the Coast Guard has developed goals and targets to assess and communicate agency performance. The Coast Guard’s performance assessment process also includes identifying performance gaps and implementing corrective actions to address unmet performance goals. As part of its process, the Coast Guard is to establish targets for the current and subsequent 2 fiscal years, according to Coast Guard officials. Each target is set by the Coast Guard, but according to the Coast Guard’s Annual Performance Report (APR), some are derived from external factors. For example, DHS requires that Coast Guard set a 100 percent target for the percent of people in imminent danger saved in the maritime environment. Further, several of the Coast Guard’s assets used to conduct these missions are approaching the end of their intended service lives. As part of its efforts to modernize its assets used to carry out various missions, the Coast Guard has begun acquiring new vessels, such as the National Security Cutter, the Fast Response Cutter as well as other assets. However, concerns surrounding the affordability of this effort remain as the Coast Guard continues to pursue multiple new acquisitions without long-term planning to guide the affordability of its acquisition portfolio. Figure 1 shows the Coast Guard’s Fast Response Cutter and National Security Cutter. We previously reported on actions the Coast Guard could take to ensure that, among other things, it addresses limitations posed by incomplete data, the use of unrealistic asset performance data, and limitations with its performance goal data, for more effective program management. Examples of data limitations that we have recommended that the Coast Guard take action on are below. Improve completeness of mission data. In December 2017, we found that several different federal agencies play a role in overseeing and promoting commercial fishing vessel safety, including the Coast Guard. As part of its marine safety activities, the Coast Guard conducts, among other activities, safety inspections and vessel accident investigations. Commercial fishing has one of the highest death rates of any industry in the United States and vessel disasters are the leading cause of fatalities among fishers, according to the National Institute for Occupational Safety and Health. However, our December 2017 review found that more information is needed to calculate vessel safety statistics that could enhance the Coast Guard’s knowledge about accident, injury, and fatality trends involving commercial fishing vessels. The Coast Guard collects some data on commercial fishing vessels that operate in federal waters—including a vessel’s length and construction date—but data on the population of the active U.S. commercial fishing vessel fleet are not complete. Between 2006 and 2015, the Coast Guard investigated 2,101 commercial fishing vessel accidents that were identified as occurring in federal waters. While the number of accidents generally increased over this time period, the number of injuries and fatalities declined over the same 10-year period. However, we could not assess the number of accidents, injuries, and fatalities by fishery— meaning the area in which a certain type of fish (e.g., shrimp, salmon, crab) is caught—because the Coast Guard’s data is not complete. Further, we were unable to calculate the rates of commercial fishing vessel accidents, injuries, and fatalities, because reliable data on certain information needed to do so—including the total number of vessels that are actively fishing and the fishery or region in which the vessel operates—are either not maintained or are not collected by the Coast Guard or other federal agencies. Having this information could be useful to carrying out the Coast Guard’s marine safety mission, which includes enforcing laws to prevent death, injury and property loss in the marine environment. We recommended in our December 2017 report that the Coast Guard ensure that data it collects during commercial fishing vessel incident investigations is accurately captured. We also recommended that the Coast Guard work with stakeholders to form a working group to determine an efficient means to establish a reliable estimate of the population of active commercial fishing vessels. The Coast Guard agreed with both recommendations, and in February 2018 informed us that it is in the process of developing additional data fields to capture more information, such as the fishery in which the commercial fishing is involved, and is engaging stakeholders to establish an appropriate working group. We will continue to monitor these actions. Use more realistic asset performance data. In our May 2016 report on Coast Guard strategic planning, we found that the Coast Guard did not provide field units with realistic goals for allocating assets, by mission. We reported that the Coast Guard’s strategic allocations of assets were based on unrealistic assumptions about the performance capacity of its assets and did not reflect asset condition and unscheduled maintenance. This was due, in part, to the Coast Guard not including information from its field units on the actual performance of its assets. For example, agency officials noted that one of its classes of cutters was 50 years old and these cutters were hampered by mechanical failures requiring emergency dry dock repairs, which resulted in reduced availability to carry out their missions during the year. In another example, a field unit stated that based on historical use, it planned for 575 hours per vessel for one type of cutter instead of the 825 hours performance capacity. Because actual asset use has consistently fallen below asset performance capacities, there is not a direct alignment between the Coast Guard’s strategic operational goals and its prospects for achieving those goals. As a result, the headquarters’ strategic intent, which is based on asset capacity rather than actual performance, did not provide the field with strategic, realistic goals for allocating assets by mission. Agencies should use quality information that is appropriate, current, complete, accurate, accessible, and timely to achieve objectives and address related risks. We recommended that the Coast Guard incorporate field unit input, such as information on assets’ actual performance, to inform more realistic asset allocation decisions. The Coast Guard concurred with this recommendation, and in February 2018 informed us that it plans to address this recommendation through changes to two process documents that are under revision, with an expected completion date in March 2018. Improve performance goal data. In our October 2017 review of Coast Guard performance goals, we reported that the Coast Guard and DHS identified limitations with two of the seven selected performance goals we reviewed, including the five year average number of recreational boating deaths and injuries. In particular, officials believe that many recreational boating injuries that do not require hospitalization are not reported to the Coast Guard. These officials believe that the amount of underreporting may vary over time due to changes in industry trends, making it difficult to accurately determine actual injury rates and program performance. We determined that the data for this performance goal was not sufficiently reliable for the purposes of our reporting objectives due to these likely limitations. We found that the Coast Guard did not report the possible extent of these limitations with this performance goal in its fiscal year 2016 APR. For the other performance goal, the Coast Guard and DHS identified limitations with the number of detected incursions of foreign fishing vessels violating U.S. waters, which is publicly reported in DHS’s APR. DHS’s review of this performance goal, reported in August 2015, raised questions about the validity of this goal—that is, whether it provides a useful measure of the Coast Guard’s performance. Specifically, the review noted that this performance goal is intended to measure a deterrence effect, but doing so is inherently difficult and may lead to contradictory interpretations of performance. In October 2017, we found that the data for this performance goal was sufficiently reliable for our reporting objective purposes, but questions remain about its validity. Reliable data is not a useful indication of performance unless it is also a valid representation of the goal being addressed. DHS officials reported that they did not include a discussion of the limitations for this performance goal in DHS’s fiscal year 2015 APR because the performance goal met the minimum threshold for data reliability despite the goal’s limitations. Coast Guard officials reported they were aware of these limitations and were working with DHS and OMB to improve the performance goal and implement corrective actions within 1 to 2 years. We recommended that the Coast Guard assess the extent to which documentation on performance data reliability contains appropriate information on known data reliability limitations and update these documents, as needed, based on the results of the assessment. The Coast Guard concurred and in February 2018, informed us that it had taken initial actions to address our recommendation. However, our preliminary review of these actions indicates that further action will be needed to fully address our recommendation, such as documenting and reporting the limitations of performance data. Our previous reports have identified areas in which the Coast Guard could improve the transparency of its data used for reporting on its mission performance and planning. Improve transparency of data on mission performance. In our October 2017 report on performance goals, we found that the Coast Guard’s APR has not been released publicly since 2011 due to a previous DHS leadership decision. Consequently, there has not been full visibility over performance across all of the Coast Guard’s missions. For example, one of the Coast Guard’s missions—defense readiness—has no goals that are publicly reported or shared with Congress, even though measures related to defense readiness are included in the Coast Guard’s APR. Coast Guard officials stated that they could see the benefit of publicly releasing their APR; however, DHS’s decision to limit the number of performance goals shared publicly has so far deterred the Coast Guard from pursuing the public release of its APR. DHS officials told us that the department is concerned about conflicting information that a component’s APR might present because it is vetted and produced separately from the DHS APR. However, the lack of transparency regarding performance data shared publicly and with Congress can result in an incomplete picture of mission performance and can limit effective oversight of Coast Guard operations. As a result, the public and Congress may be unable to determine the extent to which the Coast Guard is meeting its missions. We recommended that future Coast Guard APRs be available on the Coast Guard’s public website. The Coast Guard concurred with this recommendation and in February 2018, the Coast Guard informed us that it had completed its 2017 APR and are determining an appropriate approach for making it publicly available. Improve capital planning transparency. In our previously issued work on the Coast Guard’s annual 5-year capital investment plan (CIP), we found that the CIP does not consistently reflect current total cost estimates or the effects of tradeoffs that are made as part of the annual budget cycle. We made several recommendations in recent years intended to help the Coast Guard plan for future acquisitions and the difficult tradeoff decisions it will likely face. The Coast Guard generally concurred with these recommendations and is in various stages of implementation. For example, in 2017 we reported that we have made recommendations that DHS and the Coast Guard take several actions to gain an understanding of what the Coast Guard needs to meet its mission within its likely acquisition funding levels. These recommended actions included the Coast Guard: (1) conducting a comprehensive portfolio review across all its acquisitions to develop revised baselines that meet mission needs and reflect realistic funding scenarios and (2) developing a 20-year plan that identifies all necessary recapitalization efforts and any fiscal resources likely necessary to complete these efforts. For example, in 2014 we recommended the Coast Guard develop a 20-year fleet modernization plan that identifies all acquisitions needed to maintain the current level of service and the fiscal resources needed to acquire them. Without these efforts, the Coast Guard will continue, as it has in recent years, to plan its future acquisitions through the annual budgeting process, an approach that has led to delayed and reduced capabilities. In 2016, the Coast Guard revised its 2005 Mission Needs Statement, which provides a basic foundation for long-term investment planning that is to serve as the basis for evaluating the effectiveness of various fleet mixes, and inform the Coast Guard’s CIP. However, the 2016 Mission Needs Statement did not identify specific assets the Coast Guard needs to achieve its missions, nor did it update the annual hours it needs from each asset class to satisfactorily complete its missions. The Coast Guard has stated it is developing a 20-year Long-term Major Acquisition Plan, but it has not stated when the plan will be completed or what will be included in this plan, such as potential trade-offs that could be made across the Coast Guard’s portfolio of acquisitions to better meet mission needs within realistic funding levels. A long-term plan with a tradeoff analysis would facilitate a full understanding of the affordability challenges facing the Coast Guard while it builds the Offshore Patrol Cutter. DHS concurred with our 2014 recommendation, but it is unclear when the Coast Guard plans to complete the 20-year plan. Chairman Hunter, Ranking Member Garamendi, and members of the sub- committee, this completes my prepared statement. I would be happy to respond to any questions you may have at this time. If you or your staff members have any questions about this testimony, please contact Nathan Anderson at (202) 512-3841 or andersonn@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Other individuals making key contributions to this work, and the underlying reports on which it is based, include Dawn Hoff (Assistant Director); Andrew Curry (Analyst-in-Charge); Chuck Bausell; David Bieler; Richard Cederholm; John Crawford; Timothy J. DiNapoli; Michele Fejfar; Laurier R. Fish; Peter Haderlein; Eric Hauswirth; Laura Jezewski; Tracey King; Benjamin Licht; Marie A. Mak; Gary Malavenda; Diana Moldafsky; Heidi Nielson; Meg Ullengren; and Kayli Westling. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "The Coast Guard, a component of DHS, serves as the principal federal agency responsible for maritime safety, security, and environmental stewardship in U.S. ports and waterways. To ensure that the Coast Guard is effectively fulfilling its missions, agency managers must have accurate information and base decisions on sound analyses for effective program management. This statement discusses Coast Guard actions needed to (1) improve the quality of data used for program management and (2) improve the transparency of its data for reporting on mission performance and planning. This statement is based on relevant products GAO issued from June 2014 through December 2017 on Coast Guard strategic planning and management issues, as well as related recommendation follow-up conducted through February 2018. GAO reviewed applicable laws, regulations, policies and guidance. GAO also interviewed Coast Guard officials responsible for administering these programs and obtained information on how they used data to inform decisionmaking. GAO interviewed a range of stakeholders, including federal and industry officials. GAO's prior work recommended multiple actions to improve the Coast Guard's program management by improving the quality of data it uses to manage and report on its mission performance. Specifically, GAO recommended actions such as collecting more complete data and clarifying the data limitations to facilitate more effective program management. For example, in December 2017, GAO found that more information is needed to calculate vessel safety statistics that could enhance the Coast Guard's knowledge about accident, injury, and fatality trends involving commercial fishing vessels. Having more complete information could be useful to carrying out its marine safety mission, and GAO recommended, among other things, that the Coast Guard ensure that data collected during commercial fishing vessel incident investigations is accurately captured. In 2018, the Coast Guard reported taking initial steps to capture more accurate data. GAO's prior work also identified areas where the Coast Guard could improve the transparency of the data it uses for reporting on its mission performance as well its capital planning purposes. For example, in an October 2017 report on performance goals, GAO found the Coast Guard's Annual Performance Report (APR) has not been released publicly since 2011. Consequently, there has not been full visibility over performance across all of the Coast Guard's missions. Coast Guard officials stated that a decision by Department of Homeland Security (DHS) leadership to limit the number of performance goals shared publicly had deterred the Coast Guard from public release of its APR. GAO recommended that APRs be available on the Coast Guard's website; the Coast Guard plans to publicly release future APRs. In addition, previous GAO reports found that the Coast Guard's annual 5-year capital investment plan, which projects acquisition funding needs for the upcoming 5 years, did not consistently reflect current total cost estimates or the effects of tradeoffs made as part of the annual budget cycle. GAO made recommendations to help the Coast Guard plan for future acquisitions and the difficult trade off decisions it will face given funding constraints. The Coast Guard agreed, but it is unclear when it will complete the 20-year plan. GAO is not making new recommendations in this statement but has made them to the Coast Guard and DHS in the past on improving its program management through, among other things, better quality and more transparent data. DHS and the Coast Guard agreed with these recommendations and reported actions or plans to address them." ]	2,542	gov_report	en	null	d3dedd9756867e93c15a573a1aea5f100b4596a165869684
During World War II and then again after the outbreak of fighting in Korea, Congress found that the existence of thousands of small business concerns was being threatened by war-induced shortages of materials coupled with an inability to obtain defense contracts or financial assistance. Concerned that many small businesses might fail without government assistance, in 1953, Congress passed and President Dwight Eisenhower signed into law the Small Business Act (P.L. 83-163), which authorized the Small Business Administration (SBA). The act specifies that it is the declared policy of Congress to promote the interests of small businesses to "preserve free competitive enterprise." Congress specified that one of the ways to preserve free competitive enterprise was to insure that small businesses received a "fair proportion" of federal contracts and subcontracts: It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government (including but not limited to contracts or subcontracts for maintenance, repair, and construction) be placed with small-business enterprises, to insure that a fair proportion of the total sales of Government property be made to such enterprises, and to maintain and strengthen the overall economy of the Nation. Congress indicated that its intent in supporting small businesses was not to "favor small business at the expense of its larger competitors. Our only purpose in supporting the creation and effective operation of the SBA is to equalize the scales when necessary to guarantee the continued vigor of our competitive free enterprise system." More recently, a House committee report indicated that the primary rationale for small business contracting programs is the positive economic benefits they provide, as well as assisting small businesses overcome the complexities of the system. The economic benefits of these programs can be seen in two primary areas—market competition and local economic development. First, [these] programs … are designed to increase and diversify small contractors with the intent of expanding the federal supplier base. This leads to increased competition, which results in higher quality, greater product variety, and lower prices. Second, these contracting initiatives lower barriers to entry in a wide range of markets for small businesses. This provides greater market access for small firms' goods and services. From an economic perspective, such access is critical to generating positive macroeconomic benefits, including higher job creation, wage growth, and greater income distribution. Over the years, Congress has approved legislation to support small business in various ways. For example, the SBA administers several types of programs to support small businesses, including loan guaranty and venture capital programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion. In recent years, congressional interest in these programs has increased, primarily because assisting small businesses is viewed as a means to stimulate economic activity and create jobs. This report describes the various federal programs, requirements, procurement officers, and procurement offices involved in promoting federal contracting and subcontracting with small businesses, small disadvantaged businesses (SDBs), SDBs participating the SBA's "8(a) Program," Historically Underutilized Business Zone (HUBZone) small businesses, women-owned small businesses (WOSBs), and service-disabled veteran-owned small businesses (SDVOSBs). The SBA administers many, but not all, of these programs. It examines the following federal requirements and authorities in promoting contracting and subcontracting with small businesses: 1. The requirement that federal agencies generally reserve contracts that have an anticipated value greater than the micro-purchase threshold (currently $10,000) but not greater than the simplified acquisition threshold (currently $250,000) exclusively for small businesses unless the contracting officer is unable to obtain offers from two or more small businesses that are competitive with market prices and the quality and delivery of the goods or services being purchased. 2. The establishment of small business procurement goals, both government-wide and agency specific, to promote the awarding of contracts to small businesses. 3. The requirement that federal agencies generally set aside contracts that have an anticipated value exceeding the simplified acquisition threshold exclusively for small businesses when there is a reasonable expectation that offers will be obtained from at least two responsible small businesses offering the products of different small businesses (Rule of Two) and the award will be made at a fair market price. 4. The authority provided federal agencies to make sole source awards to small businesses when the award could not otherwise be made (e.g., only a single source is available, under urgent and compelling circumstances). 5. The authority provided federal agencies to set aside contracts for, or grant other contracting preference to, specific types of small businesses (e.g., 8(a) small businesses, HUBZone small businesses, WOSBs, and SDVOSBs). It discusses the SBA's oversight and responsibilities concerning the small business goaling program, small business mentor-protégé programs, the 7(j) management and training program, and the surety bond guaranty program. It also discusses the role of the Office of Small and Disadvantaged Business Utilization (OSDBU), located in each federal agency, in promoting contracting with small businesses, and examines the role and responsibilities of various federal procurement officers, including procurement center representatives, commercial market representatives, and business opportunity specialists, in promoting small business contracting opportunities. This report concludes with a brief discussion of the strong bipartisan support for small business contracting programs. However, that does not mean that these programs face no opposition, or that issues have not been raised concerning the impact and operations of specific programs. For example, small business advocates note that implementing regulations in the Federal Acquisition Regulation (FAR) narrow the reach (and impact) of some small business contracting preferences by excluding specific types of contracts, such as those listed in the Federal Supply Schedules, from FAR requirements pertaining to small business contracting. Advocates want the federal government to enact policies that reduce or eliminate exclusions that narrow the reach of small business contracting preferences. Critics have questioned some of these programs' effectiveness, in terms of promoting both small business opportunities to win federal contracts and a more diversified, robust economy. With a few exceptions, businesses interested in bidding on a federal contract must obtain a Dun & Bradstreet Data Universal Numbering System (DUNS) number (i.e., a unique nine-digit identification number) for each of the business's physical locations, and register with the federal government's System for Award Management (SAM). SAM is used by government agencies for several purposes, including to find contractors. Businesses also must match their products and services to a North American Industry Classification System (NAICS) code. Businesses generally have a primary NAICS code, and may have multiple NAICS codes if they sell multiple products and services. Businesses that identify themselves as a small business in SAM must (1) meet the Small Business Act's definition of a small business and (2) not exceed size standards established, and updated periodically, by the SBA. The Small Business Act defines a small business as one that is organized for profit; has a place of business in the United States; operates primarily within the United States or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor; is independently owned and operated; and is not dominant in its field on a national basis. The business may be a sole proprietorship, partnership, corporation, or any other legal form. The Small Business Act authorizes the SBA to establish size standards to ensure that only small businesses are provided SBA assistance. The SBA currently uses two types of size standards to determine SBA program eligibility: industry-specific size standards and alternative size standards , for some lending and venture capital investment programs based on the applicant's maximum tangible net worth and average net income after federal taxes. The SBA's industry-specific size standards are used to determine eligibility for federal small business contracting purposes. The SBA determines if a business is small by comparing that business's economic characteristics (typically number of employees or average annual receipts) to size standards listed in the SBA's Table of Small Business Size Standards . The table has size standards for 1,036 industrial classifications in the North American Industrial Classification System. Businesses that exceed the applicable size standard for their primary industry do not meet the requirement of being small. The SBA's size standards are designed to (1) encourage competition within each industry and (2) ensure that SBA assistance is provided only to firms that are not dominant in their field on a national basis. The size standards are derived through an assessment of four economic factors: (1) the average firm size, (2) the average assets size as a proxy of start-up costs and entry barriers, (3) the four-firm concentration ratio (the cumulative share of total industry receipts of that industry's four biggest firms) as a measure of industry competition, and (4) the size distribution of firms. The SBA also considers the ability of small businesses to compete for federal contracting opportunities and, when necessary, several secondary factors "as they are relevant to the industries and the interests of small businesses, including technological change, competition among industries, industry growth trends, and impacts of size standard revisions on small businesses." Historically, the SBA has used the number of employees to determine if manufacturing and mining companies are small (ranging from fewer than 50 employees for some industries to fewer than 1,500 employees for others) and average annual receipts for most other industries (ranging from no more than $1 million for some industries to no more than $40 million for others). To make it easier to determine if an offeror meets the SBA's definition of a small business, prior to soliciting bids, federal agencies are required to classify a product or service being acquired in only one (NAICS code) industry, "whose definition best describes the principal nature of the product or service being acquired even though for other purposes it could be classified in more than one." When acquiring a product or service that could be classified in two or more industries with different size standards, contracting officers must "apply the size standard for the industry accounting for the greatest percentage of the contract price." If a solicitation calls for more than one item and allows offers to be submitted on any or all of the items, "an offeror must meet the size standard for each item it offers to furnish." If a solicitation calling for more than one item requires offers on all or none of the items, "an offeror may qualify as a small business by meeting the size standard for the item accounting for the greatest percentage of the total contract price." With several notable exceptions (e.g., HUBZone small businesses, SBA 8(a) program participants, and veteran-owned small businesses [VOSBs] and SDVOSBs seeking contracts with the Department of Veterans Affairs), businesses generally self-certify their status as small when they register their business in the SAM database. The contracting officer is required to accept an offeror's representation in a specific bid or proposal that it is a small business unless "(1) another offeror or interested party challenges the concern's small business representation or (2) the contracting officer has a reason to question the representation." If an offeror's small business status is challenged, the contracting officer is generally not allowed to award the contract until the SBA has made a size determination or 15 business days after the SBA receives the protest, whichever occurs first. The SBA's Office of Government Contracting Area Office (Area Office) serving the area in which the headquarters of the offeror is located initially reviews the protest. The Area Office is required, by regulation, to determine the offeror's size status within 15 business days after receipt of the protest, or "within any extension of time granted by the contracting officer." If the SBA does not make a determination within the required time, the contracting officer "may award the contract after determining in writing that there is an immediate need to award the contract and that waiting until SBA makes its determination will be disadvantageous to the government." An appeal of the Area Office's decision may be filed with the SBA's Office of Hearings and Appeals (OHA) . If the OHA accepts the appeal for consideration and finds the protested concern to be ineligible for award, the contracting officer must "terminate the contract unless termination is not in the best interests of the government, in keeping with the circumstances described in the [aforementioned] written determination. However, the contracting officer shall not exercise any options or award further task or delivery orders." Furthermore, a concern cannot become eligible for a specific award after the SBA has determined that it is not a small business, even if the concern takes action to meet the definition of a small business. The SBA or the federal agency may suspend or debar a firm from future government contracts for misrepresenting its size status. In addition, individuals that knowingly misrepresent a business's size to secure a federal contract can be subject to civil and criminal penalties. 15 U.S.C. §644(e)(1) states, "To the maximum extent practicable, procurement strategies used by a Federal department or agency having contracting authority shall facilitate the maximum participation of small business concerns as prime contractors, subcontractors, and suppliers." To accomplish this goal, FAR regulations (FAR §19.202-1) require contracting officers, when applicable, to take the following actions prior to awarding a federal contract: 1. "Divide proposed acquisitions of supplies and services (except construction) into reasonably small lots (not less than economic production runs) to permit offers on quantities less than the total requirement." 2. "Plan acquisitions such that, if practicable, more than one small business concern may perform the work, if the work exceeds the amount for which a surety may be guaranteed by the SBA against loss under 15 U.S.C. §694b [generally $6.5 million, or $10 million if the contracting officer certifies that the higher amount is necessary]." 3. "Ensure that delivery schedules are established on a realistic basis that will encourage small business participation to the extent consistent with the actual requirements of the Government." 4. "Encourage prime contractors to subcontract with small business concerns [primarily through the agency's role in negotiating an acceptable small business subcontracting plan with prime contractors on contracts anticipated to exceed $700,000 or $1.5 million for construction contracts]." 5. "Provide a copy of the proposed acquisition package to the SBA procurement center representative [PCR, duties are described later]" for his or her review, comment and recommendation, or, if a PCR is not assigned, to the SBA Area Office serving the area in which the procuring activity is located "at least 30 days prior to the issuance of the solicitation if (i) The proposed acquisition is for supplies or services currently being provided by a small business and the proposed acquisition is of a quantity or estimated dollar value, the magnitude of which makes it unlikely that small businesses can compete for the prime contract; (ii) The proposed acquisition is for construction and seeks to package or consolidate discrete construction projects and the magnitude of this consolidation makes it unlikely that small businesses can compete for the prime contract; or (iii) The proposed acquisition is for a consolidated or bundled requirement.… The contracting officer shall provide all information relative to the justification for the consolidation or bundling, including the acquisition plan or strategy and if the acquisition involves substantial bundling, the information identified in [FAR] 7.107-4. The contracting officer shall also provide the same information to the agency Office of Small and Disadvantaged Business Utilization [duties are described later]." 6. "Provide a statement explaining why the (i) Proposed acquisition cannot be divided into reasonably small lots (not less than economic production runs) to permit offers on quantities less than the total requirement; (ii) Delivery schedules cannot be established on a realistic basis that will encourage small business participation to the extent consistent with the actual requirements of the government; (iii) Proposed acquisition cannot be structured so as to make it likely that small businesses can compete for the prime contract; (iv) Consolidated construction project cannot be acquired as separate discrete projects; or (v) Consolidation or bundling is necessary and justified." 7. "Process the 30-day notification concurrently with other processing steps required prior to the issuance of the solicitation." 8. "If the contracting officer rejects the SBA procurement center representative's recommendation … document the basis for the rejection and notify the SBA procurement center representative [who (as described later) may appeal the rejection to the chief of the contracting office and, ultimately, to the agency head]." The SBA may assign one or more procurement center representatives (PCRs) to any contracting activity or contract administration office to implement the SBA's policies and programs. The SBA currently has 49 PCRs located in the SBA's six Area Offices. PCRs are required to comply with the contracting agency's directives governing the conduct of contracting personnel and the release of contract information. PCR duties include the following: Review proposed acquisitions to recommend "the setting aside of selected acquisitions not unilaterally set aside by the contracting officer;" new qualified small business sources; and the feasibility of breaking out components of the contract for competitive acquisitions. Review proposed acquisition packages. If the PCR (or, if a PCR is not assigned, the SBA Area Office serving the area in which the procuring activity is located) "believes that the acquisition, as proposed, makes it unlikely that small businesses can compete for the prime contract," the PCR can recommend any alternate contracting method that he or she "reasonably believes will increase small business prime contracting opportunities." The recommendation must be made to the contracting officer within 15 days after the package's receipt. Recommend small businesses "for inclusion on a list of concerns to be solicited in a specific acquisition." Appeal to the contracting office's chief "any contracting officer's determination not to solicit a concern recommended by the SBA for a particular acquisition, when not doing so results in no small business being solicited." This appeal may be further appealed to the agency head. Conduct periodic reviews of the agency's contracting activity, including the agency's assessment of any required small business subcontracting plan, "to ascertain whether the agency is complying with the small business policies in this regulation." Sponsor and participate in conferences and training "designed to increase small business participation in the contracting activities of the office." Every federal agency (except the SBA) that has procurement powers is required to have an OSDBU, whose director, by statute, reports directly to the head of the agency and has supervisory authority over agency staff performing certain procurement functions. The OSDBU's primary responsibility is to ensure that small businesses, SDBs, WOSBs, SDVOSBs, and HUBZone small businesses are treated fairly and that they have an opportunity to compete and be selected for a fair amount of the agency's contract dollars. Among its statutory responsibilities are the following: "Identify proposed solicitations that involve significant bundling of contract requirements, and work with the agency acquisition officials and the Administration to revise the procurement strategies for such proposed solicitations where appropriate to increase the probability of participation by small businesses as prime contractors, or to facilitate small business participation as subcontractors and suppliers, if a solicitation for a bundled contract is to be issued." Assist small businesses "to obtain payments, required late payment interest penalties, or information regarding payments due to the concern from an executive agency or a contractor." Assign "a small business technical adviser to each office to which the SBA has assigned" a PCR. The small business technical advisor "shall be a full-time employee of the procuring activity, well qualified, technically trained and familiar with the supplies or services purchased at the activity; and whose principal duty shall be to assist" the PCR. Provide the agency's "Chief Acquisition Officer and senior procurement executive … with advice and comments on acquisition strategies, market research, and justifications [related to limitations on the consolidation of contracts as a means to provide small businesses appropriate opportunities to participate as prime contractors and subcontractors]." Provide training to small businesses and contract specialists, provided that the training does not interfere with the director carrying out his or her other responsibilities. Ensure that a small business that notifies the PCR prior to a contract's award that "a solicitation, request for proposal, or request for quotation unduly restricts [its] ability … to compete for the award … is aware of other resources and processes available to address unduly restrictive provisions … even if such resources and processes are provided by such agency, the Administration, the Comptroller General, or a Department of Defense (DOD) procurement technical assistance program [described below]." Review all subcontracting plans "to ensure that the plan provides maximum practicable opportunity for small business concerns to participate in the performance of the contract to which the plan applies." In accordance with P.L. 109-163 , the National Defense Authorization Act of 2006, the DOD renamed its OSDBU the Office of Small Business Programs (OSBP). The act also redesignated the Army, Navy, and Air Force's OSDBUs to OSBPs of the Department of the Army, Navy, and Air Force, respectively. At the agency level, procurement department heads (sometimes titled senior procurement executive ) are responsible for implementing small business programs at their agencies, including achieving program goals. In general, procurement department staff who work on small business issues (often titled small business specialists ) coordinate with OSDBU directors on their agencies' small business programs. Chief acquisition officers provide a focal point for acquisition in agency operations. Their key functions include "monitoring and evaluating agency acquisition activities, increasing the use of full and open competition, increasing performance-based contracting, making acquisition decisions, managing agency acquisition policy, acquisition career management, acquisition resources planning, and conducting acquisition assessments." The SBA must assign a breakout procurement center representative (breakout PCR) to each major procurement center. A major procurement center is, in the opinion of the SBA Administrator, a procurement center that purchases substantial dollar amounts of other than commercial items, and has the potential to incur significant savings as a result of the placement of a breakout PCR. The breakout PCR advocates for (1) the appropriate use of full and open competition, and (2) the breakout of items, "when appropriate and while maintaining the integrity of the system in which such items are used." The breakout PCR is in addition to the PCR. When a breakout PCR is assigned, the SBA must assign at least two co-located small business technical advisors. SBA breakout PCRs and technical advisors must comply with the contracting agency's directives governing the conduct of contracting personnel and the release of contract information. The SBA must obtain security clearances for its breakout PCRs and technical advisors as required by the contracting agency. The SBA has four commercial market r epresentatives who, among other duties, help prime contractors find small businesses that are capable of performing subcontracts; provide counseling on the contractor's responsibility to maximize subcontracting opportunities for small businesses; and conduct periodic reviews of contractors awarded contracts requiring an acceptable subcontracting plan that provides small businesses "the maximum practicable opportunity to participate in contract performance consistent with its efficient performance" (generally any solicitation to perform a contract that is expected to exceed $700,000 ($1.5 million for construction) and that has subcontracting possibilities). The SBA's business opportunity s pecialists provide, among other duties, guidance, counseling, and referrals for assistance with technical, management, financial, or other matters intended to improve the competitive viability of SBA 8(a) program participants. They provide 8(a) program participants comprehensive assessments of the firm's strengths and weaknesses; monitor and document their compliance with 8(a) program requirements; advise them on compliance with contracting regulations after the award of a 8(a) program contract or subcontract; review and monitor their compliance with mentor-protégé agreements; represent the interests of the SBA Administrator and small businesses in the award, modification, and administration of 8(a) program contracts and subcontracts; and report fraud or abuse involving the 8(a) program. The Small Business Procurement Advisory Council (SBPAC), whose members are composed of the SBA Administrator (or his or her designee), the director of the Minority Business Development Agency, and the head of each OSDBU in each federal agency having procurement powers, has the following statutory duties: 1. Develop positions on proposed procurement regulations affecting the small business community. 2. Submit comments reflecting such positions to appropriate regulatory authorities. 3. Conduct reviews of each OSDBU to determine the office's compliance with its statutory requirements. 4. Identify best practices for maximizing small business utilization in federal contracting that may be implemented by federal agencies having procurement powers. 5. Submit annually, to the House Committee on Small Business and Senate Committee on Small Business and Entrepreneurship, a report describing (1) the comments submitted to appropriate regulatory authorities, including any outcomes related to the comments; (2) the results of its review of each OSDBU ; and (3) best practices identified for maximizing small business contracting . The Defense Logistic Agency's Procurement Technical Assistance Program (PTAC) helps "businesses pursue and perform under contracts with the Department of Defense, other federal agencies, state and local governments and with government prime contractors. Most of the assistance the PTACs provide is free. PTAC support to businesses includes registration in systems such as the System for Award Management (SAM), identification of contract opportunities, and help in understanding requirements and in preparing and submitting bids." The Competition in Contracting Act of 1984 generally requires "full and open competition" for government procurement contracts. However, various provisions of the Small Business Act authorize or, in some cases, require federal agencies to provide for other than "full and open competition through the use of competitive procedures" when contracting with small businesses. For example, as mentioned previously, federal agencies are generally required to reserve contracts that have an anticipated value greater than the micro-purchase threshold (currently $10,000), but not greater than the simplified acquisition threshold (currently $250,000) exclusively for small businesses unless the contracting officer is unable to obtain offers from two or more small businesses that are competitive with market prices and the quality and delivery of the goods or services being purchased. In addition, federal agencies are generally required to set aside contracts that have an anticipated value exceeding the simplified acquisition threshold exclusively for small businesses when there is a reasonable expectation by the contracting officer that offers will be obtained by at least two responsible small businesses offering the products of different small businesses (Rule of Two) and the award will be made at a fair market price; may similarly set aside contracts exceeding the simplified acquisition threshold for competition reserved for specific types of small businesses (e.g., 8(a) small businesses, HUBZone small businesses, WOSBs and SDVOSBs); may enter into negotiations directly with particular types of small businesses (e.g., a sole source award) when the award could not otherwise be made (e.g., only a single source is available or under urgent and compelling circumstances); and are required to grant HUBZone small businesses a price evaluation preference of not more than 10% in open and unrestricted competitions. Several SBA programs assist small businesses in obtaining and performing federal contracts and subcontracts. These include various prime contracting programs; subcontracting programs; and other assistance (e.g., contracting technical training assistance and oversight of the federal small business goaling program and the Surety Bond Guarantee program). Several contracting programs allow small businesses to compete only with similar firms for government contracts or receive sole source awards in circumstances in which such awards could not be made to other firms. These programs provide small businesses an opportunity to win government contracts without having to compete against larger and more experienced companies. The 8(a) Minority Small Business and Capital Ownership Development Program (named for the section of the Small Business Act from which it derives its authority) provides business development assistance to businesses owned and controlled by persons who are socially and economically disadvantaged. African Americans, Hispanics, Native Americans (including American Indians, Eskimos, Aleuts, and Native Hawaiians), Asian-Pacific Americans, and Subcontinent Asian Americans are presumed to be socially and economically disadvantaged. Other individuals can also qualify as socially and economically disadvantaged on a case-by-case basis. To be considered economically disadvantaged, an individual's net worth, excluding ownership interest in the 8(a) firm and equity in his or her primary personal residence, must be less than $250,000 at the time of application to the 8(a) Program, and less than $750,000 thereafter. Federal agencies are authorized to award contracts for goods or services, or to perform construction work, to the SBA for subcontracting to 8(a) firms. The SBA is authorized to delegate the function of executing contracts to the procuring agencies and often does so. Once the SBA has accepted a contract for the 8(a) Program, the contract is awarded through either a set-aside or on a sole source basis, with the contract amount generally determining the acquisition method used. When the contract's anticipated total value, including any options, is less than $4 million ($7 million for manufacturing contracts), the contract is normally awarded without competition (as a sole source award). In contrast, when the contract's anticipated value exceeds these thresholds, the contract generally must be awarded via a set-aside with competition limited to 8(a) firms so long as there is a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers and the award can be made at fair market price. The SBA also provides technical assistance and training to 8(a) firms. Firms may participate in the 8(a) Program for no more than nine years. In FY2017, the federal government awarded $27.2 billion to 8(a) firms. $16.4 billion was awarded with an 8(a) preference ($8 billion through an 8(a) set-aside and $8.4 billion through an 8(a) sole source award); $4.8 billion was awarded to an 8(a) firm in open competition with other firms; and $6 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for HUBZone firms, women-owned small businesses, and service-disabled veteran-owned small businesses). This program assists small businesses located in Historically Underutilized Business Zones (HUBZones) through set-asides, sole source awards (so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million, or $7 million for manufacturing contracts) and price evaluation preferences (of up to 10%) in full and open competitions. The HUBZone program targets assistance to small businesses located in areas with low income, high poverty, or high unemployment. To be certified as a HUBZone small business, at least 35% of the small business's employees must generally reside in a HUBZone. In FY2017, the federal government awarded $7.53 billion to HUBZone-certified small businesses. $1.90 billion was awarded with a HUBZone preference ($1.49 billion through a HUBZone set-aside, $65.3 million through a HUBZone sole source award, and $346.9 million through a HUBZone price-evaluation preference); $1.53 billion was awarded to HUBZone-certified small businesses in open competition with other firms; and $4.10 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for 8(a), women-owned, and service-disabled veteran-owned small businesses). This program allows agencies to set aside contracts for SDVOSBs. Also, federal agencies may award sole source contracts to SDVOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts). For purposes of this program, veterans and service-related disabilities are defined as they are under the statutes governing veterans affairs. In FY2017, the federal government awarded $18.2 billion to SDVOSBs. $6.8 billion was awarded through a SDVOSB set-aside award; $4.3 billion was awarded to a SDVOSB in open competition with other firms; and $7.1 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for HUBZone firms, 8(a) firms, and WOSBs). Under this program, contracts may be set aside for economically disadvantaged WOSBs in industries in which women are underrepresented and substantially underrepresented. Federal agencies may award sole source contracts to WOSBs so long as the award can be made at a fair and reasonable price, and the anticipated total value of the contract, including any options, is below $4 million ($6.5 million for manufacturing contracts). In FY2017, the federal government awarded $21.3 billion to WOSBs. $648.9 million was awarded with a WOSB preference ($580.5 million through a WOSB set-aside and $68.4 million through a WOSB sole source award); $7.0 billion was awarded to a WOSB in open competition with other firms; and $13.7 billion was awarded with another small business preference (e.g., set-asides and sole source awards for small businesses generally and for HUBZone firms, 8(a) firms, and SDVOSBs). Federal contracting officers are required to provide the SBA's PCR (or, if a PCR is not assigned, the SBA Area Office serving the procuring activity area) a "reasonable period of time" to review any solicitation requiring submission of a small business subcontracting plan and to submit advisory findings before the solicitation is issued. The PCR's advisory comments regarding the small business subcontracting plan's acceptability must be submitted, in writing, to the appropriate contracting officer within five working days after the plan's receipt. As mentioned previously, the SBA's commercial market representatives help prime contractors find small businesses to perform subcontracts; counsel contractors on their responsibility to maximize subcontracting opportunities for small businesses; and conduct periodic reviews, often in concert with a SBA PCR, of contractors awarded contracts that require an acceptable small business subcontracting plan. Federal agencies may also set aside contracts or make sole source awards to small businesses not participating in any other program under certain conditions. The Department of Transportation's (DOT's) Disadvantaged Business Enterprise (DBE) Program originally began in 1980 as a minority/women's business enterprise program "established by regulation under the authority of Title VI of the Civil Rights Act of 1964 and other nondiscrimination statutes that apply to DOT financial assistance programs." Congress has reauthorized the DBE program several times since its inception; most recently in P.L. 114-94 , the Fixing America's Surface Transportation Act (FAST-Act). The FAST-Act provides, that, except to the extent the Secretary of Transportation determines otherwise, not less than 10% of the amounts made available for any program under Titles I (federal-aid highways), II (innovative project finance), III (public transportation) and VI (innovation) of the act and 23 U.S. Code 403 (highway safety research and development), shall be expended with DBEs. DOT also has a separate DBE program for airport concessions. A DBE is a for-profit small business owned and controlled by socially and economically disadvantaged individuals. Eligibility for the DBE program differs somewhat from the 8(a) program. For example, under the DBE program, women are presumed to be socially and economically disadvantaged individuals. Also, to be regarded as economically disadvantaged, an individual must have a personal net worth (excluding ownership interest in the firm and equity in his or her primary personal residence) that does not exceed $1.32 million. The DBE must also meet SBA size criteria and have average annual gross receipts not exceeding $23.98 million. Size limits for the airport concessions DBE program are higher. The DBE program's eight objectives are to 1. ensure nondiscrimination in the award and administration of DOT-assisted contracts in the department's highway, transit, and airport financial assistance programs; 2. create a level playing field on which DBEs can compete fairly for DOT-assisted contracts; 3. ensure that the department's DBE program is narrowly tailored in accordance with applicable law; 4. ensure that only firms that fully meet the program's eligibility standards are permitted to participate as DBEs; 5. help remove DBE-participation barriers in DOT-assisted contracts; 6. promote the use of DBEs in all types of federally-assisted contracts and procurement activities conducted by recipients; 7. assist the development of firms that can compete successfully in the marketplace outside the DBE program; and 8. provide appropriate flexibility to recipients of federal financial assistance in establishing and providing opportunities for DBEs. Other federal programs promote subcontracting with small disadvantaged businesses (SDBs). SDBs include 8(a) participants and other small businesses that are at least 51% unconditionally owned and controlled by socially or economically disadvantaged individuals or groups. Individuals owning and controlling non-8(a) SDBs may have net worth of up to $750,000 (excluding ownership interests in the SDB firm and equity in their primary personal residence). Otherwise, however, SDBs must generally satisfy the same eligibility requirements as 8(a) firms, although they do not apply to the SBA to be designated SDBs in the same way that 8(a) firms do. Federal agencies must negotiate "subcontracting plans" with the apparently successful bidder or offeror on eligible prime contracts prior to awarding the contract. Subcontracting plans set goals for the percentage of subcontract dollars to be awarded to SDBs, among others, and describe efforts that will be made to ensure that SDBs "have an equitable opportunity to compete for subcontracts." Federal agencies may also consider the extent of subcontracting with SDBs in determining to whom to award a contract or give contractors "monetary incentives" to subcontract with SDBs. As of February 11, 2019, the SBA's Dynamic Small Business Search database included 2,538 SBA-certified SDBs and 100,595 self-certified SDBs. The SBA's 7(j) Management and Technical Assistance program provides "a wide variety of management and technical assistance to eligible individuals or concerns to meet their specific needs, including: (a) counseling and training in the areas of financing, management, accounting, bookkeeping, marketing, and operation of small business concerns; and (b) the identification and development of new business opportunities." Eligible individuals and businesses include "8(a) certified firms, SDBs, businesses operating in areas of high unemployment, or low income or firms owned by low income individuals." In FY2017, the 7(j) Management and Technical Assistance program assisted 4,100 small businesses. The SBA's Surety Bond Guarantee program aims to increase small businesses' access to federal, state, and local government contracting, as well as private-sector contracts, by guaranteeing bid, performance, and payment bonds for small businesses that cannot obtain surety bonds through regular commercial channels. The program guarantees individual contracts of up to $6.5 million and up to $10 million if a federal contracting officer certifies that such a guarantee is necessary. The SBA's guarantee ranges from not to exceed 80% to not to exceed 90% of the surety's loss if a default occurs. In FY2017, the SBA guaranteed 10,397 bid and final surety bonds with a total contract value of more than $6.3 billion. A surety bond is a three-party instrument between a surety (someone who agrees to be responsible for the debt or obligation of another), a contractor, and a project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed. The surety bond reduces the risk associated with contracting. Surety bonds are meant to encourage project owners to contract with small businesses that may not have the credit history or prior experience of larger businesses and may be at greater risk of failing to comply with the contract's terms and conditions. Surety bonds are important to small businesses interested in competing for federal contracts because the federal government requires prime contractors—prior to the award of a federal contract exceeding $150,000 for the construction, alteration, or repair of any building or public work of the United States—to furnish a performance bond issued by a surety satisfactory to the contracting officer in an amount that the officer considers adequate to protect the government. Small business mentor-protégé programs typically seek to pair new businesses with more experienced businesses in mutually beneficial relationships. Protégés may receive financial, technical, or management assistance from mentors in obtaining and performing federal contracts or subcontracts, or serving as suppliers under such contracts or subcontracts. Mentors may receive credit toward subcontracting goals, reimbursement of certain expenses, or other incentives. The federal government currently has several mentor-protégé programs to assist small businesses in various ways. The 8(a) Mentor-Protégé Program is a government-wide program designed to assist small businesses "owned and controlled by socially and economically disadvantaged individuals" participating in the SBA's Minority Small Business and Capital Ownership Development Program (commonly known as the 8(a) program) in obtaining and performing federal contracts. For that purpose, mentors may (1) form joint ventures with protégés that are eligible to perform federal contracts set aside for small businesses; (2) make certain equity investments in protégé firms; (3) lend or subcontract to protégé firms; and (4) provide technical or management assistance to their protégés. The SBA's A ll S mall B usiness Mentor-Protégé Program is a government-wide mentor-protégé program for all small business concerns, consistent with the SBA's mentor-protégé program for participants in the SBA's 8(a) Business Development program. The Department of Defense (DOD) Mentor-Protégé Program , in contrast, is agency-specific. It assists various types of small businesses and other entities in obtaining and performing DOD subcontracts and serving as suppliers on DOD contracts. Mentors may (1) make advance or progress payments to their protégés that DOD reimburses; (2) award subcontracts to their protégés on a noncompetitive basis when they would not otherwise be able to do so; (3) lend money to or make investments in protégé firms; and (4) provide or arrange for other assistance. Other agencies also have agency-specific mentor-protégé programs to assist various types of small businesses or other entities in obtaining and performing subcontracts under agency prime contracts. The Department of Homeland Security (DHS), for example, has a mentor-protégé program wherein mentors may provide protégés with rent-free use of facilities or equipment, temporary personnel for training, property, loans, or other assistance. Because these programs are not based in statute, unlike the SBA and DOD programs, they generally rely upon preexisting authorities (e.g., authorizing use of evaluation factors) or publicity to incentivize mentor participation. Currently, more than 1,200 mentor-protégé agreements are in place, even though there are issues with the accuracy and thoroughness of some federal agency records. Since 1978, federal agency heads have been required to establish federal procurement goals, in consultation with the SBA, "that realistically reflect the potential of small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals" to participate in federal procurement. Each agency is required, at the conclusion of each fiscal year, to report its progress in meeting the goals to the SBA. In 1988, Congress authorized the President annually to establish government-wide minimum participation goals for procurement contracts awarded to small businesses and small businesses owned and controlled by socially and economically disadvantaged individuals. Congress required the government-wide minimum participation goal for small businesses to be "not less than 20% of the total value of all prime contract awards for each fiscal year" and "not less than 5% of the total value of all prime contract and subcontract awards for each fiscal year" for small businesses owned and controlled by socially and economically disadvantaged individuals. Each federal agency was also directed to "have an annual goal that presents, for that agency, the maximum practicable opportunity for small business concerns and small business concerns owned and controlled by socially and economically disadvantaged individuals to participate in the performance of contracts let by such agency." The SBA was also required to report to the President annually on the attainment of the goals and to include the information in an annual report to Congress. The SBA negotiates the goals with each federal agency and establishes a small business eligible baseline for evaluating the agency's performance. The agency head is required to "make consistent efforts to annually expand participation by small business concerns from each industry category." If the SBA and the agency cannot agree on the goals, the agency may submit the case to the Office of Management and Budget (OMB) Office of Federal Procurement Policy (OFPP) for resolution. The small business eligible baseline excludes certain contracts that the SBA has determined do not realistically reflect the potential for small business participation in federal procurement (such as those awarded to mandatory and directed sources), contracts funded predominately from agency-generated sources (i.e., non-appropriated funds), contracts not covered by the FAR, acquisitions on behalf of foreign governments, and contracts not reported in the Federal Procurement Data System – Next Generation, or FPDS-NG (such as government procurement card purchases and contracts valued less than $10,000). These exclusions typically account for 18% to 20% of all federal prime contracts each year. The SBA then evaluates the agencies' performance against their negotiated goals annually, using FPDS-NG data, managed by the U.S. General Services Administration (GSA), to generate the small business eligible baseline. This information is compiled into the official Small Business Goaling Report, which the SBA releases annually. Each agency that fails to achieve any proposed prime or subcontract goal is required to submit a justification to the SBA on why it failed to achieve a proposed or negotiated goal with a proposed plan of corrective action. Agencies can take credit in every category that is applicable to the recipient of the contract. For example, "when counting goaling achievements, a contract awarded to a service-disabled Veteran-Owned Woman-Owned Small Business would be counted toward the Small Business (SB) goal, the Service-Disabled Veteran-Owned Small Business (SDVOSB) goal and the Women-Owned Small Business (WOSB) goal. However, these category counts are not summed to triple the total count. The Sum of Parts Does Not Equal the Whole (italics in original)." Over the years, federal government-wide procurement goals have been established for small businesses generally ( P.L. 100-656 , the Business Opportunity Development Reform Act of 1988, and P.L. 105-135 , the HUBZone Act of 1997—Title VI of the Small Business Reauthorization Act of 1997); small businesses owned and controlled by socially and economically disadvantaged individuals ( P.L. 100-656 ); women ( P.L. 103-355 , the Federal Acquisition Streamlining Act of 1994); small businesses located within a HUBZone ( P.L. 105-135 ); and small businesses owned and controlled by a service-disabled veteran ( P.L. 106-50 , the Veterans Entrepreneurship and Small Business Development Act of 1999). The current federal small business procurement goals are at least 23.0% of the total value of all small business eligible prime contract awards to small businesses for each fiscal year; 5.0% of the total value of all small business eligible prime contract awards and subcontract awards to small disadvantaged businesses (including participants in the SBA's 8(a) Program) for each fiscal year; 5.0% of the total value of all small business eligible prime contract awards and subcontract awards to women-owned small businesses; 3.0% of the total value of all small business eligible prime contract awards and subcontract awards to HUBZone small businesses; and 3.0% of the total value of all small business eligible prime contract awards and subcontract awards to service-disabled veteran-owned small businesses. There are no punitive consequences for not meeting these goals. However, the SBA's Small Business Goaling Report is distributed widely, receives media attention, and serves to heighten public awareness of the issue of small business contracting. For example, agency performance as reported in the SBA's Small Business Goaling Report is often cited by Members during their questioning of federal agency witnesses during congressional hearings. As shown in Table 1 , the FY2017 Small Business Goaling Report , using FPDS-NG data, indicates that federal agencies met the federal procurement goal for small businesses generally, small disadvantaged businesses, and service-disabled veteran-owned small businesses in FY2017. Table 1 also provides, for comparative purposes, the percentage of total reported federal contracts (without exclusions) awarded to those small businesses in FY2017. Before awarding a federal contract, the contracting officer must affirmatively determine that the business is responsible to perform the contract. If the contracting officer determines that an apparent successful small business offeror lacks certain elements of responsibility (e.g., is unable to fulfill the requirements of a specific government procurement because it lacks capability, competency, capacity, credit, integrity, perseverance, tenacity, or limitations on subcontracting), the officer is required to refer the matter in writing to the SBA for review and a possible Certificate of Competency (COC), even if the next acceptable offer is also from a small business. The COC certifies in writing that the small business meets all required elements of responsibility for the purpose of receiving and performing a specific government contract. The "COC program empowers the SBA to certify to contracting officers as to all elements of responsibility of any small business concern to receive and perform a specific government contract. The COC program does not extend to questions concerning regulatory requirements imposed and enforced by other federal agencies." As mentioned previously, the SBA's commercial market representatives conduct periodic compliance reviews of contractors awarded contracts that require an acceptable small business subcontracting plan. In addition, once the contract is completed, federal agencies are required to pay the contractor on a timely basis and pay interest penalties for late payments. Under specified circumstances, federal agencies may also pay contractors before the contract's payment's due date. The periodic compliance review can take place on-site, at the contracting agency, or virtual. Materials that may be reviewed include the contractor's contract files, correspondence that is directly or indirectly related to the contract, IT systems, subcontracting methods, and procedures. Contractors are selected randomly for audit. The SBA may enter into agreements with other federal agencies to conduct these assessments. The compliance report includes compliant and non-compliant items found during the assessment of the contractor's subcontracting activities and a rating indicating the contractor's level of compliance or non-compliance, ranging from unsatisfactory to outstanding. If any deficiencies are found, the contractor is required to submit, within 30 days of the compliance review rating letter date, a corrective action plan (CAP). The CAP is submitted to the SBA Area Office via email, or any method designated by the SBA. The commercial market representative conducts a follow-up compliance report within six months to a year of the date the SBA acknowledges receipt of the contractor's CAP to ensure that corrective actions have been taken to eliminate the deficiencies. The SBA keeps the federal agency that awarded the contract informed of the contractor's adherence to correcting the deficiencies. If the contractor refuses to provide or address all deficiencies in the CAP, a delinquent CAP letter is sent advising the contractor that it has 15 days from the letter's date to comply with federal regulations. If an acceptable CAP is not received in the allotted time frame the case is escalated to the SBA's subcontracting program manager who informs the SBA's Office of Government Contracting director and works with the SBA's Office of General Counsel and the federal agency that awarded the contract for resolution or to begin accessing liquidated damages. Once a contract is awarded, federal agencies are generally required to pay interest to prime contractors on any invoice payments the agency fails to make by the date(s) specified in the contract, or within 30 days of receipt of a proper invoice for the amount due if no date is specified in the contract. Similar requirements exist for prime contractors in paying subcontractors on construction contracts. These requirements are especially important for small businesses in the construction industry. Specifically, every construction contract awarded by a federal agency must contain clauses obligating the prime contractor to (1) pay the subcontractor for "satisfactory performance" under the subcontract within seven days of receiving payment from the agency and (2) pay interest on any amounts that are not paid within the proper time frame. The contract must also obligate the prime contractor to include similar payment and interest penalty terms in its subcontracts, as well as require its subcontractors to impose these terms on their subcontractors. This latter provision ensures that the payment and interest penalty requirements flow down to all tiers of construction subcontractors. In addition, required subcontracting plans must incorporate terms obligating the prime contractor to notify the agency awarding the contract in writing if a subcontractor is paid a reduced price for goods supplied or services completed under the contract, or if payment is made to the subcontractor more than 90 days past due. The prime contractor must include the reason for the reduction in payment or failure to pay a subcontractor within 90 days. If the contracting officer for a covered contract (a contract that requires an acceptable subcontracting plan) determines that a prime contractor has a history of unjustified, untimely payments to contractors, the contracting officer shall record the contractor's identity, describe the circumstances under which the contractor may be determined to have a history of unjustified, untimely payments to subcontractors, and include the contractor's identity in, and make publicly available through, the Federal Awardee Performance and Integrity Information System, or any successor. This information is used by federal agencies to "evaluate the business ethics and quality of prospective contractors competing for Federal contracts and to protect taxpayers from doing business with contractors that are not responsible sources." Federal agencies are permitted to make an accelerated payment up to seven days before the required payment date in a federal contract, or earlier if the agency deems it necessary on a case-by-case basis if, after receiving a proper invoice, it is in the best interest of the government, and any of the following is true: the invoice in under $2,500; the payment is to a small business; or the payment is related to an emergency, disaster, or military deployment. In addition, the Secretary of Defense is required, to the fullest extent permitted by law, to establish an accelerated payment date for its small business prime contractors, with a goal of 15 days after receipt of a proper invoice for the amount due if a specific payment date is not established by contract. The Secretary of Defense is also required to establish, to the fullest extent permitted by law, an accelerated payment date for its prime contractors that subcontract with small businesses, with a goal of 15 days after receipt of a proper invoice for the amount due if a specific payment date is not established by contract and the prime contractor agrees to make payments to the subcontractor "in accordance with the accelerated payment date, to the maximum extent practicable, without any further consideration from or fees charged to the subcontractor." The small business contracting programs described in this report generally have strong bipartisan support. However, that does not mean that these programs face no opposition or that issues have not been raised concerning the impact or operations of specific programs. For example, small business advocates seek policies that reduce or eliminate exclusions that narrow the reach of small business contracting preferences, want the SBA to use the total value of all prime contract awards in the Small Business Goaling Report, and want the SBA to use a more discerning methodology for awarding performance grades to federal agencies in meeting its small business contracting goals. Critics have questioned some of these programs' effectiveness, in terms of both promoting small business opportunities to win federal contracts and a more diversified, robust economy. Many observers judge the relative success or failure of federal efforts to enhance small business contracting opportunities by whether the federal government and individual federal agencies meet the procurement goals in the annual Small Business Goaling Report. In recent years, the federal government has generally succeeded in meeting the government-wide goals of awarding 23% of the total value of all small business eligible prime contract awards to small businesses generally, 5% to SDBs, and 3% to SDVOSBs. However, it has had difficulty meeting the goals of 5% to WOSBs and 3% to HUBZone small businesses. The Small Business Goaling Report is the most convenient measure available to compare federal small business contracting performance over time, but it has limitations. For example, the report does not include all federal contracts, because some are not deemed to be small business eligible and others are not recorded in the FPDS-NG. In addition, the report does not evaluate the effect these contracts have on small businesses, industry competitiveness, or the overall economy. As one group of researchers has argued, the entire goal-setting process … is geared to measuring the dollars and contracts awarded to small business, and pays little attention to the effect that access to government contracts has on small business starts, growth, and wealth generation. Results of the program are also hard to isolate, difficult to measure, and generally not judged against the next best or other alternative policies [emphasis in original]. Comprehensive studies examining the effect of small business contracting preferences on small business startups, growth, wealth generation, and industry competitiveness may prove useful for congressional oversight. In the meantime, although the Small Business Goaling Report has its limitations, it can help policymakers identify programs most in need of examination. For example, the SBA has announced that it is focusing additional efforts on promoting the HUBZone program to federal contracting officials, primarily due to the continuing difficulties federal agencies have had in meeting the 3% goal for HUBZone small businesses.	[ "Congress has broad authority to impose requirements upon the federal procurement process, that is, the process whereby agencies obtain goods and services from the private sector. One way in which Congress has exercised this authority is by adopting measures to promote contracting and subcontracting between \"small businesses\" and federal agencies. These measures, among other things, declare a congressional policy of ensuring that a \"fair proportion\" of federal contract and subcontract dollars is awarded to small businesses; establish government-wide and agency-specific goals for the percentage of federal contract and subcontract dollars awarded to small businesses; establish an annual Small Business Goaling Report to measure progress in meeting these goals; generally require federal agencies, under specified circumstances, to reserve contracts that have an anticipated value greater than the micro-purchase threshold (currently $10,000), but not greater than the simplified acquisition threshold (currently $250,000) exclusively for small businesses; authorize federal agencies, under specified circumstances, to set aside contracts that have an anticipated value greater than the simplified acquisition threshold exclusively for small businesses; authorize federal agencies to make sole source awards to small businesses when the award could not otherwise be made (e.g., only a single source is available, under urgent and compelling circumstances); authorize federal agencies to set aside contracts for, or grant other contracting preference to, specific types of small businesses (e.g., 8(a) small businesses, HUBZone small businesses, women-owned small businesses (WOSBs) and service-disabled veteran-owned small businesses (SDVOSBs)); and task the Small Business Administration (SBA) and other federal procurement officers with reviewing and restructuring proposed procurements to maximize opportunities for small business participation. Small business contracting programs generally have strong bipartisan support. However, that does not mean that these programs face no opposition, or that issues have not been raised concerning the impact and operations of specific programs. For example, small business advocates note that implementing regulations in the Federal Acquisition Regulation (FAR) narrow the reach (and impact) of some small business contracting preferences by excluding specific types of contracts, such as those listed in the Federal Supply Schedules, from FAR requirements pertaining to small business contracting. Advocates want the federal government to enact policies that reduce or eliminate such exclusions. Critics have questioned some of these programs' effectiveness, in terms of both promoting small business opportunities to win federal contracts and promoting a more diversified, robust economy. Many observers judge the relative success or failure of federal efforts to enhance small business contracting opportunities by whether federal government and individual federal agencies meet the predetermined procurement goals in the annual Small Business Goaling Report. In recent years, the federal government has generally succeeded in meeting the government-wide goals of awarding 23% of the total value of all small business eligible prime contract awards to small businesses, 5% to small disadvantaged businesses (SDBs), and 3% to SDVOSBs. It has had difficulty meeting the goals of 5% to WOSBs and 3% to HUBZone small businesses. The Small Business Goaling Report is the most convenient measure available to compare federal small business contracting performance over time, but it has limitations. For example, the SBA excludes some contracts from the report in its determination of what is \"small business eligible\" and some federal procurement activities are not included because they are not recorded in the Federal Procurement Data System—Next Generation. It also does not evaluate the effect these contracts have on small businesses, industry competitiveness, or the overall economy." ]	9,547	gov_report	en	null	c2a4cfdac819a761d81184d9708cd683900944d37dbc8696
The Land and Water Conservation Fund (LWCF) Act of 1965 was enacted to "assist in preserving, developing, and assuring accessibility to ... outdoor recreation resources." Two main goals of the law were to facilitate participation in recreation and "to strengthen the health and vitality" of U.S. citizens. To accomplish these goals, purposes of the law included "providing funds" for federal land acquisition and for federal assistance to states generally related to outdoor recreation. The fund is authorized to receive $900 million in revenues annually under the LWCF Act. Each year the fund accrues revenues at this level. The fund accumulates the majority of its revenues from oil and gas leases on the Outer Continental Shelf (OCS). It also accumulates revenues from the federal motorboat fuel tax and surplus property sales. However, revenues that accrue under the LWCF Act are available only if appropriated by Congress through the discretionary appropriations process. The LWCF receives additional revenue (beyond the $900 million) from OCS leasing under the Gulf of Mexico Energy Security Act of 2006 (GOMESA). Unlike revenues under the LWCF Act, GOMESA revenues are mandatory appropriations (and thus are not subject to annual appropriation by Congress). They can be used only for grants to states for outdoor recreation purposes. The overall level of annual appropriations (discretionary and mandatory combined) has varied widely since the fund's origin in FY1965. Of the total revenues that have accrued throughout the program's history ($40.9 billion), less than half have been appropriated ($18.9 billion) through FY2019. Thus, the unappropriated balance in the fund is estimated at $22.0 billion through FY2019. The LWCF Act outlines uses of the fund for federal and state purposes. It states that of the total made available to the fund, not less than 40% is to be used for "federal purposes" and not less than 40% is to be used to provide "financial assistance to states." The act lists the federal purposes for which the President is to allot LWCF funds "unless otherwise allotted in the appropriation Act making them available." These purposes primarily relate to the acquisition of lands and waters (and interests therein) by the federal government. With regard to state purposes, the act authorizes a matching grant program to states for outdoor recreation purposes. In practice, over the history of the LWCF, appropriations acts have provided funding for three general purposes. First, for each year since FY1965, appropriations for land acquisition have been provided to some or all of the major federal land management agencies—the Bureau of Land Management (BLM), Fish and Wildlife Service (FWS), National Park Service (NPS), and Forest Service (FS). Second, for nearly every year since FY1965, appropriations have funded the outdoor recreation matching grant program, to assist states in recreational planning, acquiring recreational lands and waters, and developing outdoor recreational facilities. Third, beginning in FY1998, appropriations from the LWCF have been provided each year, except FY1999, to fund other federal programs with related natural resource purposes. Hereinafter, the third type of appropriations is referred to as funding other purposes . The $18.9 billion appropriated from the fund through FY2019 has been allocated in different proportions among federal land acquisition, the state grant program, and other purposes. The largest portion of the total—$11.4 billion—has been appropriated for federal land acquisition. The state grant program has received the second-largest portion, $4.8 billion. Other purposes have received the remaining $2.7 billion. Appendix A shows the total LWCF appropriation for other purposes. Congress continues to consider the extent to which the LWCF should fund purposes other than federal land acquisition and outdoor recreation grants to states. Some traditional LWCF advocates and beneficiaries have expressed concern about expanding the use of the funds, particularly if such expansion results in lower appropriations for land acquisition and outdoor recreation grants to states. Some Members of Congress, Presidents, and stakeholders have supported funding other purposes in order to draw on the balance in the fund for policy priorities, to shift the focus of the fund from land acquisition, or to achieve other goals. A number of measures introduced in recent Congresses sought to authorize funding from the LWCF for various other purposes. These measures were not enacted. They included proposals to specify an amount or percentage of funding for two programs that are currently funded by the LWCF—the Forest Legacy Program and Cooperative Endangered Species Conservation grants—although the LWCF Act does not specifically authorize this funding. Other proposals sought to authorize programs or activities that have not been funded by LWCF in the past, or that have been rarely funded by LWCF in the past. For instance, one 115 th Congress bill would have authorized LWCF funding for certain programs and activities of the major land management agencies, including deferred maintenance, critical infrastructure, visitor services, and clean-up efforts; the Payments in Lieu of Taxes Program; and certain offshore energy exploration, innovation, and education activities. As another example, one 115 th Congress bill proposed to authorize LWCF funding for financial assistance from the Secretary of Housing and Urban Development for park and recreation infrastructure projects. The balance of this report discusses the other purposes for which LWCF appropriations have been provided throughout the fund's history. It identifies the amount of funding contained in annual appropriations laws for other purposes and the types of purposes for which funds have been appropriated. A total of $72.0 million was appropriated from the LWCF for other purposes in FY1998, the first year in which LWCF was used to fund other purposes. The total included $60.0 million for maintenance needs of the four land management agencies and $12.0 million for rehabilitation and maintenance of the Beartooth Highway (in Wyoming and Montana). In FY1998, total LWCF appropriations had spiked to approximately $969 million from the FY1997 level of about $159 million. Both the dollar amounts and the percentages of annual LWCF appropriations for other purposes have varied widely since FY1998. (See Appendix B .) Over the most recent 10 years, LWCF appropriations for other purposes fluctuated, declining overall from $132.5 million in FY2010 to $93.3 million in FY2019 (in current dollars). However, the FY2019 level was the highest appropriation since FY2010. Beginning in FY2011, appropriations for other purposes in each year have been less than $100 million, as was the case for FY1998-FY2000. Appropriations for other purposes were at their lowest dollar amount in FY1999, when no funds for other purposes were appropriated. The next-lowest dollar value was provided for FY2000, when a total of $20.0 million was appropriated for three purposes: Elwha River Ecosystem restoration (in Washington), deferred maintenance of the NPS, and the FS Forest Legacy program. By contrast, from FY2001 to FY2010, appropriations for other purposes exceeded $100 million in each year. In fact, during four of these years (FY2004-FY2007), the annual appropriation was between $200 million and $225 million. The appropriation surpassed $400 million in another year during the period. Specifically, the $456.0 million appropriation in FY2001 was more than double the amount provided for other purposes in any other year. These appropriations were used to fund more than a dozen programs in the Clinton Administration's Lands Legacy Initiative. In that year, total LWCF appropriations exceeded the annual authorization level, totaling nearly $1 billion. This record level of funding was provided partly in response to President Clinton's Lands Legacy Initiative, which sought $1.4 billion for about two dozen resource-protection programs, including the LWCF. It also was provided partly in response to some congressional interest in securing increased and more certain funding for the LWCF. The highest percentage of annual funds provided for other purposes occurred in FY2006 and FY2007 (59% in both years), in response to President George W. Bush's request for funding for an array of programs. For instance, in FY2007 the Bush Administration sought funding from the LWCF for 15 programs in addition to land acquisition and state grants. For that year, the appropriation for five other purposes was $216.1 million, out of a total LWCF appropriation of $366.1 million. In some years, the appropriation for other purposes was significantly less than the Administration requested. For example, for FY2008 the Bush Administration sought $313.1 million for other purposes, or 83% of the total request of $378.7 million. The FY2008 appropriation for other purposes was $101.3 million, or 40% of the LWCF total of $255.1 million. The $2.7 billion appropriated from the LWCF from FY1998 to FY2019 for other purposes represents 27% of the $10.0 billion total appropriations from LWCF during the period. FWS and FS have received the largest shares of the appropriations for other purposes, about $1.4 billion (53%) and $1.0 billion (38%), respectively. BLM, NPS, the U.S. Geological Survey, and the Bureau of Indian Affairs have shared the remaining $0.2 billion (9%) of the appropriations for other purposes. (See Figure 1 .) Because there is no set of other purposes specified in the LWCF Act to be funded from the LWCF, presidents have sought funds for a variety of purposes. Congress has chosen which of these requests to fund from the LWCF, and whether to fund any additional programs from the LWCF not suggested by the President. Appropriations for other purposes have been provided for more than a dozen diverse natural resource-related programs, including facility maintenance of the land management agencies, ecosystem restoration, the Historic Preservation Fund, the Payments in Lieu of Taxes program, the FS Forest Legacy program, FWS State and Tribal Wildlife Grants, the FWS Cooperative Endangered Species Conservation Fund, U.S. Geological Survey science and cooperative programs, and Bureau of Indian Affairs Indian Land and Water Claim Settlements. (See Appendix A .) Although in earlier years several other purposes typically were funded from LWCF, since FY2008, funds have been appropriated annually only for grants under two programs: Forest Legacy and Cooperative Endangered Species Conservation Fund. (See Appendix B and Figure 2 . ) The total appropriation from LWCF for these two programs (since FY1998) is $1.7 billion, or 63% of all appropriations for other purposes ($2.7 billion). These two programs and a third grant program funded prior to FY2008 from LWCF—FWS State and Tribal Wildlife Grants—have received more than three-quarters ($2.1 billion, 79%) of the total appropriations for other purposes. The appropriations through FY2019 are $944.4 million for Forest Legacy (35% of the other purposes total), $753.3 million for Cooperative Endangered Species Conservation Fund (28% of total), and $448.5 million for State and Tribal Wildlife Grants (17% of total). Grants under the Forest Legacy program are used to acquire lands or conservation easements to preserve private forests threatened by conversion to non-forest uses, such as agriculture or residences. FS provides matching grants to states through a competitive process that requires state approval and then national approval and ranking. The ranking is based on the importance of the project (potential public benefits from protection), the likelihood of the forest's conversion to non-forest uses, and the strategic relevance of the project, among other factors. The program is implemented primarily through state partners, usually state forestry agencies. State partners generally acquire, hold, and administer the easements or land purchases, although the federal government also may do so. The Cooperative Endangered Species Conservation Fund provides grants "for species and habitat conservation actions on non-Federal lands, including habitat acquisition, conservation planning, habitat restoration, status surveys, captive propagation and reintroduction, research, and education." In addition to appropriations from LWCF, the Cooperative Endangered Species Conservation Fund typically receives additional appropriations. In recent years, the appropriations from LWCF generally have been used for two types of land acquisition grants provided to state and territories on a matching basis. Recovery land acquisition grants have been made for acquisition of habitats in support of species recovery goals and objectives. Habitat conservation plan land acquisition grants have been made for acquisition of lands that are associated with habitat conservation plans. State and Tribal Wildlife Grants are provided to states, territories, and tribes to develop and implement programs for the benefit of fish and wildlife and their habitats, including nongame species. State and Tribal Wildlife Grants received funding from the LWCF for FY2001-FY2007; subsequently, funding has been provided from the General Fund of the U.S. Treasury. Currently, the largest portion of the program is for formula grants to states and territories on a matching basis. Funds from the formula grants may be used to develop state conservation plans and to implement specific conservation projects. Smaller amounts of funding have been appropriated for competitive grants to states and territories, and to tribal governments. The competitive grant programs do not have matching requirements. Appendix A shows the total LWCF appropriations for other purposes summed from FY1998 to FY2019. Appendix B shows the other purposes that received LWCF appropriations each year, the amount of LWCF appropriations for each purpose, and the total annual appropriations for other purposes. Appendix A. Total LWCF Appropriations for Other Purposes Appendix B. Annual LWCF Appropriations for Other Purposes	[ "The Land and Water Conservation Fund (LWCF) Act of 1965 (P.L. 88-578) created the LWCF in the Treasury as a funding source to implement the outdoor recreation goals set out by the act. The LWCF Act authorizes the fund to receive $900 million annually, with the monies available only if appropriated by Congress (i.e., discretionary appropriations). The fund also receives mandatory appropriations under the Gulf of Mexico Energy Security Act of 2006 (GOMESA). The level of annual appropriations for the LWCF has varied since the origin of the fund in FY1965. The LWCF Act outlines uses of the fund for federal and state purposes. Of the total made available through appropriations or deposits under GOMESA, not less than 40% is to be used for \"federal purposes\" and not less than 40% is to be used to provide \"financial assistance to states.\" The act lists the federal purposes for which the President is to allot LWCF funds \"unless otherwise allotted in the appropriation Act making them available.\" These purposes primarily relate to acquisition of lands and waters (and interests therein) by the federal government. With regard to state purposes, the act authorizes a matching grant program to states for outdoor recreation purposes. Throughout the LWCF's history, appropriations acts typically have provided funds for land acquisition and outdoor recreational grants to states. Beginning in FY1998, appropriations also have been provided each year (except FY1999) to fund other purposes related to natural resources. The extent to which the LWCF should be used for purposes other than federal land acquisition and outdoor recreation grants to states, and which other purposes should be funded from the LWCF, continue to be the subject of legislation and debate in Congress. In the past few decades, Presidents have sought LWCF funds for a variety of other purposes. Congress chooses which if any of these requests to fund, and has chosen programs not sought by the President for a particular year. Among other programs, appropriations have been provided for facility maintenance of the land management agencies, ecosystem restoration, the Historic Preservation Fund, the Payments in Lieu of Taxes program, the Forest Legacy Program, State and Tribal Wildlife Grants (under the Fish and Wildlife Service), the Cooperative Endangered Species Conservation Fund, U.S. Geological Survey science and cooperative programs, and Bureau of Indian Affairs Indian Land and Water Claim Settlements. Since FY1998, a total of $2.7 billion has been appropriated for other purposes, of a total LWCF appropriation of $18.9 billion over the history of the fund. The Fish and Wildlife Service and the Forest Service have received the largest shares of the total appropriations for other purposes, about $1.4 billion (53%) and $1.0.billion (38%), respectively, from FY1998 to FY2019. Several agencies shared the remaining $0.2 billion (9%) of the appropriations. Both the dollar amounts and the percentages of annual LWCF appropriations for other purposes have varied widely since FY1998. The dollar amounts have ranged from $0 in FY1999 to $456.0 million in FY2001. The percentage of annual funds provided for other purposes ranged from 0% in FY1999 to a high of 59% in both FY2006 and FY2007. In some years, the appropriation for other purposes was significantly less than the Administration requested. For instance, for FY2008, the George W. Bush Administration sought $313.1 million; the appropriation was $101.3 million. The appropriation for other purposes last exceeded $100.0 million in FY2010, and most recently was $93.3 million, in FY2019. Prior to FY2008, several other purposes typically were funded each year from LWCF. Since FY2008, funds have been appropriated annually only for grants under two programs: Forest Legacy and Cooperative Endangered Species Conservation Fund. These two programs and a third grant program—State and Tribal Wildlife Grants—have received more than three-quarters ($2.1 billion, 79%) of the total appropriation for other purposes since FY1998." ]	2,138	gov_report	en	null	81d4538e2ed46409ef2da09c7229d82d94dec1b4487d3481
Since January 2017, the Navy has suffered four significant mishaps at sea that have resulted in serious damage to Navy ships and the loss of 17 sailors (see figure 1). Three of the four at sea mishaps that have occurred—two collisions and one grounding—have involved ships homeported overseas in Yokosuka, Japan. Appendix II provides a summary of major mishaps for Navy ships at sea in fiscal years 2009 through 2017. The Navy currently has 277 ships, a 17 percent reduction from the 333 ships it had in 1998. Over the past two decades, as the number of Navy ships has decreased, the number of ships deployed overseas has remained roughly constant at about 100 ships; consequently, each ship is being deployed more to maintain the same level of presence. We reported in September 2016 that the Navy, along with the other military services, had been reporting persistently low readiness levels. The Navy attributes these, in part, to the increased deployment lengths needed to meet the continuing high demand for its aircraft carriers, cruisers, destroyers, and amphibious ships. For example, the deployment lengths for carrier strike groups had increased from an average of 6.4 months during the period of 2008 through 2011 to a less sustainable 9 months for three carrier strike groups that were deployed in 2015. In 2016, the Navy extended the deployments of the Harry S Truman and Theodore Roosevelt Carrier Strike Groups to 8 and 8.5 months, respectively. In addition, the Navy has had to shorten, eliminate, or defer training and maintenance periods to support these high deployment rates. These decisions have resulted in declining ship conditions across the fleet and have increased the amount of time required for the shipyards to complete maintenance on these ships. Lengthened maintenance periods, in turn, compress the time that ships are available for training and operations. As we previously reported, to help meet the operational demands using its existing inventory of ships, the Navy has assigned more of its surface combatants and amphibious ships to overseas homeports. Since 2006, the Navy has doubled the percentage of the fleet assigned to overseas homeports. In 2006, 20 ships were homeported overseas (7 percent of the fleet); today, 40 ships are homeported overseas (14 percent of the fleet) in Japan, Spain, Bahrain, and Italy; and an additional destroyer will be homeported in Yokosuka, Japan in 2018 (see figure 2). According to the Navy, homeporting ships overseas is an efficient method for providing forward presence and rapid crisis response. Our prior work confirms that having ships homeported overseas provides additional presence, but it comes at a cost. For example, we found in May 2015 that homeporting ships overseas results in higher operations and support costs than homeporting ships in the United States. In addition, the operational schedules the Navy uses for overseas-homeported ships limit dedicated training and maintenance periods, resulting in difficulty keeping crews fully trained and ships maintained. In fact, the primary reason that Navy ships homeported overseas provide more deployed time than ships homeported in the United States is that the Navy reduces their training and maintenance periods in order to maximize their operational availability. Ships homeported overseas do not operate within the traditional fleet response plan cycles that apply to U.S.-based ships. Since the ships are in permanent deployment status during their time homeported overseas, they do not have designated ramp-up and ramp- down maintenance and training periods built into their operational schedules (see figure 3). Navy officials told us that because the Navy expects these ships to be operationally available for the maximum amount of time, their intermediate and depot-level maintenance are executed through more frequent, shorter maintenance periods or deferred until after they return to a U.S. homeport—generally after 7 to 10 years overseas. In May 2015, we also found that high operational tempo for ships homeported overseas limits the time for crew training when compared with training time for ships homeported in the United States. Navy officials told us that U.S.-based crews are completely qualified and certified prior to deploying from their U.S. homeports, with few exceptions. In contrast, the high operational tempo of ships homeported overseas had resulted in what Navy personnel called a “train on the margins” approach, a shorthand way to say there was no dedicated training time set aside for the ships so crews trained while underway or in the limited time between underway periods. We found that, at the time of our 2015 review, there were no dedicated training periods built into the operational schedules of the cruisers, destroyers, and amphibious ships homeported in Yokosuka and Sasebo, Japan. As a result, these crews did not have all of their needed training and certifications. We recommended that the Navy develop and implement a sustainable operational schedule for all ships homeported overseas. DOD concurred with this recommendation and reported in 2015 that it had developed revised operational schedules for all ships homeported overseas. However, when we contacted DOD to obtain updated information in August 2017, U.S. Pacific Fleet officials stated that the revised operational schedules for the cruisers and destroyers homeported in Japan were still under review and had not been employed. As of June 2017, 37 percent of the warfare certifications for cruiser and destroyer crews homeported in Japan had expired, and over two-thirds of the expired certifications—including mobility-seamanship and air warfare—had been expired for 5 months or more. This represents more than a fivefold increase in the percentage of expired warfare certifications for these ships since our May 2015 report. The Navy’s Surface Force Readiness Manual states that the high operational tempo and frequent tasking of ships homeported overseas requires that these ships always be prepared to execute complex operations and notes that this demand for continuous readiness also means that ships homeported overseas should maintain maximum training, material condition, and manning readiness. With respect to the material condition of the ships, we found in May 2015 that casualty reports—incidents of degraded or out-of-service equipment—nearly doubled over the 2009 through 2014 time frame, and the condition of overseas-homeported ships decreased even faster than that of U.S.-based ships (see figure 4). The Navy uses casualty reports to provide information on the material condition of ships in order to determine current readiness. For example, casualty report data provide information on equipment or systems that are degraded or out of service, the lack of which will affect a ship’s ability to support required mission areas. In 2015, Navy officials acknowledged an increasing number of casualty reports on Navy ships and a worsening trend in material ship condition. They stated that equipment casualties require unscheduled maintenance and have a negative effect on fleet operations, because there is an associated capability or capacity loss. In our May 2015 report, we recommended that the Navy develop a comprehensive assessment of the long-term costs and risks to its fleet associated with the Navy’s increasing reliance on overseas homeporting to meet presence requirements; make any necessary adjustments to its overseas presence based on this assessment; and reassess these risks when making future overseas homeporting decisions. DOD concurred with this recommendation, but, as of August 2017, it has not conducted an assessment, even though it has continued to increase the number of ships homeported overseas. In the early 2000s, the Navy made several changes to its process for determining the size and composition of ship crews that may contribute to sailor overwork and create readiness and safety risks. These changes were intended to drive down crew sizes in order to save on personnel costs. However, as we reported in May 2017, these changes were not substantiated with analysis and may be creating readiness and safety risks. With fewer sailors operating and maintaining surface ships, the material condition of the ships declined, and we found that this decline ultimately contributed to an increase in operating and support costs that outweighed any savings on personnel (see figure 5). The Navy eventually reassessed and reversed some of the changes it had made during this period—known as “optimal manning”—but it continued to use a workweek standard that does not reflect the actual time sailors spend working and does not account for in-port workload—both of which may be leading to sailors being overworked. Additionally, we found that heavy workload does not end after ships return to port. Crews typically operate with fewer sailors while in port, so those crew members remaining must cover the workload of multiple sailors, causing additional strain and potential overwork. In 2014, the Navy conducted a study of the standard workweek and identified significant issues that could negatively affect a crew’s capabilities to accomplish tasks and maintain the material readiness of ships, as well as crew safety issues that might result if crews slept less to accommodate workload that was not accounted for. The Navy study found that sailors were on duty 108 hours a week, exceeding their weekly on-duty allocation of 81 hours. This on-duty time included 90 hours of productive work—20 hours per week more than the 70 hours that are allotted in the standard workweek. This, in turn, reduced the time available for rest and resulted in sailors spending less time sleeping than was allotted, a situation that the study noted could encourage a poor safety culture. Moving forward, the Navy will likely face manning challenges, especially given its current difficulty in filling authorized positions, as it seeks to increase the size of its fleet by as much as 30 percent over its current size. Navy officials stated that even with manpower requirements that accurately capture all workload, the Navy will be challenged to fund these positions and fill them with adequately trained sailors at current personnel levels. Figure 6 shows the Navy’s projected end strength and fleet size. In our May 2017 report, we found that the Navy’s guidance does not require that the factors it uses to calculate manpower requirements be reassessed periodically or when conditions change, to ensure that these factors remain valid and that crews are appropriately sized. We made several recommendations to address this issue, including that the Navy should (1) reassess the standard workweek, (2) require examination of in- port workload, (3) develop criteria to reassess the factors used in its manpower requirements process, and (4) update its ship manpower requirements. DOD concurred with our recommendations, stating that it is committed to ensuring that the Navy’s manpower requirements are current and analytically based and will meet the needs of the existing and future surface fleet. As of August 2017, DOD had not yet taken any actions to implement these recommendations. We believe that, until the Navy makes the needed changes, its ships may not have the right number and skill mix of sailors to maintain readiness and prevent overworking its sailors. To address its persistently low readiness levels, the Navy began implementing a revised operational schedule in November 2014, which it referred to as the optimized fleet response plan. This plan seeks to maximize the employability of the existing fleet while preserving adequate time for maintenance and training, providing continuity in ship leadership and carrier strike group assignments, and restoring operational and personnel tempos to acceptable levels. The Navy’s implementation of the optimized fleet response plan—and readiness recovery more broadly—is premised on adherence to deployment, training, and maintenance schedules. However, in May 2016, we found that the Navy was having difficulty in implementing its new schedule as intended. Both the public and private shipyards were having difficulty completing maintenance on time, owing primarily to the poor condition of the ships after more than a decade of heavy use, deferred maintenance, and the Navy’s inability to accurately predict how much maintenance they would need. We reported that in 2011 through 2014 only 28 percent of scheduled maintenance for surface combatants was completed on time and just 11 percent was completed on time for aircraft carriers. We updated these data as of August 2017 to include maintenance availabilities completed through the end of fiscal year 2016 and found continued difficulty completing maintenance on time for key portions of the Navy fleet (see figure 7): Aircraft Carriers (CVNs): In fiscal years 2011 through 2016, maintenance overruns on 18 of 21 (86 percent) aircraft carriers resulted in a total of 1,103 lost operational days—days that ships were not available for operations—the equivalent of losing the use of 0.5 aircraft carriers each year. Surface Combatants (DDGs and CGs): In fiscal years 2011 through 2016, maintenance overruns on 107 of 169 (63 percent) surface combatants resulted in a total of 6,603 lost operational days—the equivalent of losing the use of 3.0 surface combatants each year. Submarines (SSNs, SSBNs, and SSGNs): In fiscal years 2011 through 2016, maintenance overruns on 39 of 47 (83 percent) submarines resulted in a total of 6,220 lost operational days—the equivalent of losing the use of 2.8 submarines each year. Navy officials are aware of the challenges faced by both the public and private shipyards and have taken steps to address the risks these pose to maintenance schedules, including hiring additional shipyard workers and improving their maintenance planning processes. However, Navy officials have told us that it will take time for these changes to bring about a positive effect. For example, as of May 2016, data on the public shipyards’ workforce showed that 32 percent of all employees had fewer than 5 years of experience. According to Navy officials, this workforce inexperience negatively affects the productivity of the shipyards, and it will take several years for them to attain full productivity. Just last week, we issued another report, prepared in response to direction from this committee, examining the ability of the Navy’s public shipyards to support the Navy’s readiness needs. We found that capacity limitations as well as the poor condition of the shipyards’ facilities and equipment contributed to the maintenance delays we discussed earlier and were hindering the shipyards’ ability to support the Navy. Specifically, we found that the shipyards will be unable to support 73—or about one-third—of 218 maintenance periods planned over the next 23 years. In addition, this estimate did not factor in planned increases to the fleet. We made three recommendations, with which the Navy agreed to take steps to improve its management of capital investment in the shipyards. However, we noted that at current average funding levels it would take at least 19 years and a Navy-estimated $4.86 billion to clear the backlog of restoration and modernization projects at the shipyards. Furthermore, this estimate does not include the $9 billion that the Navy estimates it will need for capacity and capability upgrades over the next 12 years to support maintenance operations for the current fleet. In September 2016, we found that although DOD has stated that readiness rebuilding is a priority, implementation and oversight of department-wide readiness rebuilding efforts did not fully include key elements of sound planning, and the lack of these elements puts the overall rebuilding efforts at risk. The Navy states that its overall goal for readiness recovery is to reach a predictable and sustainable level of global presence and surge capacity from year to year. The Navy identified carrier strike groups and amphibious ready groups as key force elements in its plan for readiness recovery and had set 2020 for reaching a predictable and sustainable level of global presence and surge capacity by implementing the optimized fleet response plan. However, we found in 2016 that the Navy faced significant challenges, such as delays in completing maintenance and emerging demands, in achieving its readiness recovery goals for carrier strike groups and amphibious ready groups, and projections show that the Navy will not meet its time frames for achieving readiness recovery. As a result, we recommended that DOD and the services establish comprehensive readiness goals, strategies for implementing them, and associated metrics that can be used to evaluate whether readiness recovery efforts are achieving intended outcomes. DOD generally concurred with our recommendations and, in November 2016, issued limited guidance to the military services on rebuilding readiness; it has also started to design a framework to guide the military services in achieving readiness recovery but has not yet implemented our recommendations. The Navy has since extended its time frame for readiness recovery to at least 2021, but it still has not developed specific benchmarks or interim goals for tracking and reporting on readiness recovery. Navy officials cited several challenges to rebuilding readiness, chief among them the continued high demand for its forces, the unpredictability of funding, and the current difficulty with beginning and completing ship maintenance on time. In January 2017, the President directed the Secretary of Defense to conduct a readiness review and identify actions that can be implemented in fiscal year 2017 to improve readiness. DOD and Navy officials told us that, as part of this readiness review, the Navy prioritized immediate readiness gaps and shortfalls. These officials added that this review would guide the Navy’s investment decisions in future budget cycles, with the intention to rebuild readiness and prepare the force for future conflicts. However, high demand for naval presence will continue to put pressure on a fleet that is already stretched thin across the globe. Looking to the future, the Navy has plans to grow its fleet by as much as 30 percent, but it has not yet shown the ability to adequately man, maintain, and operate the current fleet. These readiness problems need to be addressed and will require the Navy to implement our recommendations—particularly in the areas of assessing the risks associated with overseas basing, reassessing sailor workload and the factors used to size ship crews, managing investments in its shipyards, and applying sound planning and sustained management attention to its readiness rebuilding efforts. In addition, continued congressional oversight will be needed to ensure that the Navy demonstrates progress in addressing its maintenance, training, and other challenges. Chairmen McCain, Ranking Member Reed, and Members of the Committee, this concludes my prepared statement. I would be pleased to respond to any questions you may have at this time. If you or your staff have questions about this testimony, please contact John Pendleton, Director, Defense Capabilities and Management at (202) 512-3489 or pendletonj@gao.gov. Contact points for our offices of Congressional Relations and Public Affairs may be found on the last page of this statement. GAO staff who made key contributions to this testimony are Suzanne Wren, Assistant Director; Steven Banovac, Chris Cronin, Kerri Eisenbach, Joanne Landesman, Amie Lesser, Felicia Lopez, Tobin McMurdie, Shari Nikoo, Cody Raysinger, Michael Silver, Grant Sutton, and Chris Watson. Over the past three years, we issued several reports related to Navy readiness cited in this statement. Table 1 summarizes the status of recommendations made in these reports, which contained a total of 14 recommendations. The Department of Defense generally concurred with all of these recommendations but has implemented only one of them to date. For each of the reports, the specific recommendations and their implementation status are summarized in tables 2 through 5. The Navy defines a class A mishap as one that results in $2 million or more in damages to government or other property, or a mishap that resulted in a fatality or permanent total disability. We analyzed data compiled by the Naval Safety Center for fiscal years 2009 through 2017 to provide a summary of major Navy mishaps at sea (see table 6). Report numbers with a C or RC suffix are Classified. Classified reports are available to personnel with the proper clearances and need to know, upon request. Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operation. GAO-17-548. Washington, D.C.: September 12, 2017. Navy Readiness: Actions Needed to Address Persistent Maintenance, Training, and Other Challenges Facing the Fleet. GAO-17-798T. Washington, D.C.: September 7, 2017. Department of Defense: Actions Needed to Address Five Key Mission Challenges. GAO-17-369. Washington, D.C.: June 13, 2017. Military Readiness: Coastal Riverine Force Challenges. GAO-17-462C. Washington, D.C.: June 13, 2017. (SECRET) Navy Force Structure: Actions Needed to Ensure Proper Size and Composition of Ship Crews. GAO-17-413. Washington, D.C.: May 18, 2017. Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk without a Comprehensive Plan. GAO-16-841. Washington, D.C.: September 7, 2016. Navy and Marine Corps: Services Face Challenges to Rebuilding Readiness. GAO-16-481RC. Washington, D.C.: May 25, 2016. (SECRET//NOFORN) Military Readiness: Progress and Challenges in Implementing the Navy’s Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May 2, 2016. Navy Force Structure: Sustainable Plan and Comprehensive Assessment Needed to Mitigate Long-Term Risks to Ships Assigned to Overseas Homeports. GAO-15-329. Washington, D.C.: May 29, 2015. Military Readiness: Navy Needs to Assess Risks to Its Strategy to Improve Ship Readiness. GAO-12-887. Washington, D.C.: September 21, 2012. Force Structure: Improved Cost Information and Analysis Needed to Guide Overseas Military Posture Decisions. GAO-12-711. Washington, D.C.: June 6, 2012. Military Readiness: Navy Needs to Reassess Its Metrics and Assumptions for Ship Crewing Requirements and Training. GAO-10-592. Washington, D.C.: June 9, 2010. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "Since January 2017, the Navy has suffered four significant mishaps at sea that resulted in serious damage to its ships and the loss of 17 sailors. Three of these incidents involved ships homeported in Japan. In response to these incidents, the Chief of Naval Operations ordered an operational pause for all fleets worldwide, and the Vice Chief of Naval Operations directed a comprehensive review of surface fleet operations, stating that these tragic incidents are not limited occurrences but part of a disturbing trend in mishaps involving U.S. ships. This statement provides information on the effects of homeporting ships overseas, reducing crew size on ships, and not completing maintenance on time on the readiness of the Navy and summarizes GAO recommendations to address the Navy's maintenance, training, and other challenges. In preparing this statement, GAO relied on work it has published since 2015 related to the readiness of ships homeported overseas, sailor training and workload issues, maintenance challenges, and other issues. GAO updated this information, as appropriate, based on Navy data. GAO's prior work shows that the Navy has increased deployment lengths, shortened training periods, and reduced or deferred maintenance to meet high operational demands, which has resulted in declining ship conditions and a worsening trend in overall readiness. The Navy has stated that high demand for presence has put pressure on a fleet that is stretched thin across the globe. Some of the concerns that GAO has highlighted include: Degraded readiness of ships homeported overseas: Since 2006, the Navy has doubled the number of ships based overseas. Overseas basing provides additional forward presence and rapid crisis response, but GAO found in May 2015 that there were no dedicated training periods built into the operational schedules of the cruisers and destroyers based in Japan. As a result, the crews of these ships did not have all of their needed training and certifications. Based on updated data, GAO found that, as of June 2017, 37 percent of the warfare certifications for cruiser and destroyer crews based in Japan—including certifications for seamanship—had expired. This represents more than a fivefold increase in the percentage of expired warfare certifications for these ships since GAO's May 2015 report. The Navy has made plans to revise operational schedules to provide dedicated training time for overseas-based ships, but this schedule has not yet been implemented. Crew size reductions contribute to sailor overwork and safety risks: GAO found in May 2017 that reductions to crew sizes the Navy made in the early 2000s were not analytically supported and may now be creating safety risks. The Navy has reversed some of those changes but continues to use a workweek standard that does not reflect the actual time sailors spend working and does not account for in-port workload—both of which have contributed to some sailors working over 100 hours a week. Inability to complete maintenance on time: Navy recovery from persistently low readiness levels is premised on adherence to maintenance schedules. However, in May 2016, GAO found that the Navy was having difficulty completing maintenance on time. Based on updated data, GAO found that, in fiscal years 2011 through 2016, maintenance overruns on 107 of 169 surface ships (63 percent) resulted in 6,603 lost operational days (i.e., the ships were not available for training and operations). Looking to the future, the Navy wants to grow its fleet by as much as 30 percent but continues to face challenges with manning, training, and maintaining its existing fleet. These readiness problems need to be addressed and will require the Navy to implement GAO's recommendations—particularly in the areas of assessing the risks associated with overseas basing, reassessing sailor workload and the factors used to size ship crews, managing investments to modernize and improve the efficiency of the naval shipyards, and applying sound planning and sustained management attention to its readiness rebuilding efforts. In addition, continued congressional oversight will be needed to ensure that the Navy demonstrates progress in addressing its maintenance, training, and other challenges. GAO made 14 recommendations in prior work cited in this statement. The Department of Defense generally concurred with all of them but has implemented only 1. Continued attention is needed to ensure that these recommendations are addressed, such as the Navy assessing the risks associated with overseas basing and reassessing sailor workload and factors used in its manpower requirements process." ]	3,534	gov_report	en	null	3e8ad49dcf944a40c33361105c7fda3e4e569af90ba6da05
T he term digital economy has fluid meaning in different policy contexts. Broadly speaking, this term can refer to any number of everyday economic activities that are connected over computers, mobile phones, or other internet-connected devices. In the realm of international tax policy, though, certain types of activities and markets have been singled out for selective taxation by some jurisdictions—primarily in Europe. Most of these digital economy business models operate in "two-sided markets" in which they provide services to individual users (sometimes at zero charge) and sell other services to businesses (e.g., advertising to users). Proponents of these "digital services taxes" (DSTs) justify them on a number of grounds, including the goal of having multinational corporations (MNCs) pay their "fair share" of taxes, taxing profits purportedly derived from consumers in their jurisdictions, or adapting traditional rules and systems of international taxation to account for new forms of "disruptive" business models that can be conducted virtually over the internet. U.S. opposition to these unilateral taxes has been voiced by several government officials. Robert Stack, while Treasury Deputy Assistant Secretary for International Tax Affairs under President Obama, said that such efforts are primarily political efforts to target U.S. corporations. More recently, Treasury Secretary Steven Mnuchin has issued multiple statements in opposition to unilateral taxation of digital economy businesses. Some Members of the tax-writing committees in Congress have also criticized these efforts. This report analyzes DST proposals from an economic and policy perspective as they have been introduced, discussed, and adapted in European countries. Some commentators and policymakers argue that MNCs in the digital economy are "undertaxed" or are not paying a "fair share" of taxes in their jurisdictions. Two issues that often underlie these sentiments are (1) the ability of digital economy MNCs to provide services without establishing a physical presence (or "permanent establishment") in the country in which their customers reside and (2) the ability of digital economy MNCs to shift their profits away from countries where they conduct real economy activity (e.g., sales, development, production) toward low-tax jurisdictions where the MNCs are conducting little to no real economic activity. Even if a country is able to establish the right to tax an MNC's profits in the digital economy (via permanent establishment rules), the profits subject to tax in that jurisdiction could be reduced via transfer pricing rules. A commonly held principle across international tax law is that there must be a substantial enough connection between a country and a corporation's activities to establish "nexus" in that country, enabling the country the first right to tax the corporation's income or profits earned from sales in that country. Specific criteria for what constitutes a permanent establishment are written into bilateral tax treaties, but they often require a fixed, physical presence within the country. Once a right to tax has been created, a country can tax a portion of the MNC's cross-border profits that can be sourced to its jurisdiction. MNCs can earn income from local residents without creating a permanent establishment in that jurisdiction. Rules creating a permanent establishment based on physical nexus might not be triggered by digital activities over the internet because "the internet" is not physically located in any one country. The internet is a global network of computers. For example, Google can sell advertising space on its search results to a French business without creating a permanent establishment in France. The physical servers processing the payment and posting the advertisements do not have to be located in France. In response, different countries and intergovernmental organizations have tried or proposed modifying definitions and interpretations of permanent establishment rules to include "digital presence" criteria. These criteria include users, "clicks," or other digital activities with origins in the local jurisdiction. The " Select International Efforts to Tax the Digital Economy " section of this report discusses these proposals in more detail. Transfer pricing rules dictate how profits from transactions between related entities within the MNC should be divided among multiple countries for tax purposes. From the U.S. perspective, transfer pricing rules are intended to prevent taxpayers from shifting income properly attributable to the United States to a related foreign company (and vice versa) through pricing that does not reflect an arm's-length result. In practice, though, the arm's-length standard can be difficult to administer on intra-company transactions within an MNC in which there is no market where independent parties bargain over price. Sophisticated transfer pricing strategies can result in an MNC's global profits being subject to a low effective tax rate across multiple tax jurisdictions. MNCs in the digital economy, in particular, can use transfer pricing strategies to reduce the effective tax rate imposed on their cross-border income, because their primary sources of income are often derived from intangible assets (e.g., patents, algorithms, trademarks, and marketing licenses). These assets are more challenging for "arm's-length" pricing because it is difficult to determine the value of a comparable sale of such unique technologies and services. Additionally, intangible assets can be sold to a corporate entity in a low-tax jurisdiction at relatively low cost as they do not require the relocation of corporate headquarters or physical factories, workforces, etc. The exact tax planning methods used by MNCs can vary, but generally they involve the parent (e.g., located in the United States) selling the income-earning ownership rights to those intangible assets to a subsidiary corporation in a low-tax jurisdiction. Early on, a firm developing a potentially profitable intangible asset in a higher-tax jurisdiction might create a subsidiary in a low-tax jurisdiction and sell or assign the ownership rights to that subsidiary. Creation of this "shell corporation" is primarily a paper transaction for the purposes of holding ownership of the profit-generating intangible asset. One way that this could happen is through a cost-sharing agreement in which a U.S. corporate owner of an existing intangible asset agrees to make the rights available to a foreign affiliate in exchange for other resources and funds to be applied toward the joint development of a new marketable product or service. Under a cost-sharing agreement, a foreign affiliate makes an initial buy-in payment for existing technology that, in theory, should reflect an "arm's-length" price that would be paid by an unrelated party. It then receives the income accruing to that asset. Subsequently, the foreign affiliate shares in the cost of continuing technological development. The cost-sharing payments made by the foreign affiliate to the U.S. corporation are income to the U.S. parent, and the foreign affiliate gains the right to use the advance in technology in a specified foreign market. This results in two outcomes. First, the MNC can use transfer pricing rules to maximize costs attributable to subsidiaries in higher-tax jurisdictions. Thus, the taxable income earned by the subsidiaries in higher-tax jurisdictions is reduced to as close to zero as possible. And second, taxable income realized by the shell corporation in the lower-tax jurisdiction is increased. For example, a U.S. corporation establishes a subsidiary in Jersey, an island in the English Channel with a standard corporate tax rate of 0%. The subsidiary buys an existing mobile phone technology developed by its parent U.S. corporation. The subsidiary has bought the right to earnings from marketing that technology in phones throughout Europe. The original cost-sharing payment to the parent would be subject to U.S. tax. The agreement allows the Jersey subsidiary to use updated versions of that technology in the European market from research conducted in the United States. Although the intangible assets were originally developed and improved in the United States, earnings from the mobile phone sales in Europe flow to the Jersey subsidiary and are taxed at 0%. Concerns over the ability for MNCs to avoid corporate income taxes have led to much discussion within national governments and among developed countries in international economic settings. As some of these discussions have met impasse, for various reasons, some countries have unilaterally proposed or implemented policies to tax digital economy MNCs on specific grounds. This section of the report provides a brief historical overview of these recent discussions and select unilateral DST proposals in Europe. While efforts to tax the digital economy have not been limited to European countries, efforts to develop policy principles and justifications in support of these specific taxes on digital economy markets have primarily been driven by politicians and commentators in Europe, including the United Kingdom. This report will not provide a comprehensive account of each DST proposal or be updated to track the rapid pace of policy modifications and emerging proposals. In 2013, members of the Organization for Economic Cooperation and Development (OECD) and G-20 initiated the Base Erosion and Profit Shifting (BEPS) Project. The result of this multiyear effort is the 2015 BEPS Action Plan, which represents the consensus of the member countries that participated in the BEPS Project. Article 1 of the BEPS Action Plan analyzes the implications that the digital economy could have for modern tax systems, including taxes on corporate profits (i.e., corporate income taxes), withholding taxes (e.g., on royalties), and value-added taxes (VATs). Article 1 acknowledges that "it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes" given the importance of digital platforms and business models in modern economies. In light of this finding, though, Article 1 discusses potential new tax principles to enable countries to tax the profits earned by firms in the digital economy. Specifically, Article 1 discusses expanding on the widely accepted principle that profits should be taxed "where value is created" to include the notion that value-creating activities include user interaction. For example, YouTube profits when users post their videos and create content on its channels and generates more revenue in advertisement sales based on increased viewer traffic. Additionally, Article 1 considers using "significant economic presence" rather than physical presence as the standard nexus for sourcing which jurisdiction has the right to tax. "Significant economic presence" could be measured by a corporation's revenues earned from customers in a country. The various DST proposals in Europe share many of the features of digital taxation options discussed in the OECD BEPS report. Following the release of the 2015 BEPS Action Plan, the OECD has continued work in this area with its Task Force on the Digital Economy. On March 16, 2018, the task force released an interim report reflecting three different perspectives by its members. One perspective is that user-value creation has led to a "misalignment between the location in which profits are taxed and the location in which value is created" in some digital economy business models. This user-created value argument, discussed more throughout this report, has been used by many proponents of DSTs. A second perspective is that the challenges of tax policy presented by the digital economy are not exclusive to specific business models and should be addressed within the existing international tax framework for business profits. A third perspective is generally satisfied with recent BEPS recommendations and the existing international tax system and does not see a need for significant reform. Despite divisions reflected in the interim report, the task force aims to create an international consensus on principles for taxing the digital economy with a goal of releasing a final report on conclusions and recommendations by 2020. In March 2018, the European Commission announced a digital tax package containing two proposals. The first proposal would expand the definition of permanent establishment to include cases where a company had significant economic activity through a "digital presence," thereby allowing EU members to tax profits that are generated in their jurisdiction even if a firm does not have a physical presence. Under the proposal, a digital platform would be deemed to have established a "virtual permanent establishment" in an EU member state if it (1) exceeds a threshold of €7 million in annual revenues in a member state, (2) has more than 100,000 users in a member state in a taxable year, or (3) has over 3,000 business contracts for digital services business users in a taxable year. Until that more systemic change in permanent establishment rules is adopted, the second proposal would impose an "interim tax" on certain revenue from digital activities: selling online advertising, online marketplaces (facilitating the buying and selling of goods and services between users), and sales of data generated from user-provided information. The interim DST would apply only to companies with total annual worldwide revenues of at least €750 million and EU revenues of at least €50 million. The European Commission estimated that a 3% tax rate would raise €5 billion annually for member states. Media reports indicate that the EU-wide proposals have stalled partly due to disagreement among member states with different economic interests and questions as to whether the proposals would be legal under EU law. In support of its digital tax proposals, the European Commission argues that existing tax rules do not account for how value is "created by users" in the digital economy: Today's international corporate tax rules are not fit for the realities of the modern global economy and do not capture business models that can make profit from digital services in a country without being physically present. Current tax rules also fail to recognise the new ways in which profits are created in the digital world, in particular the role that users play in generating value for digital companies. As a result, there is a disconnect—or 'mismatch'—between where value is created and where taxes are paid. In discussing "value creation in the digital economy," the European Commission states: In the digital economy, value is often created from a combination of algorithms, user data, sales functions and knowledge. For example, a user contributes to value creation by sharing his/her preferences (e.g., liking a page) on a social media forum. This data will later be used and monetised for targeted advertising. The profits are not necessarily taxed in the country of the user (and viewer of the advert), but rather in the country where the advertising algorithms has been developed, for example. This means that the user contribution to the profits is not taken into account when the company is taxed. Despite the policy pronouncements of the European Commission, member states of the EU disagree on both the long-term (changes to the permanent establishment rules to include digital presence factors) and interim (an EU-wide DST) proposed policies regarding the digital economy. On December 4, 2018, the economics and finance ministers of various EU member states met as part of the EU's Economic and Financial Affairs (Ecofin) Council. As part of its agenda, the Ecofin Council was scheduled to consider a vote on the EU's DST proposal. According to media reports, a vote was not formally considered, as it was apparent that multiple members held out in opposition against the DST. As of the publication date of this report, the issues are still under consideration by the Ecofin Council. Even if opponents to the broad, EU-wide DST proposed by the European Commission successfully block adoption of such a tax, this does not mean that individual members states are also barred from imposing their own national-level DSTs. Policy and political pressure for DSTs still exist within many EU member states. According to one media report, approximately 11 of the 28 EU member states were considering or had adopted DSTs before the Ecofin meeting. In April 2018, Spain announced that it would introduce a DST of 3% to the gross income derived from certain digital services. According to a preliminary text of the proposal, beginning in 2019, the tax will be imposed on certain digital services, including online advertising, online marketplaces, and data transfer service (i.e., revenue from the sales of online user activities) determined from internet protocol (IP) addresses within Spain. The tax would apply only to companies with global revenues for the previous calendar year exceeding €750 million and €3 million in revenues earned in that current year from activities with users in Spain. On October 29, 2018, the Conservative Party introduced a DST as part of its 2018 budget proposal. Specifically, the tax would be levied at 2% on the applicable revenues of "certain digital businesses which derive value from their UK users." Revenue subject to tax include search engines, social media platforms, and online marketplaces derived from the participation of UK users. Users is defined broadly and can include interactions (e.g., payments made or clicks) from UK participants on either side of a two-sided digital market. The tax would apply only to businesses whose revenues from covered business activities exceed £25 million per year and groups that generate global revenues from search engines, social media platforms, and online marketplaces in excess of £500 million annually. There would also be a safe harbor provision that exempts "loss-makers and reduces the effective rate of tax on businesses with very low profit margins." A "review clause" would be included in the DST to ensure that it is still required following further international tax reform discussions. The specifics of the DST are to be detailed in legislation to be considered by Parliament that is expected to be introduced in April 2020. The UK Treasury estimates that the DST will raise £400m by 2022-2023 and £440m by 2023-2024. According to the UK Treasury, the DST serves as "interim action" to "ensure that digital businesses pay tax that reflects the value they derive from UK users" until international corporate tax reform efforts determine a comprehensive method to tax income earned from these types of multinational corporate business models. On December 17, 2018, Bruno Le Maire, Finance Minister of France, announced that the government was going to impose a DST beginning on January 1, 2019. Le Maire said that the tax is estimated to raise around €500 million annually. Details on what activities would be covered and the rate of tax were not provided but may be addressed in legislative sessions. Le Maire's announcement came the week after EU finance ministers did not reach agreement on an EU-wide DST at the December 2018 Ecofin meeting and shortly after President Emmanuel Macron announced billions of euros in tax cuts and spending in response to domestic social unrest. According to media coverage of the announcement, the decision to impose a DST seems to be motivated at least in part by a perceived unfairness in the amount of taxes paid by foreign corporations compared to domestic corporations. This section of the report first identifies the fundamentals of a corporate profits tax before addressing justifications that some have offered for DSTs. DSTs have been characterized as extensions of different types of tax regimes ranging from a tax on corporate profits in the digital economy to something more like a selective or excise tax on specific types of activities that is standalone from income tax regimes. Based policy analysis, though, DSTs resemble a selective tax on revenue (akin to an excise tax) and not as a tax on corporate profits. A tax on corporate profits taxes the return to investment in the corporate sector. Investment is giving up income for consumption today for the promises of higher returns, or earnings, in the future. Investment can be made in tangible assets, such as factories or equipment, or intangible assets, such as patents or trade secrets. The earnings eventually generated by the assets owned by corporations are taxed under the corporate profits tax. As discussed in the "Permanent Establishment" section of this report, domestic tax laws and international agreements provide the first right to tax income at its physical source—that is, where the asset is owned. The locations of a corporation's customers do not determine which country has a right to tax its income. For example, if a U.S. firm manufactures goods in the United States and exports those goods to European countries, then those European countries do not have a right to tax the earnings of the U.S. firm just because of its sale to European customers. Under some tax regimes, countries retain the right to impose a residual tax by taxing foreign-source income (i.e., income earned from overseas) and allowing a foreign tax credit. But the right to impose that residual tax on income from foreign incorporated subsidiaries is based on a domestic corporation owning some minimum percentage of the foreign business entity (i.e., a controlled foreign corporation, or CFC). In the United States, income from foreign branches is taxed currently and eligible for a credit. For example, the United States could tax the income that a firm earned from overseas sales if that firm is owned in part or in full by a U.S. parent in the year that the foreign-source income was earned (i.e., "currently," or not subject to deferral). However, most countries do not exercise this residual right to tax foreign-source income outside of income that can be easily shifted to low-tax countries. European Commission authorities appear to be characterizing their DST proposal as an extension of national-level corporate income taxes. In contrast, the UK has framed its DST as a gross receipts tax and specifically says that it is not an income tax. Regardless of these mixed characterizations, a policy analysis of DSTs indicate that they do not resemble a tax on corporate profits. First, as explained above, international tax rules do not provide countries a right to tax an MNC's cross-border income solely because their residents purchase goods or services provided by that firm. Rather, ownership of assets justifies a country to tax that MNC's profits. Second, DSTs, as they have been introduced thus far, are not structured as taxes on corporate profits. Corporate accounting profit is equal to total revenue minus total cost. Many corporate income tax systems tax corporate profits (along some policy spectrum of resident-based or worldwide-based rules). In contrast, DSTs are structured as "turnover taxes" that apply to the revenue generated from taxable activities regardless of costs incurred to a firm. The first section of the Appendix provides an algebraic illustration to show that a DST may have different consequences for the after-tax accounting profits of a firm than an income tax levied at the same tax rate. Third, DSTs are economically equivalent to excise taxes on intermediate services in the supply chains of various markets. As explained in the "Economic Efficiency" section of this report, the economic incidence of a DST is likely to be borne by purchasers of taxable services (e.g., companies paying digital economy firms for advertising, marketplace listings, or user data) and possibly consumers downstream from those transactions, depending on supply-and-demand conditions in each stage of the supply chain. It could be possible under specific market conditions (i.e., in which firms subject to the statutory incidence of a DST earn supernormal economic profits or have monopoly power) that DSTs could reduce corporate profits of firms in the digital economy. Under this scenario, even though DSTs would not still be structured as a tax on profits (from a plain reading of the implementing law), they could have the economic effect of a tax on profits. For reasons discussed later in this report, though, it would be difficult to demonstrate that digital economy firms generate supernormal economic profits or are monopolies within the larger markets in which they operate. Proponents of DSTs argue that profits earned by MNCs in the digital economy are not adequately taxed on a worldwide basis, as many of these firms have reduced their effective tax rates through international tax planning strategies. As discussed earlier in the " Tax Issues Highlighted by the Digital Economy " section of this report, two prongs of these tax planning strategies include avoiding permanent establishments in higher-tax jurisdictions and using transfer pricing to shift profits to lower-tax jurisdictions. Other strategies that help MNCs, both inside the digital economy and outside, avoid income tax include debt and earnings stripping, avoiding withholding taxes, and contract manufacturing. Critics of basing DSTs on this position could make several arguments. First, revenues lost from profit shifting are lost revenues to the country with the right to tax the corporation that owns the asset, not the country that is home to the corporation's customers. Although many developed economies are concerned with ensuring that profits are taxed from their proper source under international tax laws, a country that imposes a DST on foreign MNCs' income (in which they have no right to tax) is not consistent with the rationale of recouping revenue lost from the profit-shifting practices of that country's firms. Second, tax strategies enabling MNCs to pay little to no tax have been used by a broad array of firms that rely on intangible assets for the majority of their profits, and these firms are not limited to industries in the "digital economy." For example, European Commission authorities recently opened investigations into tax benefits conferred by its members on McDonald's (over royalty payments made by franchisees for use of the company's brand) and Starbucks (over royalty payments for coffee roasting "know-how" and the price of its unroasted beans). Thus, it can be argued that DSTs arbitrarily target firms within the digital economy for allegedly excessive profit shifting. Third, tax policies in a number of countries have recently changed or are scheduled to change in ways that will reduce incentives for profit shifting. These changes will most likely affect firms with the most aggressive profit-shifting strategies, including some digital economy firms. In the United States, a number of provisions enacted in P.L. 115-97 have reduced or will likely reduce economic incentives for U.S. MNCs to engage in profit shifting and tax avoidance. In addition to reducing the top marginal corporate tax rate from 35% to 21% —and, thus, the potential tax savings from profit shifting— P.L. 115-97 contains several other policy changes discouraging profit shifting, such as "Thin capitalization" rules limiting the benefits to earnings and debt stripping, such as reducing the share deductions of interest from 50% to 30% of adjusted taxable income for businesses with gross receipts greater than $25 million and eliminating a safe harbor that exempted firms without high debt-to-equity ratios. A new tax on "global intangible low-taxed income" (GILTI), effectively imposing a 10.5% minimum tax rate on the intangible income of CFCs in years 2018-2025 and 13.125% after 2025. In other words, if U.S. corporations are largely the center of concerns about digital economy MNCs not paying a "fair share" of their worldwide profits in tax, then GILTI provides a "floor" in the amount of tax owed by firms that previously sought out tax homes for their intangible assets in countries that imposed low or zero income tax. A "deemed repatriation" tax on accumulated post-1986 earnings at rates of 15.5% (if held in cash) and 8% (other, noncash assets), with applicable foreign tax credits similarly reduced. In other words, retained earnings of U.S. MNCs that were held abroad (often in low-tax jurisdictions) are now subject to tax. U.S. firms that invert are subject to a number of penalties, such as higher tax rates on the stock compensation of the inverting company's executives, a recapture of the deemed repatriation rate on post-1986 earnings (subjecting these earnings instead to 35% instead of 8% or 15.5%), and application of ordinary individual income tax rates instead of lower qualified dividend/long-term capital gains rates on certain dividends issued from the new foreign parent of the inverting U.S. company. Some European countries have taken efforts to change policies that were characterized by some as enabling tax avoidance among digital economy MNCs. For example, Ireland is phasing out tax provisions by 2020 behind the "double Irish sandwich." Some digital economy firms reportedly used this tax planning strategy to reduce the effective rate of tax on their cross-border income (e.g., advertising sales in Europe) and shift their profits to "tax havens" that impose no tax on corporate income. Furthermore, the Netherlands is considering imposing a withholding tax on royalty payments to low-tax jurisdictions by 2021. Although tax-minimizing international tax planning still exists, policy changes have reduced the benefits of using past strategies that raised concerns of MNCs routing income through a complicated series of international business entities for the primary purpose of reducing tax owed. Fourth, DST proposals are unlikely to affect profit-shifting behavior. As explained above, a tax on corporate profits, in a very general sense, taxes corporate income minus the costs of production. In contrast, DSTs are imposed on gross revenue derived from certain business activities (or "turnover") and do not take into account costs or net profits earned by the taxable firm. Thus, economic incentives for MNCs to shift profits remain unchanged by DSTs as they do not affect profit-maximizing decisions at the margins. As discussed in the " Select International Efforts to Tax the Digital Economy " section of this report, statements by the European Commission and United Kingdom claim that tax regimes are not adequately taxing the "value" created by user contributions and behavioral data that forms a key part of the business models of firms in the digital economy. The user-based value creation argument says that some digital platforms benefit from "network effects," in which the contributions of one user benefit other users and draw more users to utilize the platform. For example, a UK user creates a video on YouTube that is widely shared or promoted among other UK users. The increased user traffic benefits YouTube because more users are seeing advertisements that it has placed on its site. Thus, the video content creator has created "value" to YouTube by generating more advertising revenue to the platform. As another example, Yelp is a website and mobile application that allows users to provide restaurant and business reviews. Yelp generates revenue primarily from targeted advertising placed on its website. As more users provide higher-quality reviews, more users will rely on Yelp. Thus, the quality of user contributions creates "value" for Yelp's business model by increasing advertising revenue. Critics of this user-based "value-creation" argument could make various rebuttals. First, business models in the digital economy do not raise novel or "disruptive" challenges to income tax frameworks. In the digital economy, it is common for firms to operate in two-sided markets, where they sell or provide services to two sets of customers. For example, a social media company could use revenue earned from customers on one side of the market (advertising sales to businesses) to subsidize the free provision of services to customers on the other side of the market (individual platform users). A company providing free health and athletic tracking services can charge lower prices for a wearable device if it can sell aggregated user data to another marketer. This method of earning income across two-sided markets, though, is not new. For example, the advent of radio and television broadcasting in the 1900s operated on the same business model, where individual users consumed free programming in exchange for listening or viewing advertisements from sponsors. Just because French households along the border with Italy listen to Italian advertisements on an Italian radio station does not give France the right to tax the Italian radio station's advertising revenues. By analogy, just because French households are able to view online advertisements placed by a U.S. company on a U.S.-owned social media platform does not give France the right to tax the U.S. social media firm's advertising revenue. Second, the "value created" in the digital economy is achieved by the innovations and assets of the companies themselves, not by the actions of a single user. The companies—not the customers—bear the risk associated with investments in innovative technologies and platforms. They hire the workers, conduct the research, and develop the software, algorithms, and patentable innovations. For example, a key capability of many digital economy platforms is the ability to aggregate large amounts of data points across millions (if not billions) of users and repurpose that information for targeted adverting or directly selling goods and services. The technology enabling the aggregation of the user data and identifying patterns in consumer behavior is what adds value for resale to potential advertisers or retailers. Third, user contributions can be viewed as inputs to digital economy business models. It can be argued that the value of a single user's data or input is worth little to no market value in isolation. This is why users are generally willing to let companies track and collect these data without charge. Even if digital business models that allow individual users to monetize and sell their individual data grow, any income earned by individual users would be subject to tax under existing tax systems. For example, property owners on Airbnb are subject to income taxes and other hospitality fees levied by their national and local governments. YouTube "influencers" that are sponsored by companies pay personal income tax on those earnings to their home countries. Fourth, user contributions can be viewed as a substitute for money exchanged by consumers for the provision of digital services. "Direct provision," in this context, has the same meaning as "sale of" digital services, except there is no money exchanged in the transaction (i.e., bartering). For example, take the market for data generated by user-provided information. Google users agree to have Google track their search queries in exchange for the free use of Google's search engine. Similarly, Facebook users agree to have their likes, posts, and network connections tracked and aggregated for sale to advertisers in exchange for the use of Facebook's social media platform at zero cost. These transactions, it is argued, maximize the economic welfare of both consumers and producers. Consumers benefit because the behavioral data of any one user has little to zero market value (as discussed above), but consumers do value the provision of digital goods and services. Producers of digital services benefit because they are able to generate revenue from repurposing aggregated user data in exchange for operating their digital platforms at little to no cost to users. As another example, Amazon's business model can be viewed like a catalog retail merchant that features the goods of different manufacturers. A catalog retail merchant earns income by selling space to manufacturers for the privilege of featuring their products in the merchant's catalog. The catalog merchant's customers place an order, and the goods—which are typically manufactured from outside of the jurisdiction where the customer is located—are then shipped to the customer. The customers did not "create value" in that business-to-business transaction via their subscription and purchases of the catalog. By analogy, just because a final consumer of goods sold via Amazon resides in the UK or France does not give those countries the right to tax Amazon's revenues. Fifth, the distinction that customers in the digital economy create value while customers in other industries do not could be viewed as arbitrary. Consumers engage in a countless array of activities that enhance a company's "value" in the course of everyday life. Customer reviews and referrals for services—everything from dog walkers to dry cleaners to dentists—have existed for years and can increase a business's revenues. However, consumers usually do not expect a share of those revenues, nor does the act of providing a review give the country in which that customer resides a right to tax the service provider's profits. Additionally, consumers promote certain brands and companies simply by using their goods or services. This sort of "free marketing" improves the reputation of the brand or firm but does not trigger tax liability based on the location of the consumer. The flow of users to one digital economy platform or another are similar in that mass consumer attraction drives revenue. What the digital economy has changed, though, is the speed and scope in which consumer actions can be relayed to others. Excise taxes are typically justified by economic principles or as revenue-raising measures. From an economic perspective, there are four common types of excise taxes: (1) sumptuary (or "sin") taxes, (2) regulatory or environmental taxes, (3) benefit-based taxes (or user charges), and (4) luxury taxes. The first two categories of excise taxes attempt to correct for a perceived "market failure" in which the actions of individuals in the market have negative spillover effects to society. The third category is typically used to limit the burden of funding a government program that tends to benefit a relatively defined or narrow set of beneficiaries. The fourth category, largely repealed in the United States, uses specific taxes as a means to raise revenue in a more progressive manner. Based on these classifications of excise taxes, it appears that a DST primarily serves as a revenue raising measure. The use of digital platforms does not appear to create negative spillovers to society, creating the economic justification for use of excise taxes to raise the price of individual transactions as a means to reduce the burden on society. DSTs do not appear to be a benefit-based tax, as proponents have not called for dedicating the revenue to specific government programs that benefit digital economy MNCs subject to tax. DSTs also do not appear to be clearly a more progressive method of financing government activities compared to income taxes or broad-based consumption taxes (e.g., value-added taxes) that are common in Europe. As discussed below in the " Vertical Equity (Progressivity) " section of this report, DSTs could be a regressive method of financing government spending in the countries that impose them. This section analyzes DST proposals under the standard tax evaluation criteria used by economists. These criteria are used to understand how a tax affects consumer demand and producer supply, whether a tax aligns with common notions of fairness, and administrative issues that could increase tax compliance costs for taxpayers or affect the ability of governments to collect revenue from a tax. Economic efficiency is typically defined as optimal production and distribution of resources in a market. Taxes typically impede, or distort, that optimal allocation of resources by raising the price of the taxed activity. Central to estimating the magnitude of these distortions is determining who bears the economic burden, or incidence, of the tax. The economic incidence of a tax can differ from the statutory incidence (i.e., who is obligated by law to pay the tax) depending on conditions in the affected market. Once the economic incidence of a tax is established, the exact distortions to consumers and producers can be determined as well as any other economic activity that is typically discouraged by a tax. The statutory incidence of the DST is borne by firms that provide covered services. For example, under the Spanish DST, companies that sell online advertising services, provide platforms for online marketplaces and intermediation services, and data transfer services—all to users with IP addresses within Spain's jurisdiction—will be subject to the DST (providing that they meet the threshold requirements). The economic incidence of such a tax could vary depending on the structure and characteristics of those individual markets, as explained in more technical detail in the Appendix . Under one scenario, digital economy firms providing services subject to the DST are perfectly competitive, and the economic burden is borne by the consumers of the digital services in the form of higher prices over the long term. For example, Spain levies its DST on firms that place digital advertisements, based on the revenue earned from showing advertisements on the search results and web pages of users with Spanish IP addresses. In a perfectly competitive market, firms providing digital advertisements earn zero economic profit in that they could not earn a higher rate of return via alternative investments. When faced with the DST, these advertising firms can either (a) exit the industry and pursue higher returns in other industries that are not subject to tax or (b) pass along the tax in the form of higher prices to businesses that purchase the advertising services. The firms purchasing digital advertising could be Spanish companies, but they could also be foreign firms purchasing advertisements that are ultimately targeted to Spanish users. In this case, the imposition of a DST in a competitive market will increase the price of taxable services and lead to a decline in the quantity demanded. The exact magnitude of these changes will depend on the responsiveness, or "elasticity," of the companies purchasing the internet advertising to changes in price. Assuming that companies purchasing the advertising services are also operating in a perfectly competitive market, they are faced with the same options as the firms that sell internet advertising: exit the industry or pass the tax along to consumers of their goods. Higher prices could result in lower consumer demand for the advertised product. The magnitude of this reduced demand depends on the responsiveness of consumer demand to changes in price (i.e., the price elasticity of demand). Thus, a DST imposed on intermediary services can have ripple effects downstream within markets. Under perfect competition, the economic incidence of an upstream DST is ultimately borne by the final consumers of those advertised products. Under an alternative scenario, sellers of digital services (e.g., Google, Facebook, Amazon) could be monopolies, or a small number of firms could have "market power" (the ability to influence the price for their services prevailing in the market), and at least part of the tax is borne by these firms in the form of reduced economic profits. Firms can derive market power from a number of factors. For example, lack of competition could enable one firm to have a significant effect on the prevailing rate of digital advertising services. Also, the presence of complements and substitutes could affect market power. In contrast to firms in perfectly competitive markets, firms that have market power are able to earn positive economic profits, also known as "supernormal profits," because they are able to set a price above their marginal cost of production. Some have argued that digital economy firms are more likely to generate supernormal profits because the marginal cost of scaling production of their business model is relatively low, if not costless. For example, the marginal cost for Facebook to display an advertisement to a user is basically zero. Others argue that some firms generate supernormal profits because they are operating in an oligopoly or near-monopoly. For example, most search results are conducted through Google, and Facebook has the most users among social media platforms. These arguments, though, may not provide clear indication of supernormal profits. A variation of the first argument could have been made during the rise of the retail catalog industry, where the marginal cost of producing a single magazine and mailing it to a consumer was relatively small. However, the presence of competing catalog retailers should have driven the prices of firms down close to their marginal costs (which encompass more than just the cost of printing one additional catalog). The second argument could be seen to misidentify the structure of "two-sided markets" in which many digital economy firms provide services to individual users as well as businesses. For example, Google provides search engine results to individual users (at no cost) and sells advertising space on those search results to businesses. Even if Google dominates the search engine market, it still competes against other firms, such as Facebook, for digital advertising. Digital economy firms also compete with nondigital economy methods of providing advertising services (e.g., television, print, and radio), which could constrain their ability to set prices well above their marginal cost of production. When faced with the DST, a monopolist or firms with market power bear at least some of the tax in the form of lower profit. This analysis is explained in more detail in the Appendix . How much of the tax is passed along to companies buying the advertising placement (and their customers) depends on the elasticities of supply and demand in those markets. Like the analysis in the competitive market, consumers in the affected industries reduce their demand in response to higher prices. The ultimate implication of the analyses above is that DSTs introduce distortions in various markets by reducing the financial return to capital in digital economy industries or by raising the cost of goods and services intermediated through digital platforms. Investment in affected markets would be expected to decrease. An example of the former would shift investment out of digital economy firms (e.g., as retailers purchase more print, television, or radio advertisement instead of internet advertisement or increased sales via brick-and-mortar or catalog outlets instead of digital), while an example of the latter would involve a reduction in demand of the final goods. The exact magnitude of these changes will vary based on the responsiveness of supply and demand in those various markets. Distortions can also arise in different ways depending on how a particular country's DST is applied to different firms. These issues are described more in the " Differential Treatment of Firms " section below. The principle of vertical equity generally implies that taxpayers with a greater ability to pay the tax should generally pay a greater share of their household income in taxes compared to households with a lesser ability. A tax is "progressive" if higher income households pay a greater share of their income in tax than lower-income households, whereas the opposite is true in a regressive tax system. If the economic incidence of DSTs resemble that of an excise tax rather than a tax on corporate profits, as discussed in the " Economic Efficiency " section, this finding also has an impact on the vertical equity analysis of DSTs. A review of the economic literature shows that the majority of the corporate income tax is borne by capital (i.e., the corporation's shareholders) with the residual being borne by labor, or workers. Capital, here in the form of stock ownership, tends to be disproportionately concentrated in higher-income households. In contrast, excise taxes are commonly borne by consumers in the form of higher prices. Excise taxes are often regressive, as lower-income households bear a higher share of their pre-tax income on consuming goods and services than higher-income households. The exact equity effects of DSTs could vary based on different abilities for intermediate firms to pass the tax along to consumers, the nature of the goods and services that they sell, and the responsiveness of consumers in those relative markets. For example, assume that Facebook charges higher prices for advertising on the social media platform to companies, and companies are able to pass those higher advertising costs in full to their customers in the form of higher prices. If one of those companies sells luxury cars and another sells consumer household goods, the DST has more progressive effects in the former case and more regressive effects in the latter. In the aggregate, though, there is little reason to assume that final consumers of goods and services sold through taxable activities in digitized business models are disproportionately higher-income. Thus, it can be expected that a DST affecting a broad range of goods and services is more likely to be regressive than not, especially when compared to a tax on corporate profits. DSTs create unequal economic treatment between similarly situated firms inside and outside of the digital economy. Firms outside of the digital economy can earn just as much global or local revenue as firms taxed under DSTs without being subject to an additional layer of tax on their revenue. Firms outside or inside the digital economy can also engage in profit shifting and "aggressive" transfer pricing to reduce their taxes owed in a country. DSTs, as they have been presented thus far, also create inequalities for firms of similar size based on certain exemptions and thresholds. For example, each of the specific European DST proposals use different or multiple thresholds based on total cross-border profits, revenue generated from covered business activities, "clicks" or interaction based from local users, etc. While proponents of these DSTs with minimum thresholds might have other policy goals in mind (e.g., exempting smaller businesses from potentially costly tax compliance burdens), the exact levels at which these thresholds are drawn among larger MNCs are arbitrary from a policy perspective. Critics of DSTs would argue that the thresholds are drawn to exclude domestic MNCs or to target the taxes to a narrow set of foreign MNCs. Regardless of their rationale, these thresholds create concerns of inequitable treatment between different sectors. In the situation where the tax is fully passed along to consumers, digital firms either charge a higher price (reducing demand) or exit the industry. Where the MNCs subject to the statutory incidence of the tax bear at least a portion of the economic incidence of the DST, then they face a lower return to business investment in that country compared to firms not subject to the DST. Additionally, the UK DST's proposed exemption or "safe harbor" for "low profit" firms could create another layer of equity concerns. If the exemption is based on low profits as calculated by UK tax rules, then firms that are not subject to the UK corporate income tax (because they do not have a permanent establishment in the UK) will not be eligible for the exemption. In other words, if a firm must be subject to the UK corporate income tax to be eligible for exemption then, by definition, the exemption is not available to foreign MNCs. MNCs with similar amounts of global revenue would be subject to different effective tax rates on their worldwide consolidated earnings (across all related entities) based on whether they were subject to UK income taxes or not. An alternative exemption being considered by the UK, based on global consolidated profits, could have some administrative issues, as discussed in the next section of this report. DSTs present several administrative challenges to both the public and private sectors. With regard to the public sector, lawmakers and revenue-collecting agencies will have to clarify exactly what types of activities are subject to tax and which parties bear the statutory burden of paying tax. These decisions affect the costs of administering the tax or the gross revenue collected by the tax. With regard to the private sector, the decisions made by lawmakers and agencies could affect the costs of complying with DST regimes. Technology could present administrative challenges to the implementation of DST proposal. First, some digital economy platforms allow users to opt out of having their data tracked or resold to third parties. Without this information a digital service provider may be able to fulfill a user's desire for privacy, but the absence of the information limits the provider's ability to apply proper taxes based on the customer's jurisdiction. "Do not track" or internet browser plugins that make it more difficult for companies to track users' activities could affect the measurement of data collected from local users. Second, users could reroute their internet traffic to servers outside of the country imposing the DST and mask their physical location. Virtual private network services (VPNs) allow users to access websites while making it appear that their IP addresses are from locations other than their actual locations. VPNs connect users to servers located in different parts of the world. Websites will see that a user's web traffic is originating from the VPN server, which could or could not be in the same jurisdiction as the user. Typically, VPNs are used for anonymity reasons or to bypass firewalls and website censors imposed in certain jurisdictions. VPNs are not sufficient to protecting a user's IP address, as other unmasking techniques (some requiring more effort) can be used. Still, users could use VPNs located outside of the taxing jurisdiction to reduce the flow of user activity attributed to IPs within the taxing jurisdiction, thereby reducing revenue collected from "local" user activity. Even if this does not completely eliminate the revenue base for a DST, VPN use still results in mismeasurement of the amount of revenue attributed to local users. Overall, lawmakers writing DSTs would likely need to consider specifying what level of enforcement would be sufficient for companies to make good faith efforts to source their revenues to local users. More due diligence required by companies to determine the source of their users or unmask user efforts designed to preserve their privacy will impose higher costs to the companies. A lower standard might require fewer resources from firms and be less intrusive on user privacy but reduce the amount of tax raised from local users. Thus, DSTs could present policy tradeoffs between individual privacy concerns and tax revenue collection. Two features of the UK's proposed DST create additional administrative challenges. An exemption based on low UK-source profits could also have unintended consequences for proponents of the DST in the form of reduced revenue. Some digital economy MNCs do have subsidiaries physically located in Europe. For example, these firms might have the purpose of providing customer service or call centers that speak the local language or market the company's lines of business. Generally, these types of business activities are low profit margin. If a digital economy MNC does have a permanent establishment in the UK that earns close to zero profits, thereby owing little to no income tax in the UK, does the tax situation of this local subsidiary justify an exemption for the entire MNC controlled group? If so, the MNC could still be technically generating millions of British pounds in revenue from sales to UK customers over the internet. In contrast, an MNC that does not have a UK subsidiary but also has millions in revenue from sales to UK customers would not be eligible for the low-profit exemption. The clear tax planning implication of such an interpretation of the low-profit exemption is that MNCs should establish a low-profit subsidiary in the UK as a means to claim the low-profit margin exemption. If allowed, then the UK DST would likely raise little to no revenue. Alternatively, the UK could base its low-profit exemption based on worldwide profits of the MNC. In the United States, corporations are required to report a number of tax-related calculations and information on their annual Securities and Exchange Commission filings for shareholders. Among these tax-related data are their effective tax rate and tax paid across all jurisdictions where the firm is subject to tax. However, the tax data reported under financial accounting rules typically varies from actual tax paid. This phenomenon is described as "book-tax differences." For example, different rules for depreciation are typically used for accounting purposes compared to actual tax policy in a jurisdiction (e.g., if the lawmakers in that country decided to speed up cost recovery with the intent of increasing business investment). Thus, an exemption based on financial disclosure forms may not accurately reflect taxable income. U.S. corporations are allowed to claim a tax credit against U.S. corporate income tax liability for income taxes paid to foreign jurisdictions. The rationale is to prevent double taxation of foreign-source income. DSTs are taxes on revenue earned from specific business activities and should not be eligible for U.S. foreign tax credit treatment for several reasons. First, such taxes are not income taxes under common bilateral tax treaty language. Statements from some countries imposing DSTs, such as the UK, indicate that they do not intend DST payments to be creditable against taxes that an MNC might owe in its home country. Nor are DSTs "in lieu of income taxes," as the countries imposing DSTs do have a corporate income tax system. The Internal Revenue Service (IRS) could clarify that U.S. bilateral income tax treaties do not provide for a foreign tax credit against U.S. tax for U.S. corporations that make DST payments to foreign jurisdictions. If the IRS does not do so, then Congress could enact legislation denying a U.S. foreign tax credit for such payments. Denying a foreign tax credit could increase the total taxes paid by U.S. MNCs in jurisdictions around the world, but allowing DST payments to be creditable would effectively force the U.S. Treasury (and U.S. taxpayers) to subsidize tax rates imposed by foreign jurisdictions. Policymakers who sympathize with the premise that MNCs in the digital economy are unfairly able to shift profits to low-tax jurisdictions could still disagree with the unilateral response of foreign countries to impose DSTs. The tax on GILTI serves as an alternative policy tool intended to impose higher effective tax rates on U.S. firms in the digital economy. For example, in the 115 th Congress, the No Tax Break for Outsourcing Act ( H.R. 5108 ; S. 2459 ) would have increased the GILTI tax rate to 21% and eliminated the deduction for the return on tangible assets derived by domestic corporations from serving foreign markets in computing GILTI tax liability, among other provisions. As discussed, above, DSTs have the same economic effects as an excise tax. It is not controversial for countries to levy excise taxes on imported as well as domestically consumed goods or services. Such taxes are considered to not distort trade. However, some DST proponents have not explicitly labeled them as "excise taxes," making it unclear how these taxes should be viewed in terms of international agreements. Regardless of the label attached to them, some commentators argued that DSTs violate restrictions on tariffs under the rules of the World Trade Organization. For example, some scholars argue that the high-revenue thresholds for taxation and the exclusion of certain revenues earned by European firms effectively discriminate against the digital exports of U.S. firms. Many proponents of DSTs argue that they are "interim measures" until the international community adopts broader reforms in international tax rules. As mentioned in the discussion of the European Commission's DST proposal, the commission prefers changes, both inside and outside of the EU, in the permanent establishment rules to incorporate some measure of "digital presence." This goal aligns with the EU's goal of a consolidated tax base among its members and formulary apportionment of corporate tax revenue based on a set of factors (e.g., sales, assets, employment), which would result in a shift away from tax allocation based on assets. The form and rationale of DSTs appear to better comport with a formulary apportionment tax being pursued in the EU than a traditional national corporate income tax. The inability for consensus to impose a DST at the European Commission level could lead more individual member states to unilaterally impose their own DSTs. Even if the United States objects to unilateral DSTs, these sovereign countries are generally able to impose their own tax systems (within the boundaries of any other international agreements, such as EU membership). Congress could consider creating "carrots" or "sticks" affecting the policy choices of DST proponents. Tax policy and legal scholars have debated the merits of "potential compromises" that would not require fundamental rewrites of international tax rules. Some of these options would rely on the executive branch for day-to-day negotiations at a bilateral or multilateral level (e.g., at the OECD). Any modification to existing or new tax treaties, though, would require Senate approval. Congress could also direct the executive branch to impose incentives (and disincentives) that would affect key sectors of the EU economy. An evaluation of these emerging ideas and concepts is, however, beyond the scope of this report. DSTs Are Not Structured as Taxes on Profits Corporate profit is generally defined as: (1) π=TR-TC Where π is profit, TR is total revenue, and TC is total cost. This is before taxes. After tax corporate profit, π t , for a firm after imposition of a percentage tax ( t ) on corporate profit, is defined as: 2 πt=(1-t)(TR-TC) In contrast, a DST ( dst ) is levied as a percent of total, gross revenue yielding an after tax profit, π dst , of: 3 πdst=(1-dst)TR-TC Algebraically, equations (2) and (3) are not equivalent. To further illustrate, the following amounts can be substituted: TR = $1,000, TC = $500, and t = 0.03 (or a 3% tax rate). Using these parameters, πt based on a 3% profit tax would be: 4 πt=(1-0.03)($1,000-$500) 5 πt=$485 Using these parameters, πdst based on a 3% DST revenue tax would be: 6 πdst=(1-0.03)$1,000-$500 7 πdst=$470 As shown above, after-tax profit for a corporation subject to a 3% income tax rate (equation 5) is greater than after-tax profit for a corporation subject to a 3% DST (equation 7) in lieu of an income tax. The two taxes are not the same. Effects of a DST on Supply-Demand Conditions in Digital Markets To analyze the economic effects of a DST, the different markets in which digital economy firms operate must be conceptualized. In a general sense, the consumers or buyers in these markets are those that pay money to the supplier or seller for the provision of a service. Many firms in digital economies operate in "two-sided markets" in which they provide services to two different consumers: individual users and businesses. While both sides of these markets could be relevant for calculating DST liability, the markets for the latter group of services are the starting point for analyzing the economic effects of a DST, because these business-to-business transactions are where the statutory incidence of a DST is typically first imposed. For example, in the market for internet advertisements, a clothing company could be the consumer and Google or Facebook could be the seller or supplier. In the market for marketplace sales, a vendor could be the consumer and Amazon could be the seller or supplier. In the market for user data sales, a data transfer firm could be the consumer and Facebook, Google, or Fitbit could the supplier. From an economic perspective, there are two extremes of market structure: perfect competition and monopoly. Most market structures lie somewhere in between. Monopolies rarely exist, and they are typically regulated. For reasons explained below, there are specific reasons why monopolies are likely not to exist in the markets in which DSTs apply. However, firms could have market power if there are barriers to entry. The following analyses examine how a DST would apply, over the long run, in the two extremes of market structure for a digital economy firm facing a downward sloping demand curve. Analysis of a DST in a Competitive Market In perfect competition, firms face a downward-sloping demand curve, and the supply curve is perfectly elastic (horizontal) as increases in output are achieved by new firms entering the industry over the long run. Each firm earns no economic profit, meaning that the opportunity cost of investing in alternative ventures is zero, and each is a price taker in the market (i.e., an individual firm cannot influence the price prevailing in the market). In this scenario, when the government imposes an excise tax, firms must ultimately pass on the cost of the tax to their consumers or exit the market. The market for services provided by firms in the digital economy could be depicted as "perfectly competitive." Under this scenario, many firms are willing to provide a relatively similar service. These markets can be outlined more narrowly to encompass only activities by other digital economy firms (e.g., internet advertising, marketplace sales, data transfer), or they can be outlined more broadly (e.g., consumer advertising, retail outlets, consumer marketing research). In other words, although users typically associate Facebook as primarily a social network and Google as primarily a search engine, both firms may operate and compete in the same market for internet advertising. Additionally, both firms compete in the larger market for consumer advertising alongside television, print, and radio advertisers. If a clothing seller is deciding where to spend his advertising budget, that seller can purchase advertising placements on Facebook, Google, etc. (not to mention television, print, and radio). Similarly, a data transfer company looking to purchase and analyze user data then selling marketing services for another good or service not only has the choice to purchase data from Facebook, Google, etc.; it can also collect data from other companies that collect data and surveys on consumer preferences. Figure A-1 and Figure A-2 illustrate the long-run effects of a DST in a perfect competition scenario with demand curves of different slopes. The demand curves are downward-sloping because consumers demand less of the taxed service as price increases. The different slopes represent scenarios where consumer demand is more responsive, or elastic, to changes in price ( Figure A-1 ) and less responsive, or inelastic ( Figure A-2 ). The supply curves in both figures are flat, or "infinitely elastic" because suppliers, in the aggregate, are able to adjust their capacity to meet whatever level of consumer demand prevails in the market. In both figures, the initial equilibrium (E), before the tax, between the prevailing market price (P) and quantity (Q) is denoted by an asterisk superscript (*). After the tax is applied, the change in equilibrium between price and quantity is denoted by a subscript ( t ). In both figures, the tax is also passed forward to consumers in the form of higher prices. Firms reduce output or some firms exit the market because participants earn zero economic profit. If the DST rate is 3%, for example, then suppliers in a competitive market are assumed to increase price by 3% minus any tax savings (i.e., deductions for excise tax payments from any income tax owed to the jurisdiction imposing the DST). In Figure A-1 , imposition of a DST causes prices to rise and quantity demanded to fall in the market. The magnitude of the change in quantity is roughly similar to the change in price in the illustration below, but in a market with relatively elastic demand, the change in quantity can exceed the change in price. One cause for this phenomenon is the availability of near-substitutes. For example, if television advertisement is equally as effective as internet advertising, then a tax increasing prices of the latter will lead to a larger decline in demand as more companies purchase advertisements on television instead of the internet. In Figure A-2 , imposition of a DST also causes prices to rise and quantity demanded to fall in the market. With a relatively inelastic demand curve, though, the magnitude of the change in price exceeds the change in quantity. This could be caused, for example, by a lack of substitutes (e.g., a strong preference for internet advertising or lack of alternative outlets to online marketplaces to sell goods and services). In this case, the change in price is greater than the change in quantity demanded. Many of the services subject to a DST are intermediate inputs to the final sales of other goods and services. This means that the method of analyzing the effects of the DST would be replicated for each stage in the supply chain. For example, if a DST increases the price of advertising a clothing company's products over the internet, then that clothing company will likely increase the cost of the clothing that it charges its customers (the retail consumer in the country levying the tax). The exact magnitude of the effects will vary depending on elasticities of supply and demand in that downstream market for retail clothing sales. In a perfectly competitive retail clothing market, though, it is anticipated that prices will increase and quantity demanded will decrease. In addition to effects on price and quantity prevailing within a market, DSTs can also have "welfare effects." Under this method of analysis, economists consider changes to consumer surplus, producer surplus, and deadweight loss. Consumer surplus is the total benefit of value of a good or service that consumers receive beyond what they actually pay in the market. It is depicted on a supply-demand graph as the area below the demand curve and above the price. Producer surplus is the benefit to producers from selling a good or service at a price higher than their marginal cost of producing one additional unit. It is depicted on a supply-demand graph as the area above the supply curve and below the price. Deadweight loss is an inefficiency in the market that is typically introduced by government intervention, such as a tax, that results in a loss in economic activity and potential losses to consumer or producer surpluses. In a supply-demand graph of a competitive market, like the ones above, deadweight loss is depicted as the center triangle created after the imposition of a tax. Welfare analyses of the DSTs depicted in Figure A-1 and Figure A-2 indicate that they reduce consumer surplus, have no effect on producer surplus, and create deadweight loss inefficiencies. Before the imposition of a DST, consumer welfare is measured as the areas a + b + c in both figures. This area indicates that consumers are receiving benefits from consuming goods or services subject to DSTs in excess of the price they actually pay for them. This could be in part because social media platforms, shopping on online marketplaces, or using search engines are free to consumers. After the imposition of a DST, though, consumer welfare is reduced to the area a . As producers increase the cost of goods and services subject to a DST, consumer welfare decreases due to higher costs. The area b becomes revenue collected by the government and the area c becomes deadweight loss in economic activity discouraged by the DST. There is no effect on producer surplus, because it does not exist in a perfectly competitive market. In a perfectly competitive market, producers are price takers and earn no economic profit. The main differences in Figure A-1 and Figure A-2 are due to the slope of the demand curve. The relatively inelastic demand in Figure A-2 leads to greater reductions in consumer welfare, more tax revenue collected, and smaller deadweight losses. This is because a relatively inelastic demand curve indicates that consumers are less responsive to changes in price. If consumers are unable to substitute away from goods or services subject to DSTs toward nontaxed activities, then they pay higher prices for taxed activities, and the government collects more revenue. Analysis of a DST in a Monopoly Market Some argue that major firms in the digital economy have "monopoly power." Proponents of this assertion could point out that Facebook is the largest social media platform or that Google is the predominant search engine. Others may say that digital economy platforms create network effects that prevent competition. For example, Facebook is able to maintain its status as the most popular social media platform because the value of interacting on a network with billions of users exceeds a new platform with only a few users. Similarly, Amazon might be characterized as a monopoly because many customers shop and provide reviews on its website, so a vendor looking for exposure to the largest customer base will choose to pay for the service of listing its products on that site compared to a smaller internet marketplace. These views may be seen, by others, as misguided because they are viewing the opposite side of the two-sided markets in the digital economy or defining the "market" too narrowly. As explained in the perfect competition analysis, above, Google and Facebook can be viewed as competitors in the market for selling digital advertising space or data transfer services even if they have some degree of market power on the other side of the market (e.g., search engines and social networks). Additionally, digital economy firms also compete against "non-digital" competitors. For example, in the larger markets for consumer product advertising, internet companies compete with advertising via television, print, and radio. Whether firms have supernormal profits or economic rents in an industry is often difficult to determine. In general, the presence of high accounting profits (total revenue minus total costs) is not indicative of whether a firm has profits in an economic sense. Economic profits take into consideration the opportunity costs of investing in a different income-producing activity. There is typically a risk-free portion of the return to any investment. For example, in the corporate sector this could be the average rate of return of the stock market. However, riskier investments generally require a higher potential return in order to attract capital (also known as the "risk premium"). The point of this distinction is that high accounting profits can be an indication of a higher risk premium. For the sake of argument, Figure A-3 illustrates the effects of a DST in a hypothetical monopoly market where there is one producer. An example of this phenomenon in the digital economy could be a single firm that sells internet advertising, marketplace sales, or data transfers to a potential buyer. Figure A-3 illustrates a monopoly market before the imposition of a tax. In a monopoly market, the seller still faces a downward-sloping demand curve. However, the monopolist does not have a supply curve because it does not accept the price prevailing in the market (like individual sellers in a competitive market). Instead, it sets price (P M ) and output (Q M ) at the intersection of marginal revenue (MR) and marginal cost (MC) to arrive at a profit-maximizing equilibrium (E M ) along the demand curve. The upward-sloping MC represents the fact that the monopolist firm faces increasing marginal costs as it increases the quantity supplied in the market. The monopolist also has an upward-sloping average total cost (ATC) curve, which includes the upward-sloping function of the MC curve plus added fixed costs of production. Unlike producers in the competitive markets in Figure A-1 and Figure A-2 , the monopolist in Figure A-3 earns economic profits, or rents. Economic profit per unit sold is the difference between the price charged by the monopolist (P M ) and the ATC curve, or the distance bc . That average profit per unit times the total number of units sold ( dc ) equals the total economic profit earned by the monopolist, as shown in the gray shaded box ( abcd ). The effects of a DST on a monopoly market are illustrated in Figure A-4 . A DST shifts the demand curve in as consumers of taxed services respond to higher after-tax prices. As a result of the reduced demand, the marginal revenue earned by the monopolist declines, and the MR curve shifts from MR M to MR t . The equilibrium in the market shifts from E M to E t . Quantity decreases from Q M to Q t . The price faced by the consumer in the market increases from P M to P t . The price received by the monopolist, though, decreases from P M to P Mt . The economic profit earned by the monopolist under the new post-tax demand and MR t curves is represented by the gray shaded box ( fghi ). The revenue collected by the government is represented by the dashed-line area just above the monopolist's profit. Changes to deadweight loss is not illustrated on Figure A-4 , but they can be explained in qualitative terms. The presence of a monopoly market creates deadweight loss relative to a competitive market because P M is set higher than the price where supply and demand intersect in the competitive market (e.g., in Figure A-1 and Figure A-2 ). When a tax is introduced on top of the distortions caused by the monopolist, the size of the deadweight loss in the market is further increased.	[ "Several countries, primarily in Europe, and the European Commission have proposed or adopted taxes on revenue earned by multinational corporations (MNCs) in certain \"digital economy\" sectors from activities linked to the user-based activity of their residents. These proposals have generally been labeled as \"digital services taxes\" (DSTs). For example, beginning in 2019, Spain is imposing a DST of 3% on online advertising, online marketplaces, and data transfer service (i.e., revenue from sales of user activities) within Spain. Only firms with €750 million in worldwide revenue and €3 million in revenues with users in Spain are to be subject to the tax. In 2020, the UK plans to implement a 3% DST that would apply only to businesses whose revenues exceed £25 million per year and groups that generate global revenues from search engines, social media platforms, and online marketplaces in excess of £500 million annually. The UK labels its DST as an \"interim\" solution until international tax rules are modified to allow countries to tax the profits of foreign MNCs if they have a substantial enough \"digital presence\" based on local users. The member states of the European Commission are also actively considering such a rule. These policies are being considered and enacted against a backdrop of ongoing, multilateral negotiations among members and nonmembers of the Organization for Economic Cooperation and Development (OECD). These negotiations, prompted by discussions of the digital economy, could result in significant changes for the international tax system. Proponents of DSTs argue that digital firms are \"undertaxed.\" This sentiment is driven in part by some high-profile tech companies that reduced the taxes they paid by assigning ownership of their income-producing intangible assets (e.g., patents, marketing, and trade secrets) to affiliate corporations in low-tax jurisdictions. Proponents of DSTs also argue that the countries imposing tax should be entitled to a share of profits earned by digital MNCs because of the \"value\" to these business models made by participation of their residents through their content, reviews, purchases, and other contributions. Critics of DSTs argue that the taxes target income or profits that would not otherwise be subject to taxation under generally accepted income tax principles. U.S. critics, in particular, see DSTs as an attempt to target U.S. tech companies, especially as minimum thresholds are high enough that only the largest digital MNCs (such as Google, Facebook, and Amazon) will be subject to these specific taxes. DSTs are structured as a selective tax on revenue (akin to an excise tax) and not as a tax on corporate profits. A tax on corporate profits taxes the return to investment in the corporate sector. Corporate profit is equal to total revenue minus total cost. In contrast, DSTs are \"turnover taxes\" that apply to the revenue generated from taxable activities regardless of costs incurred by a firm. Additionally, international tax rules do not allow countries to tax an MNC's cross-border income solely because their residents purchase goods or services provided by that firm. Rather, ownership of assets justifies a country to be allocated a share of that MNC's profits to tax. Under these rules and their underlying principles, the fact that a country's residents purchase digital services from an MNC is not a justification to tax the MNC's profits. DSTs are likely to have the economic effect of an excise tax on intermediate services. The economic incidence of a DST is likely to be borne by purchasers of taxable services (e.g., companies paying digital economy firms for advertising, marketplace listings, or user data) and possibly consumers downstream from those transactions. As a result, economic theory and the general body of empirical research on excise taxes predict that DSTs are likely to increase prices in affected markets, decrease quantity supplied, and reduce investment in these sectors. Compared to a corporate profits tax—which, on balance, tends to be borne by higher-income shareholders—DSTs are expected to be more regressive forms of raising revenue, as they affect a broad range of consumer goods and services. Certain design features of DSTs could also create inequitable treatment between firms and increase administrative complexity. For example, minimum revenue thresholds could be set such that primarily large, foreign (and primarily U.S.) corporations are subject to tax. Requirements to identify the location of users could also introduce significant costs on businesses. This report traces the emergence of DSTs from multilateral tax negotiations in recent years, addresses various purported policy justifications of DSTs, provides an economic analysis of their effects, and raises several issues for Congress." ]	12,505	gov_report	en	null	a2695a1634a21be4b087d1d940152b0bc4dd114d96034f3b
Disclosure provisions that require commercial actors to convey specified information to consumers occupy an uneasy and shifting space in First Amendment jurisprudence. The First Amendment's Free Speech Clause protects the right to speak as well as the right not to speak, and at least outside the context of commercial speech, courts generally disfavor any government action that compels speech. Indeed, the Supreme Court in 1943 described the First Amendment's protection against compelled speech as a "fixed star in our constitutional constellation." Accordingly, government actions mandating speech are generally subject to strict scrutiny by courts, and will be upheld "only if the government proves that they are narrowly tailored to serve compelling state interests." However, the Court has also long accepted a variety of laws that require commercial actors to make certain disclosures to consumers, confirming that Congress can compel certain disclosures, even those involving protected speech, without running afoul of the First Amendment. Commercial disclosure requirements have largely withstood constitutional scrutiny in part because, historically, commercial speech has received less protection under the First Amendment than other speech. The government's ability to more freely regulate commercial speech has been linked to its general authority "to regulate commercial transactions." Thus, notwithstanding the fact that commercial disclosure requirements compel speech, courts generally have not analyzed such provisions under the strict scrutiny standard. Instead, courts have often employed less rigorous standards to evaluate such provisions. The precise nature of a court's First Amendment analysis, however, will depend on the character of the disclosure requirement at issue. In a recent decision, the Supreme Court distilled and explained its prior cases on this subject. First, the Court said that it has upheld some commercial disclosure requirements that target conduct and only incidentally burden speech. This rubric likely only applies if the disclosure provision is part of a larger scheme regulating commercial conduct. If the disclosure provision instead regulates "speech as speech," it might be subject either to intermediate scrutiny, as a government regulation of commercial speech, or to something closer to rational basis review, if the disclosure provision qualifies for review under the Supreme Court's decision in Zauderer v. Office of Disciplinary Counsel . Some of the Court's recent cases, however, have suggested that in certain circumstances, disclosure requirements may be subject to heightened scrutiny. This report begins with a short background on how courts generally view commercial speech under the First Amendment, then reviews in more detail the possible legal frameworks for analyzing the constitutionality of commercial disclosure requirements. Supreme Court precedent explaining the application of the First Amendment to commercial disclosure requirements is relatively recent. The Court did not squarely hold that purely commercial speech was entitled to any protection under the First Amendment until 1976 in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council . The Court has defined commercial speech alternately as speech that "does 'no more than propose a commercial transaction'" and as "expression related solely to the economic interests of the speaker and its audience." In Virginia Board of Pharmacy , the Court said that commercial speech was protected, but it also emphasized that the First Amendment did not prohibit all regulations of such speech. In particular, the Court said that it foresaw "no obstacle" to government regulation of "false" speech, or even of commercial speech that is only "deceptive or misleading." In subsequent cases, the Court has explained why "regulation to assure truthfulness" is more readily allowed in the context of commercial speech, as compared with other types of speech. While the First Amendment usually protects even untruthful speech, in order to better encourage uninhibited and robust debate, the Court has recognized that regulating "for truthfulness" in the commercial arena is unlikely to "undesirably inhibit spontaneity" because commercial speech is generally less likely to be spontaneous. Instead, it is more calculated, motivated by a "commercial interest." In particular, if a particular advertisement concerns a subject in which "the public lacks sophistication" and cannot verify the claims, the Court has suggested that the government may have a freer hand to address such concerns. Four years after Virginia Board of Pharmacy , in 1980, the Supreme Court set out the standard that generally governs a court's analysis of government restrictions on commercial speech in Central Hudson Gas & Electric Corp. v. Public Service Commission . The Court first explained that commercial speech enjoys "lesser protection" than "other constitutionally guaranteed expression." After emphasizing that First Amendment protection for commercial speech "is based on the informational function of advertising," the Court said that "there can be no constitutional objection to the suppression of commercial messages that do not accurately inform the public about lawful activity." Accordingly, the Court held that the government may prohibit "forms of communication more likely to deceive the public than to inform it" as well as "commercial speech related to illegal activity." But if the regulated "communication is neither misleading nor related to unlawful activity," the government's action is subject to intermediate scrutiny. Under Central Hudson 's intermediate standard, the government must prove that the government's interest is "substantial," and that the regulation "directly advances" that interest and is "not more extensive than is necessary to serve that interest." The Central Hudson test continues to govern the constitutional analysis of government acts that infringe on commercial speech. However, in certain circumstances, commercial speech may lose its commercial character if "it is inextricably intertwined with otherwise fully protected speech." And more generally, some members of the Supreme Court have questioned whether commercial speech should categorically receive less protection under the First Amendment, suggesting that in at least some circumstances, infringements on commercial speech should instead be subject to strict scrutiny. Commentators have pointed out that, as a practical matter, Supreme Court decisions have increasingly struck down, rather than upheld, restrictions on commercial speech. Also relevant to the discussion of disclosure requirements, judges and legal scholars have noted that the Court may be adjusting the role of the content neutrality doctrine with respect to commercial speech. As a general matter, if a law is "content-based," in the sense that it "target[s] speech based on its communicative content," it will be subject to strict scrutiny. The Supreme Court stated in Reed v. Town of Gilbert that a regulation is content-based if it "applies to particular speech because of the topic discussed or the idea or message expressed," if it "cannot be 'justified without reference to the content of the regulated speech,'" or if it was "adopted by the government 'because of disagreement with the message [the speech] conveys.'" Disclosure requirements are generally considered content-based, given that they require regulated parties to speak a certain message, and outside the commercial context, ordinarily trigger the application of strict scrutiny. In Central Hudson , however, the Supreme Court explained that in the context of commercial speech, "regulation of its content" is permissible. And, as commentators have pointed out, "the very category of commercial speech is a content-based category." Nonetheless, the Court has struck down certain regulations that prohibit commercial speech solely because its content is commercial, suggesting that content neutrality might be relevant in the commercial sphere. In its 2011 decision in Sorrell v. IMS Health, Inc. , the Supreme Court considered the constitutionality of a state law prohibiting pharmacies from disclosing certain pharmacy records for marketing purposes. After observing that the law included "content- and speaker-based restrictions on the sale, disclosure, and use of" covered information, the Court concluded that the law was "designed to impose a specific, content-based burden on protected expression" because it applied specifically to marketing, a particular type of speech. Consequently, the law was subject to "heightened judicial scrutiny," notwithstanding the fact that the "burdened speech result[ed] from an economic motive" and was therefore commercial. Ultimately, however, the Court declined to say definitively whether Central Hudson or "a stricter form of judicial scrutiny" should apply because, in the Court's view, the law failed to pass constitutional muster even under Central Hudson . As discussed in more detail below, the shifting role of content neutrality in commercial speech doctrine holds special significance for commercial disclosure requirements: these requirements are content-based because they "compel[] individuals to speak a particular message." At least one legal scholar has suggested that lower courts have read Sorrell as an expression of the Supreme Court's increasing skepticism toward restrictions on commercial speech and, since that decision, have been more likely to strike down commercial disclosure requirements. However, the Court did not expressly limit the reach of Central Hudson in Sorrell or in subsequent cases, suggesting that, at least for now, Central Hudson 's standard of review applies even when a challenged action would otherwise trigger strict scrutiny as a content-based regulation of speech. Indeed, lower courts analyzing commercial disclosure requirements usually ask whether Zauderer or Central Hudson supplies the appropriate standard of review, contemplating at most only intermediate scrutiny —even in cases decided after Sorrell . In its First Amendment jurisprudence, the Supreme Court has generally distinguished between laws that regulate conduct and laws that regulate speech. The Court has held that conduct-focused regulations will not violate the First Amendment by merely incidentally burdening speech. For instance, while the government may regulate prices, attempts to regulate "the communication of prices" implicate the First Amendment. To take another example, the Court has noted that pursuant to "a ban on race-based hiring," a regulation "directed at commerce or conduct," the government "may require employers to remove 'White Applicants Only' signs." To differentiate a regulation targeting conduct from one targeting speech, the Court generally looks to the purpose of the law, asking whether the law appears to target certain content or certain speakers. As part of this inquiry, the Court may also ask whether a regulation applies because of the communicative content of the regulated party's actions. This distinction between speech and conduct is especially significant in the context of commercial speech, given that such speech "occurs in an area traditionally subject to government regulation." Thus, in 1978, the Supreme Court said: "[I]t has never been deemed an abridgment of freedom of speech or press to make a course of conduct illegal merely because the conduct was in part initiated, evidenced, or carried out by means of language, either spoken, written, or printed." Numerous examples could be cited of communications that are regulated without offending the First Amendment, such as the exchange of information about securities, corporate proxy statements, the exchange of price and production information among competitors, and employers' threats of retaliation for the labor activities of employees. Each of these examples illustrates that the State does not lose its power to regulate commercial activity deemed harmful to the public whenever speech is a component of that activity. The Court has previously "upheld regulations of professional conduct that incidentally burden speech." For example, the Court upheld an informed consent requirement in Planned Parenthood of S outheastern Pennsylvania v. Casey . The Casey challengers argued that a law requiring doctors to inform patients seeking abortions about "the nature of the procedure, the health risks of the abortion and of childbirth, and the probable gestational age of the unborn child" compelled doctors to speak in violation of the First Amendment. The Court rejected that argument, concluding that while "the physician's First Amendment rights not to speak are implicated," this was "only as part of the practice of medicine, subject to reasonable licensing and regulation by the State." In National Institute of Family and Life Advocates (NIFLA) v. Becerra , the Supreme Court emphasized that the informed consent requirement upheld in Casey was part of the broader regulation of professional conduct: specifically, the practice of medicine. By contrast, the Court held that the disclosure requirement at issue in NIFLA , which required certain health facilities to provide clients with information about state-sponsored services, could not be upheld as "an informed-consent requirement or any other regulation of professional conduct" because it was not tied to any medical procedure. Instead, in the Court's view, the requirement "regulate[d] speech as speech," as opposed to regulating speech only incidentally. While the Court has made clear that the First Amendment does not prohibit such incidental regulation of commercial speech, it has not articulated one overarching standard for evaluating whether such provisions are constitutionally permissible. Its decisions in this area have considered a wide variety of government actions incidentally burdening speech, and it may be that the standard varies according to the nature of the particular speech restriction evaluated. In some cases, the Court has suggested that "the First Amendment is not implicated by the enforcement" of a broader regulatory scheme where the regulated conduct does not have "a significant expressive element" or the statute does not inevitably single out "those engaged in expressive activity." In other cases where the Court has upheld a regulation that it characterized as focused on conduct rather than speech, the Court investigated the strength of the government's interest and asked whether the regulation advances that interest, suggesting that the Court subjected the regulation to some First Amendment scrutiny—albeit using a relatively relaxed standard. The Court has never explicitly held that a commercial disclosure requirement qualifies as a constitutionally permissible incidental restriction on commercial speech. While Planned Parenthood of Southeastern Pennsylvania v. Casey did involve a disclosure requirement, the Court did not address whether the informed consent requirement involved commercial or noncommercial speech either in Casey or when discussing that requirement in NIFLA . In NIFLA , the Court held that a state law imposing disclosure requirements on clinics providing pregnancy-related services could not be characterized as a regulation that only incidentally burdened speech because the requirement was not tied to any specific medical procedures. However, the Court never expressly stated whether it considered the disclosures to consist of commercial or noncommercial speech. Similarly, in Expressions Hair Design v. Schneiderman , the Court rejected the application of this doctrine without expressly characterizing the government action as a commercial disclosure requirement. In that case, the Court considered the constitutionality of a state law prohibiting sellers from imposing surcharges on customers who use credit cards. The Supreme Court rejected the argument that this law primarily "regulated conduct, not speech," concluding that the law did not merely regulate pricing, but regulated the communication of prices by prohibiting merchants from posting a cash price and an additional credit card surcharge. The Court then remanded the case to the lower courts to consider the First Amendment challenges in the first instance, leaving open the question of whether the provision could be characterized as a requirement for sellers to disclose an item's credit card price, rather than as a prohibition of certain speech. As these cases suggest, the Court has seemed reluctant in recent years to uphold government actions as conduct-focused regulations that merely incidentally burden speech, especially in the context of compelled disclosure requirements. Instead, the Court has distinguished the few cases upholding government acts as incidental restrictions and subjected disclosure requirements to further scrutiny. Nonetheless, the Court has left open the possibility that commercial disclosure requirements might, in the future, qualify as permissible incidental speech regulation, if they are part of a broader regulatory scheme. If the government regulates "speech as speech," its actions will implicate the First Amendment's protections for freedom of speech and may trigger heightened standards of scrutiny. However, the First Amendment does not prescribe a single analysis for all government actions that potentially infringe on free speech protections. Instead, a court's review will depend on the nature of both the government action and the speech itself. This section first introduces the three possible levels of scrutiny a court might use to analyze a speech regulation and then explains their application to compelled commercial disclosures in more detail. In the context of commercial disclosure requirements, there are three primary categories of First Amendment analysis that may be relevant. First, as a general rule, government actions that compel speech are usually subject to strict scrutiny. To survive strict scrutiny, the government must show that the challenged action is "narrowly tailored to serve compelling state interests." Laws are unlikely to meet this "stringent standard." Second, as discussed above, government actions regulating commercial speech generally receive only intermediate scrutiny. The intermediate scrutiny standard, pursuant to Central Hudson , requires a "substantial" state interest and requires the government to prove that the law "directly advances" that interest and "is not more extensive than is necessary to serve that interest." This standard is less demanding than strict scrutiny, but laws may still be struck down under this test. The final and most lenient category—one specific to commercial disclosure requirements—comes from a 1985 case, Zauderer v. Office of Disciplinary Counsel . In that case, the Supreme Court considered the constitutionality of state disciplinary rules regulating attorney advertising. As relevant here, the rules required advertisements referring to contingent-fee rates to disclose how the fee would be calculated. An attorney who had been disciplined by the state for violating these provisions argued that this disclosure requirement was unconstitutional because the state failed to meet the standards set out in Central Hudson . The Court acknowledged that it had previously held that prohibitions on commercial speech were subject to heightened scrutiny under Central Hudson , and that it had "held that in some instances compulsion to speak may be as violative of the First Amendment as prohibitions on speech." "But," the Court said, "[t]he interests at stake in this case are not of the same order as those" implicated in cases involving the compulsion of noncommercial speech. Instead, the Court noted that the state's provision only involved "commercial advertising, and its prescription has taken the form of a requirement that appellant include in his advertising purely factual and uncontroversial information about the terms under which his services will be available." In this commercial context, the Court said that the attorney's "constitutionally protected interest in not providing any particular factual information in his advertising is minimal," noting that in previous cases it had stated that states might "appropriately require[]" warnings or disclaimers "in order to dissipate the possibility of consumer confusion or deception." Rather than applying heightened scrutiny, the Court held that under these circumstances, "an advertiser's rights are adequately protected as long as disclosure requirements are reasonably related to the State's interest in preventing deception of consumers." The Zauderer Court did warn, however, that commercial disclosure requirements raise First Amendment concerns, observing that "unjustified or unduly burdensome disclosure requirements might offend the First Amendment by chilling protected commercial speech." But the Court rejected the contention that the disclosure requirement before it was unduly burdensome. Instead, the Court concluded that "[t]he State's position that it is deceptive to employ advertising that refers to contingent-fee arrangements without mentioning the client's liability for costs is reasonable enough to support a requirement that information regarding the client's liability for costs be disclosed." Although the state had not submitted evidence that clients were in fact being misled, the Court stated that "the possibility of deception" was "self-evident," making the state's "assumption that substantial numbers of potential clients would be . . . misled" regarding the terms of payment reasonable. Zauderer sets out the most lenient of the three standards of review discussed above, and, as a result, a commercial disclosure requirement is most likely to be upheld if it is reviewed under the rubric of that case. However, the Zauderer standard of review has been interpreted to apply only to certain types of disclosure requirements. As described by the Court and discussed above, the state regulation upheld in Zauderer required "purely factual and uncontroversial information about the terms under which [attorneys'] services [would] be available," and the provision was "reasonably related to the State's interest in preventing deception of consumers." Subsequent cases in both the Supreme Court and the lower courts have tested the extent to which this reasonableness review applies outside of the specific factual circumstances presented in Zauderer . The Supreme Court has decided whether to apply Zauderer review to government acts compelling commercial speech in three significant cases. First, in United States v. United Foods , decided in 2001, the Court invalidated a federal statute that compelled "handlers of fresh mushrooms to fund advertising for the product." United Foods thus involved a compelled subsidy, rather than a compelled disclosure. The Court concluded that these statutorily compelled subsidies for government-favored speech implicated the First Amendment and that "mandat[ing] support" from objecting parties was "contrary to . . . First Amendment principles." The Court held that Zauderer was inapplicable, noting that in the case before it, there was "no suggestion . . . that the mandatory assessments . . . are somehow necessary to make voluntary advertisements nonmisleading for consumers." By contrast, the Court applied Zauderer in a 2010 decision, Milavetz, Gallop & Milavetz, P.A. v. United States , another case concerning attorney advertising. In that case, the Court considered an attorney's First Amendment challenges to a federal statute that required "debt relief agencies" to "make certain disclosures in their advertisements." "Debt relief agencies" was a statutorily defined term covering some attorneys who provided clients with bankruptcy assistance. Among other things, agencies advertising "bankruptcy assistance services or . . . the benefits of bankruptcy" were required to disclose that they were "a debt relief agency" that "help[ed] people file for bankruptcy relief under the Bankruptcy Code." Rejecting the challenger's contention that Central Hudson 's intermediate scrutiny governed the disclosure requirement, the Court held instead that "the less exacting scrutiny described in Zauderer " governed its review. The Court concluded that the provision "share[d] the essential features of the rule at issue in Zauderer ." The disclosure requirement was "intended to combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs." Further, the law required the covered entities to provide "only an accurate statement identifying the advertiser's legal status and the character of the assistance provided." As in Zauderer , where the "possibility of deception" was "self-evident," the Court was not troubled by the lack of evidence that current advertisements were misleading. Instead, "evidence in the congressional record demonstrating a pattern of advertisements that hold out the promise of debt relief without alerting consumers to its potential cost" was "adequate." The Court ultimately upheld the disclosure requirement as "reasonably related to the [Government's] interest in preventing deception of consumers." Most recently, in 2018, the Court considered the application of Zauderer in NIFLA . That case involved two distinct disclosure requirements imposed by California's Reproductive Freedom, Accountability, Comprehensive Care, and Transparency Act (FACT Act), which regulated crisis pregnancy centers. First, the FACT Act required any " licensed covered facility" to notify clients that "California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women," and give the telephone number of the local social services office. Second, any " unlicensed covered facility" had to provide notice that the "facility is not licensed as a medical facility by the State of California and has no licensed medical provider who provides or directly supervises the provision of services." The Court first held that Zauderer 's reasonableness review did not apply to the licensed notice. In the Court's view, the notice was "not limited to 'purely factual and uncontroversial information about the terms under which . . . services will be available.'" The Court explained that the disclosure requirement "in no way relate[d] to the services that licensed clinics provide." The Court said that instead, the law "require[d] these clinics to disclose information about state -sponsored services—including abortion, anything but an 'uncontroversial' topic." The Court ultimately held that the licensed notice could not "survive even intermediate scrutiny." Turning to the unlicensed notice, the Court determined that it did not need to "decide whether the Zauderer standard applies to the unlicensed notice" because the disclosure requirement failed scrutiny even under Zauderer . The Court said that "under Zauderer , a disclosure requirement cannot be 'unjustified or unduly burdensome.'" The Court interpreted this statement to require that the government prove it was seeking "to remedy a harm that is 'potentially real, not purely hypothetical.'" Based on the record on appeal, the Court found that California's stated interest in "ensuring that pregnant women in California know when they are getting medical care from licensed professionals" was "purely hypothetical." Further, the Court held in the alternative that "[e]ven if California had presented a nonhypothetical justification for the unlicensed notice, the FACT Act unduly burden[ed] protected speech" by requiring a government statement to be placed in all advertisements, regardless of an advertisement's length or content. The Court also expressed concern that the unlicensed notice "target[ed]" certain speakers in imposing those burdens by focusing on "facilities that primarily provide 'pregnancy-related' services." While the Supreme Court has emphasized that Zauderer 's reasonableness review is available only for certain types of compelled commercial disclosures, lower courts have disagreed on the precise circumstances required to apply Zauderer . A few requirements have emerged in the case law. First, courts agree that to qualify for review under Zauderer , a commercial disclosure requirement must compel speech that is "factual and uncontroversial." Next, the disclosure must be related to the goods or services the speaker provides. Finally, courts have disagreed on the type of government interest that may be asserted to justify a Zauderer -eligible regulation: while Zauderer itself approved of the challenged disclosure requirement after concluding that the state was permissibly seeking to "prevent[] deception of consumers," lower courts have sometimes applied Zauderer review even where the regulation is not specifically intended to prevent deception. Before discussing the particulars of these requirements, it is worth noting that these elements are related to the Court's overarching justifications for affording the government more leeway to regulate commercial speech. The seminal Supreme Court case establishing that commercial speech is protected by the First Amendment, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council , tied commercial speech's value to its ability to inform consumers. Critically, the Court said that governments could continue to ban false or misleading commercial speech , noting in another case that "the public and private benefits from commercial speech derive from confidence in its accuracy and reliability." It was against this background that the Court in Zauderer concluded that the provision requiring the disclosure of factual information about contingent fee arrangements did not involve First Amendment interests "of the same order as those" involved in other cases involving the compulsion of noncommercial speech. Accordingly, the state acted reasonably by prescribing that attorneys had to include in their advertising "purely factual and uncontroversial information about the terms under which [their] services [would] be available." The first element for a commercial disclosure requirement to be eligible for Zauderer review is that the government regulation must require the disclosure of "factual and uncontroversial" information. The two parts of Zauderer's initial requirement are often evaluated as one, although courts have sometimes pointed out that "factual" and "uncontroversial," logically, connote two different things. Viewing the two words together, some have characterized the "factual and uncontroversial" requirement as distinguishing regulations that compel the disclosure of facts from those that compel individuals to state opinions or ideologies. As discussed, the Supreme Court has said that the value of commercial speech largely lies in its ability to inform consumers. And in Zauderer , the Court emphasized that because protection for commercial speech is justified by its informational value, the attorney challenging the disclosure requirement had a "minimal" First Amendment interest "in not providing any particular factual information in his advertising." As the Second Circuit has explained: Commercial disclosure requirements are treated differently from restrictions on commercial speech because mandated disclosure of accurate, factual, commercial information does not offend the core First Amendment values of promoting efficient exchange of information or protecting individual liberty interests. Such disclosure furthers, rather than hinders, the First Amendment goal of the discovery of truth and contributes to the efficiency of the "marketplace of ideas." Protection of the robust and free flow of accurate information is the principal First Amendment justification for protecting commercial speech, and requiring disclosure of truthful information promotes that goal. In such a case, then, less exacting scrutiny is required than where truthful, nonmisleading commercial speech is restricted. In this vein, the Supreme Court upheld disclosure requirements regarding the nature of contingent fee arrangements in Zauderer and statements clarifying the nature of the bankruptcy-related assistance provided by debt relief agencies in Milavetz . Lower courts have approved as "factual and uncontroversial" within the meaning of Zauderer a variety of other commercial disclosure requirements, including regulations requiring the disclosure of: country-of-origin information for meat; calorie information at restaurants; the fact that products contain mercury; and textual and graphic warnings about the health risks of tobacco products. By contrast, in a 2015 opinion, the D.C. Circuit concluded that a federal regulation requiring firms to disclose whether their products used "conflict minerals" that originated "in the Democratic Republic of the Congo or an adjoining country" could not be characterized as factual and uncontroversial. The court said that "[t]he label '[not] conflict free' is a metaphor that conveys moral responsibility for the Congo war. . . . An issuer, including an issuer who condemns the atrocities of the Congo war in the strongest terms, may disagree with that assessment of its moral responsibility. . . . By compelling an issuer to confess blood on its hands, the statute interferes with that exercise of the freedom of speech under the First Amendment." Similarly, the Seventh Circuit, in a 2006 opinion, held that disclosure requirements in a state law regulating sexually explicit video games were not "factual and uncontroversial" as required for Zauderer to apply. In relevant part, the law required "video game retailers to place a four square-inch label with the numerals '18' on any 'sexually explicit' video game," and to post signs and provide brochures "explaining the video game rating system." The court held first that the sticker "ultimately communicates a subjective and highly controversial message—that the game's content is sexually explicit." Similarly, the panel concluded that "the message" communicated by the signs and brochures was "neither purely factual nor uncontroversial" because it was "intended to communicate that any video games in the store can be properly judged pursuant to the standards described in the . . . ratings." As mentioned above, some courts have treated "factual" and "uncontroversial" as two distinct requirements. But at times, courts have struggled to define "controversial," standing alone. The D.C. Circuit has suggested that controversial must mean that a disclosure "communicates a message that is controversial for some reason other than dispute about simple factual accuracy." One trial court interpreting a decision of the Second Circuit suggested that "it is the nature of the regulation of compelled speech that controls, not the nature of the legislative debate that gave rise to its enactment." That court then noted that other courts had equated controversial messages with disclosures that are "opinion-based." Courts have disagreed about whether a disclosure may be characterized as "controversial" because it is "inflammatory" or "evoke[s] an emotional response." In NIFLA , the Supreme Court struck down the licensed notice after noting that the required disclosures related to "abortion, anything but an 'uncontroversial' topic," although it did not further explain when a topic is "uncontroversial" for purposes of Zauderer. Second, to be eligible for review under Zauderer , a commercial disclosure requirement must be related to the services provided by the speaker. In Zauderer itself, the Court had noted that the disputed disclosure required the attorney to provide information in his advertising "about the terms under which his services will be available." By and large, lower courts, at least prior to NIFLA, had not treated this relationship to the speaker's services as a distinct requirement. The Court in NIFLA , however, said that this was a necessary prerequisite for Zauderer review and held in that case that the notice requirement for licensed clinics at issue was not "relate[d] to the services that licensed clinics provide" because it instead provided information "about state -sponsored services." Judges have disagreed on whether there exists a third requirement for Zauderer review. In Zauderer itself, the Supreme Court noted that the disclosure requirements at issue in that case were intended to "prevent[] deception of customers." Further, when applying Zauderer review to the bankruptcy-related disclosures at issue in Milavetz , the Court stated that the disclosures were "intended to combat the problem of inherently misleading commercial advertisements." Perhaps most notably, in United Foods , the Court explained its decision not to apply Zauderer by noting that there was "no suggestion" that the compelled subsidies at issue in that case were "somehow necessary to make voluntary advertisements nonmisleading for consumers." The Supreme Court's decisions applying Zauderer have thus suggested that one factor in deciding whether to apply this "reasonably related" review is whether the targeted commercial speech is misleading, or whether the state's interest in requiring the disclosure is to prevent "consumer confusion or deception." Nonetheless, the Court has not squarely held that this is a necessary condition for Zauderer review, and several lower courts have rejected this position. The D.C. Circuit concluded that Zauderer 's justification characterizing "the speaker's interest in opposing forced disclosure of such information as 'minimal' seems inherently applicable beyond" the state's "interest in remedying deception." The Second Circuit has also held that Zauderer review applies more broadly. In rejecting a litigant's argument that the Supreme Court's decision in United Foods limited Zauderer only to laws intended to prevent consumer deception, the Second Circuit said that United Foods "simply distinguishes Zauderer on the basis that the compelled speech in Zauderer was necessary to prevent deception of consumers; it does not provide that all other disclosure requirements are subject to heightened scrutiny." If a commercial disclosure requirement involves only "purely factual and uncontroversial information" about the goods or services being sold, and is therefore eligible for review under Zauderer , then it will be constitutional so long as the disclosure requirement is "reasonably related" to the government's interest. This reasonableness review is relatively lenient, especially as compared with the standards that would otherwise apply to compelled speech. But, as emphasized in NIFLA , even under Zauderer , "unjustified or unduly burdensome disclosure requirements might offend the First Amendment by chilling protected commercial speech." Lower courts had previously come to different conclusions regarding whether "unjustified or unduly burdensome" presented an additional inquiry, to be conducted separately from the reasonableness inquiry otherwise prescribed by Zauderer , or whether instead this inquiry was subsumed by the "reasonably related" inquiry. NIFLA did not entirely resolve this issue, although it did frame its analysis using the "unjustified or unduly burdensome" language rather than the language of rational basis review. In Zauderer , the Supreme Court upheld the contingent fee disclosure after concluding that the requirement was "reasonably related to the State's interest in preventing deception of consumers." But as noted above, lower courts have largely concluded that Zauderer 's reasonableness review may govern the analysis even when the government asserts an interest other than preventing consumer deception. The D.C. Circuit has, so far, largely declined to articulate a clear standard for "what type of interest might suffice." That court did conclude in one case that where the government's interest was "substantial under Central Hudson 's standard," that would qualify as a sufficient interest under Zauderer . Perhaps taking a different approach, in a case upholding a disclosure requirement under Zauderer , the Second Circuit described the state's interest as "legitimate and significant." Other than "the interest in correcting misleading or confusing commercial speech," the federal courts of appeals have upheld commercial disclosure requirements where the government asserted interests in food safety, preventing obesity, "protecting human health and the environment from mercury poisoning," and in protecting health benefit providers "from questionable . . . business practices." By contrast, the Second Circuit held in International Dairy Foods Association v. Amestoy that "consumer curiosity alone is not a strong enough state interest to sustain the compulsion of even an accurate, factual statement." In NIFLA , the Supreme Court indicated that under Zauderer , the government must assert an interest that is "more than 'purely hypothetical.'" As discussed above, the State of California's justification for the notice requiring unlicensed clinics to disclose that they were unlicensed was to "ensur[e] that pregnant women in California know when they are getting medical care from licensed professionals." The Court concluded that the state had "point[ed] to nothing suggesting that pregnant women do not already know that the covered facilities are staffed by unlicensed medical professionals." NIFLA 's requirement that the government provide evidence supporting an asserted interest differs from the Court's approach in Zauderer itself and in Milavetz . In both Zauderer and Milavetz , the Court rejected arguments that the government had failed to present sufficient evidence to support its interest in the disclosure requirement, concluding that in both of those cases, "the possibility of deception" in the regulated advertisements was "self-evident." Although the standard is not entirely clear, it is possible that in future cases the Court could conclude again that a particular advertisement is so obviously deceptive that the government does not need to submit significant evidence proving that the advertisements are misleading. If the government has asserted a sufficient interest, then under Zauderer , it needs to show only that the disputed disclosure requirement is "reasonably related" to that interest. Describing the Supreme Court's decision in Zauderer , the D.C. Circuit has said that the "evidentiary parsing" required by more rigorous First Amendment tests "is hardly necessary when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait, assuming of course that the reason for informing consumers qualifies as an adequate interest." That court further elaborated that "[t]he self-evident tendency of a disclosure mandate to assure that recipients get the mandated information may in part explain why, where that is the goal, many such mandates have persisted for decades without anyone questioning their constitutionality." Similarly, the Second Circuit has observed in one case that "while the First Amendment precludes the government from restricting commercial speech without showing that 'the harms it recites are real and that its restriction will in fact alleviate them to a material degree,'" the First Amendment "does not demand 'evidence or empirical data' to demonstrate the rationality of mandated disclosures in the commercial context." Notwithstanding the suggestion that little evidence is required to show that a disclosure requirement is reasonably related to an appropriate government interest, lower courts have often relied on the government's evidence supporting the disputed requirement when they uphold the provision. This showing may be easiest where the government asserts an interest in preventing misleading speech, given "the self-evident tendency of a disclosure mandate to assure that recipients get the mandated information." Additionally, courts have sometimes held that commercial disclosure requirements fail even this lenient test for rationality, particularly where the government has asserted an interest other than preventing consumer confusion. For example, in National Association of Manufacturers v. SEC , the D.C. Circuit held that a provision requiring companies to disclose whether their products were "conflict free" violated the First Amendment. In defending this rule, the government asserted an interest in "ameliorat[ing] the humanitarian crisis in the [Democratic Republic of the Congo (DRC)]." In the court's view, however, the government had failed to demonstrate that its measure would achieve this interest. The D.C. Circuit observed that the government had "offered little substance beyond" statements by political officials to support "the effectiveness of the measure." The court assumed that the government's theory "must be that the forced disclosure regime will [lead to boycotts that] decrease the revenue of armed groups in the DRC and their loss of revenue will end or at least diminish the humanitarian crisis there." But in the view of the court, this theory could not justify the regulation, as the idea was "entirely unproven and rest[ed] on pure speculation." To take another example, the Third Circuit struck down a commercial disclosure requirement concerning attorney advertising in Dwyer v. Cappell . In that case, an attorney challenged a state regulation that prohibited attorneys from using quotations from judicial opinions in their advertising unless they presented "the full text" of those opinions. The state argued that such quotations were "inherently misleading because laypersons . . . would understand them to be judicial endorsements." The court, however, said that even assuming "that excerpts of judicial opinions are potentially misleading to some persons," the state had failed "to explain how [an attorney's] providing a complete judicial opinion somehow dispels this assumed threat of deception." The court reasoned that "providing a full judicial opinion does not reveal to a potential client that an excerpt of the same opinion is not an endorsement." Additionally, the court held that the disputed requirement was "unduly burdensome," as it "effectively rules out the possibility that [an attorney] can advertise with even an accurately quoted excerpt of a judicial statement about his abilities." And in the view of the Third Circuit, "that type of restriction—an outright ban on advertising with judicial excerpts—would properly be analyzed under the heightened Central Hudson standard of scrutiny." As Dwyer suggests, courts may strike down disclosure requirements under Zauderer if the requirement is "unduly burdensome." In NIFLA , the Supreme Court held that the unlicensed notice was likely unconstitutional because it "unduly burden[ed] protected speech," noting that it applied to all advertisements for these licensed facilities, regardless of their content. In particular, the majority opinion highlighted one hypothetical discussed at oral argument, noting that "a billboard for an unlicensed facility that says 'Choose Life' would have to surround that two-word statement with a 29-word statement from the government, in as many as 13 different languages." In this instance, the Court said, the notice would "drown[] out the facility's own message," and therefore be unduly burdensome. If a commercial disclosure requirement is not a factual and uncontroversial disclosure related to the speaker's goods or services under Zauderer , courts will likely apply a heightened standard of review. Under prevailing Supreme Court precedent, if a provision does not qualify for Zauderer 's reasonableness review, a court may review the challenged regulation under Central Hudson . As discussed above, Central Hudson established the general standard of review for government restrictions on commercial speech. The Supreme Court described "a four-part analysis:" At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest. The Court has described the Central Hudson test as "intermediate" scrutiny. If a disclosure requirement affects commercial speech but does not qualify for Zauderer review, courts have generally held that Central Hudson 's intermediate scrutiny applies. However, courts have sometimes suggested that some higher standard of review, more stringent than Central Hudson 's intermediate scrutiny, should apply to commercial disclosure requirements that do not qualify for review under Zauderer . Some lower court judges have concluded that because such disclosures compel particular speech and are by definition not content-neutral, they should be evaluated under strict scrutiny. In contrast to Central Hudson review, which requires the government to show that a law is "not more extensive than is necessary to serve" a "substantial" interest, strict scrutiny "requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest." The Supreme Court has suggested—but not squarely held—that at least some types of commercial disclosure requirements might be subject to some form of scrutiny more strict than Central Hudson . In NIFLA , the Supreme Court considered the constitutionality of state provisions requiring crisis pregnancy centers to make certain disclosures to clients and in their advertising. The Court suggested that the provision requiring licensed facilities to disseminate notices about state-provided services might be subject to strict scrutiny as a content-based regulation of speech, but concluded that it did not need to resolve that question because the notice could not "survive even intermediate scrutiny." Significantly, however, the NIFLA Court never described the licensed notice as involving commercial speech. In the decision below, the Ninth Circuit had held that the notice should not be subject to strict scrutiny because it regulated "professional speech." That court, like other federal courts of appeals, had recognized "speech that occurs between professionals and their clients in the context of their professional relationship" "as a separate category of speech that is subject to different rules." The Ninth Circuit had concluded that speech that was part of the practice of a profession could be regulated by the state, subject only to intermediate scrutiny. The Court rejected this idea, saying that the First Amendment does not encompass a tradition of lower scrutiny "for a category called 'professional speech.'" Ultimately, the Court said that it saw no "persuasive reason" to treat "professional speech as a unique category that is exempt from ordinary First Amendment principles." To the extent that "professional speech" could be seen to overlap with commercial speech, this sentence could be read to suggest that commercial speech should also be subject to "ordinary First Amendment principles." This suggestion would seem to conflict with prior cases saying that commercial speech occupies a "subordinate position in the scale of First Amendment values." Although the NIFLA Court implicitly suggested that disclosure requirements for professionals might constitute commercial speech by evaluating the FACT Act's requirements under Zauderer and Central Hudson , it never expressly clarified whether "professional speech" overlaps with commercial speech. Because the FACT Act's requirements applied outside of the advertising context, it may be open to some debate whether these licensed notices involved commercial speech. The unlicensed notice challenged in NIFLA was required to be included in advertising, and advertisements are "classic examples of commercial speech." But the unlicensed notice was also required to be posted on-site, and the state required licensed facilities to post disclosures on-site or to otherwise distribute the notice to clients directly. Further, in a similar context, at least one federal court of appeals concluded that a Baltimore ordinance requiring certain pregnancy centers to make specified disclosures regulated noncommercial speech. That court said the pregnancy centers were not motivated by economic interest or proposing a commercial transaction, but were instead "provid[ing] free information about pregnancy, abortion, and birth control as informed by a religious and political belief." If the licensed disclosures in NIFLA did not regulate commercial speech, then it would be unsurprising that the Court would consider applying strict scrutiny rather than Central Hudson . Others, however, have pointed out that crisis pregnancy centers, even if they do not charge fees, operate "in a marketplace where other providers generally charge fees," and argued that these centers "are engaged in commercial activity by providing physical and mental health services to pregnant women." And more generally, some have pointed out the similarities between "professional" and commercial speech. The fact that the NIFLA Court did not directly address the relationship between professional and commercial speech may suggest that heightened scrutiny may be necessary with respect to some commercial disclosure requirements. Specifically, the Court did not cite the commercial speech doctrine as "a persuasive reason for treating professional speech as a unique category that is exempt from ordinary First Amendment principles." At least one commentator has argued that the Court's failure to mention Central Hudson —"not even to dismiss it as . . . another inapposite exception to Reed 's general rule [of strict scrutiny]"—may suggest that the Court is seeking to limit Central Hudson 's holding that commercial speech may be more freely regulated than other speech under the First Amendment. Although NIFLA may not have expressly altered the framework used to evaluate commercial disclosure requirements, it may nonetheless signal that the Supreme Court will view them with more skepticism in the future. The majority opinion, authored by Justice Thomas, emphasized that "[t]he dangers associated with content-based regulations of speech are also present in the context of professional speech." Even if "professional speech" is not coterminous with "commercial speech," this statement does seem to suggest that the Court believes content neutrality principles are relevant in the commercial sphere. In dissent, Justice Breyer, viewing the majority opinion as adopting such a view, argued that the majority's approach, "if taken literally, could radically change prior law, perhaps placing much securities law or consumer protection law at constitutional risk." He pointed out that "[v]irtually every disclosure law could be considered 'content based,' for virtually every disclosure law requires individuals 'to speak a particular message.'" In response to Justice Breyer, the NIFLA majority stated that it did not "question the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products." This view echoed the Court's prior statement that "[p]urely commercial speech is more susceptible to compelled disclosure requirements." Following the Court's 2010 decision in Reed , in which the Court articulated a more "precise test to determine whether speech regulations are content based," many lower courts had rejected the idea that content-based requirements affecting only commercial speech should be subject to strict scrutiny, even if they otherwise discriminated based on content under Reed . But because NIFLA appeared to suggest that content neutrality is relevant in the commercial sphere, it seems reasonable to think that lower courts may now be more likely to conclude that strict scrutiny could apply to content-based commercial disclosure requirements. This would be consistent with what some commentators have described as the Court's increasingly heightened scrutiny of restrictions on commercial speech. For now, though, Central Hudson generally continues to govern the analysis of government actions affecting lawful, non-misleading commercial speech, including commercial disclosure requirements that do not qualify for Zauderer review. As discussed, Central Hudson requires that the government prove that its interest is "substantial," and that the regulation "directly advances" that interest and is "not more extensive than is necessary to serve that interest." Government regulations are more likely to fail this more rigorous standard than the Zauderer reasonableness standard, often because a court believes there is some less restrictive means available for the government to achieve its goals. Courts will require more "evidence of a measure's effectiveness" under Central Hudson , as compared to Zauderer . However, Central Hudson is more forgiving than strict scrutiny, and courts do uphold government actions infringing on commercial speech under Central Hudson . For example, in Spirit Airlines v. Department of Transportation , the D.C. Circuit concluded that a federal regulation governing the way that airlines must display flight prices "satisfie[d] . . . the Central Hudson test." In the court's view, "[t]he government interest—ensuring the accuracy of commercial information in the marketplace—[was] clearly and directly advanced by a regulation requiring that the total, final price be the most prominent" price displayed. And the regulation was "reasonably tailored to accomplish that end" because the rule "simply regulate[d] the manner of disclosure." Government actions are unlikely to be upheld if a court applies strict scrutiny. Nonetheless, some scholars have argued that many disclosure requirements might survive strict scrutiny, and the Supreme Court has, in rare instances, said that the government may "directly regulate speech to address extraordinary problems, where its regulations are appropriately tailored to resolve those problems without imposing an unnecessarily great restriction on speech." It is possible that a court could hold that the government has a compelling interest in protecting consumers, for example, and that particular disclosures are narrowly tailored to meet that interest. The Supreme Court has long emphasized that the government can regulate commercial activity "deemed harmful to the public." But a court would likely require more proof from the government under strict scrutiny and likely would not simply accept the government's allegations as "self-evident" under such review. Congress has enacted a wide variety of disclosure requirements, many of which arguably compel commercial speech. For example, the Securities and Exchange Act of 1934 sets out disclosure requirements for registering securities. Federal law, among a host of other food labeling requirements, requires "bioengineered food" to bear a label disclosing that the food is bioengineered. Direct-to-consumer advertisements for prescription drugs must contain a series of disclosures, including the drug's name and side effects. Certain appliances must contain labels disclosing information about their energy efficiency. Bills in the 115 th and 116 th Congresses have proposed additional disclosure requirements, including a bill that would require large online platforms to disclose any studies conducted on users for the purposes of promoting engagement, and a bill that would require public companies to disclose climate-related risks. Recent Supreme Court precedent suggests that the Court is more closely reviewing commercial disclosure requirements, perhaps moving away from a more deferential treatment of such provisions. In NIFLA , the Court held that a disclosure requirement was likely unconstitutional under Zauderer because the government had not presented sufficient evidence to justify the measure —even though in other cases, the Court had rejected similar challenges to commercial disclosure requirements, saying that the government did not need to present more evidence because the harm it sought to remedy was "self-evident." Further, the Court has recently suggested that if a law regulating commercial speech discriminates on the basis of content—as all disclosure requirements seemingly do —then this content discrimination might subject the law to heightened scrutiny. If the Court further embraces this view, it could be a marked departure from its opinions holding that commercial speech could be regulated on the basis of its content, so long as the government's justification for the content discrimination were sufficiently related to its legitimate interests in regulating the speech. In concurring and dissenting opinions that have been joined by other Justices, Justice Breyer has argued that insofar as the Court's recent decisions suggest that commercial disclosure requirements should be subject to heightened scrutiny, they are inconsistent with prior case law and are not a proper application of the First Amendment. The Supreme Court said in NIFLA that it was "not question[ing] the legality of health and safety warnings long considered permissible, or purely factual and uncontroversial disclosures about commercial products." And lower courts have frequently upheld commercial disclosure requirements, perhaps suggesting that disclosures of the kind cited by Justice Breyer are not in danger of wholesale invalidation under the First Amendment. However, the majority opinion in NIFLA did not clarify what kind of disclosures it would consider permissible, and its opinion made clear that disclosure requirements should be scrutinized in light of the speakers they cover and the burdens they pose. Moreover, although the NIFLA Court said that it was not questioning these disclosures' "legality," it left open the possibility that these disclosure should nonetheless be subject to heightened scrutiny. This statement may mean only that the Court believes that many commercial disclosure requirements would meet a higher standard of scrutiny. At least one federal appellate court seems to have taken NIFLA as a signal that lower courts should more closely scrutinize commercial disclosure requirements. In American Beverage Association v. City & County of San Francisco , the Ninth Circuit, sitting en banc , relied on NIFLA to reverse a prior decision that had upheld an ordinance requiring "health warnings on advertisements for certain sugar-sweetened beverages." While a panel of judges had previously concluded that the disclosure requirement was constitutional under Zauderer , the full Ninth Circuit, reviewing that decision, said: " NIFLA requires us to reexamine how we approach a First Amendment claim concerning compelled speech." Namely, the court held that, in light of NIFLA , the health warnings were likely unjustified and unduly burdensome under Zauderer , noting that the regulation required the warnings to "occupy at least 20% of those products' labels or advertisements"—but that the record showed that "a smaller warning—half the size—would accomplish [the government's] stated goals." As such, the court held that the warnings violated the First Amendment "by chilling protected speech." Accordingly, when Congress and federal agencies consider adopting new commercial disclosure requirements, or reauthorizing old ones, it may be wise to develop a record with more evidence demonstrating a need for the regulation. Under any level of scrutiny, courts will examine the government's asserted purpose for the legislation, as well as how closely tailored the disclosure requirement is to achieve that purpose. Under Zauderer , particularly in light of NIFLA , courts may ask for evidence to support the government's claim that the regulated speech is misleading or that the government has some other interest in regulating that speech, and will likely scrutinize the disclosure requirement to make sure it is not unduly burdensome. Under intermediate scrutiny or strict scrutiny, a court may also ask whether the government considered alternative policies that would be less restrictive of speech, examining more closely the government's justifications for choosing a disclosure requirement.	[ "Federal law contains a wide variety of disclosure requirements, including food labels, securities registrations, and disclosures about prescription drugs in direct-to-consumer advertising. These disclosure provisions require commercial actors to make statements that they otherwise might not, compelling speech and implicating the Free Speech Clause of the First Amendment. Nonetheless, while commercial disclosure requirements may regulate protected speech, that fact in and of itself does not render such provisions unconstitutional. The Supreme Court has historically allowed greater regulation of commercial speech than of other types of speech. Since at least the mid-1970s, however, the Supreme Court has been increasingly protective of commercial speech. This trend, along with other developments in First Amendment law, has led some commentators to question whether the Supreme Court might apply a stricter test in assessing commercial disclosure requirements in the near future. Nonetheless, governing Supreme Court precedent provides that disclosure requirements generally receive lesser judicial scrutiny when they compel only commercial speech, as opposed to noncommercial speech. In National Institute of Family and Life Advocates v. Becerra, a decision released in June 2018, the Supreme Court explained that it has applied a lower level of scrutiny to compelled disclosures under two circumstances. First, the Supreme Court has sometimes upheld laws that regulate commercial speech if the speech regulation is part of a larger regulatory scheme that is focused on conduct and only incidentally burdens speech. If a law is properly characterized as a regulation of conduct, rather than speech, then it may be subject to rational basis review, a deferential standard that asks only whether the regulation is a rational way to address the problem. However, it can be difficult to distinguish speech from conduct, and the Supreme Court has not frequently invoked this doctrine to uphold laws against First Amendment challenges. Second, the Supreme Court has sometimes applied a lower level of scrutiny to certain commercial disclosure requirements under the authority of a 1985 case, Zauderer v. Office of Disciplinary Counsel. In Zauderer, the Court upheld a disclosure requirement after noting that the challenged provision compelled only \"factual and uncontroversial information about the terms under which . . . services will be available.\" The Court said that under the circumstances, the service provider's First Amendment rights were sufficiently protected because the disclosure requirement was \"reasonably related\" to the government's interest \"in preventing deception of consumers.\" Lower courts have generally interpreted Zauderer to mean that if a commercial disclosure provision requires only \"factual and uncontroversial information\" about the goods or services being offered, it should be analyzed under rational basis review. If a commercial disclosure requirement does not qualify for review under Zauderer, then it will most likely be analyzed under the intermediate standard that generally applies to government actions that regulate commercial speech. Some legal scholars have argued that recent Supreme Court case law suggests the Court may subject commercial disclosure provisions to stricter scrutiny in the future, either by limiting the factual circumstances under which these two doctrines apply or by creating express exceptions to these doctrines. If a court applies a heightened level of scrutiny, it may require the government to present more evidence of the problem it is seeking to remedy and stronger justifications for choosing a disclosure requirement to achieve its purposes." ]	9,534	gov_report	en	null	915e6d5d6f6cbeeba77c26faa8bb21d3361458f21d6b64a0
Since 2001, the United States has made a commitment to building Afghanistan’s security and governance in order to prevent the country from once again becoming a sanctuary for terrorists. To achieve its security objectives, the United States currently has two missions in Afghanistan: a counterterrorism mission that it leads and the NATO-led Resolute Support train, advise, and assist mission, which it participates in with other coalition nations. The objective of Resolute Support, according to DOD reporting, is to establish self-sustaining Afghan security ministries and forces that work together to maintain security in Afghanistan. The United States is conducting these missions within a challenging security environment that has deteriorated since the January 2015 transition to Afghan-led security. The United Nations reported nearly 24,000 security incidents in Afghanistan in 2017—the most ever recorded—and, despite a slight decrease in the overall number of security incidents in early 2018, the United Nations noted significant security challenges, including a spike in high-casualty attacks in urban areas and coordinated attacks by the insurgency on ANDSF checkpoints. DOD provides both personnel and funding to support its efforts in Afghanistan. DOD documents indicate that the United States contributes more troops to Resolute Support than any other coalition nation. As of May 2018, the United States was contributing 54 percent of Resolute Support military personnel, according to DOD reporting. Of the approximately 14,000 U.S. military personnel in Afghanistan as of June 2018, about 8,500 were assigned to Resolute Support to train, advise, and assist the ANDSF, according to DOD reporting. For fiscal year 2018, Congress appropriated about $4.67 billion for the Afghanistan Security Forces Fund—the primary mechanism of U.S. financial support for manning, training, and equipping the ANDSF. Other international donors provided about $800 million, and the Afghan government committed to providing about $500 million, according to DOD reporting. Under Resolute Support and the International Security Assistance Force mission that preceded it, CSTC-A is the DOD organization responsible for (1) overseeing efforts to equip and train the ANA and ANP; (2) validating requirements, including equipment requirements; (3) validating existing supply levels; (4) submitting requests to DOD components to contract for procurement of materiel for the ANDSF; and (5) ensuring that the Afghan government appropriately uses and accounts for U.S. funds provided as direct contributions from the Afghanistan Security Forces Fund. OSD-P is responsible for developing policy on and conducting oversight of the bilateral security relationship with Afghanistan focused on efforts to develop the Afghan security ministries and their forces. In August 2017, we reported that the United States had spent almost $18 billion on equipment and transportation for the ANDSF from fiscal years 2005 through April 2017, representing the second-largest expenditure category from the Afghanistan Security Forces Fund. In that report, we identified six types of key equipment the United States funded for the ANDSF in fiscal years 2003 through 2016, including approximately: 600,000 weapons, such as rifles, machine guns, grenade launchers, shotguns, and pistols; 163,000 tactical and nontactical radios, such as handheld radios and 76,000 vehicles, such as Humvees, trucks, recovery vehicles, and mine resistant ambush protected vehicles; 30,000 equipment items for detecting and disposing of explosives, such as bomb disposal robots and mine detectors; 16,000 equipment items for intelligence, surveillance, and reconnaissance, such as unmanned surveillance drones and night vision devices; and 208 aircraft, such as helicopters, light attack aircraft, and cargo airplanes. The Ministry of Defense oversees the ANA, and the Ministry of the Interior oversees the ANP. According to DOD reporting, the authorized force level for the ANDSF, excluding civilians, as of June 2018 was 352,000: 227,374 for the Ministry of Defense and 124,626 for the Ministry of Interior. The ANA includes the ANA corps, Afghan Air Force, Special Mission Wing, ANA Special Operations Command, and Ktah Khas (counterterrorism forces). The ANP includes the Afghan Uniformed Police, Afghan Anti-Crime Police, Afghan Border Police, Public Security Police, Counter Narcotics Police of Afghanistan, and General Command of Police Special Units. The ANA Special Mission Wing, Ktah Khas, ANA Special Operations Command, and ANP General Command of Police Special Units are collectively referred to as the Afghan Special Security Forces. In this report, we refer to the Afghan Air Force and the Afghan Special Security Forces as specialized forces, and the other components of the ANDSF as conventional forces. According to DOD reporting, the combined authorized force level for the specialized forces as of June 2018 was approximately 34,500, or about 10 percent of the ANDSF’s total authorized force level of 352,000, compared with the conventional forces, which make up about 74 percent of the total authorized force level for the ANDSF. Figure 1 shows the ANDSF’s organization. U.S. and coalition advisors from Resolute Support focus on capacity building at the Ministry of Defense, Ministry of Interior, and ANDSF regional headquarters, according to DOD reporting. Ministerial advisors are located at Resolute Support headquarters in Kabul. At the ministerial level, advisors provide assistance to improve institutional capabilities, focusing on several functional areas. Table 1 summarizes the indicators of effectiveness that ministerial advisors are to use to measure ministerial progress in developing functioning systems that can effectively execute each of the functional areas. Regional Resolute Support advisors from seven advising centers located throughout Afghanistan provide support to nearby ANA corps and ANP zone headquarters personnel, according to DOD reporting. Some advisors are embedded with their ANDSF counterparts, providing a continuous coalition presence, while others provide less frequent support, based on proximity to and capability of their ANDSF counterparts. Regional advisors are to track ANDSF capability development by assessing the progress of the ANA corps and ANP zone headquarters based on five capability pillars (see table 2). DOD and other Resolute Support advisors are to document the results of these assessments each quarter in an ANDSF Assessment Report. According to DOD reporting, in addition to ministerial and regional advising, two tactical-level advisory commands provide continuous support for the ANDSF’s specialized forces: Train, Advise, and Assist Command–Air (TAAC-Air) advises the Afghan Air Force down to the unit level, and NATO Special Operations Component Command–Afghanistan (NSOCC-A) primarily provides tactical-level special operations advising for the Afghan Special Security Forces. TAAC-Air and NSOCC-A assess capabilities at the headquarters level based on the five capability pillars described above in table 2, and these assessments are included in the quarterly ANDSF Assessment Report. Figure 2 shows the levels of advising each Resolute Support advisory command type provides for the ANDSF conventional forces and specialized forces. Since Resolute Support began, the ANDSF have improved some capabilities related to the functional areas and capability pillars described above, but face several capability gaps that leave them reliant on coalition assistance, according to publicly available DOD reporting. DOD defines capability as the ability to execute a given task. A capability gap is the inability to execute a specified course of action, such as an ANDSF functional area or a capability pillar (see tables 1 and 2 above). According to DOD guidance, a gap may occur because forces lack a materiel or non-materiel capability, lack proficiency or sufficiency in a capability, or need to replace an existing capability solution to prevent a future gap from occurring. According to DOD reporting on the Afghan security ministries, ANA corps, and ANP zones, the ANDSF generally have improved in some capability areas since Resolute Support began, with some components performing better than others. For example, DOD has reported that the Afghan ministries have improved in operational planning, strategic communications, and coordination between the Ministry of Interior and Ministry of Defense at the national level. In general, the ANA is more capable than the ANP, according to DOD reporting. According to DOD officials and SIGAR reporting, this is due, in part, to the ANA having more coalition advisors and monitoring than the ANP. DOD officials also noted that the Ministry of Interior, which oversees the ANP, and Afghanistan’s justice system are both underdeveloped, hindering the effectiveness of the ANP. Corruption, understaffing, and training shortfalls have also contributed to the ANP’s underdevelopment, according to DOD and SIGAR reporting. The Afghan Special Security Forces are the most capable within the ANDSF and can conduct the majority of their operations independently without coalition enablers, according to DOD reporting. DOD and SIGAR reports have attributed the Afghan Special Security Forces’ relative proficiency to factors such as low attrition rates, longer training, and close partnership with coalition forces. The Afghan Air Force is becoming increasingly capable, and can independently plan for and perform some operational tasks, such as armed overwatch and aerial escort missions, according to DOD reporting. However, DOD has reported that the ANDSF generally continue to need support in several key areas. For example, as of December 2017, DOD reported several ministerial capability gaps, including force management; logistics; and analyzing and integrating intelligence, surveillance, and reconnaissance information. DOD also reported that, as of December 2017, the ANA and ANP continued to have capability gaps in several key areas, such as weapons and equipment sustainment and integrating fire from aerial and ground forces. The ANDSF rely on support from contractors and coalition forces to mitigate capability gaps in these key areas. For some capability areas, such as aircraft and vehicle maintenance and logistics, the ANDSF is not expected to be self- sufficient until at least 2023, according to DOD reporting. According to DOD officials and SIGAR reporting, coalition and contractor support helps mitigate ANDSF capability gaps in the immediate term but may make it challenging to assess the ANDSF’s capabilities and gaps independent of such support. For example, vehicle and aircraft maintenance contractors are responsible for sustaining specific operational readiness rates for the equipment they service. While this helps ensure that ANDSF personnel have working equipment to accomplish their mission, thereby closing an immediate capability gap, it may mask the ANDSF’s underlying capabilities and potentially prolong reliance on such support, according to DOD officials and SIGAR reporting. DOD and the ANDSF have begun implementing plans and initiatives that aim to strengthen ANDSF capabilities. These include the following, among others: ANDSF Roadmap. In 2017, the Afghan government began implementing the ANDSF Roadmap—a series of developmental initiatives that seek to strengthen the ANDSF and increase security and governance in Afghanistan, according to DOD reporting. The Roadmap is structured to span 4 years, but DOD has reported that its full implementation will likely take longer than that. According to DOD reporting, the Roadmap aims to improve four key elements: (1) fighting capabilities; (2) leadership development; (3) unity of command and effort; and (4) counter-corruption efforts. Under the Roadmap’s initiative to increase the ANDSF’s fighting capabilities, DOD and the ANDSF have begun implementing plans to increase the size of the specialized forces. Specifically, DOD reports that the ANDSF plans to nearly double the size of the Afghan Special Security Forces by 2020 as an effort to bolster the ANDSF’s offensive reach and effectiveness. The Afghan Special Security Forces are to become the ANDSF’s primary offensive force, the conventional ANA forces are to focus on consolidating gains and holding key terrain and infrastructure, and the conventional ANP forces are to focus on community policing efforts. In addition, to provide additional aerial fire and airlift capabilities, the ANDSF began implementing an aviation modernization plan in 2017. The aim is to increase personnel strength and the size of the Afghan Air Force and Special Mission Wing fleets by 2023. Enhanced vehicle maintenance efforts. To help improve the ANDSF’s vehicle maintenance abilities, DOD awarded a National Maintenance Strategy Ground Vehicle Support contract, which, according to DOD officials, became fully operational in December 2017. The National Maintenance Strategy Ground Vehicle Support contract consolidated five separate vehicle maintenance and training contracts into a single contract and contains provisions for building the capacity of ANDSF and Afghan contractors to incrementally take control of vehicle maintenance over a 5-year period. Additional U.S. military personnel. As part of the South Asia strategy, the United States committed 3,500 additional military personnel to increase support to its missions in Afghanistan. According to DOD reporting, most of the additional personnel will support the Resolute Support mission, providing more advising and combat enabler support to the ANDSF. Additionally, in March 2018, the United States began deploying a Security Force Assistance Brigade—a new type of unit made up of U.S. Army personnel with expertise in training foreign militaries—to Afghanistan. The Security Force Assistance Brigade will advise conventional and specialized forces at and below the corps and zone levels and will accompany and support ANA conventional forces at the battalion level in ground operations as needed, according to DOD and SIGAR reporting. DOD collects some reliable information about the operation and maintenance abilities of ANDSF specialized forces, in part because advisors are embedded at the tactical level with the specialized forces, according to DOD officials. Specifically, U.S. and coalition forces advise specialized forces at the tactical level under Resolute Support because building ANDSF aviation and special operations abilities are considered particularly important, according to DOD reporting. DOD officials told us that since U.S. and coalition forces are embedded at the tactical level for specialized forces, they can monitor, assess, and report on tactical abilities, including the ability to operate and maintain equipment. Our analysis of information provided by DOD about the Afghan Air Force’s ability to operate and maintain MD-530 helicopters illustrates that DOD has some detailed information about specialized forces. TAAC-Air advisors help train Afghan pilots and maintainers and collect information on their tactical abilities. For example, TAAC-Air advisors track the percentage of maintenance performed by Afghan Air Force maintainers and aircraft operational readiness rates, according to DOD officials. According to DOD reporting and officials, as of December 2017, the Afghan Air Force could independently conduct MD-530 helicopter operations for short intervals without contractor support but relied on contractors to perform the majority of maintenance and sustainment activities. See appendix II for more information on the Afghan Air Force’s ability to operate and maintain MD-530 helicopters. U.S. and coalition forces perform high-level assessments of the ANDSF conventional forces’ capabilities at the corps and zone levels but do not assess their tactical abilities, such as the ability to operate and maintain equipment, according to DOD officials. For example, U.S. and coalition forces assess the ANA and ANP conventional forces in quarterly ANDSF Assessment Reports, but these reports are at the corps and zone headquarters levels, and are not meant to provide an evaluation of the entire ANDSF, according to DOD reporting. DOD officials stated that other U.S.- and coalition-produced reports and assessments, such as DOD’s semiannual Section 1225 reports to Congress, semiannual periodic mission reviews, and annual Afghanistan Plans of Record, provide some information on the ANDSF’s high-level capabilities. However, according to DOD officials, these reports do not routinely assess the conventional forces’ ability to operate and maintain equipment. According to DOD officials, DOD does not assess conventional forces’ tactical abilities because advisors have had little or no direct contact with conventional units below the corps and zone levels, and thus do not collect such information on conventional forces. Specifically, under Resolute Support, U.S. and coalition forces have not embedded with the conventional forces below the corps and zone levels except in limited circumstances. Since U.S. and coalition forces do not collect firsthand information on the conventional units’ tactical abilities, they rely on those units’ self-reporting for information on ANDSF abilities below the corps and zone levels, which, according to DOD officials, may be unreliable. ANDSF reporting is not verified by U.S. officials and can be unreliable in its consistency, comprehensiveness, and credibility, according to DOD officials and SIGAR. For example, the ANDSF produce a monthly tracker on vehicle availability, maintenance backlog, repair times, and personnel productivity, but DOD officials told us that the trackers are of questionable accuracy. Our analysis of information provided by DOD about the ANDSF’s ability to operate and maintain tactical and nontactical radios illustrates the limited amount of information DOD has on ANDSF conventional forces’ tactical abilities. Specifically, DOD officials could not say how well ANDSF personnel on the front lines operate radios in the field and had only limited information on the ANDSF’s ability to maintain radios. For example, the officials noted that the ANA conventional forces can perform some unit-level radio repairs but that complex ANA radio maintenance and all ANP radio maintenance is conducted by contractors. DOD officials at Resolute Support headquarters told us that they provide ministerial- level advising on how to manage ANDSF radio systems and do not provide tactical advising or inventory control for radios. See appendix III for more information on the ANDSF’s ability to operate and maintain radios. Our analysis of information provided by DOD about the ANDSF’s ability to operate and maintain Mobile Strike Force Vehicles (MSFV) highlights the limited amount of information DOD has on ANDSF conventional forces’ tactical abilities compared with specialized forces. DOD officials were able to provide operation and maintenance information for MSFVs that had transferred to the specialized forces as of January 2018 but were unable to provide operation and maintenance information for any other MSFVs. The ANDSF began transferring one of the ANDSF’s two MSFV brigades from the conventional to specialized forces in August 2017, according to DOD officials. As part of this transfer, NSOCC-A advisors—who provide tactical-level advising for the Afghan Special Security Forces—assumed oversight for the first brigade from Resolute Support headquarters advisors. DOD officials stated that the ANDSF’s ability to operate and maintain MSFVs in this brigade prior to the transfer was unknown, as neither Resolute Support headquarters nor the ANA had assessed this. The operation and maintenance abilities of the second brigade, which is still in the conventional forces, remains unknown. DOD officials at NSOCC-A were able to provide information such as inventory and mission capability rates for the MSFVs that had transferred, but only for the short period of time the vehicles had been under the control of the specialized forces. DOD officials told us that NSOCC-A plans to collect more information on the specialized forces’ ability to operate and maintain MSFVs as they are transferred. See appendix IV for more information on the ANDSF’s ability to operate and maintain MSFVs. In the absence of embedded advisors at the tactical level, DOD has not implemented alternative approaches to collect reliable information about the conventional forces’ ability to operate and maintain equipment. Federal internal control standards state that U.S. agencies should obtain and process reliable information to evaluate performance in achieving key objectives and assessing risks. DOD officials acknowledged that some of the plans described above that DOD and the ANDSF have begun implementing to address capability gaps may provide opportunities for DOD to collect more reliable information on the conventional forces’ ability to operate and maintain U.S.-purchased equipment. For example, the National Maintenance Strategy Ground Vehicle Support contract requires that contractors regularly report the total work orders received, work in progress, and completed maintenance work performed by ANDSF personnel as well as vehicle availability rates, which may be more reliable than the ANDSF’s monthly report on vehicle availability. In addition, the Security Force Assistance Brigade may be able to collect and report on the tactical abilities of units they advise and accompany on missions since they are being deployed at or below the corps and zone levels. However, as of June 2018, DOD officials had not decided which, if any, of these options to pursue. Without reliable information on the equipment operation and maintenance abilities of ANDSF conventional forces, which represent nearly 75 percent of the ANDSF, DOD may be unable to fully evaluate the success of its train, advise, assist, and equip efforts in Afghanistan. The United States invested nearly $84 billion in Afghan security in the 17- year period spanning fiscal years 2002 through 2018, but DOD continues to face challenges to developing a self-sustaining ANDSF. While DOD has reported the ANDSF have improved in several capability areas, they continue to face critical capability gaps, impeding their ability to maintain security and stability in Afghanistan independent of U.S. and coalition forces. Moreover, DOD lacks reliable information about the degree to which conventional forces—which make up about three-quarters of the ANDSF—are able to operate and maintain U.S.-purchased equipment. This limits DOD’s ability to fully evaluate the success of its train, advise, assist, and equip efforts in Afghanistan. The Secretary of Defense should develop and, as appropriate, implement options for collecting reliable information on the ANDSF conventional forces’ ability to operate and maintain U.S.-purchased equipment. (Recommendation 1) We provided a draft of this report to DOD and State for comment. DOD declined to provide written comments specifically on this public version of the report, but DOD’s comments on the sensitive version of this report are reprinted in appendix V. The sensitive version of this report included two recommendations, which DOD cited in its comments on the draft of the sensitive report. One of those recommendations related to information that DOD deemed to be sensitive and that must be protected from public disclosure. Therefore, we have omitted that recommendation from DOD’s comment letter in appendix V. This omission did not have a material effect on the substance of DOD’s comments. In its comments, DOD concurred with the recommendation we made in this version of the report and stated it will take steps to implement it. DOD also provided technical comments, which we incorporated as appropriate. The Department of State had no comments. We are sending copies of this report to the appropriate congressional committees, the Secretary of Defense, and the Secretary of State. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff has any questions about this report please contact me at (202) 512-7114 or farbj@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VI. House Report 114-537 associated with the National Defense Authorization Act for Fiscal Year 2017 included a provision for us to review the Afghan National Defense and Security Forces’ (ANDSF) capability and capacity to operate and sustain U.S.-purchased weapon systems and equipment. This report is a public version of a sensitive report that we issued on September 20, 2018. Our September report included three objectives, including one on the extent to which DOD considers ANDSF input and meets their needs when identifying equipment requirements. DOD deemed the information related to that objective to be sensitive, which must be protected from public disclosure. Consequently, we removed that objective and a related recommendation from this public report. This version includes information on the other two objectives: (1) what has been reported about ANDSF capabilities and capability gaps and (2) the extent to which DOD has information about the ANDSF’s ability to operate and maintain U.S.-purchased equipment. Although the information provided in this report is more limited, the report uses the same methodology for the two objectives as the sensitive report. To identify what has been reported about ANDSF capabilities and capability gaps, we reviewed North Atlantic Treaty Organization (NATO) and DOD documents and reports, such as DOD’s semiannual Section 1225 reports to Congress, produced after the start of the NATO-led Resolute Support mission on January 1, 2015. To determine what steps DOD and NATO have taken to try to address gaps, we reviewed reports the Center for Naval Analyses produced for DOD, as well as DOD and NATO documents and reports produced after January 1, 2015, and reports from GAO, the Special Inspector General for Afghanistan Reconstruction (SIGAR), and the DOD Inspector General. We also interviewed Center for Naval Analyses representatives and DOD officials in the United States and Afghanistan, including DOD officials at the Combined Security Transition Command–Afghanistan (CSTC-A) and in the Office of the Undersecretary of Defense for Policy (OSD-P) who helped create the DOD reporting we reviewed. To determine the extent to which DOD has information about the ANDSF’s ability to operate and maintain U.S.-purchased equipment, we reviewed DOD documents and reports and interviewed DOD officials in the United States and Afghanistan, including DOD officials who advise the ANDSF. We also reviewed federal internal control standards to determine what responsibilities agencies have specifically related to information collection. To provide illustrative examples of information DOD has about the ANDSF’s ability to operate and maintain U.S.- purchased equipment and what that information indicates about the ANDSF’s abilities and challenges, we interviewed and analyzed written responses from DOD officials, including DOD officials who provide procurement and lifecycle management for some ANDSF aircraft and vehicles, about three equipment types—MD-530 helicopters, Mobile Strike Force Vehicles (MSFV), and radios. We selected these three equipment types from a list that we developed, for an August 2017 report, of key ANDSF equipment the United States purchased from fiscal years 2003 through 2016. We made our selections after reviewing DOD documentation and interviewing DOD officials regarding a number of considerations, such as (1) how critical the equipment is to the ANDSF’s ability to achieve its mission; (2) which ANDSF component uses the equipment (i.e., Afghan National Police, Afghan National Army, or both); (3) whether DOD intends to continue procuring the equipment for the ANDSF; and (4) whether the equipment had been in use at least 5 years. We collected detailed information about the ANDSF’s ability to operate and maintain MD-530 helicopters, MSFVs, and radios, as well as other key statistics DOD provided about the equipment, such as inventory, average lifespan, average cost, role, and training. This information was based mainly on DOD responses collected from January 2018 to February 2018 as well as DOD documents and reports produced after January 1, 2015. The total amount of MD-530s and radios authorized for procurement was based on DOD data that we collected for our August 2017 report on key ANDSF equipment the United States purchased in fiscal years 2003 through 2016, which we supplemented with additional data DOD provided on U.S.-purchased equipment from October 1, 2016, through December, 31, 2017. The performance audit upon which this report is based was conducted from August 2016 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate, evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. We subsequently worked with DOD from September 2018 to October 2018 to prepare this public version of the original sensitive report for public release. This public version was also prepared in accordance with those standards. Manufacturer: MD Helicopters, Inc. U.S. Program Management Office: U.S. Army, Non-Standard Rotary Wing Aircraft Project Management Office Program Advising: Train Advise Assist Command–Air (TAAC-Air) The United States originally procured 6 unarmed MD-530s for the AAF for rotary wing training in 2011. In 2014, the United States purchased 12 armed MD-530s and began retrofitting the 5 remaining trainer helicopters with armament for operational missions to address a close air attack gap. MD- 530s were chosen to fill the gap over other aircraft, in part because they could be delivered relatively quickly as the AAF awaited A-29 light attack aircraft that were experiencing procurement delays, according to Department of Defense (DOD) officials. The United States procured additional MD-530s in 2015, 2016, and 2017 because of the aircraft’s positive impact on the battlefield, according to DOD officials (see fig. 3). Key Statistics Variants: All can be armed with .50-cal machine gun pods and/or 2.75 inch rocket pods. Total Authorized for Procurement: 60 as of December 31, 2017 Inventory: 25 as of January 2018 (30 are scheduled for delivery; attrition of 5 due to crashes and enemy fire) Average Lifespan: Absent mishaps, and with good maintenance, there is no defined lifespan limit for MD-530s, according to DOD officials. National Army and Afghan National Police, depending on the mission, in all but one region of Afghanistan, which is supported by other aircraft. MD-530s are typically tasked two at a time for missions, according to DOD officials. An MD-530 crew consists of a pilot and co-pilot, according to DOD. Average cost: $6.3 million per aircraft, including all electronic devices, weapons management systems, and weapons (excluding ordnance), according to DOD officials. o Division of labor is based on the individual crew members' capabilities, with one pilot handling navigation and communication while the other identifies targets and operates the weapon systems. Army pilot advisors at Kandahar Air Field, according to DOD officials. o MD-530 pilot training takes about 3 years (see fig. 4). 1. The GAO report number cited in DOD’s letter refers to a draft of the sensitive version of this report, which we issued on September 20, 2018. Prior to issuing that version, we changed its report number to GAO-18- 662SU to reflect its sensitive nature. That version of this report included two recommendations. The second recommendation has been omitted from DOD’s letter in this public version because it was related to information that DOD deemed to be sensitive. In addition to the contact named above, Joyee Dasgupta (Assistant Director), Kara Marshall, Katherine Forsyth, and Bridgette Savino made key contributions to this report. The team also benefitted from the expert advice and assistance of David Dayton, Neil Doherty, Justin Fisher, Ashley Alley, Cary Russell, Marie Mak, James Reynolds, Sally Williamson, Ji Byun, and J. Kristopher Keener.	[ "Developing independently capable ANDSF is a key component of U.S. and coalition efforts to create sustainable security and stability in Afghanistan under the North Atlantic Treaty Organization (NATO)-led Resolute Support mission. The United States is the largest contributor of funding and personnel to Resolute Support, providing and maintaining ANDSF equipment, along with training, advising, and assistance to help the ANDSF effectively use and sustain the equipment in the future. House Report 114-537 included a provision for GAO to review the ANDSF's capability and capacity to operate and sustain U.S.-purchased weapon systems and equipment. This report addresses (1) what has been reported about ANDSF capabilities and capability gaps and (2) the extent to which DOD has information about the ANDSF's ability to operate and maintain U.S.-purchased equipment. To conduct this work, GAO analyzed DOD and NATO reports and documents, examined three critical equipment types, and interviewed DOD officials in the United States and Afghanistan. This is a public version of a sensitive report issued in September 2018. Information that DOD deemed sensitive has been omitted. Since the Resolute Support mission began in 2015, the Afghan National Defense and Security Forces (ANDSF) have improved some fundamental capabilities, such as high-level operational planning, but continue to rely on U.S. and coalition support to fill several key capability gaps, according to Department of Defense (DOD) reporting. DOD has initiatives to address some ANDSF capability gaps, such as a country-wide vehicle maintenance and training effort, but DOD reports it does not expect the ANDSF to develop and sustain independent capabilities in some areas, such as logistics, for several years. While DOD has firsthand information on the abilities of the Afghan Air Force and Special Security Forces to operate and maintain U.S.-purchased equipment, it has little reliable information on the equipment proficiency of conventional ANDSF units. U.S. and coalition advisors are embedded at the tactical level for the Air Force and Special Security Forces, enabling DOD to directly assess those forces' abilities. However, the advisors have little direct contact with conventional ANDSF units on the front lines. As a result, DOD relies on those units' self-assessments of tactical abilities, which, according to DOD officials, can be unreliable. GAO's analysis of three critical equipment types illustrated the varying degrees of DOD's information (see figure above). For example, DOD provided detailed information about the Air Force's ability to operate and maintain MD-530 helicopters and the Special Security Forces' ability to operate and maintain Mobile Strike Force Vehicles; however, DOD had limited information about how conventional forces operate and maintain radios and Mobile Strike Force Vehicles. DOD's lack of reliable information on conventional forces' equipment operations and maintenance abilities adds to the uncertainty and risk in assessing the progress of DOD efforts in Afghanistan. GAO recommends that DOD develop options for collecting reliable information on conventional ANDSF units' ability to operate and maintain U.S.-purchased equipment. DOD concurred with this recommendation." ]	4,887	gov_report	en	null	c0242b90fd33c985d1009f9f811f5de8aa911155603f77f5
CAPTA, originally enacted in 1974, provides formula grants to states to improve child protective service systems. ACF administers the CAPTA state grant program and provides guidance and oversight to states. In fiscal year 2017, Congress provided about $25 million for the program. As part of the CAPTA state grant program, states are required to submit to the Secretary of HHS plans outlining how they intend to use CAPTA funds to improve their child protective service systems, among other things. State plans remain in effect for the duration of states’ participation in the grant program; if modifications are needed, these must be submitted. In addition to state plans, states are required to submit to HHS an annual data report providing information on agency decisions made in response to referrals of child abuse and neglect, as well as preventive services provided to families, among other things. CAPTA requires state governors to provide a series of assurances in their state plans. Since 2003, governors have had to provide an assurance that states have in effect and are enforcing a state law or program that includes policies and procedures to address the needs of infants affected by prenatal substance abuse or displaying withdrawal symptoms at birth. Under states’ policies and procedures, health care providers are required to notify CPS of such infants. Governors must also assure that a plan of safe care is developed for these infants. Although CAPTA does not define “plans of safe care,” for the purposes of this report we define them as plans to ensure the safety and well-being of infants who are born substance-affected. The Comprehensive Addiction and Recovery Act of 2016 (CARA) amended certain provisions of CAPTA that relate to substance-affected infants (see table 1). In addition to provisions related to substance-affected infants, CAPTA also requires governors to provide an assurance to the Secretary of HHS that they have provisions or procedures for certain individuals to report known and suspected instances of child abuse and neglect, which are generally referred to as mandated reporter laws. All states have statutes identifying persons who are required to report suspected child maltreatment to an appropriate agency, such as child protective services, a law enforcement agency, or a state’s toll-free child abuse reporting hotline, according to a 2016 HHS report. Mandatory reporters often include social workers; teachers, principals, and other school personnel; physicians, nurses, and other health care workers; and counselors, therapists, and other mental health professionals. The circumstances under which a mandatory reporter must make a report vary from state to state, according to HHS. Typically, a report must be made when the reporter, in his or her official capacity, suspects or has reason to believe that a child has been abused or neglected. State laws require mandatory reporters to report the facts and circumstances that led them to suspect that a child has been abused or neglected; they do not have the burden of providing proof that abuse or neglect has occurred. CPS, a division within state and local social services, is generally the agency that conducts an initial assessment or investigation of reports of child abuse and neglect. It also offers services to families and children where maltreatment has occurred or is likely to occur. Typically, when CPS agencies receive a notification about suspected child abuse, including a substance-affected infant, social workers review the referral to determine if it should be accepted for investigation. During an investigation, social workers determine, among other things, the nature, extent, and cause of abuse or neglect, and identify the person responsible for the maltreatment. An investigation may include the following: a visit to the hospital and/or infant’s home; observation of the infant; risk and safety assessments; evaluation of the home environment; background checks, including criminal record checks of adults that reside with the family; as well as mental health evaluations. If social workers determine that there is enough evidence to suggest that an infant is at risk for harm or neglect, or that abuse or neglect occurred, the case is substantiated. Once a case is substantiated, CPS develops a case plan with the family outlining objectives and tasks for the family. Among other things, CPS may refer the family to services in the community, such as early intervention services, parenting classes, and substance abuse treatment. Generally, CPS attempts to strengthen the family and alleviate the problems which led to maltreatment. If the case is not substantiated, but there is genuine concern about the child’s situation and the family may benefit from services in the community, the case may be closed and/or the family may be referred for voluntary services (see figure 1). Prenatal maternal opioid use has increased considerably in recent years. This increase has contributed to a significant rise in the rate of NAS. According to a recent study, the rate of NAS has increased from 1.2 per 1,000 hospital births in 2000 to 5.8 per 1,000 hospital births in 2012, reaching a total of 21,732 infants diagnosed with NAS. NAS occurs with considerable variability. According to a recent HHS report, various studies indicate that anywhere from 55 to 94 percent of infants exposed to opioids in-utero exhibit some degree of symptoms. Typically, infants with NAS develop symptoms within 72 hours of birth, but may develop symptoms within the first 2 weeks of life, including after hospital discharge. For the purpose of this report, infants exposed to opioids ingested by mothers in utero are considered substance-exposed, and those born negatively affected by exposure or experiencing withdrawal symptoms are considered substance-affected. According to experts, NAS is considered an expected and treatable result of women’s prenatal opioid use. Opioid exposure during pregnancy may occur for the following reasons: Women receiving pain medication with a prescription under the care of a physician. Medications can include fentanyl and oxycodone. Women under the care of a physician and undergoing treatment for an opioid use disorder with medications, such as methadone or buprenorphine. This type of treatment is generally referred to as medication-assisted treatment (MAT). Women misusing opioid pain medications with or without a prescription (such as using without a prescription, using a different dosage than prescribed, or continuing to use a drug when no longer needed for pain). Women using or abusing illicit opioid, such as heroin. In response to our survey, 42 states reported that state policies and procedures require health care providers to notify CPS about substance- affected infants. Some states reported that they explicitly require health care providers to notify CPS of substance-affected infants. For example, Wisconsin reported that under its state law if tests indicate that infants have controlled substances or controlled substance analogs in their bodily fluids, the health care provider shall report the occurrence of that condition to CPS. Others reported that the requirement is met by their states’ mandated reporter law—whereby people in certain positions, including health care providers, are required to notify CPS about substance-affected infants, similar to the manner in which other mandatory reporters, like school teachers, day care personnel, and social workers are required to report other instances of child abuse and neglect. For example, Kentucky statute requires that “any person who knows or has reasonable cause to believe that a child is dependent, neglected, or abused shall immediately” make a report to the police or CPS. The statutory definition for an abused or neglected child in Kentucky includes situations where a child’s health or welfare is harmed or threatened with harm because of parental incapacity due to alcohol and other drug abuse. Of the 42 states that require health care providers to notify CPS of substance-affected infants, 21 reported that notification is required for infants affected by both illegal and legal use of opioids. For example, in Massachusetts health care providers are required to notify CPS orally and, in writing within 48 hours, about substance-affected infants physically dependent on drugs, even if the drugs were legally obtained and the mother is under the care of a prescribing medical professional. Sixteen of the 42 states reported that health care providers are required to notify CPS of infants affected only by the illegal use of opioids, and five of the 42 states reported that they did not know if health care providers were required to notify CPS of infants affected by the illegal and legal use of opioids. The other eight states reported that although they did not have policies and procedures that require health care providers to notify CPS about substance-affected infants, they have laws or policies that encourage notification. Specifically, in written responses to our survey: Two states reported that under their state mandated reporter laws health care providers are encouraged, but not required, to notify CPS about substance-affected infants. Four states reported that they are working to amend their states’ policies and procedures to require that health care providers refer substance-affected infants to CPS. Another state reported that it encourages the notification from health care providers, but has not sought legislation to require health care providers to report substance-affected infants to CPS because of concerns that any laws that criminalize prenatal substance use would further deter substance-using pregnant women from seeking prenatal care. The state’s law requires all hospital personnel who suspect abuse and neglect or observe conditions that are likely to result in abuse or neglect to notify CPS. One state reported that all persons, including health care providers, are required to report child abuse and neglect, but reporting depends on whether a hospital’s policy indicates substance abuse is child abuse or neglect. Further, the state CPS director reported collaboration with the health care community on reporting substance exposed infants to its child abuse hotline. Although one state reported in our survey that it does not require or encourage health care providers to notify CPS about substance-affected infants, in an interview, state officials explained that its policy requires that health care providers notify CPS if, through an assessment, they conclude that infants are at risk for abuse and neglect. Under the state’s law, health care providers in each county are required to assess the needs of mothers and substance-affected infants using a protocol established by county health departments, CPS agencies, and hospitals. State officials told us that under the state’s law, the birth of a substance- affected infant is not in and of itself a sufficient basis for reporting child abuse or neglect. In addition to having policies and procedures regarding the reporting of substance-affected infants, in written responses to our survey some states reported providing training and guidance to support the efforts of health care providers to notify CPS about these infants. Three states reported that they offer mandatory reporter training to inform health care providers that they are obligated to notify CPS about substance-affected infants. Another state reported that its Department of Human Services developed a guide for mandated reporters that discusses what needs to be reported and where to make reports. Also, one state reported that it sent a formal letter to its state hospital association about how to report substance-affected infants to CPS. This state also sent a memo to its CPS county directors instructing them to contact their local health care providers on the importance of reporting substance-affected infants to CPS and the process for doing so. In addition, during our Massachusetts site visit, officials shared with us a memo that was sent to mandated reporters, community partners, and other stakeholders that offered guidance on when to file a report about substance-exposed infants. Further, local CPS staff at one Massachusetts field office told us that upon request they provide mandated reporter training to health care providers. Despite these policies, procedures, and guidance, in written responses to our survey, a few states reported concerns about requiring health care providers to notify CPS about substance-affected infants and the definition of substance-affected. All of the hospitals that we visited have policies consistent with their state’s law that require that health care providers, primarily hospital social workers, to notify CPS about substance-affected infants. However, one state reported that some medical personnel have been reluctant to report some infants that are positive for illegal and legal substances due to fears of mothers being arrested. Another state reported that stakeholders are concerned that having to notify CPS about substance-affected infants will have a chilling effect on the willingness of pregnant women who use substances to be honest with providers and seek the help and support they need and deserve. According to one state, there is often an inherent resistance to contacting CPS in these cases as health care providers tend to view child welfare involvement as punitive rather than a potential resource for the family. In addition, three states reported in written responses to our survey challenges understanding how to define terms, such as substance- affected, under CAPTA. For example, the Pennsylvania CPS director expressed concerns during our site visit, suggesting that CAPTA raises many unanswered questions, such as (1) if “affected by substances” means at-risk of being or physically affected by substances, (2) what policies relating to substance-affected infants should look like and include, and (3) whether “affected by substances” should include women who are under the care of health care or treatment providers and taking their medications as prescribed. A Kentucky public health official told us that a drug test, or whether the infant is affected by legal or illegal substances, should not be the sole factor in determining CPS’ involvement with a family. Rather, a holistic view of the family, whether the substance prohibits the mother’s ability to care for her child, and any risk factors present that places the infant at risk should also be considered. According to officials, an infant that is exposed to substances, but has not been affected by the substance, can still be at risk for child abuse and neglect. In response to our survey, 46 states reported that they have policies and procedures for deciding which notifications about substance-affected infants are accepted for investigation. Seventeen of those states reported that all notifications of substance-affected infants are accepted for investigation, regardless of the circumstances. The remaining 29 states reported that they apply specific criteria to determine if children who present as substance-affected are accepted for investigation by CPS. Several states reported in written responses to our survey that they base their criteria for accepting notifications on the infant’s safety. For these states, drug exposure does not by itself indicate that an infant’s safety is at risk. For example, one state explained that in determining a child’s safety risk, staff evaluate a number of factors including the history of the family; the family’s presentation at the birthing hospital (appearance of chaotic behavior, suspected intoxication of adults, lack of appropriate concern or bonding with the infant); the presentation of the infant’s physical condition; the results of any testing of parent or child (blood, urine, etc.); discrepancies identified in the parent’s representation of their substance use or substance use treatment; and any other concerns noted by the reporting source. Other states reported that their criteria for accepting notifications for investigation are based on the degree or type of drug exposure in question. For example, one state reported that its policy directs CPS agencies to accept notifications for investigation when a parent has used illegal substances or non-medical use of prescribed medication during the last trimester of pregnancy. Another state reported that it will accept notifications for investigation if the infant is born with a positive toxicology or is experiencing drug withdrawal, or if the mother tests positive for substances. A few states reported using both risk to the safety of infants as well as degree or type of drug as their criteria for accepting notifications. For example, one state reported that it considers factors, such as the type of drug, the parent’s ability to care for the child, addiction history, and the parent’s readiness and preparation to care for the infant. In follow-up correspondences with states that reported that they do not have policies and procedures to decide whether to accept for investigation notices about substance-affected infants, one state reported that decisions are made on a case-by-case basis. A few states reported that after receiving notifications about substance- affected infants, CPS agencies may decide to opt out of investigating some families, referred to as “screening out” families. For example, in Massachusetts, CPS can “screen out” referrals of mothers if the only substance affecting the infants was used by the mothers as prescribed by their physician. In these instances, when CPS in Massachusetts is notified by the hospital about an infant, the screener gathers information from the caller and consults with a supervisor to determine whether the referral should be accepted for investigation or screened out. If the mother is on methadone, for example, but is involved with services and is in a treatment plan, CPS verifies with medical or other qualified providers that the mother used the drug as part of substance abuse or medical treatment as authorized. Additionally, CPS confirms that there are no other concerns of child abuse and/or neglect. If CPS officials in Massachusetts are unable to collect all the information that they need to screen out families, for example when a mother does not sign a release allowing CPS officials to speak with her health care providers, notifications about substance-affected infants are accepted for investigation. In response to our survey, 49 states reported that their CPS agency has policies to develop a plan to ensure the safety and well-being of substance-affected infants who meet the state’s criteria for investigation. Two states reported that CPS staff are not required to develop such a plan, even if a notification is accepted for an investigation or an assessment. For purposes of this report, we are defining a plan of safe care as a plan to ensure the safety and well-being of the infant. States’ approaches to identifying children and families who will receive a plan of safe care generally fall into two categories: 38 states reported that CPS is required to develop a plan of safe care for all notifications of substance-affected infants that are accepted for investigation, including those that are not substantiated. 11 states reported that CPS staff are required to develop a plan of safe care only in those instances where an investigation substantiates the notification or uncovers an unmet need or present or emerging danger. For example, local Pennsylvania CPS officials told us that they only develop plans when there is a safety threat or other concern about the infant. Most states reported that after a notification of a substance-affected infant is accepted for investigation, CPS always conducts a needs assessment for the infant and caregivers. For example, one local CPS office that we visited told us that social workers assess risk to and safety of infants, their function (development, age appropriate behavior, etc.), and environment. In addition, workers assess the caregiver’s ability to parent and employment status, as well as housing. The assessments conducted as part of the investigation inform the development of plans of safe care, as well as decisions about the removal of infants from the home. Among the 49 states that reported that plans of safe care are developed for all or some substance-affected infants, 47 reported that these plans either always or sometimes address infants’ safety needs. Plans also address other needs, such as infants’ immediate medical and longer-term developmental needs, as well as caregiver’s substance use treatment needs. See figure 2 for the number of states whose plans of safe care address various issues facing the infant and parent. In written responses to our survey and during our site visits, officials reported that plans of safe care and referrals for services included in the plans are individualized based on the infant and family’s needs. For example, Massachusetts state CPS officials told us that plans of safe care are developed for each family based on the information that staff collect from the safety, risk, and family assessments, as well as information collected from individuals who may have knowledge that would inform the family assessments, such as medical and treatment providers, and family members. Kentucky state CPS officials told us that the local organizations and service providers that they collaborate with to develop the plan of safe care also vary based on the family’s needs. For example, Kentucky will only collaborate with substance use treatment providers to develop the plan of safe care when families have substance use disorders. Similarly, during our site visits, officials from two states told us that the decision to place an infant in foster care is based on the individualized needs of the infant and caregiver. For example, Massachusetts state officials told us that their decision to remove a baby from the home depends on a myriad of factors and is determined on a case-by-case basis. Officials explained that if a mother is discharged from the hospital and begins using drugs again and does not have adequate supports in place to care for her baby, CPS may decide to place the infant in foster care. However, if a mother has existing support systems in place to mitigate safety risks, CPS may decide to keep the baby in the home. In our survey, all 51 states reported that their agencies either always or sometimes refer parents or caregivers to substance use treatment programs, and most states reported that they always or sometimes refer parents or caregivers to parenting classes or programs (49), and other supportive services (49). CPS officials in each of the three states that we visited told us that their plans of safe care include referrals to address not only the immediate needs of the infants, but also the needs of the parent or caregiver. For example, officials from a local Kentucky CPS agency told us that staff refer mothers of substance-exposed infants to a program called Sobriety Treatment and Recovery Team (START). START is comprised of a social worker and a peer support mentor who has at least 3 years of sobriety, previous involvement with CPS, and was successfully able to regain or keep custody of her own children. According to officials, the START program has been able to provide participants with quick access to substance use disorder treatment. Officials from a Massachusetts local CPS agency told us that one of the services that they provide to parents of substance-affected infants is a parent aide who can help monitor how the parent is caring for the infant, such as administering the infant’s medications appropriately and ensuring the parent is not abusing the infant’s drugs. In addition, a parent aide can provide emotional support and help parents adjust after the infant is discharged from the hospital. Kentucky officials noted the effect that a healthy caregiver has on the outcome of the infant and emphasized that a baby cannot be healthy if the mother is not. Kentucky CPS officials said that they have found that the earlier caregivers enter treatment, the better the outcomes are for mothers and babies. According to Kentucky officials, parents who participate in the START program are less likely to have their child placed in foster care. Officials from the states that we visited told us that developing and monitoring plans of safe care under CAPTA’s new requirements for infants affected by their mother’s legal use of prescribed medications, as well as plans for these infants’ caregivers, present challenges. Specifically, officials reported concerns about increased caseloads, particularly if they are required to provide plans and services for infants at low risk of abuse or neglect, the content of plans, and confidentiality restrictions. Thirty-one of 50 states reported on our survey that staffing or resource limitations was very or extremely challenging, and CPS officials across the 3 states we visited said that the opioid epidemic has directly contributed to increased caseloads. According to a local Kentucky CPS office, the number of babies that met criteria for being accepted for investigation has increased about 55 percent from 2011 to 2016, while the number of staff has remained the same. Similarly, hospitals reported being impacted by this challenge. For example, staff at four hospitals we visited told us that they have delayed discharging infants from the hospital because CPS social workers did not identify caregivers to whom infants may be released or make plans for infants in a timely manner. In addition, staff from three hospitals told us that some CPS workers are difficult to contact and not especially responsive to their questions. One hospital social worker told us that she is concerned that the changes to CAPTA that require notifying CPS of all substance-affected newborns will inundate the agencies with cases. Officials from two of the three states we visited anticipated that providing services to infants affected by the legal use of prescribed medications, but not likely to be at risk for child abuse and neglect, will result in an increase in the number of families referred to CPS. This, in turn, will require a plan of safe care and further strain limited resources. Twenty- five states reported in our survey that the plan they develop for substance-affected infants is the same as for other children in CPS care, suggesting that states devote the same level of resources to these infants as other cases. The states we visited interpret CAPTA to require that plans of safe care be developed for all substance-affected infants who are referred to CPS, including those who may not meet usual criteria to be accepted for an investigation. Some state officials we interviewed questioned whether the new CAPTA requirements would allow for the best use of limited resources. For example, one senior state CPS official questioned whether it would be a good use of resources to develop plans of safe care for mothers in substance use disorder treatment or mothers using opioid medications due to chronic pain. A local CPS official we interviewed stated that drug exposure, in and of itself, is not necessarily a safety risk, and CPS should not intervene with families who are not at risk for child abuse or neglect. Instead, hospitals or treatment providers should intervene and refer families who do not meet criteria for CPS involvement, but could benefit from additional supports, to voluntary services. Kentucky public health officials told us that the period after a woman gives birth is a critical time for families as mothers may be stressed, sleep-deprived, exhausted, and may have other children in the home. This period may be especially challenging for mothers with substance use disorders, if adequate supports are not in place. According to officials women are typically covered for substance use treatment during pregnancy; however, this coverage ends roughly 60 days after the baby is born. In written responses to our survey, some states reported that they would rely on other agencies to develop plans of safe care. Similarly, in order to manage limited CPS resources, officials from two of the three states that we visited said they are considering having hospitals or other agencies assume responsibility for developing plans of safe care when there is no evidence of abuse or neglect and there appears to be minimal risk to the safety and well-being of the infant. Kentucky officials told us that they envision that CPS will be responsible for developing a plan of safe care for notifications that are accepted for investigation, while hospitals, or another agency, will be responsible for developing plans of safe care for referrals that are screened out by CPS. According to CPS state officials, the plan of safe care for the infant and the family can be part of the discharge plan prior to the family leaving the hospital. However, officials reported that obtaining cooperation from other agencies may be difficult. Some state officials reported being concerned that other agencies may not feel obligated to develop these plans, in part, because CAPTA provides funding to child welfare, and other agencies may therefore believe that child welfare should be responsible for developing the plan of safe care. CPS officials we interviewed in two of our site visit states, as well as one state we followed up with, told us that they were unsure of whether their current plans will meet new CAPTA requirements because CAPTA does not define a plan of safe care. For example, Massachusetts officials said that their plans include everything that a family might need to ensure the safety of the child, including resources to ensure stabilization and reunification of a family, but they are not sure whether the plans meet new CAPTA requirements, in part because they are not familiar with the term “plan of safe care.” An official in another state was also unsure about whether his state’s “safety plans” would meet CAPTA requirements. According to the official, safety plans may include a treatment plan for mothers, and referral services, such as early intervention for the child. In practice, plans of safe care generally address gaps that place an infant at risk for harm or neglect. However, state officials we interviewed reported being unsure about what a plan of safe care should look like for families where these gaps do not exist. Also, in a written response to our survey, one state expressed uncertainty about CPS’ role if required to work with infants who do not typically receive CPS services. For example, a Pennsylvania official said that it is unclear what types of interventions child welfare should conduct with families of infants exposed to legal substances, such as medications prescribed by doctors, when the caregivers are taking their medications correctly. Similarly, officials also questioned whether a plan would be necessary, and what the plan would entail, for caregivers who are already addressing their substance use disorder and taking steps to ensure their infant’s safety. Officials from a local Kentucky CPS office described a case in which a mother was participating in medication-assisted treatment, had attended counseling three times per week throughout her pregnancy, and was continuing treatment in the postpartum period. Through CPS’ investigation, the agency found that the case was not substantiated, in part, because there were no additional services that CPS could connect her with that she was not already receiving. Officials across the three states we visited also said that state and federal drug and alcohol confidentiality restrictions may challenge their ability to monitor plans of safe care. To monitor plans of safe care, CPS staff may need access to confidential information in order to know how caregivers are progressing in treatment, particularly now that these plans must address the substance use disorder needs of the caregiver. However, federal law restricts the disclosure and use of alcohol and drug patient records maintained in connection with the performance of any federal- assisted alcohol and drug abuse program. Generally, confidential information may be disclosed in accordance with the prior written consent of the patient. State and local CPS staff we interviewed said that strict confidentiality requirements make it challenging for drug and alcohol treatment providers to share information about mothers and infants. A CPS state director from Pennsylvania said that treatment providers are often reluctant to provide CPS case workers with information or updates on a mother’s treatment, which prevents child welfare workers from fully understanding how mothers are progressing with their treatment and the extent to which those in treatment are adhering to prescribed directions as outlined by treatment providers. In addition, one official from a state we visited said state statutes regarding sharing of drug and alcohol treatment information may be more restrictive than the federal statute. Some states have developed ways to obtain confidential information about mothers in substance use disorder treatment. For example, officials from one local CPS office told us that in instances when they have to develop a long-term plan of safe care for families, they have mothers sign a release of information form in order to obtain updates about her treatment adherence from the medication- assisted treatment provider. Similarly, a local Massachusetts CPS office told us that typically staff obtain releases from mothers so that they can verify whether mothers are actively participating in their treatment and that there are no records of relapse. In HHS’ role to assist states in the delivery of child welfare services, two agencies—ACF and the Substance Abuse and Mental Health Services Administration (SAMHSA)—provided technical assistance to states through the National Center on Substance Abuse and Child Welfare (NCSACW). In addition, in ACF’s role to administer and monitor states’ implementation of CAPTA, the agency has provided some guidance to states on the provisions pertaining to substance-affected infants and has begun its monitoring responsibilities. ACF and SAMHSA, which leads public health efforts to reduce the impact of substance abuse and mental illness, established the NCSACW in 2002. The NCSACW provides technical assistance to states, and has issued publications and hosted forums to help states develop policies and procedures around issues affecting substance-affected infants. The technical assistance has focused on a broad range of issues, including collaboration among service providers, and plans of safe care. With respect to collaboration, NCSACW has issued several studies that identify opportunities for strengthening interagency efforts to prevent, intervene, identify, and treat prenatal substance exposure. The NCSACW collaboration guides encourage states to involve CPS agencies with medical providers in an interagency collaborative setting, thereby facilitating the process for CPS agencies to be notified of substance- affected infants. Regarding plans of safe care, NCSACW has provided technical assistance and best practices to states around development of these plans. For example, in one state it has facilitated discussion groups to help the state develop a model plan. From calendar year 2011 to 2016, NCSACW processed approximately 600 requests from state CPS agencies for short-term technical assistance related to improving care for substance-affected infants and their families. This short-term technical assistance included activities such as responding to telephone inquiries, mailing information, identifying needed resources, and making referrals. The NCSACW has also provided in- depth assistance to 16 states to strengthen collaboration and linkages across child welfare, addiction treatment, medical communities, early care and education systems, and family courts to improve outcomes for substance-affected infants and their families. Through this in-depth assistance, NCSACW identified areas for improvement in states, including a lack of clarity regarding compliance with CAPTA requirements (such as identification, notification, and developing plans of safe care) and the need for state models to comply with CAPTA requirements to develop plans of safe care. In one state, the project overview report indicated that a next step for the in-depth technical assistance is to continue development of the plan of safe care model and ensure practices and protocols are in place across systems to meet CAPTA requirements. The report indicated that this will include ongoing work with hospitals to ensure consistent identification of infants with prenatal exposure and notifications to CPS. Although18 states reported in our survey that technical assistance from the NCSACW was very or extremely helpful, 11 reported that it was moderately helpful, 7 reported that it was slightly helpful, and 1 reported that it was not at all helpful. Eleven states reported that they were not familiar with this assistance. Since July 2016, when the most recent amendments to CAPTA were enacted, ACF has issued one information memorandum and two program instructions to states about provisions relating to substance-affected infants. According to an ACF official, information memoranda share information with states, while program instructions provide interpretations of the law and inform states of actions they must take. ACF issued an August 2016 information memorandum informing states of the 2016 amendments to CAPTA. The August 2016 information memorandum also provided states with best practices, drawing on an NCSACW guide on collaboration for developing multi-systemic approaches to assist child welfare, medical, substance use disorder treatment, and other systems to support families affected by opioid use disorders. In January 2017, ACF issued a program instruction which provided guidance to states on implementing the 2016 amendments to CAPTA made by CARA and informed states of the flexibilities that they have under the law. Particularly, the guidance noted that: “CAPTA does not define ‘substance abuse’ or ‘withdrawal symptoms resulting from prenatal drug exposure.’ We recognize that by deleting the term ‘illegal’ as applied to substance abuse affecting infants, the amendment potentially expands the population of infants and families subject to the provision [that states have policies and procedures in place to address their needs]. States have flexibility to define the phrase, ‘infants born and identified as being affected by substance abuse or withdrawal symptoms resulting from prenatal drug exposure,’ so long as the state’s policies and procedures address the needs of infants born affected by both legal (e.g., prescribed drugs) and illegal substance abuse.” “While CAPTA does not specifically define a ‘plan of safe care,’ CARA amended the CAPTA state plan requirement . . . to require that a plan of safe care address the health and substance use disorder treatment needs of the infant and affected family or caregiver.” “CAPTA does not specify which agency or entity must develop the plan of safe care; therefore the state may determine which agency will develop the plans. We understand that in most instances the state already has identified the responsible agency in its procedures. When the state reviews and modifies its policies and procedures to incorporate the new safe care plan requirements in CARA, the state may wish to revisit its procedures regarding which agency develops the plan of safe care, including any role for agencies collaborating with CPS in caring for the infant and family.” In addition, in April 2017, ACF issued a program instruction on reporting requirements, including changes in those requirements brought about by the 2016 amendments to CAPTA. ACF conducted limited monitoring of states prior to the amendments passed in 2016. According to ACF officials, if presented with evidence of potential deficiencies, the agency would attempt to learn more about the state’s activities. In one instance, ACF reviewed South Carolina’s policies and found them to not be in compliance with the notification and safe care plan requirements of CAPTA. It directed the state to develop a program improvement plan to bring it into full compliance, which South Carolina submitted in April 2016. In a recent progress report (February–April 2017), South Carolina reported that it was focused on updating statutes, developing policies and procedures, training child protective service workers, and building relations with health care providers. In response to the 2016 amendments to CAPTA that added the requirement for HHS to monitor state policies and procedures to address the needs of substance-affected infants, ACF officials told us that staff in regional offices will review states’ annual reports, submitted in June 2017. In its program instruction describing the reporting requirements, ACF asked each state to submit a new Governor’s Assurance, as well as a narrative explaining what they have done in response to the amendments. Specifically, ACF asked states to provide information on any changes that were made in state laws, policies, or procedures related to identifying and referring infants affected by substance abuse to CPS as a result of prenatal drug exposure. It also requested updates on states’ policies and procedures regarding the development of plans of safe care; a description of how states have developed systems to monitor plans of safe care; and a description of any outreach or coordination efforts the states have taken to implement the amendments, among other things. According to ACF officials, as of October 1, 2017, some states have provided information and a Governor’s Assurance demonstrating compliance with the amended provisions and some states have been placed on Program Improvement Plans, but the agency does not yet have information on the status of all states. An ACF official explained that, in their annual reports, some states either acknowledged that they are trying to get legislation enacted to bring them into compliance with the law and it has failed, or that they are not in compliance, for example, because they were limiting their policies to those infants affected only by illegal substances. In addition, in May 2017, ACF issued a technical bulletin informing states of the new data collection requirements that resulted from the 2016 amendments to CAPTA. ACF stated that it intends to collect data required by the amendments to CAPTA through the National Child Abuse and Neglect Data System, beginning with states’ submission of fiscal year 2018 data. This system is maintained by ACF and contains data from states about children who have been abused or neglected. ACF issued a Federal Register notice about the proposed data elements and requested comments on the accuracy and quality of the proposed data collection, among other things; the comment period closed in July 2017. In the Federal Register notice, ACF notes that the 2016 amendments to CAPTA require it to collect information from state CPS agencies on the number of notifications from health care providers that are accepted for investigation or screened out. Further, of those infants screened in, ACF is required to collect data on the number of safe care plans developed for substance- affected infants as well as the number of infants for whom a referral was made for appropriate services, including services for the affected family or caregiver. In the Federal Register notice, ACF proposed to collect this information using a combination of existing and new data from states. Thirty-two states reported in our survey that they already collect data on the incidence of substance-affected and/or substance-exposed infants; 15 of those 32 states also collect data on the incidence of NAS. Further, 18 states reported that they collect data on the number of notifications health care providers make to CPS. Of those states, 8 reported that they collect specific data on notifications related to infants diagnosed with NAS. Most states reported in our survey that additional guidance and assistance would be extremely or very helpful (see figure 3). For example, 38 states reported that additional guidance on requirements for health care providers to notify CPS of substance-affected infants would be extremely or very helpful. Similarly, 37 states reported that additional guidance on developing, implementing, and monitoring plans to ensure the safety and well-being of substance-affected infants would be extremely or very helpful. In written responses to our survey, states suggested ideas for additional guidance, training, and technical assistance to help them address the needs of substance-affected infants. States’ suggestions ranged from assisting in the development of substance abuse training curriculum for staff to video conferences with other states to share information about implementing CAPTA. A few states suggested that the guidance ACF has provided to date is not clear and reported grappling with the meaning of terms such as “affected” and “legal vs. illegal” substances, and two states requested “concrete guidance” and “specificity.” A few other states suggested that it would be helpful to obtain additional information about meeting the requirements of plans of safe care within the constraints of state and federal confidentiality laws, technical assistance on what plans of safe care look like, and a format for a plan of safe care. ACF officials told us that states have flexibility with implementing the law and the agency does not anticipate issuing additional written guidance on the amendments to CAPTA made by CARA. ACF officials explained, in October 2017, that they were finalizing their review of the plans that states were required to submit. These plans are expected to include details on how the states are addressing the CAPTA requirements. While ACF could not provide the number, officials reported that some of the state plans submitted to date did not meet the requirements and those states have been asked to develop program improvement plans. They expect states to work with the ACF regional offices, which will provide or facilitate technical assistance to states on their implementation of the provisions, as needed. In addition to the review of state plans, ACF officials explained that regional officials may learn about states’ needs for technical assistance through meetings or informational exchanges. Finally, the NCSACW is expected to review and prepare a summary of CAPTA state plans, current state statutes and policies and procedures relating to amended CAPTA requirements. In addition, according to ACF, NCSACW will continue to offer technical assistance on the development and implementation of plans of safe care to states. Technical assistance may include responding to requests for information, disseminating written materials and resources, and conducting webinars/conference calls. Further, ACF reported that some states will receive more in-depth technical assistance, albeit in some instances on a time-limited basis. Undertaking these actions can enhance states’ understanding of CAPTA requirements and better address known challenges such as the ones described in this report. However, more specific guidance from HHS on the issues which states have expressed confusion can assist them in better understanding CAPTA requirements and providing more effective protections and services for the children and families most in need. The opioid epidemic has generated a significant increase in the number of substance-affected infants born and diagnosed with NAS. These vulnerable infants may be at risk for child abuse and neglect if adequate supports and services are not available to ensure their safety. CAPTA requires states to have policies and procedures to address the needs of these infants and their families, including mothers with a substance use disorder. However, states have experienced challenges implementing new CAPTA requirements. Many states reported in our survey that they are not completely adhering to the law. This is reflected in ACF’s review of state plans, some of which are resulting in program improvement plans. States cite challenges that stem, in part, from ACF’s lack of specificity in providing guidance on implementing CAPTA requirements. Specifically, states report that ACF has not provided clear guidance about which substance-affected infants health care providers are required to notify CPS about, as well what a plan of safe care is and for whom it should be developed. Given the challenges that states reported facing in implementing the provisions, a majority reported wanting more help from ACF, such as trainings and teleconferences with other states, to help overcome their challenges. Additional guidance and assistance from HHS would help states better understand what they need to do to develop policies and procedures that meet the needs of children and families affected by substance use. The Secretary of HHS should direct ACF to provide additional guidance and technical assistance to states to address known challenges and enhance their understanding of CAPTA requirements, including the requirements for health care providers to notify CPS of substance- affected infants and the development of a plan of safe care for these infants. We provided a draft of this report to HHS for review and comment. HHS’s comments are reproduced in appendix I. HHS also provided technical comments, which we incorporated into our report where appropriate. HHS did not concur with our recommendation. HHS stated that: in January 2017, ACF clarified in guidance several of the issues raised in the report, including the population of infants and families covered by the provision and the state flexibility inherent in determining which infants are “affected by” substance abuse, and the terminology used in the federal law of what a “plan of safe care” is; ACF believes it is necessary to allow states the flexibility to meet the requirements in the context of their state CPS program; several of the challenges that the GAO notes are not specific to CAPTA compliance with the safe care plan and notification requirements; and it does see the value in continuing to provide technical assistance to states to address known challenges and to enhance their understanding of CAPTA requirements. With respect to HHS’ January 2017 guidance, state officials reported in our survey and during site visits that they found some terms unclear and were uncertain about what is required of them. In written responses to our survey, states reported challenges understanding how to define substance-affected under CAPTA. In addition, as we note in our report, the guidance about plans of safe care described the following: “While CAPTA does not specifically define a ‘plan of safe care,’ CARA amended the CAPTA state plan requirement . . . to require that a plan of safe care address the health and substance use disorder treatment needs of the infant and affected family or caregiver.” States reported in our survey and in follow-up discussions that this lack of specificity remained an ongoing challenge for them. For example, as we discuss in our report, one state that we followed up with in August 2017 was still unsure about whether its safety plans would meet CAPTA requirements for plans of safe care. In addition, as of October 2017, HHS confirmed that some state plans did not meet CAPTA requirements and that the states were asked to develop program improvement plans. Accordingly, a key ongoing challenge was not addressed by the January guidance. Regarding allowing states flexibility to meet CAPTA requirements, we acknowledge in our report that HHS said that states have flexibility. However, in our survey and site visits, states indicated that they would find it helpful for HHS to provide them with greater specificity around terms, including the degree of flexibility they are allowed. States added that this would include parameters within which they can develop policies and procedures that meet CAPTA requirements. We continue to believe that additional guidance addressing these concerns would benefit states and could be provided without imposing additional mandates. Concerning HHS’ third point that some of the issues raised in the report are not specific to CAPTA, the states we visited interpret CAPTA to require that plans of safe care be developed for all substance-affected infants who are referred to CPS. During our discussions with states and in responses to our survey, state officials did not delineate which federal requirement impacted their approach to serving children and families. As stated in our conclusion, vulnerable infants may be at risk for child abuse and neglect if adequate supports and services are not available to ensure their safety. Lastly, HHS indicated that it will continue to provide technical assistance to states and fund demonstration sites to establish or enhance collaboration across community agencies and courts. Although continuing to provide technical assistance to states should be beneficial, our findings demonstrate that additional guidance is also needed. For example, 38 states reported that additional guidance on requirements for health care providers to notify CPS of substance-affected infants would be extremely or very helpful. Similarly, 37 states reported that additional guidance on developing, implementing, and monitoring plans to ensure the safety and well-being of substance-affected infants would be extremely or very helpful. Overall, given the results of our review, we continue to believe our recommendation is warranted. Effective implementation of our recommendation should help states better implement protections for children. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees and the Secretary of Health and Human Services. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or larink@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Kathryn A. Larin, (202) 512-7215 or larink@gao.gov. In addition to the contact above, Sara Schibanoff Kelly (Assistant Director), Ramona L. Burton (Analyst-in-Charge), Kay E. Brown, Hannah Dodd, Ada Nwadugbo, and Srinidhi Vijaykumar made key contributions to this report. Also contributing to this report were Sandra L. Baxter, James Bennett, Gina Hoover, Jessica Orr, Rhiannon Patterson, Jean McSween, and James Rebbe.	[ "Under CAPTA, states perform a range of prevention activities, including addressing the needs of infants born with prenatal drug exposure. The number of children under the age of 1 entering foster care increased by about 15 percent from fiscal years 2012 through 2015. Child welfare professionals attribute the increase to the opioid epidemic. GAO was asked to examine the steps states are taking to implement CAPTA requirements on substance-affected infants and related amendments enacted in 2016. This report examines (1) the extent to which states have adopted policies and procedures to notify CPS of substance-affected infants; (2) state efforts to develop plans of safe care, and associated challenges; and (3) steps HHS has taken to help states implement the provisions. To obtain this information, GAO surveyed state CPS directors in all 50 states and the District of Columbia and reached a 100 percent response rate. GAO also visited 3 states (Kentucky, Massachusetts, and Pennsylvania); reviewed relevant documents such as federal laws and regulations, and HHS guidance; and interviewed HHS officials. GAO did not assess states' compliance with CAPTA requirements. All states reported adopting, to varying degrees, policies and procedures regarding health care providers notifying child protective services (CPS) about infants affected by opioids or other substances. Under the Child Abuse Prevention and Treatment Act (CAPTA), as amended, governors are required to provide assurances that the states have laws or programs that include policies and procedures to address the needs of infants affected by prenatal substance use. This is to include health care providers notifying CPS of substance-affected infants. In response to GAO's survey, 42 states reported having policies and procedures that require health care providers to notify CPS about substance-affected infants and 8 states reported having policies that encourage notification. The remaining 1 state has a policy requiring health care providers to assess the needs of mothers and infants and if they conclude that infants are at risk for abuse or neglect, CPS is notified. In response to GAO's survey, 49 states reported that their CPS agency has policies to develop a plan of safe care; 2 reported not having such a requirement. Under CAPTA, states are required to develop a plan of safe care for substance-affected infants. Although not defined in law, a plan of safe care generally entails an assessment of the family's situation and a plan for connecting families to appropriate services to stabilize the family and ensure the child's safety and well-being. States reported that plans typically address the infant's safety needs, immediate medical needs, and the caregiver's substance use treatment needs. However, officials in the 3 states GAO visited noted challenges, including uncertainty about what to include in plans and the level of intervention needed for infants at low risk of abuse or neglect. The Department of Health and Human Services (HHS) has provided technical assistance and guidance to states to implement these CAPTA requirements. Most states reported in GAO's survey that additional guidance and assistance would be very or extremely helpful for addressing their challenges. Nevertheless, HHS officials told GAO that the agency does not anticipate issuing additional written guidance, but that states can access technical assistance through their regional offices and the National Center on Substance Abuse and Child Welfare—a resource center funded by HHS. However, of the 37 states that reported on the helpfulness of the assistance they have received, 19 said it was only moderately helpful to not helpful. States offered suggestions for improving the assistance, such as developing substance abuse training materials for staff and holding video conferences with other states to share information. In October 2017, HHS officials explained that some states have submitted plans that include details on how they are addressing the CAPTA requirements. HHS officials reported that some of the plans submitted to date indicated that states are not meeting the requirements and those states have been asked to develop program improvement plans. Without more specific guidance and assistance to enhance states' understanding of CAPTA requirements and better address known challenges such as the ones described in this report, states may miss an opportunity to provide more effective protections and services for the children and families most in need. GAO recommends that HHS provide additional guidance and technical assistance to states to address known challenges and enhance their understanding of requirements. HHS did not concur with the recommendation. As discussed in the report, GAO continues to believe that added guidance would benefit states." ]	8,623	gov_report	en	null	052f22dafd736b1df286b3b4188184d3ee213281295b3ea0
International financial transactions, including the transfer of U.S. humanitarian assistance funds, rely on a system of correspondent banking relationships. State and USAID provide humanitarian assistance through funding awards to partners. Funds to U.S. partners are deposited into the partners’ bank accounts located in the United States. The partners are then responsible for transferring the funds to recipient countries for project implementation. These transfers typically involve the use of a correspondent, or intermediary, bank to transfer the funds from a U.S.-based account to an account held at the recipient country, where the funds are then used by in-country staff to implement the project. See appendix IV for more information on the State and USAID offices providing humanitarian assistance. According to research by the Bank for International Settlements, the number of correspondent banking relationships has declined over the past several years, especially for banks that are located in higher-risk jurisdictions (such as those subject to sanctions), have customers perceived as higher-risk, and who generate revenues insufficient to recover compliance costs. Further, the Financial Stability Board noted that a decline in the number of correspondent banking relationships could affect the ability to send and receive international payments and may drive some payment flows underground, with potential consequences on growth, financial inclusion, and the stability and integrity of the financial system. When performing overseas money transfers, U.S. banks and financial institutions must comply with the Bank Secrecy Act’s (BSA) anti-money laundering (AML) regulations and relevant regulations that implement U.S. sanctions. The BSA has established reporting, recordkeeping, and other AML requirements for financial institutions. BSA/AML regulations require that each bank tailor a compliance program that is specific to its own risks based on factors such as products and services offered, and customers and locations served. By complying with BSA/AML requirements, U.S. financial institutions assist government agencies in the detection and prevention of money laundering and terrorist financing by, among other things, maintaining compliance policies, conducting ongoing monitoring of customers and transactions, and reporting suspicious financial activity. In addition to BSA regulations established by Treasury, federal banking regulators have issued their own BSA regulations. These regulations require banks to establish and maintain a BSA compliance program that, among other things, identifies and reports suspicious activity. The banking regulators are also required to review banks’ compliance with BSA/AML requirements and regulations, and they generally do so every 12 to 18 months as a part of their routine safety and soundness examinations. Among other things, examiners review whether banks have an adequate system of internal controls to ensure ongoing compliance with BSA/AML regulations. The federal banking regulators may take enforcement actions using their prudential authorities for violations of BSA/AML requirements. They may also assess civil money penalties against financial institutions and individuals. Banks must also comply with relevant regulations that implement U.S. sanctions in certain countries. When the United States imposes sanctions on an entity or individual, it freezes assets subject to U.S. jurisdiction. All U.S. transactions with the entity or individual are prohibited, including transactions by banks and NPOs. When appropriate, Treasury’s Office of Foreign Assets Control (OFAC) may issue a general license authorizing the performance of certain categories of transactions, including funds transfers for the provision of humanitarian assistance. OFAC also issues specific licenses on a case-by-case basis under certain limited situations and conditions. Treasury, as a lead agency in fighting financial crimes and as an issuer of regulations that have a significant effect on charities’ access to the banking system, takes actions to help prevent financial crimes, and considers NPOs operating in conflict areas and other high risk zones as potentially vulnerable to such crimes. Treasury leads U.S. efforts to fight various financial crimes primarily through its Office of Terrorism and Financial Intelligence (TFI). TFI develops and implements U.S. government strategies to combat terrorist financing domestically and internationally, and develops and implements the National Money Laundering Strategy as well as other policies and programs to fight financial crimes. Relevant offices under TFI include: The Office of Terrorist Financing and Financial Crimes (TFFC). TFFC, the policy development and outreach office for TFI, works across all elements of the national security community – including the law enforcement, regulatory, policy, diplomatic, and intelligence communities – and with the private sector and foreign governments to identify and address the threats presented by all forms of illicit finance to the international financial system. The Office of Foreign Assets Control (OFAC). OFAC administers and enforces economic and financial sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, transnational criminal organizations, human rights abusers and corrupt actors, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States. The Financial Crimes Enforcement Network (FinCEN). FinCEN, among other duties, is responsible for administering the BSA, has authority for enforcing compliance with its requirements and implementing regulations, and also has the authority to enforce the BSA, including through civil money penalties. FinCEN issues regulations under the BSA and relies on the examination functions performed by other federal regulators, including federal banking regulators. FinCEN also collects, analyzes, and maintains the reports and information filed by financial institutions under BSA and makes those reports available to law enforcement and regulators. According to Treasury, organizations, including NPOs, implementing humanitarian assistance in high-risk areas may be vulnerable to exploitation by terrorist groups and their support networks. These terrorist groups and support networks may establish or abuse charities to raise and move funds, or provide other forms of support, that benefit the terrorist groups. As of May 2017, Treasury, through OFAC, had designated 67 charities, branches, and foreign terrorist organizations’ potential fundraising front organizations for violations of U.S. sanctions. For 7 of our 18 selected projects, State and USAID partners told us that they had experienced banking access challenges. Additionally, 15 of the 18 partners we interviewed noted that they had experienced banking access challenges on their global portfolio of humanitarian assistance projects over the previous 5 years. Most of the 18 partners we interviewed told us that they were able to mitigate these challenges through various actions or the challenges were not significant enough to affect project implementation. Nevertheless, a few partners noted that projects they were implementing were adversely affected by such challenges. For example, 1 of our 18 selected projects faced repeated delays as a result of banking access challenges. Additionally, 2 partners noted that they had to reduce the scope of implementation or suspend projects in their global humanitarian assistance portfolio because of banking access challenges. Furthermore, several partners and other NPOs told us that such challenges posed potential risks to project implementation. Lastly, a recent study found that more than two-thirds of all U.S.-based NPOs that work internationally experienced banking access challenges, but that few NPOs canceled programs as a result of those challenges. For our 18 selected U.S.-funded projects, 7 of the partners told us that they had experienced banking access challenges in implementing their projects, with the majority citing delays or denials of funds transfers. Specifically, 3 (of 5) partners in Somalia and 4 (of 7) partners in Syria told us that they had experienced banking access challenges related to the selected project. None of the partners implementing selected sample projects in Haiti or Kenya noted that they had experienced any banking access challenges. Denials of funds transfers to the destination country was the most frequently cited banking access challenge (experienced by 5 of the 7 projects), followed by delays of funds transfers (experienced by 3 of the 7 projects) (see fig. 2). Fifteen of the 18 partners that we interviewed noted that they had experienced banking access challenges on their global portfolio of humanitarian assistance projects implemented over the previous 5 years (see fig. 3). The most frequently cited challenges were funds transfer delays and denials. Twelve partners noted that they had experienced transfer delays, with 8 noting that the delays occurred occasionally and 6 noting that the delays lasted weeks or months. Most partners that noted experiencing delays told us that the delays were caused exclusively by intermediary banks. Eleven partners noted that they had experienced transfer denials, including 5 that told us the denials occurred occasionally. Five partners also noted that transfers were denied by intermediary banks. In addition, 2 partners noted that they had experienced challenges opening new bank accounts; 3, increased costs to transfer funds; 1, a bank-initiated account closure; and 2, other challenges. For more information on the types of banking access challenges that partners identified, including details on the duration of delays and the frequency of denials, see appendix V. Some partners that experienced banking access challenges told us that those challenges had adversely affected or posed a potential risk to implementation of projects. Of those partners experiencing challenges, 3 partners noted that banking access challenges had adversely affected a project’s implementation. Specifically, 1 partner that experienced challenges on one of our selected projects and 2 partners that experienced challenges on projects outside of our sample noted that the challenges they had experienced resulted in a project being adversely affected in some form, such as: Reduced scope of implementation. One partner told us that its project in the Democratic People’s Republic of Korea was scaled back significantly because of difficulty transferring funds to the country. Delays implementing a project. One partner told us that for one of our selected projects, in part because of banking access challenges, implementation of the project was delayed and required approval for two no-cost extensions from USAID. The partner noted that it had experienced recurring issues with funds transfers to Syria, including 3- to 6-week delays and frequent denials of transfers. Suspension of an in-progress project. One partner told us that an ongoing project it implemented in Syria (outside of our sample of projects) to deliver food assistance had been suspended for about a week because its funds transfers to the country were denied. While some projects were adversely affected, 6 of the 7 partners of our selected projects that noted experiencing banking access challenges told us that the challenges they had experienced did not adversely affect project implementation. Similarly, 12 of the 15 partners that noted experiencing banking access challenges on their global portfolio of humanitarian assistance told us that the challenges did not affect project implementation. Additionally, for both our selected projects and their global portfolio of humanitarian assistance projects, the challenges experienced were either not significant enough to affect project implementation, or were mitigated through various actions. For example, partners told us that they had mitigated challenges by: Maintaining a funding buffer. Partners may keep enough funding to operate a project for several weeks in order to mitigate delays and denials of funds transfers. For example, one partner noted that projects maintain approximately 4 weeks of operating funds on hand, which is enough to mitigate transfer delays that last up to 3 weeks. Using alternate methods to move funds. Partners may use alternate methods to move funds, such as using different intermediary banks or money transmitters, or by carrying cash. For example, one partner told us that when its U.S. bank stopped allowing funds transfers to Syria, the partner opened an account with a different bank. That partner also told us that because it was unable to reliably transfer funds to Syria, it regularly transfers funds to Lebanon—either to intermediaries or to the personal accounts of individuals involved in the projects—and manually moves the physical currency to Syria. Maintaining multiple bank accounts. Partners may maintain accounts with multiple banks in order to mitigate the risk of a bank-initiated account closure. For example, one partner told us that after a bank closed all of its accounts without warning or explanation, the partner opened accounts across three different banks in order to mitigate the effects of any individual bank closing its account. While most partners’ projects did not experience adverse effects as a result of banking access challenges, three USAID partners—as well as another NPO that we spoke with—told us that banking access challenges posed a potential risk to project implementation, such as: Potential for physical violence. One partner told us that, for one of our selected projects, there were concerns of violence if payments were halted because of funds transfer delays, while another partner told us that violence was a concern if it was unable to pay vendors on time. An NPO also told us that there was a potential for physical violence if local staff were not paid on time. Potential for insolvency of vendors. One partner told us that, for one of our selected projects, transfer delays prevented it from reimbursing a money transmitter it used to move funds to Somalia, which in turn caused that money transmitter to experience financial difficulties. The partner stated that the delays were almost significant enough to affect operations, though it was able to resolve the situation in time to prevent its vendor from becoming insolvent. Potential for project suspension. One partner told us that it provides advance funding for projects to account for delays, but at times transfer delays have come close to exhausting the advance funding. For example, the partner told us that it provided funding for projects 4 weeks in advance and experienced transfer delays averaging 3 weeks. In addition, an NPO told us that staff are sometimes not paid for several months because of such delays; thus, if transfer delays worsened or staff were unwilling to work without being paid, project implementation may be adversely affected. A recent study by Charity and Security Network on banking access for U.S. NPOs, which included NPOs that received U.S. government funds, found widespread banking challenges for U.S.-based NPOs. Data for a survey conducted as part of this study indicated that about two-thirds of the responding U.S.-based NPOs that work internationally experienced banking access challenges. The challenges included delays of wire transfers, unusual requests for documentation, and increased fees. Some NPOs also cited experiencing account closures and refusals to open accounts. About 15 percent of the NPOs that responded to the survey noted that they experienced these banking access challenges constantly or regularly, and about 3 percent of NPOs reported cancelling a project because of banking access challenges. Furthermore, transfers to all parts of the globe were affected, and the challenges were not limited to conflict zones. According to the report, NPOs with 500 or fewer staff were more likely to experience delayed wire transfers, fee increases, and account closures. Smaller organizations were more likely to receive unusual requests for documentation, according to the report. The smallest NPOs, those with 10 or fewer employees, reported experiencing more trouble opening accounts than larger organizations. According to the report, as a result of the challenges they experienced, NPOs were sometimes forced to move money through less transparent, less traceable, and less safe channels, such as carrying cash. As shown in table 1, survey data from the Charity and Security Network study indicated that there were only minor differences between NPOs receiving and not receiving U.S. government funding in terms of experiencing banking access challenges. For example, about 15 percent of responding NPOs, regardless of whether or not they received U.S. funds, noted experiencing banking access challenges regularly or constantly, with transfer delays the challenge most frequently cited by both groups. Additionally, about the same proportion of NPOs that received or did not receive U.S. funds reported that they rarely or never experienced banking access challenges. Both groups of NPOs also noted taking similar measures to deal with banking access challenges. USAID’s partners’ written reports do not capture potential risks posed by banking access challenges because USAID generally does not require most partners to report in writing any challenges that do not affect implementation. Six of the 7 projects that noted experiencing banking access challenges were USAID projects. None of those 6 USAID partners reported on the banking access challenges they had experienced to USAID in their regular project reporting. USAID requires partners to report adverse effects to their projects, but 1 partner that faced delays on its project as a result of banking access challenges did not identify these challenges as the reason for delays in its reporting to USAID. We also reviewed over 1,300 USAID partner reports for fiscal years 2016 and 2017 from high-risk countries and found no explicit discussion of banking access challenges. USAID generally requires partners implementing humanitarian assistance projects to report challenges that affect project implementation. USAID, through the Office of U.S. Foreign Disaster Assistance (OFDA) and the Office of Food For Peace (FFP), provides humanitarian assistance and monitors the implementation of projects through various methods, including periodic performance reports. USAID’s reporting requirements, as well as the number of partners of selected projects that told us they had experienced banking access challenges, are as follows: USAID/OFDA. USAID/OFDA agreements for the selected projects we reviewed require the awardee to report via email (1) developments that have a significant effect on the activities supported by the agreement, and (2) problems, delays, or adverse conditions that materially impair the ability to meet the objectives of this agreement. The agreements also require Program Performance Reports that must address reasons why established goals were not met, the impact on the program objectives, and how the impact has been or will be addressed. Four of the 6 USAID partners that told us they had experienced banking access challenges were implementing USAID/OFDA projects. USAID/FFP. USAID/FFP’s Fiscal Year 2017 Annual Program Statement for International Emergency Food Assistance requires partners to report, as part of their quarterly reporting, any challenges that the project has faced during the quarter and how they were resolved and discuss any potential challenges or delays that may affect the program’s ability to achieve its objectives. Each of the agreements—both for NPOs and for public international organizations—that we reviewed require the partner to notify USAID of any developments, problems, or delays that may have an adverse effect on the project. Two of the 6 USAID partners that told us they had experienced banking access challenges were implementing USAID/FFP projects. Five of the 6 USAID partners of selected sample projects that noted experiencing banking access challenges told us those challenges did not adversely affect project implementation and therefore did not need to be reported. The sixth—a partner that noted its project was adversely affected by banking access challenges—did not include these challenges in its reporting to USAID, although the challenges met the reporting threshold of adversely affecting project implementation. While both USAID and the partner told us that the delays were communicated to USAID through emails and conversations with a designated USAID contact and in the justification for the no-cost extensions submitted to USAID, our review of the partner’s program performance reports to USAID and the no-cost extensions found no explicit discussion of banking access challenges. Our review of the over 1,300 publicly available USAID partner reports for fiscal years 2016 and 2017 from high-risk countries found no explicit discussion of banking access challenges. Overall, we identified 5 reports out of the over 1,300 that included some mention of challenges related to banking access. However, those reports lacked sufficient detail for us to determine the type, severity, or origin of the challenges. For example, one report stated that there are sometimes delays in the payment of salaries through foreign accounts, with no further details about the delays, while another report stated that subgrantees experienced delays in payments without identifying the reasons for these delays, which could include late reports, late verification, late processing, or banking issues. While most of the partners we interviewed noted that they did not report banking access challenges because the challenges did not adversely affect their projects, an NPO advocacy group and a large international NPO told us that NPOs may be reluctant to discuss or report banking access challenges publicly because of concern about being perceived as high-risk or unable to carry out their mission, and that any public mention of banking access challenges could adversely affect their ability to raise funds. Standards for Internal Control in the Federal Government require agencies to identify and respond to risks related to achieving their goals, and USAID currently has no other process for collecting information on banking access challenges affecting its partners. Without this information, USAID does not have a record of the frequency and prevalence of the challenges and may not be aware of the full extent of risks to achieving its humanitarian assistance objectives. Further, as mentioned previously, two USAID partners stated that their projects faced potential adverse effects from banking access challenges. Documenting the prevalence and frequency of banking access challenges experienced by USAID partners is important given the potential adverse effects that these challenges can have on project implementation. Both Treasury and State have taken actions to help address banking access challenges encountered by NPOs; however, USAID’s efforts to address these challenges have been limited by a lack of communication about them—both within the agency and with external entities. Treasury, as a lead agency in fighting financial crimes and as an issuer of regulations that have a significant effect on charities’ access to the banking system, has conducted meetings between charities, banks, and government officials to discuss banking access challenges and released guidance on sanctions and other related issues. State, as a provider of funding for humanitarian assistance, has issued guidance to its overseas posts on banking access challenges. In addition, both State and Treasury are involved in international efforts led by the World Bank and the Financial Action Task Force (FATF) to help address banking access challenges. Although USAID’s partners have experienced banking access challenges, USAID has had more limited engagement than State and Treasury with other agencies, international organizations, and NPOs on addressing such challenges—in part because of a lack of communication about them, both within the agency and with external entities. Treasury’s efforts to help address banking access challenges encountered by NPOs include holding roundtable meetings and issuing guidance and resources for charitable organizations. Treasury, in its role as a regulator of the banking system, serves as a nexus between the banks and the U.S. agencies providing humanitarian assistance. Treasury has organized several roundtable meetings with the charitable sector to facilitate a dialogue on banks’ expectations. These sessions brought together representatives from charities, banks, financial supervisors, and the U.S. government to discuss the factors that banks consider related to charity accounts and that examiners use in their review of banks’ procedures. Since 2013, Treasury’s Office of Terrorist Financing and Financial Crimes (TFFC) has dedicated three of these roundtable meetings specifically to banking access challenges affecting charities, as follows: December 17, 2013: This initial Treasury / TFFC working group meeting with charities included a discussion of terrorist financing risk mitigation guidance. There was also a discussion of banking access challenges, during which TFFC provided an overview of the NPO section of the manual used by bank examiners to conduct bank examinations and explained the bank examination process to the charities. March 21, 2014: This meeting focused on a discussion of access to financial services for charities. A Muslim-American charity delivered a presentation on how it has managed its banking relationships over the past several years. Several banks also delivered presentations to help charities better understand the factors that banks consider and the complex processes related to banking transactions and opening or maintaining bank accounts. November 12, 2015: This meeting included a stakeholder discussion of banking access challenges for charities, with charities, bankers, and regulators presenting each of their perspectives and discussing the challenges faced on all sides. In addition, in May 2015, Treasury, with the Department of Homeland Security, conducted a roundtable on banking access challenges with Syrian-American charities, U.S. regulators, and bankers. This event was focused on challenges affecting the Syrian-American charitable community and delivering humanitarian assistance to Syria during the worsening conflict. Treasury provided guidance related to OFAC’s general license 11a for U.S. charities to provide humanitarian assistance for Syria. Further, officials reported that Treasury also maintains contact with the charitable sector through various domestic and international events, and holds frequent meetings with members of the charitable sector in Washington, D.C. and around the United States. Treasury has also issued guidance and resources on its website for charities, including frequently asked questions and best practices. Treasury’s website provides information and resources for all stakeholders in four strategic areas—private sector outreach, coordinated oversight, targeted investigations, and international engagement. The guidance includes: voluntary best practices regarding anti-terrorist financing for charities, lists of frequently asked questions regarding sanctions and charities, list of charities that have been designated by OFAC for assisting or having ties to terrorist organizations, several international multilateral organization reports on banking access challenges and terrorist exploitation of charities, and OFAC guidance specifically related to the provision of humanitarian assistance. Lastly, Treasury has taken actions on derisking challenges more generally. According to Treasury officials, these more general actions focused on encouraging dialogue and making clear to financial institutions that they are expected to make individual risk-based decisions rather than wholesale, indiscriminate policies for entire sectors or classes of customers. Treasury officials noted that banks retain the flexibility to make business decisions such as which clients to accept, since banks are in the best position to know whether they are able to implement controls to manage the risk associated with any given client. These officials indicated that Treasury pursues market-driven solutions and cannot order banks to open or maintain accounts. The officials have stated that Treasury does not view the charitable sector as presenting a uniform or unacceptably high risk of money laundering, terrorist financing, or sanctions violations. However, charities delivering critical assistance in high-risk conflict zones have, in some cases, had terrorist organizations and their support networks exploit donations and operations to support terrorist activities. State has issued guidance to its staff overseas to help address banking access challenges encountered by NPOs and others and identified a focal point for banking access challenges within the agency. In July 2017, State issued internal guidance, through a document issued to all of its overseas embassies, regarding derisking. State, based on guidance from Treasury, developed guidance for all personnel that provides background on “de-risking” and related talking points, additional web-based resources, and an assessment framework tool to evaluate the current state of banking relationships in a given market. The guidance includes links to resources from Treasury, U.S. banking regulators, and various international organizations, such as the World Bank, International Monetary Fund, and FATF. The guidance is designed to give embassy staff some tools to work with host governments on these issues and to help identify countries and markets where further U.S. government engagement is necessary. In addition, State’s Office of Threat Finance Countermeasures serves as the main focal point for all banking access challenges brought to the attention of State. This office provides assistance to State’s embassies when banking-access-related issues are raised through the embassy to State headquarters. All embassy staff, as part of the guidance issued on derisking, have been instructed to direct all questions received on banking access issues to the Office of Threat Finance Countermeasures. In addition, this office is responsible for interfacing with Treasury on banking access issues and staff from this office have attended all of the relevant Treasury-hosted roundtable meetings focused on banking access challenges encountered by charities. The World Bank and FATF have several efforts underway—with participation from Treasury and State—to address banking access challenges for NPOs. The World Bank, in collaboration with the Association of Certified Anti-Money Laundering Specialists (ACAMS), is working with humanitarian organizations, banks, and U.S. regulators on the question of how humanitarian organizations can maintain access to the financial system. More specifically, the World Bank and ACAMS have launched three primary work streams focused on different aspects of banking access to improve NPOs’ understanding of what the financial institutions require and to improve the banks’ understanding of how NPOs operate. According to a World Bank official, the three workstreams are as follows: Work Stream 1: This work stream aims to ensure a better understanding of bank examiners of the NPO sector and to enable more risk differentiation on the part of those examiners when they conduct on-site supervision and examine bank client accounts. Work Stream 2: This work stream aims to help banks conduct due diligence on charities more easily through the use of technological tools, such as databases that contain key information on charities. Work Stream 3: This work stream aims to work with the regulatory bodies to help bank examiners change their perceptions of the risk potential of charities. In addition, the World Bank and ACAMS have organized roundtable meetings as part of the ongoing Stakeholder Dialogue on De-Risking. The objectives of a January 2017 meeting were to promote access of humanitarian organizations to financial services and to discuss practical measures to foster the relationship between NPOs and financial institutions, improve the regulatory and policy climate for financial access for NPOs, and build coalitions and create opportunities for sharing information and good due diligence practices. Officials from Treasury and State have been involved with the dialogues and various work streams. FATF, with participation from both Treasury and State, also has several efforts underway to help address banking access challenges, including revising its recommendations and issuing guidance. Derisking has been a stated FATF priority since October 2014. In June 2016, FATF revised its recommendation that pertains to how countries should review NPOs and its interpretive note to better reflect how to implement measures to protect NPOs from terrorist abuse, in line with the proper implementation of the risk-based approach. According to Treasury, this approach emphasizes that not all charities are considered high-risk. Specific changes included defining NPOs, removal of the words “particularly vulnerable” from previous language, and emphasis on a risk-based approach for evaluating NPOs. The FATF has also issued guidance and best practices to guide both financial institutions and regulators on how to properly implement the risk-based approach, in line with the revised FATF recommendations. Additionally, according to Treasury, the FATF updated a report analyzing the global terrorist threat to the charitable sector, gathering over 100 examples of terrorist abuse of charities to pinpoint which types of charities are considered higher-risk. This report and its findings were published in June 2014. USAID efforts to address banking access challenges have been limited, in part because of a lack of communication within the agency and with external entities about challenges faced by USAID’s partners. Within USAID, we found that information on banking access challenges faced by partners was not always communicated beyond staff directly overseeing the project. We found that the USAID staff who had direct responsibility for managing the project were generally aware of banking access challenges that affected project implementation, and had taken steps to help mitigate these challenges on a project-level basis. However, other relevant staff, such as USAID management and country-level headquarters staff, were not aware of these challenges. For example, partners in Syria and Somalia that we interviewed noted experiencing banking access challenges, but the USAID officials representing these countries in headquarters told us they were not aware of such challenges occurring recently. This situation may be, in part, because USAID has no designated office or process that focuses on communicating these issues throughout the agency to other relevant officials, including USAID management. Federal standards for internal control note that management should use quality information to achieve the entity’s objectives, and that entity management needs access to relevant and reliable communication related to internal as well as external events. If information on banking access challenges experienced by USAID partners is only reported to program-level staff and not communicated to a wider audience within the agency, then the agency as a whole may not fully recognize the overall risks posed by banking access challenges to USAID’s ability to achieve its objectives. Further, the agency may miss opportunities to assist other partners that might be experiencing similar issues based on lessons learned from previous experiences, if staff are not aware of the banking access challenges that have been experienced by its partners implementing other projects or working in other countries. USAID participation in interagency and partner efforts to address banking access challenges has been limited, in part because of a lack of communication with these external entities. According to Treasury officials, because there is no main focal point at USAID for banking access challenges, there is no consistency on who attends, or whether anyone attends, the Treasury-hosted roundtable meetings on banking access challenges from USAID. Further, an NPO trade association and other NPOs told us that it is difficult to find a person at USAID to engage with on banking access challenges. Lastly, a USAID/OFDA official stated that USAID has had limited engagement on issues related to banking access challenges. The OFDA official stated that once OFDA fully staffs its new Award, Audit, and Risk Management Team, it will be able to more fully engage on these issues. Federal standards for internal control state that management should communicate the necessary quality information both internally and externally to achieve the organization’s objectives. Without effective communication with partners and other government agencies about banking access challenges its partners face, USAID’s ability to effectively and consistently engage with these entities or contribute to efforts to help address these challenges is limited. The United States provides humanitarian assistance in countries that are often plagued by conflict, instability, or other issues that increase the risk of financial crimes. Some of these countries also face U.S. sanctions that are aimed at their governments or other actors that engage in terrorism or illicit activities. Additionally, to ensure that the U.S. financial system is not used for money laundering or financing terrorism, financial institutions such as banks are subject to various U.S. laws and regulations that require banks to conduct proper due diligence on entities, such as those transferring funds to high-risk countries. However, there is concern among some organizations that banks’ higher level of due diligence, especially for clients such as charitable organizations that provide humanitarian assistance in high-risk countries, may create undue difficulties, including delays, for these organizations. Charitable organizations and others believe that because the United States and a key multilateral organization previously labeled charitable organizations as high-risk, banks remain reluctant to serve these organizations even though a case-by-case assessment of risk is now recommended. As such, we found that the majority of implementing partners—many of which are charitable organizations—of U.S. government assistance that we interviewed had experienced some banking access challenges. Despite our findings and others’ findings on the prevalence of banking access challenges facing humanitarian assistance organizations, USAID’s current partner reporting does not capture information related to the potential risks of banking access challenges faced by its partners. Without collecting this information, USAID cannot help the partners mitigate banking access challenges. Additionally, if these challenges are not documented and shared throughout the agency, the prevalence of the challenges and potential risks cannot be fully assessed. Further, without communicating about banking access challenges faced by its partners throughout the agency and to others, the potential risk to agency objectives will not be known and USAID’s ability to engage with other agencies and organizations in helping to address these challenges is limited. We are making the following two recommendations to USAID: The Administrator of USAID should take steps to collect information on banking access challenges experienced by USAID’s implementing partners. (Recommendation 1) The Administrator of USAID should take steps to communicate information on banking access challenges faced by partners both within USAID and with external entities, such as other U.S. agencies and U.S. implementing partners. (Recommendation 2) We provided a draft of this report to State, USAID, and Treasury for comment. We received written comments from USAID that are reprinted in appendix VI. USAID concurred with our recommendations. Treasury provided technical comments, which we incorporated as appropriate. State told us that it had no comments on the draft report. We are sending copies of this report to the appropriate congressional committees, the Secretary of State, the Administrator of the U.S. Agency for International Development, the Secretary of the Treasury, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix VII. While the Department of State (State) and the U.S. Agency for International Development (USAID) have encountered some banking access challenges, such as closed accounts and delays in transferring funds, these challenges did not affect their operations for providing assistance to high-risk countries. To send funds overseas, State, through two U.S. disbursement offices managed by State’s Bureau of the Comptroller and Global Financial Services (CGFS), maintains foreign currency bank accounts in 172 countries. Funds are transferred from a Federal Reserve Bank to a U.S. dollar bank account maintained by State, after which the funds are directed through a correspondent bank or a foreign exchange broker to a foreign bank account maintained by State. A correspondent bank serves as the intermediary between the bank sending a transfer, in this case a U.S. dollar denominated bank account, and the bank issuing payment to the recipient, in this case the State-held account in the recipient country. Both the bank sending the transfer and the bank receiving the transfer hold an account at the correspondent bank, which is used for fund transfers, cash management, and other purposes. According to State, all State transfers overseas, as well as the majority of USAID payments overseas, are managed by CGFS, and in fiscal year 2017 CGFS’s two disbursement offices processed approximately 3 million payments through accounts managed by State in 172 countries. State officials told us that State encounters occasional banking access challenges, including short delays in funds transfers, denials of funds transfers to certain countries, and one bank-initiated account closure. State officials told us that they are able to mitigate the occasional banking access challenges that they encounter to ensure operations are not affected. For example: State’s transfers to countries sanctioned by the Office of Foreign Asset Control (OFAC) are occasionally flagged by intermediary banks. According to State, in fiscal year 2017 approximately one- tenth of one percent (0.1%) of payments were delayed because of OFAC sanctions. When this occurs, State receives questions on the details of those transfers. According to officials, this is an ongoing challenge, but State resolves such delays within 2 weeks—and typically within days—and there are no operational effects as a result of the delays. In some instances—including once in 2012, and once in 2018—an intermediary bank used by CGFS’s U.S. bank stopped processing transfers to a recipient bank in a specific country. According to State officials, in both cases State identified an alternative intermediary bank to transfer funds to the destination country. In both cases, there were no operational effects. In 2014, an intermediary bank used by CGFS’s U.S. bank ended its banking relationship with an OFAC-sanctioned country (Syria), and State was unable to move funds from its U.S.-dollar denominated accounts to that country. State, with the advice of the recipient bank in the OFAC-sanctioned country, identified an alternative intermediary bank that was able to move funds to that country using euro-denominated accounts. In 2014, a U.S. bank—at which State maintained an account and that State used to fund its operations in Brunei—notified State that it would be closing State’s account with 29 days’ notice. State worked with Treasury to identify an alternative bank that would be willing to maintain a State bank account. The operation was not affected. For this review, we selected four countries—Syria, Somalia, Haiti, and Kenya—that may have a higher risk of financial crimes because of conflict, instability, or other issues. We selected them based on factors including the level of humanitarian assistance they received from U.S. agencies, their inclusion on multiple financial-risk-related indices, and geographical diversity. Syria. Since 2011, Syria has been plagued by an ongoing multisided armed conflict fought primarily between the government of President Bashar al-Assad, along with its allies, and various forces opposing both the government and each other. Syria’s economy has deeply deteriorated amid the ongoing conflict, declining by more than 70 percent from 2010 to 2017. During 2017, the ongoing conflict and continued unrest and economic decline worsened the humanitarian crisis, necessitating high levels of international assistance, as more than 13 million people remained in need inside Syria and the number of registered Syrian refugees increased from 4.8 million to more than 5.4 million. Multiple terrorist groups operate inside Syria, raising the potential risk of terrorist financing. Additionally, according to a Central Intelligence Agency report, Syria is a transit point for opiates, hashish, and cocaine bound for regional and Western markets, and weak anti-money-laundering controls and bank privatization may leave it vulnerable to money laundering. The U.S. maintains a comprehensive Syria sanctions program. A general license in the Syria regulations authorizes nonprofit organizations to provide services, including financial services, to Syria in support of certain not-for-profit activities, such as activities to support humanitarian projects to meet basic human needs and support education in Syria. Organizations providing humanitarian assistance that is not authorized by the general license may apply for a specific license to engage in those transactions. The United States has provided approximately $3.3 billion in humanitarian assistance for Syria since 2012. Somalia. Since 1969, Somalia has endured political instability and civil conflict, and is the third-largest source of refugees, after Syria and Afghanistan. Somalia lacks effective national governance and maintains an informal economy largely based on livestock, money transfer companies, and telecommunications. In the absence of a formal banking sector, money transfer companies have sprung up throughout the country, handling up to $1.6 billion in remittances annually. According to a 2016 State report, Somalia remained a safe haven for terrorists who used their relative freedom of movement to obtain resources and funds, recruit fighters, and plan and mount operations within Somalia and neighboring countries. The United States maintains a targeted list-based Somalia sanctions program. Organizations providing humanitarian assistance may apply for a specific license to engage in transactions that otherwise would be prohibited by the Somalia sanctions regulations. The United States has provided approximately $1.2 billion in humanitarian assistance for Somalia since 2012. Haiti. Currently the poorest country in the western hemisphere, Haiti has experienced political instability for most of its history. Remittances are the primary source of foreign exchange, equivalent to more than a quarter of GDP, and nearly double the combined value of Haitian exports and foreign direct investment. In January 2010, a catastrophic earthquake killed an estimated 300,000 people and left close to 1.5 million people homeless. Hurricane Matthew, the fiercest Caribbean storm in nearly a decade, made landfall in Haiti on October 4, 2016, creating a new humanitarian emergency. An estimated 2.1 million people were affected by the category 4 storm, which caused extensive damage to crops, houses, livestock, and infrastructure across Haiti’s southern peninsula. Haiti is identified as a fragile state by the Organisation for Economic Co-operation and Development, and as a jurisdiction of primary concern for money laundering in State’s International Narcotics Control Strategy Report. According to USAID, the agency has provided $187.8 million in humanitarian assistance for Haiti since 2012. Kenya. Kenya is the economic, financial, and transport hub of East Africa. Since 2014, Kenya has been ranked as a lower middle income country because its per capita GDP crossed a World Bank threshold. Al-Shabaab aims to establish Islamic rule in Kenya’s northeastern border region and coast and carried out a spate of terrorist attacks in Kenya. Kenya is identified as a fragile state by the Organisation for Economic Co-operation and Development, and as a jurisdiction of primary concern for money laundering in State’s International Narcotics Control Strategy Report. The United States has provided approximately $807 million in humanitarian assistance for Kenya since 2012. This report examines (1) the extent to which implementing partners of the Department of State (State) and the U.S. Agency for International Development (USAID) experience banking access challenges that affect their implementation of humanitarian assistance projects, (2) USAID implementing partners’ reporting on banking access challenges, and (3) actions relevant U.S. agencies have taken to help address banking access challenges encountered by nonprofit organizations (NPO). In addition, we provide information on the extent to which State and USAID experience banking access challenges in providing assistance in high-risk countries in appendix I. To address these objectives, we examined U.S.-funded projects and their implementers in four high-risk countries—Syria, Somalia, Haiti, and Kenya. We selected these countries based on factors including the high level of humanitarian assistance they received from U.S. agencies, their higher propensity for the occurrence of financial crimes based on their inclusion on multiple financial-risk-related indices, and to obtain geographical diversity. More specifically, to identify our list of high-risk countries in terms of banking or financial risk, we used several indices including ones based on financial risk, money laundering risk, and counterterrorism-related risk. The indices we chose to use were State’s International Narcotics Control Strategy Report (2014- 2016) (Money Laundering Risks), the Department of the Treasury’s (Treasury) Office of Foreign Assets Control (OFAC) sanctions, the Organisation for Economic Co-operation and Development’s (OECD) Fragile State Index (2014-2016), the 2017 Financial Action Task Force (FATF) High Risk and Non- Cooperative Jurisdictions list, and the BASEL AML Index, 2017. We then identified 19 countries that appeared on at least two of the five lists and received at least $100 million in U.S. based humanitarian assistance from 2012 through 2017, based on data from the United Nations Office for the Coordination of Humanitarian Affair’s financial tracking system. We then applied the following primary selection criteria to select our four countries: whether they (1) appeared on at least three of the five identified lists and (2) have received at least $100 million in U.S. humanitarian assistance since 2012. Secondary considerations that informed our selection included whether a country had been identified as having banking access challenges by USAID, geographical diversity, and ensuring we had at least one country from each of the five indices we chose. The data we obtained for these four countries cannot be generalized beyond our selected projects and partners. For our first objective, to examine the extent to which implementing partners of State and USAID experienced banking access challenges that affected their implementation of humanitarian assistance projects, we conducted semi-structured interviews with 18 partners about (1) one of 18 specific projects we had selected in one of our high-risk countries and (2) their experiences implementing their global portfolio of humanitarian assistance projects over the previous 5 years. In order to determine our sample of partners, we selected a weighted, non-generalizable sample of 18 projects located in our four selected high-risk countries. We selected our projects from a list, provided by State and USAID, of 195 projects that were active as of the end of fiscal year 2017 in these countries. In making our selection of projects we made sure that our sample included a mix of projects from each country (7 projects for Syria, 5 for Somalia, 3 for Haiti, and 3 for Kenya), and a mix of State and USAID projects (3 State and 15 USAID). We selected those numbers for each country and each agency based on the number of projects in each country and the proportion of assistance provided. We selected one State project in each of the three countries where they were active. Once we had determined these parameters for our non-generalizable sample, we made the final selections of the projects at random, making sure that we did not select more than one project for any one partner. Several of the implementing partners in our sample operate in over 100 countries in every part of the world, while a few operate in 20 or fewer countries. Three of the partners are United Nations organizations. The implementing partners in our sample had fiscal year 2016 annual revenues ranging from $5.9 billion to just over $10 million. We conducted semi-structured interviews with each of the 18 implementing partners on potential banking access challenges, such as the ability to open and maintain new accounts and make transfers in a timely fashion, and the effect of those challenges on project implementation. Our interviews were separated into two distinct sets of questions—one on banking access challenges the implementing partner encountered on the selected project, and the other on any banking access challenges the implementing partner encountered in its global portfolio of humanitarian assistance projects over the previous 5 years (2013-2017). When discussing their global humanitarian assistance portfolios, the partners did not limit their responses to projects funded by U.S. government agencies, but instead considered projects funded by all of their donors. We did not ask the partners to quantify the number of projects they had implemented over the previous 5 years, nor did we ask them to quantify the number of projects in their global portfolio of humanitarian assistance for which they had experienced banking access challenges. Our interview followed a protocol that asked both closed and open-ended questions. For most banking access challenges, when interview respondents indicated that their project or organization had experienced a banking access challenge, we probed for details of the challenge, including whether the challenge had caused an adverse effect on the project, such as project delays or cancellations. After the interviews had been conducted, we content-coded some of the open- ended answers we received. Specifically, we developed codes on whether any challenges reported had adversely affected the projects, the extent and duration of delays in transferring funds, and the extent and frequency of denials of international fund transfers. Two analysts independently coded each interview. The analysts then compared their coding and reconciled any initial disagreements. We also reviewed relevant studies on banking access challenges for NPOs conducted by the World Bank and the Charity and Security Network (CSN). The study conducted by CSN included a survey that was designed to be generalizable to the population of all U.S. NPOs with activities outside the U.S., including providing humanitarian assistance. This survey received more than 300 responses, which constituted a reported response rate of about 38 percent. The researchers conducting the survey indicated that this response rate could be considered high for a public opinion telephone survey but low for a survey like the Census. The study determined the survey findings to be representative of the population with some qualifications, such as the fact that smaller organizations were more likely to complete the survey than larger organizations. The maximum margin of error was estimated to be 5.4 percent. More than 70 of the NPOs reported that they had received U.S. government funding. We requested and received some additional data analysis from the researchers who had conducted this survey. We examined the aggregate survey responses in detail and compared them to the responses we received to our semi-structured interview questions, which probed into similar aspects of financial access. We reviewed documentation and interviewed the officials responsible for the survey and determined that they had used a reasonable methodology to conduct the survey. We also interviewed several NPOs and NPO groups that were not part of our sample to obtain their views on banking access challenges affecting those delivering humanitarian assistance. For our second objective, to examine USAID implementing partners’ reporting on banking access challenges, we reviewed the fiscal year 2017 progress reports, including quarterly, semi-annual, and annual reports, that USAID provided for our selected projects to determine if banking access challenges the implementing partners told us about in the interviews had been reported in accordance with requirements in the individual award agreements. In total, we reviewed 26 reports from these partners. We also interviewed USAID agreement officers for the projects that stated they had experienced banking access challenges about implementing partners’ reporting of those banking access challenges. To obtain a broader context, we also reviewed over 1300 USAID implementing partner reports for fiscal years 2016 and 2017 from a wider selection of high-risk countries to determine the extent to which banking access challenges are being reported to USAID. To identify the relevant USAID progress reports, we searched USAID’s Development Experience Clearinghouse (DEC) for all periodic progress reports filed for fiscal years 2016 and 2017 by implementing partners working in selected 19 high-risk countries for instances of reporting on financial access challenges. Using these criteria, we identified 1,369 reports from fiscal years 2016-2017 from our selected 19 high-risk countries. The reports included annual reports, final contractor / grantee reports, final evaluation reports, and periodical and periodic reports (such as quarterly or semi-annual reports). The 1,369 reports constituted our universe of reports for which we used a textual analysis program to automatically scan and search for words and phrases that we identified in a lexicon of financial access terms. We developed this lexicon of financial access terms based on a review of relevant research, interviews with industry organizations, and a manual review of USAID progress reports. Using the lexicon, our textual analysis program identified all mentions of identified terms in the universe of reports. Next, two analysts independently reviewed the mentions identified through our textual analysis software program to determine whether the mentions actually constituted a reporting of a financial access challenge. The analysts then reconciled any differences in their reviews. For the purposes of this review, we considered a relevant financial access challenge to be any challenge encountered by the implementing partner in obtaining U.S. banking services, or in transferring funds from the United States to the destination country. We did not conduct a similar review of State partner reporting because we only had a sample of three State projects and one of the projects did not require direct written reporting to State. In addition, State does not have a central depository for partner reports that we could search, such as USAID’s DEC. For our third objective, to examine actions relevant U.S. agencies have taken to help address banking access challenges encountered by NPOs, we conducted interviews with and reviewed documentation from State, USAID, and Treasury on actions they have taken to help address these challenges. We also discussed U.S. agency involvement in efforts to help address these challenges with relevant organizations that represent NPOs. In addition, we reviewed relevant documentation published by the World Bank and the Financial Action Task Force on actions they have taken to help address banking access challenges encountered by NPOs, and interviewed relevant staff at the World Bank on efforts undertaken to address banking access challenges. To examine the extent to which State and USAID encountered banking access challenges in providing assistance in high-risk countries, we interviewed State officials responsible for conducting overseas transfers of funds for both State and USAID to determine if any banking access challenges exist that are specific to our case study countries as well as for U.S. assistance worldwide. We also interviewed State and USAID officials with responsibility for overseeing programs in our four selected countries to determine if they had seen any effects of banking access challenges. We focused primarily on these agencies’ ability to access banking services in the United States and on the transfer of funds to the ultimate destination. We conducted this performance audit from July 2017 to September 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. The United States provides humanitarian assistance primarily through offices and bureaus within the Department of State (State) and the U.S. Agency for International Development (USAID). The primary humanitarian offices and bureau are: State’s Bureau of Population, Refugees, and Migration (PRM). PRM’s stated mission is to provide protection, ease suffering, and resolve the plight of persecuted and uprooted people around the world by providing life-sustaining assistance, working through multilateral systems to build global partnerships, promoting best practices in humanitarian response, and ensuring that humanitarian principles are integrated into U.S. foreign and national security policy. PRM does not operate refugee camps or give aid directly to refugees, but rather works with entities that operate these programs, including the United Nations, other international organizations, and nonprofit organizations. USAID’s Office of U.S. Foreign Disaster Assistance (OFDA). OFDA states that it helps countries prepare for, respond to, and recover from humanitarian crises. According to USAID, OFDA works with the international humanitarian community to give vulnerable populations resources to build resilience and strengthen their ability to respond to emergencies. Assistance includes provision of emergency relief supplies, establishing early warning systems, and training on search and rescue efforts, as well as programs to help victims of disasters recover. USAID’s Office of Food For Peace (FFP). FFP’s stated mission is to partner with others to reduce hunger and malnutrition, and help ensure that all individuals have adequate, safe, and nutritious food to support a healthy and productive life. According to FFP, it works to mobilize resources to predict, prevent, and respond to hunger overseas. FFP’s emergency activities include food assistance to help reduce suffering and support the early recovery of people affected by conflict and natural disaster emergencies. In addition to the individual named above, Mona Sehgal (Assistant Director), Michael Maslowski (Analyst in Charge), Ming Chen, Debbie Chung, Martin de Alteriis, Leia Dickerson, Mark Dowling, Erin Guinn- Villareal, Chris Keblitis, and Benjamin L. Sponholtz made key contributions to this report.	[ "Since 2012, the United States has provided approximately $36 billion in humanitarian assistance to save lives and alleviate human suffering. Much of this assistance is provided in areas plagued by conflict or other issues that increase the risk of financial crimes. The World Bank and others have reported that humanitarian assistance organizations face challenges in accessing banking services that could affect project implementation. GAO was asked to review the possible effects of decreased banking access for nonprofit organizations on the delivery of U.S. humanitarian assistance. In this report, GAO examines (1) the extent to which State and USAID partners experienced banking access challenges, (2) USAID partners' reporting on such challenges, and (3) actions U.S. agencies have taken to help address such challenges. GAO selected four high-risk countries—Syria, Somalia, Haiti, and Kenya—based on factors such as their inclusion in multiple financial risk-related indices, and selected a non-generalizable sample of 18 projects in those countries. GAO reviewed documentation and interviewed U.S. officials and the 18 partners for the selected projects. Implementing partners (partners) for 7 of 18 Department of State (State) and U.S. Agency for International Development (USAID) humanitarian assistance projects that GAO selected noted encountering banking access challenges, such as delays or denials in transferring funds overseas. Of those 7 projects, 1 partner told us that banking access challenges adversely affected its project and 2 additional partners told us that the challenges had the potential for adverse effects. Moreover, the majority of partners (15 out of 18) for the 18 projects noted experiencing banking access challenges on their global portfolio of projects over the previous 5 years. USAID's partners' written reports do not capture potential risks posed by banking access challenges because USAID generally does not require most partners to report in writing any challenges that do not affect implementation. Six of the 7 projects that encountered challenges were USAID-funded. Of those 6 USAID projects, 5 partners told us that these challenges did not rise to the threshold of affecting project implementation that would necessitate reporting, and 1 did not report challenges although its project was adversely affected. Additionally, GAO's review of about 1,300 USAID partner reports found that the few instances where challenges were mentioned lacked sufficient detail for GAO to determine their type, severity, or origin. Without information on banking access challenges that pose potential risks to project implementation, USAID is not aware of the full extent of risks to achieving its objectives. The Department of the Treasury (Treasury) and State have taken various actions to help address banking access challenges encountered by nonprofit organizations (NPO), but USAID's efforts have been limited. Treasury's efforts have focused on engagement between NPOs and U.S. agencies, while State has issued guidance on the topic to its embassies and designated an office to focus on these issues. In contrast, USAID lacks a comparable office, and NPOs stated that it is difficult to find USAID staff to engage with on this topic. Further, GAO found that awareness of specific challenges was generally limited to USAID staff directly overseeing the project. Without communicating these challenges to relevant parties, USAID may not be aware of all risks to agency objectives and may not be able to effectively engage with external entities on efforts to address these challenges. GAO recommends that USAID should take steps to (1) collect information on banking access challenges experienced by USAID's partners and (2) communicate that information both within USAID and with external entities, such as other U.S. agencies and partners. USAID concurred with our recommendations." ]	9,618	gov_report	en	null	ff5d156dbe5573a39111878520f208567e4c0d6dfe1a2767
The EFMP provides support to families with special needs at their current and proposed locations. Servicemembers relocate frequently, generally moving every 3 years if in the Army, Marine Corps, and Navy, and every 4 years if in the Air Force. In fiscal year 2016, the Military Services relocated approximately 39,000 servicemembers enrolled in the EFMP to CONUS installations. To implement DOD’s policy on support for families with special needs, DOD requires each Service to establish its own EFMP for active duty servicemembers. EFMPs are to have three components—identification and enrollment, assignment coordination, and family support. Identification and enrollment: Medical and educational personnel at each installation are responsible for identifying eligible family members with special medical or educational needs to enroll in the EFMP. Once identified by a qualified medical provider, active duty servicemembers are required to enroll in their service’s EFMP. Servicemembers are also required to self-identify when they learn a family member has a qualifying condition. Assignment coordination: Before finalizing a servicemember’s assignment to a new location, DOD requires each Military Service to consider any family member’s special needs during this process, including the availability of required medical and special educational services at a new location. Family support: DOD requires each Military Service’s EFMP to include a family support component through which it helps families with special needs identify and gain access to programs and services at their current, as well as proposed, locations. Servicemembers assigned to a joint base would receive family support from the Service that is responsible for leading that installation. For example, an Airman assigned to a joint base where the Army is the lead would receive family support from the Army installation’s EFMP. As required by the NDAA for Fiscal Year 2010, DOD established the Office of Community Support for Military Families with Special Needs (Office of Special Needs or OSN) to develop, implement, and oversee a policy to support these families. Among other things, this policy must (1) address assignment coordination and family support services for families with special needs; (2) incorporate requirements for resources and staffing to ensure appropriate numbers of case managers are available to develop and maintain services plans that support these families; and (3) include requirements regarding the development and continuous updating of a services plan for each military family with special needs. OSN is also responsible for collaborating with the Services to standardize EFMP components as appropriate and for monitoring the Services’ EFMPs. OSN has been delegated the responsibility of implementing DOD’s policy for families with special needs by the Undersecretary of Defense for Personnel and Readiness through the Assistant Secretary for Manpower and Reserve Affairs according to DOD officials. Currently, OSN is administered under the direction of the Deputy Assistant Secretary of Defense for Military Community and Family Policy through the Office of Military Family Readiness Policy. In addition, each Military Service has designated a program manager for its EFMP who is also responsible for working with OSN to implement its EFMP (see fig. 1). DOD’s guidance for the EFMP (1) identifies procedures for assignment coordination and family support services; (2) designates the Assistant Secretary of Defense for Manpower and Reserve Affairs as being responsible for monitoring overall EFMP effectiveness; (3) assigns the OSN oversight responsibility for the EFMP, including data review and monitoring; and (4) directs each Service to develop guidance for overseeing compliance with DOD requirements for their EFMP. Table 1 provides an overview of the procedures each Service must establish for the assignment coordination and family support components of the EFMP. As a part of its guidance for monitoring military family readiness programs, DOD also requires each Military Service to certify or accredit its family readiness services, including family support services provided through the EFMP. In addition, DOD states that each Service must balance the need for overarching consistency across EFMPs with the need for each Service to provide family support that is consistent with their specific mission. To accomplish this, each Service is required to jointly work with DOD to develop a performance strategy, which is a plan that assesses the elements of cost, quality, effectiveness, utilization, accessibility, and customer satisfaction for family readiness services. In addition, each Military Service is required to evaluate their family readiness services using performance goals that are linked to valid and reliable measures such as customer satisfaction and cost. DOD also requires each Service to use the results of these evaluations to inform their assessments of the effectiveness of their family readiness services for families with special needs. According to DOD officials, each Military Service provides family support services in accordance with DOD guidance as well as Service-specific guidance. However, we found wide variation in each Service’s requirements for family support personnel as well as the practices and expectations of EFMP staff. As a result the type, amount, and frequency of assistance enrolled families receive varies from Service to Service and when a servicemember from one Service is assigned to a joint base led by another Service (see table 2). For example, in terms of a minimum level of contact for families with special needs enrolled in the EFMP, the Services vary in the frequency with which they require family support providers to contact families with special needs: The Marine Corps specifies a frequency (quarterly) with which families with special needs should be contacted by their family support providers. The Air Force has each installation obtain a roster of families with special needs enrolled in the EFMP on a monthly basis, but it does not require family support providers to, for example, use this information to regularly contact these families. The Navy assigns one of three service levels to each family member enrolled in the EFMP. These service levels are based on the needs of each family with special needs; family support providers are responsible for assigning a “service level” that directs the frequency with which the family must be contacted. The Army has no requirements for how often families with special needs should be contacted. The Services also vary as to whether they offer legal assistance to families with special needs as follows: The Marine Corps employs two attorneys who can represent families with special needs who fail to receive special education services from local school districts, as specified in their children’s individualized education programs (IEP). They can also advise EFMP-enrolled families on their rights and options if a family believes their child needs special education services from a local school district (e.g., an IEP). The Air Force, Army, and Navy choose not to employ special education attorneys. Officials with whom we spoke said families with special needs in these Services can receive other types of assistance that may help them resolve special education legal issues. For example, Air Force officials said servicemembers and their families can receive support from attorneys that provide general legal assistance on an installation, Army officials said installation EFMP managers can refer families with special needs to other organizations that provide legal support, and Navy officials said families can find support through working with their installation’s School Liaison Officers. The NDAA for Fiscal Year 2010 requires DOD’s policy to include requirements regarding the development and continuous updating of a services plan (SP) for each family with special needs, and DOD has specifically required these plans as part of the provision of family support services. These plans describe the necessary services and support for a family with special needs and document and track progress toward meeting related goals. According to DOD guidance, these plans should also document the support provided to the family, including case notes. In addition, the DOD reference guide for family support providers emphasizes that timely, up-to-date documentation is especially important each time a family relocates, as military families regularly do. Therefore, SPs are an important part of providing family support during the relocation process, and provide a record for the gaining installation. Requiring timely and up-to-date documentation is consistent with federal internal control standards, which state that agencies should periodically review policies, procedures, and related control activities for continued relevance and effectiveness in achieving their objectives. SPs follow families with special needs each time they relocate and without timely and up-to-date documentation, DOD cannot ensure that all families continue to receive required medical and/or special educational services once they relocate to another installation. For every Service the number of SPs was relatively few when compared to the number of servicemembers (known as sponsors) or the number of family members enrolled in the EFMP (see table 3). The Services and OSN provided a range of reasons as to why the Services do not develop and maintain a SP for each family with special needs. For example, Air Force officials said their family support providers consider the needs of each family with special needs before determining whether a SP will help them receive the required services. In addition, Army and Marine Corps officials said they may not develop these plans if families do not request them. Further, according to a Navy official, some families lack the required SPs because installations may not have the staff needed to develop them—even though DOD requires the Services to maintain sufficient staff and certify their EFMPs. OSN officials with whom we spoke also said that the Services may not have developed many SPs during fiscal year 2016 because DOD had not yet approved a standardized form that could be used to meet this requirement. Finally, OSN officials also said that each family with special needs enrolled in the EFMP may not need a SP because their condition does not require this type of family support. To meet requirements of the NDAA for Fiscal Year 2010, in April 2017, DOD issued to the Services guidance that directed them to “rogram, budget, and allocate sufficient funds and other resources, including staffing,” to meet DOD’s policy objectives for the EFMP. According to OSN officials, DOD relies on each Service to determine what level of funds and resources is sufficient and what constitutes an appropriate number of family support personnel. To determine family support providers and related personnel staffing levels, the Service officials with whom we spoke said they consider a number of factors, including the number of families with special needs enrolled in the EFMP at any given installation (see app. II for more information about the EFMP data by installation). See Table 4 for a summary of EFMP family support providers and other key personnel at CONUS installations. As required by DOD, all of the Services employ family support providers to assist families with special needs. In addition, some Services employ additional personnel to support implementation of the EFMP (see sidebar). For example, the Air Force employs family support coordinators to administer its EFMP and no other personnel are dedicated to assisting these coordinators or enrolled families. The Army employs “system navigators” who provide individualized support to families with special needs at selected installations through its EFMP, as well as other personnel to administer the EFMP. workers at most of its CONUS installations to administer individualized support to families with special needs. In addition, the Marine Corps employs program managers, administrative assistants, as well as training and education outreach specialists. The Navy contracts regional case liaisons and case liaisons at selected CONUS installations to administer individualized support to families with special needs. In addition, the Navy employs collateral duty case liaisons who assist with the delivery of family support services at all other CONUS installations. Senior OSN officials said they rely on each Service to determine the extent to which its EFMP complies with DOD’s policy for families with special needs because they consider OSN to be a policy-making organization that is not primarily responsible for assessing compliance. In addition, these officials said the Services need flexibility to implement DOD’s policy for families with special needs because they each have unique needs and the number of enrolled families in the EFMP is constantly changing. However, DOD has not developed a standard for determining the sufficiency of funding and resources each Service allocates for family support. Air Force officials at one of the installations we visited said the Air Force identified the lack of staff and funding to provide individualized support to most families with special needs as an issue. In addition, officials from the Army and Navy said they have not received any guidance from OSN officials about their Service-specific guidance, including requirements for resources and services plans. Further, the Services may not know the extent to which their Service- specific guidance complies with DOD’s policy for families with special needs. The NDAA for Fiscal Year 2010 requires DOD to identify and report annually to the congressional defense committees on gaps in services for military families with special needs and to develop plans to address these gaps. However, DOD’s most recent reports to the congressional defense committees did not address the relatively few SPs being created for families with special needs, or whether the Services are providing sufficient resources to ensure an appropriate number of family support providers. Federal internal control standards require that agencies establish control activities, such as developing clear policies, in order to accomplish agency objectives such as those of the Services’ EFMPs. Without fully identifying and addressing potential gaps in family support across these programs, some families with special needs may not get the assistance they require, particularly when they relocate. Each Service monitors EFMP assignment coordination and family support using a variety of mechanisms, such as regularly produced internal data reports. However, DOD has not yet established common performance measures to track the Services’ progress in implementing its standard procedures over time or developed a process to evaluate the overall effectiveness of each Service’s assignment coordination and family support procedures. DOD requires each Service to monitor implementation of their EFMP, including their procedures for assignment coordination and family support. To comply with this requirement, each Service has developed guidance that establishes monitoring protocols and assigns oversight responsibilities. Officials from each Service told us they use internal data reports from each installation to monitor assignment coordination and family support. To monitor assignment coordination, officials from each Service told us their headquarters reviews proposed assignment locations for families with special needs enrolled in the EFMP. These officials said monitoring proposed assignment locations helps ensure that enrolled families will be able to access required services at their new installations. In addition, Army officials said each Army unit commander is responsible for tracking the number of families with special needs that have expired enrollment paperwork because it affects assignment coordination worldwide. Several years ago, the Army determined that 25 percent of soldiers (over 13,000) enrolled in the EFMP had expired enrollment paperwork, complicating the task of considering each enrolled family’s special medical or educational needs as part of proposed relocations. In response, in August 2011, the Army revised its policies and procedures for updating enrollment paperwork which would help ensure a family member’s special needs are considered during the assignment coordination process. To monitor family support provided by installations worldwide, each Military Service told us they use a variety of mechanisms (see table 5). The Marine Corps pays particular attention to customer satisfaction. Marine Corps officials told us that every three years Marine Corps headquarters administers a survey of family members enrolled in the EFMP. We previously reported that organizations may be able to increase customer satisfaction by better understanding customer needs and organizing services around those needs. This survey is one of the primary ways Marine Corps headquarters measures customer satisfaction with family support services at installations worldwide. Marine Corps officials also said this survey helps ensure its EFMP is based on the current needs of families with special needs. To improve its oversight of the EFMP and implement its policy for families with special needs, DOD, through OSN, has several efforts under way to standardize the Services’ procedures for assignment coordination and family support. However, DOD has not developed common performance measures to monitor its progress toward these efforts and has not developed a process for assessing the Services’ related monitoring activities. Federal internal control standards emphasize the importance of assessing performance over time and evaluating the results of monitoring activities. To help improve family member satisfaction by addressing gaps in support that may exist between Services, OSN has begun to standardize procedures for assignment coordination and family support. To date, OSN’s efforts have focused on ensuring each Service’s EFMP considers the needs of family members during the assignment process and helps family members identify and gain access to community resources. According to OSN’s April 2017 Report to Congress, the long-term goal of these efforts is to help ensure that all families with special needs enrolled in the EFMP receive the same level of service regardless of their Military Service affiliation or geographic location. In addition, OSN officials told us its standardized procedures will also help DOD perform required oversight by improving its access to Service-level data and its ability to validate each Service’s monitoring activities. To date, efforts to standardize assignment coordination and family support have included efforts such as developing new family member travel screening forms which will be the official documents used during the assignment coordination process and completing a DOD-wide customer service satisfaction survey on EFMP family support (see table 6). Despite its efforts to begin standardizing assignment coordination and family support services, DOD is unable to measure its progress in standardizing assignment coordination and family support procedures for families with special needs and assessing the Services’ performance of these processes because it has not yet developed common metrics for doing so. Federal internal control standards emphasize the importance of agencies assessing performance over time. We have also reported on the importance of federal agencies engaging in large projects using performance metrics to determine how well they are achieving their goals and to identify any areas for improvement. By using performance metrics, decision makers can obtain feedback for improving both policy and operational effectiveness. Additionally, by tracking and developing a baseline for all measures, agencies can better evaluate progress made and whether or not goals are being achieved—thus providing valuable information for oversight by identifying areas of program risk and causes of risks or deficiencies to decision makers. Through our body of work on leading performance management practices, we have identified several attributes of effective performance metrics relevant to OSN’s work (see table 7). OSN officials said each Service is currently responsible for assessing the performance of its own EFMP, including the development of Service- specific goals and performance measures. OSN officials said that they recognize the need to continually measure the department’s progress overall in implementing its policy for families with special needs, and are considering ways to do so. They also said they have encountered challenges to developing common performance measures. In addition, OSN officials said its efforts to reach consensus among the Services about performance measures for the overall EFMP are still ongoing because each Service wants to maintain its own measures, and DOD has not required them to reach a consensus. Absent common performance measures, DOD is unlikely to fully determine whether its long-standing efforts to improve support for families with special needs are being implemented as intended. DOD requires each Service to monitor its own family readiness programs, including procedures for assignment coordination and family support through the EFMP, but lacks a systematic process to evaluate the results of these monitoring activities. To monitor family readiness services, as required by DOD, each Service must accredit or certify its family support services, including the EFMP, using standards developed by a national accrediting body not less than once every 4 years. In addition, personnel from each Service’s headquarters are required to periodically visit installations as a part of their monitoring activities for assignment coordination, among other things. The Services initially had the Council on Accreditation accredit family support services provided through their installations’ EFMPs using national standards developed for military and family readiness programs, according to the officials with whom we spoke. However, by 2016, each Service was certifying installations’ family support services using standards that meet those of a national accrediting body, Service-specific standards, and best practices. According to officials from each Service with whom we spoke, this occurred due to changes in the funding levels allocated to this activity. Table 8 provides an overview of the certification process currently being used by each Service. OSN officials said they do not have an ongoing process to systematically review the results of the Services’ activities, including the certification of EFMPs because they choose to rely on the Services to develop their own monitoring activities and ensure they provide the desired outcomes. In doing so, DOD allows each Service to develop its own processes for certifying installations’ family support services, including the selection of standards. In addition, OSN officials told us that efforts to standardize certification of EFMPs are ongoing because the Military Services have not been able to reach consensus on a set of standards that can be used across DOD for installations’ family support services. Further, OSN has not established a process to assess the results of the Services’ processes for certifying installations’ family support services. Federal standards for internal control state that management should evaluate the results of monitoring efforts—such as those the Services are conducting on their own—to help ensure they meet their strategic goals. The lack of such a process hampers OSN’s ability to monitor the Services’ EFMPs and determine the adequacy of such programs as required by the NDAA for Fiscal Year 2010. OSN’s job of developing a policy for families with special needs that will work across DOD’s four Services is challenging given the size, complexity, and mission of the U.S. military. It has had to consider, among other things, the Services’ mission requirements, resource constraints, and the myriad demands on servicemembers and their families during their frequent relocations. Anything that further complicates a relocation—such as not receiving the required family support services for family members with special needs—potentially affects readiness or, at a minimum, makes an already stressful situation worse. By providing little direction on how the Services should provide family support or what the scope of family support services should be, some servicemembers get more—or less—from the EFMP each time they relocate, including when a servicemember from one Service is assigned to a joint base led by another Service. By largely deferring to the Services to design, implement, and monitor their EFMPs’ performance, DOD cannot, as required by the NDAA for Fiscal Year 2010, fully determine the adequacy of the Services’ EFMPs in serving families with special needs, including any gaps in services these families receive, because it has not built a systematic process to do so. Instead, it relies on the Services to self-monitor and address, within each Service, the results of monitoring activities. However, because servicemembers relocate frequently and often depend on the EFMP of a Service other than their own, a view of EFMP performance across all of the Services is essential to ensuring, for example, that relocating servicemembers get consistent EFMP service delivery no matter where they are stationed. Evaluating and developing program improvements based on the results of the Services’ monitoring would help DOD ensure the Services’ EFMPs achieve the desired outcomes and improve its ability to assess the overall effectiveness of the program. We are making the following three recommendations to DOD: We recommend the Secretary of Defense direct the Office of Special Needs (OSN) to assess the extent to which each Service is (1) providing sufficient resources for an appropriate number of family support providers, and (2) developing services plans for each family with special needs, and to include these results as part of OSN’s analysis of any gaps in services for military families with special needs in each annual report issued by the Department to the congressional defense committees. (Recommendation 1) We recommend that the Secretary of Defense direct the Office of Special Needs (OSN) to develop common performance metrics for assignment coordination and family support, in accordance with leading practices for performance measurement. (Recommendation 2) We recommend that the Secretary of Defense implement a systematic process for evaluating the results of monitoring activities conducted by each Service’s EFMP. (Recommendation 3) We provided a draft of this report to the Department of Defense (DOD) for comment. DOD provided written comments, which are reproduced in appendix IV. DOD also provided technical comments, which we incorporated as appropriate. DOD agreed with all three of our recommendations. In its written comments, DOD stated that additional performance metrics need to be developed for assignment coordination and that it is in the process of measuring families’ satisfaction with family support provided through the EFMP. DOD also stated that it is developing plans for evaluating the results of each Service’s monitoring activities for the EFMP. We are sending copies of this report to the appropriate congressional committees, the Secretaries of Defense and Education, and other interested parties. The report also is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (617) 788-0580 or nowickij@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. The National Defense Authorization Act (NDAA) for Fiscal Year 2017 includes a provision for GAO to assess the effectiveness of the Department of Defense’s (DOD) Exceptional Family Member Programs (EFMP). This report focuses on the assignment coordination and family support components of the EFMP for dependents with special needs and examines: (1) the extent to which each Service has provided family support as required by DOD, and (2) the extent to which the Services monitor and DOD evaluates assignment coordination and family support. To address these objectives, we used a variety of data collection methods. Key methods are described in greater detail below. For both objectives, we reviewed relevant federal laws, regulations, and DOD guidance and documentation that pertain to the EFMP, including the following: The NDAA for Fiscal Year 2010, which established the Office of Special Needs and defined program requirements for assisting families with special needs, including assignment coordination and family support. DOD’s guidance for administering the EFMP. We assessed how DOD implements the requirements in the NDAA for Fiscal Year 2010; how each Service implements assignment coordination and family support; and how the Services and DOD monitor assignment coordination and family support using performance measures. Specially, we reviewed DOD Instruction 1315.19 - Exceptional Family Member Program; Service-specific guidance and related documents from the Air Force, Army, Marine Corps, and Navy; and DOD Instruction 1342.22 - Military Family Readiness. Standards for internal control in the federal government related to the documentation of responsibilities through policies, performance measures, and evaluating the results of monitoring activities. We compared each Service’s procedures for monitoring assignment coordination and family support to these standards. To determine the extent of the Services’ EFMP family support, we obtained and analyzed fiscal year 2016 EFMP data (the most recent available) for each Service. We reviewed DOD policy to identify data variables that each Service maintains related to its EFMP. We used these data to summarize key characteristics of each Service’s EFMP. The selected variables provided Service-wide and installation-specific EFMP information on, the number of continental United States (CONUS) and outside the continental United States (OCONUS) installations; the number of servicemembers (sponsors) enrolled in the EFMP; the number of family members with special needs enrolled in the EFMP; the number of EFMP family support personnel; and the number of services plans created for families with special needs enrolled in the EFMP. We determined that the selected data variables from each Service are sufficiently reliable for the purposes of providing summary results about family support for fiscal year 2016. To learn more about how the Services implement their EFMPs, we visited seven installations in five states. We selected the seven installations based on their location in states with the largest number of military- connected students in school year 2012-2013 (the most recent available and reliable data) or in states with the largest percentage of students enrolled in U.S. DOD schools as of May 2017, as well as their status as a joint base. At each installation, we interviewed installation officials, EFMP managers, selected family support personnel, and family members and caregivers enrolled in the program. In states we visited that had the largest number of military-connected students, the EFMP personnel we interviewed collectively served 66 percent of students who attend local public schools and 42 percent of the students attending U.S. DOD schools. To obtain illustrative examples about how the EFMP serves families with special needs, we conducted seven group interviews with EFMP-enrolled family members and caregivers (one at each of the seven installations we visited). Using a prepared script, we asked participants to describe how they were identified and enrolled in the EFMP, how they were assigned to new installations, and the types of family support services they received. We also asked about how these services aligned with their family member’s EFMP-eligible condition, the benefits and challenges they experienced, as well as their overall satisfaction. A total of 38 self- selected volunteers participated in the seven group discussions. While the participants in these groups included a variety of family members and caregivers, the number of participants and groups were very small relative to the total number of family members enrolled in the EFMP. Their comments are not intended to represent all EFMP-enrolled family members or caregivers. Other EFMP-enrolled family members and caregivers may have had other experiences with the program during the same period. Finally, for both objectives, we conducted interviews with a variety of DOD, Service-level, and nonfederal officials. We spoke with DOD officials from the Office of the Assistant Secretary of Defense–Offices of Manpower and Reserve Affairs, Military Community and Family Policy, Military Family Readiness Policy, and Special Needs. We also spoke with EFMP Managers from Air Force, Army, Marine Corps, and Navy headquarters. We also met with officials from selected national military family advocacy organizations including the National Military Family Association; the Military Family Advisory Network; and the Military Officers Association of America to discuss the EFMP. We conducted this performance audit from February 2017 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Each Service has an Exceptional Family Member Program (EFMP) that provides support to military families with special needs. The tables below present the following information on selected EFMP and family support categories for each Service’s program at continental United States (CONUS) and outside the continental United States (OCONUS) installations in fiscal year 2016: City, state or country; Number of exceptional family members; Number of family support providers (by Full-Time Equivalent); Number of family support provider vacancies; Number of services plans; Number of indirect contacts; and Number of direct contacts. The information below is listed sequentially in alphabetical order by Service. We held small group discussions with Exceptional Family Member Program (EFMP) participants at the seven military installations we visited. Family members and caregivers who attended each session reported they had children or spouses with EFMP-eligible conditions. The discussion group participants were self-selected; and their comments are not intended to represent all EFMP -enrolled family members or caregivers in fiscal year 2016. In addition, other EFMP -enrolled family members and caregivers may have had different experiences with the program during the same period. There were a total of 38 participants representing all the Services. The following issues were discussed by one or more participants during the small group discussions at the installations we visited. The issues that emerged relate to the current and future overall effectiveness of the EFMP. Overall Satisfaction with EFMP (Discussed by 30 of 38 participants): Measure of participants’ approval of the family support services offered and experience with the EFMP. Many participants expressed overall satisfaction with the EFMP. Several participants expressed dissatisfaction with the EFMP. A participant expressed dissatisfaction with the lack of consistency in the provision of family support services (i.e., special education advocacy) across installations. School Liaison Officers (Discussed by 20 of 38 participants): Serve as the primary point of contact for school-related matters as well as assist military families with school issues. Several participants noted that they received no response to their request for assistance from their School Liaison Officer or they only received general information. Several participants said School Liaison Officers were not helpful. Some participants found School Liaison Officers were helpful. Some participants were unaware of School Liaison Officers being available at their installation and the service(s) they provide. A few participants said School Liaison Officers did not follow up on requests for information. A participant noted there seems to be a disconnect between family support services provided through the EFMP and services provided by School Liaison Officers. Family Support Personnel (Discussed by 12 of 38 participants): Provide information and referral to military families with special needs. Some participants at one installation noted that the EFMP was understaffed. Some participants at one installation noted high turnover of family support personnel. Some participants noted family support personnel did not provide support for their family with special needs. Stigma (Discussed by 12 of 38 participants): A perception that participating in the EFMP may limit a soldier’s assignment opportunities and/or compromise career advancement. Several participants believe there is still stigma associated with participating in the EFMP. Some participants said participating in the EFMP has not affected career advancement. Assignment Coordination (Discussed by 10 of 38 participants): The assignment of military personnel in a manner consistent with the needs of armed forces that considers locations where care and support for family members with special needs are available. Some participants found the assignment coordination process challenging. Some participants described limitations with the assignment coordination process. A few participants noted there is a lack of information among families with special needs regarding how to express the need for stabilization and /or continuity of care. A few participants cited the challenges of assignment coordination as contributing to their decision to retire. One participant commented that the opinion of a medical professional was not reflected in the assignment coordination process. Special Education Services (Discussed by 10 of 38 participants): The provision of staff capable of assisting families with special needs with special education and disability law advice and/or assistance and attendance at individualized education program (IEP) meetings where appropriate. Several participants who had a family support provider assist them with preparing for or attending a school-based meeting, including IEP meetings, spoke positively of their experience(s). Some participants at one installation agreed that assistance from family support providers during meetings with school officials regarding special education services is helpful. A few participants who were unable to get assistance with special education services from the EFMP sought the services of private attorneys at their own expense. Family Support Services (Discussed by 9 of 38 participants): The non-clinical case management delivery of information and referral for families with special needs, including the development and maintenance of a services plan. Some participants found that family support providers were helpful. Some participants could not identify needed resources or were unaware of the resources or services available to them. One participant noted that the family support provider had minimal contact. One participant said navigating the system can be challenging. Surveys (Discussed by 8 of 38 participants): The process of collecting data from a respondent using a structured instrument and survey method to ensure the accurate collection of data. Several participants noted that they had not or rarely had the opportunity to evaluate the family support services provided through the EFMP. One participant noted that comment cards used by each service are not effective for evaluating the EFMP. Warm hand-off (Discussed by 6 of 38 participants): Assistance to identify needed supports or services and facilitating the initial contact or meeting with the next program. Many participants at one installation agreed that the warm hand-off process worked well for them. Several participants said they found the warm hand-off process helpful when moving from one installation to the next. Outreach (Discussed by 5 of 38 participants): Developing partnerships with military and civilian agencies and offices (local, state, and national), improving program awareness, providing information updates to families, and hosting and participating in EFMP family events. Some participants found it difficult to obtain information regarding the types of family support services that are available. A few participants noted that communications regarding the EFMP were not targeted to address their needs. A few participants noted communications regarding the EFMP are untimely, (e.g., newsletters not issued periodically). Joint Base Family Support Services (Discussed by 1 of 38 participants): Family support services provided by the lead Service of the Joint Base that is different from that of the servicemember enrolled in the EFMP. One participant said that using family support services on joint bases may pose a challenge as each Service has different rules and procedures and as a result provides different types of family support services. In addition to the contact named above, Bill MacBlane (Assistant Director), Brian Egger (Analyst-in-Charge), Patricia Donahue, Holly Dye, Robin Marion, James Rebbe, Shelia Thorpe, and Walter Vance made significant contributions to this report. Also contributing to this report were Lucas Alvarez, Bonnie Anderson, Connor Kincaid, Brian Lepore, Daniel Meyer, and Mimi Nguyen.	[ "Military families with special medical and educational needs face unique challenges because of their frequent moves. To help assist these families, DOD provides services plans, which document the support a family member requires. The National Defense Authorization Act for Fiscal Year 2017 included a provision for GAO to review the Services' EFMPs, including DOD's oversight of these programs. This report examines the extent to which (1) each Service provides family support and (2) the Services monitor and DOD evaluates assignment coordination and family support. GAO analyzed DOD and Service-specific EFMP guidance and documents; analyzed fiscal year 2016 EFMP data (the most recent available); visited seven military installations, selected for their large numbers of military-connected students; and interviewed officials responsible for implementing each Service's EFMP, as well as officials in OSN that administer DOD's EFM policy. The support provided to families with special needs through the Department of Defense's (DOD) Exceptional Family Member Program (EFMP) varies widely for each branch of Military Service. Federal law requires DOD's Office of Special Needs (OSN) to develop a uniform policy that includes requirements for (1) developing and updating a services plan for each family with special needs and (2) resources, such as staffing, to ensure an appropriate number of family support providers. OSN has developed such a policy, but DOD relies on each Service to determine its compliance with the policy. However, Army and Navy officials said they have not received feedback from OSN about the extent to which their Service-specific guidance complies. Federal internal control standards call for developing clear policies to achieve agency goals. In addition, DOD's most recent annual reports to Congress do not indicate the extent to which each Service provides services plans or allocates sufficient resources for family support providers. According to GAO's analysis, the Military Services have developed relatively few services plans, and there is wide variation in the number of family support providers employed, which raises questions about potential gaps in services for families with special needs (see table). Each Service uses various mechanisms to monitor how servicemembers are assigned to installations (assignment coordination) and obtain family support, but DOD has not established common performance measures to assess these activities. DOD has taken steps to better support families with special needs, according to the DOD officials GAO interviewed. For example, DOD established a working group to identify gaps in services. However, OSN officials said that DOD lacks common performance measures for assignment coordination and family support because the Services have not reached consensus on what those measures should be. In addition, OSN does not have a process to systematically evaluate the results of the Services' monitoring activities. Federal internal control standards call for assessing performance over time and evaluating the results of monitoring activities. Without establishing common performance measures and assessing monitoring activities, DOD will be unable to fully determine the effect of its efforts to better support families with special needs and the adequacy of the Services' EFMPs as required by federal law. GAO makes a total of three recommendations to DOD. DOD should assess and report to Congress on the extent to which each Service provides sufficient family support personnel and services plans, develop common performance metrics for assignment coordination and family support, and evaluate the results of the Services' monitoring activities. DOD agreed with these recommendations and plans to develop performance metrics for assignment coordination and develop plans to evaluate the Services' monitoring activities." ]	6,288	gov_report	en	null	83194d3e3da7860a5887ebb02d707d755797744545a1bb31
JWST is envisioned to be a large deployable space telescope, optimized for infrared observations, and the scientific successor to the aging Hubble Space Telescope. JWST is being designed for a 5-year mission to find the first stars, study planets in other solar systems to search for the building blocks of life elsewhere in the universe, and trace the evolution of galaxies from their beginning to their current formation. JWST is intended to operate in an orbit approximately 1.5 million kilometers—or 1 million miles—from the Earth. With a 6.5-meter primary mirror, JWST is expected to operate at about 100 times the sensitivity of the Hubble Space Telescope. JWST’s science instruments are designed to observe very faint infrared sources and therefore are required to operate at extremely cold temperatures. To help keep these instruments cold, a multi-layered tennis court-sized sunshield is being developed to protect the mirrors and instruments from the sun’s heat. The JWST project is divided into three major segments: the observatory segment, the ground segment, and the launch segment. When complete, the observatory segment of JWST is to include several elements (Optical Telescope Element (OTE), Integrated Science Instrument Module (ISIM), and spacecraft) and major subsystems (sunshield and cryocooler). The hardware configuration referred to as OTIS was created when the Optical Telescope Element and the Integrated Science Instrument Module were integrated. Additionally, JWST is dependent on software to deploy and control various components of the telescope, and to collect and transmit data back to Earth. The elements, major subsystems, and software are being developed through a mixture of NASA, contractor, and international partner efforts. See figure 1 for the elements and major subsystems of JWST and appendix 1 for more details, including a description of the elements, major subsystems, and JWST’s instruments. For the majority of work remaining, the JWST project is relying on two contractors: Northrop Grumman and the Association of Universities for Research in Astronomy’s Space Telescope Science Institute. Northrop Grumman plays the largest role, developing the sunshield, the Optical Telescope Element, the spacecraft, and the Mid-Infrared Instrument’s cryocooler, in addition to integrating and testing the observatory. Space Telescope Science Institute’s role includes soliciting and evaluating research proposals from the scientific community, and receiving and storing the scientific data collected, both of which are services that it currently provides for the Hubble Space Telescope. Additionally, the Institute is developing the ground system that manages and controls the telescope’s observations and will operate the observatory on behalf of NASA. JWST will be launched on an Ariane 5 rocket, provided by the European Space Agency. JWST depends on 22 deployment events—more than a typical science mission—to prepare the observatory for normal operations on orbit. For example, the sunshield and primary mirror are designed to fold and stow for launch and deploy once in space. Due to its large size, it is nearly impossible to perform deployment tests of the fully assembled observatory, so the verification of deployment elements is accomplished by a combination of lower level component tests in flight-simulated environments; ambient deployment tests for assembly, element, and observatory levels; and detailed analysis and simulations at various levels of assembly. We have previously found that complex development efforts like JWST face numerous risks and unforeseen technical challenges, which can often become apparent during integration and testing. To accommodate unanticipated challenges and manage risk, projects reserve extra time in their schedules, which is referred to as schedule reserve, and extra funds in their budgets, which is referred to as cost reserve. Schedule reserve is allocated to specific activities, elements, and major subsystems in the event of delays or to address unforeseen risks. Each JWST element and major subsystem has been allocated schedule reserve. When an element or major subsystem exhausts schedule reserve, it may begin to affect schedule reserve on other elements or major subsystems whose progress is dependent on prior work being finished for its activities to proceed. Cost reserves are additional funds within the project manager’s budget that can be used to address unanticipated issues for any element or major subsystem, and are used to mitigate issues during the development of a project. For example, cost reserves can be used to buy additional materials to replace a component or, if a project needs to preserve schedule reserve, reserves can be used to accelerate work by adding shifts to expedite manufacturing. NASA’s Goddard Space Flight Center— the NASA center with responsibility for managing JWST—has issued procedures that establish the requirements for cost and schedule reserves. In addition to cost reserves held by the project manager, management reserves are funds held by the contractors that allow them to manage program risks and to address unanticipated cost increases throughout development. We have previously found that management reserves should contain 10 percent or more of the cost to complete a project and are generally used to address various issues tied to the contract’s scope. NASA’s cost-plus-award-fee contract with Northrop Grumman has spanned almost two decades, during which there have been significant variances in contractor performance. Cost-reimbursement contracts are suitable when uncertainties in the scope of work or cost of services prevent the use of contract types in which prices are fixed, known as fixed-price contracts. Award fee contracts provide contractors the opportunity to obtain monetary incentives for performance in designated areas identified in the award fee plan. Award fees may be used when key elements of performance cannot be defined objectively, and, as such, require the project officials’ judgment to assess contractor performance. For JWST’s contract with Northrop Grumman, these areas include cost, schedule, technical, and business management and are established in the contracts’ performance evaluation plans. In December 2013, the JWST program and the contractor agreed to replace a $56 million on-orbit incentive—incentives based on successful performance in space—with award fees. The award fees are to incentivize cost and schedule performance during development. This shift increased the available award fee for the entire contract to almost a quarter of a billion dollars. According to officials, restructuring the incentives gave NASA more flexibility to incentivize the contractor to prioritize the cost and schedule performance over exceeding technical requirements. In December 2014, we found that NASA award fee letters of award fee periods from February 2013 to March 2014 indicated that the contractor had been responsive to interim award fee period criteria provided by NASA and that contractor officials confirmed that they pay close attention to this guidance in prioritizing their work. For example, Northrop Grumman officials reported that they had made specific changes to improve communications in direct response to this guidance, which was validated by award fee letters from NASA. The JWST program has a history of significant schedule delays and increases to project costs, which resulted in replans in 2011 and 2018. Before 2011, early technical and management challenges, contractor performance issues, low levels of cost reserves, and poorly phased funding caused the JWST program to delay work. As a result, the program experienced schedule overruns, including launch delays, and cost growth. The JWST program underwent a replan in September 2011, and a rebaseline in November of that same year, and Congress placed an $8 billion cap on the formulation and development costs for the project. On the basis of the replan, NASA rebaselined JWST with a life- cycle cost estimate of $8.835 billion, which included additional money for operations and a planned launch in October 2018. Congress also required that NASA treat any cost increase above the cap according to procedures established for projects that exceed their development cost estimates by at least 30 percent. This process is known as a rebaseline. Congress must authorize continuation of the JWST program if formulation and development costs increase over the $8 billion cost cap. In June 2018, after a series of launch delay announcements due to technical and workmanship issues identified during spacecraft element integration, NASA notified Congress that it had again revised the JWST program’s cost and schedule estimates. NASA estimated that it now required $828 million in additional resources and 29 more months to complete beyond those estimates agreed to in the 2011 rebaseline. As of November 2018, NASA had funding to continue to execute the program and was waiting to see if Congress would authorize the program’s continuation and appropriate funds for the program in fiscal year 2019. Figure 2 shows the project’s history of changes to its cost or schedule and key findings from two external independent review teams and our prior work. As discussed above, various technical and workmanship errors drove some of the more recent delays. Examples of some of the workmanship issues we found in the past include: In October 2015, the project reported that a piece of flight hardware for the sunshield’s mid-boom assembly was irreparably damaged during vacuum sealing in preparation for shipping. The damaged piece had to be remanufactured, which consumed 3 weeks of schedule reserve. In April 2017, a contractor technician applied too much voltage and irreparably damaged the spacecraft’s pressure transducers, components of the propulsion system that help monitor spacecraft fuel levels. The transducers had to be replaced and reattached in a complicated welding process. At the same time, Northrop Grumman also addressed several challenges with integrating sunshield hardware. These issues combined took up another 1.25 months of schedule reserve. In May 2017, some of the valves in the spacecraft propulsion system’s thruster modules were leaking beyond permissible levels. Northrop Grumman determined that the most likely cause was the use of an improper cleaning solution, and the thruster modules were returned to the vendor for investigation and refurbishment. Reattaching the refurbished modules was expected to be complete by February 2018, but was delayed by one month when a technician applied too much voltage to one of the components in a recently refurbished thruster module. NASA and Northrop Grumman reported that resolving the thruster module issue resulted in a 2-month delay to the project’s overall schedule. In October 2017, when conducting folding and deployment exercises on the sunshield, Northrop Grumman discovered several tears in the sunshield membrane layers. According to program officials, a workmanship error contributed to the tears. The tears resulted in another 2-month delay to the project’s overall schedule. In addition, some first-time efforts took longer than planned. For example, in fall 2017, the project determined that it would need to use up to 3 months of schedule reserve based upon lessons learned from the contractor’s initial sunshield folding operation. This first deployment, or unfolding, took 30 days longer than planned. The sunshield has since undergone another deployment, and will be deployed twice more before launch. The IRB took into account these technical and workmanship errors, as well as other considerations, when it analyzed the project’s organizational and technical issues. The board’s final report, issued in May 2018, included 31 recommendations that addressed a range of factors. For example, the IRB recommended that the project: Conduct an audit to identify potential embedded design flaws— problems that have not been detected through analysis, inspection, or test activities and pose a significant risk to JWST schedule, cost, and mission success; Establish corrective actions to detect and correct human mistakes during integration and test; Establish a coherent, agreed-upon, and factual narrative on project status and communicate that status regularly across to all relevant stakeholders; and Augment integration and test staff to ensure adequate long-term staffing and improve employee morale. In its response to the IRB’s report, NASA stated that it accepted the report’s recommendations and had already begun implementing action in response to many of them. Further, project officials told us that some of the actions were underway before the IRB completed its review. To develop a new schedule for JWST’s 2018 replan, NASA took into account the remaining integration and test work and added time to the schedule to address threats that were not yet mitigated. This includes 5.5 months to address an anomaly that occurred on the sunshield’s cover in 2018. The project also replenished its schedule reserves—which we found in February 2018 had been consumed—so that they now exceed the recommended levels. Both the project and IRB conducted schedule risk assessments that produced similar launch dates. The project relied on the replan schedule to determine its remaining costs because the workforce necessary to complete the observatory represents most of the remaining cost. Following is additional information on the schedule and cost considerations. Schedule: JWST’s revised launch readiness date of March 2021 reflects a consideration of the hardware integration and test challenges the project has experienced, including adding time to: Add snag guards for the membrane tensioning system—which helps deploy the sunshield and maintain its correct shape—to prevent excess cable from snagging, Repair tears of the sunshield membrane, Deploy, fold, and stow the sunshield, and Mitigate contractor schedule threats. In addition, the project added extra time to the schedule to complete repairs to the membrane cover assembly, which did not perform as expected during acoustics testing in April 2018. The membrane cover assembly shown in figure 3 is used to cover the sunshield membrane when in the stowed position to provide thermal protection during launch. After the anomaly occurred, the project halted spacecraft element testing, investigated the anomaly, and found that the fasteners had come loose due to a design change made to prevent the fasteners from damaging the sunshield membrane. The design change caused the nuts to not lock properly. According to project officials, due to the design of the membrane cover assembly, the project was not able to conduct flight-like, stand- alone testing on the cover prior to spacecraft element testing. As a result, the project did not discover the design issue until the hardware came loose while installed on the spacecraft element. The project determined that the repairs would take approximately 5.5 months. The project’s replan also reflected schedule reserves above the level required by Goddard Space Flight Center policy, which would have been approximately 5 months at that time. The new schedule includes a total of 293 days or 9.6 months of schedule reserves leading up to its committed launch readiness date of March 2021. NASA approved a JWST launch date of March 2021, but the project and the contractor are working toward a launch date in November 2020. Figure 4 shows the project’s new schedule following the 2018 replan, including how the project distributed its schedule reserves through different integration and test activities. As part of its May 2018 study, the IRB reviewed the project’s schedule and recommended a launch date of March 2021, which was subsequently reflected in NASA’s new schedule for the program. In reviewing the project’s schedule, the IRB found that the project had robust scheduling practices for ensuring that the schedule represented a complete and dynamic network of tasks that could respond automatically to changes. This schedule also passed a standard health check with minimal errors indicating that it was well constructed. However, the IRB noted that this schedule does not account for certain types of unknown risks to the program such as integration and test errors which can take many months to resolve, or the potential need to remove a science instrument from the observatory, which can have about a 1 year impact. As a result, the program could experience additional delays if a risk of this magnitude is realized. Cost: The project’s new $9.7 billion life-cycle cost estimate is principally driven by the schedule extension, which requires keeping the contractor’s workforce to complete integration and test longer than expected. Specifically, the project determined that almost all of the hardware had been delivered and the remaining cost was predominantly the cost for the workforce necessary to complete and test the observatory. For the past 3 years, we have reported that Northrop Grumman’s ability to decrease its workforce was central to JWST’s capacity to meet its long- term cost commitments. However, Northrop Grumman’s actual workforce continued to exceed its projections. This was because it needed to maintain higher workforce levels due to technical challenges, including problems with spacecraft and sunshield integration and test. It also needed to keep specialized engineers available when needed during final assembly and test activities. In developing the cost estimate supporting the 2018 replan, the project used a Northrop Grumman workforce profile that is higher than previous projections because Northrop Grumman now plans to maintain personnel longer during integration and test. According to project officials, the planned reduction of Northrop Grumman’s workforce is now more gradual and conservative than the prior plan. For example, the Northrop Grumman workforce will not start to significantly decline until the observatory ships to the launch site, which is expected to occur in August 2020. As shown in Figure 5, the JWST workforce assembling the observatory declines and the government and contractor workforce necessary to manage and operate the observatory remains after the internal launch readiness date of November 2020. As seen in the above figure, the Space Telescope Science Institute workforce, the contractor responsible for operating JWST, will remain generally flat between fiscal years 2021 to 2026 when it operates the observatory. The NASA civil service and support contractor will remain relatively flat through November 2020 launch date and then decline. In addition, the new cost estimate also took into account $61 million for implementing the IRB recommendations and mission success enhancements, funding for project cost reserves, and operations costs. In June 2018, the NASA associate administrator—who is the project’s decision authority—approved the project to proceed with its replan with a March 2021 launch date and $9.7 billion in life-cycle costs based on the Agency Program Management Council review and replan documents. The associate administrator did not require the project to conduct an updated Joint Cost and Schedule Confidence Level (JCL) analysis for this replan. A JCL is an integrated analysis of a project’s cost, schedule, risk, and uncertainty whose result indicates the probability of a project’s success of meeting cost and schedule targets. NASA policy states that a JCL should be recalculated and approved as a part of the rebaselining approval process, but it is not required. In its replan decision memo, NASA’s associate administrator explained that he did not require the project to update the JCL because project costs are almost entirely related to the workforce and most of the remaining planned activities will be performed generally in sequence. Therefore, according to NASA’s associate administrator, the total cost would be driven almost entirely by the schedule because the workforce levels will remain the same through delivery of the observatory. Both the project and independent estimators used multiple schedule estimating methods to analyze the schedule for the remaining work, and NASA’s associate administrator said these analyses returned consistent, high confidence launch dates. The project’s ability to execute to its new schedule will be tested as it progresses through the remainder of challenging integration and test work. The project has yet to complete three of five integration and test phases. The remaining phases include integration and test of OTIS, the spacecraft element, and the observatory. Our prior work has shown that integration and testing is the phase in which problems are most likely to be found and schedules tend to slip. For a uniquely complex project such as JWST, this risk is magnified as events start to become more sequential in nature. As a result, it will continue to become more difficult for the project to avoid schedule delays by mitigating issues in parallel. As of November 2018, the project is about a week behind its replanned schedule because repairs on the membrane cover assembly took longer than planned. Completing the membrane cover assembly repairs and returning the spacecraft to vibration testing was a key event for the project to demonstrate that it could execute to its new schedule. When the project developed its 2018 replanned schedule, it had planned to complete the membrane cover assembly repairs and reinstall the assembly onto the sunshield and restart spacecraft element integration and test activities by November 6, 2018. The project allocated 4 weeks of schedule reserves specifically for these repairs. However, the membrane cover repairs proved more difficult than anticipated. For example, the program had to address unanticipated technical challenges on the membrane cover assemblies, including repairing tears and pin holes in the covers discovered after the covers were removed. The project also had to allot time to install bumpers, which are kapton tubes, to the assembly to protect the composite material on a sunshield structure during launch. The project identified the need to add the bumpers during subassembly vibration testing. As a result, as of November 2018, the project had used about 4.5 weeks of schedule reserves to cover delays associated with these activities. The use of reserves beyond what the project had planned for the repairs pushed the restart of spacecraft element integration and test activities out about a week to November 14, 2018. Figure 6 compares the project’s initial membrane cover assembly schedule in June 2018 to the actual schedule in November 2018. While the project repaired the membrane cover assembly, it also used this time to conduct risk mitigation activities on OTIS. For example, the project worked to mitigate a design issue on the frill connections. The frill is composed of a single layer of blankets placed around the outside of the primary mirror used to block stray light (see figure 7). A combination of modeling and inspections revealed that most of the frill sections did not have as much slack as expected at the near-absolute zero cryogenic temperatures of space. This caused shrinkage that put stress on the edges of the outer ring of mirrors, which could affect the stability of the optical mirror and image quality. The project loosened these outer connections by adding a ring to the connecting points. As of November 2018, project officials said they were in the process of verifying the fix through inspections. Examples of technical issues and risks that the project continues to face during the remaining phases of integration and test include: The project is working to mitigate a design issue on the sunshield membrane tensioning system—which helps deploy the sunshield and maintain its correct shape. In our February 2018 report, we found that Northrop Grumman was planning to modify the design of the membrane tensioning system after one of the sunshield’s six membrane tensioning systems experienced a snag when conducting folding and deployment exercises on the sunshield in October 2017. The project and Northrop Grumman determined that a design modification was necessary to fully mitigate the issue, which includes modifying clips used to progressively release the cable tension and adding guards to control the excess cable. The project identified a concern that the depressurization of trapped air in the folded sunshield membrane when the fairing separates to release the JWST observatory may overly stress the membrane material. The project is working with Arianespace—the company responsible for operating JWST’s launch vehicle—and experts at the Kennedy Space Center to resolve this concern. Officials estimated that a design solution would be in place in mid-2019. However, if the project determines that it needs to reinforce the membrane covers to survive excessive residual pressure as it works on this design solution, a multi-month schedule delay could occur. As of November 2018, the project has mitigated 21 of its 47 hardware and software risks to acceptable levels, and reviews these risks monthly for any changes that might affect the continued acceptability of the risk. Five of these 21 risks are related to the project’s more than 300 potential single point failures—several of which are related to the deployment of the sunshield. The project is actively working to mitigate the remaining 26 risks to acceptable levels or closure prior to launching. The project also has several first-time and challenging integration and test activities remaining. For example, the project must integrate OTIS and the completed spacecraft element and test the full observatory in the final integration phase, which includes another set of challenging environmental tests. See figure 8 for an image of OTIS and the spacecraft element prior to being integrated. As previously discussed, the project also has two remaining deployments of the sunshield, and prior deployments have taken longer than planned. To help mitigate the risks associated with the deployments, the project added additional time for deployments in the 2018 replanned schedule based on lessons learned from prior deployments. The two remaining deployments are to occur after spacecraft element integration and test and again after observatory integration and test. The JWST project office is required to evaluate whether the project can complete development within its revised cost and schedule commitments at its next major review—the system integration review—planned for August 2019. This review is to occur after the project has completed two major tasks—OTIS and spacecraft element integration and test. The review is to evaluate whether the project (1) is ready to enter observatory integration and test, and (2) can complete remaining project development with acceptable risk and within its cost and schedule constraints. NASA guidance does not require projects to conduct a JCL at this review. However, project officials said that they plan to conduct another schedule risk analysis in the future. They do not intend to complete a new JCL for the same reasons they did not complete one for the 2018 replan— because costs are almost entirely related to the workforce and can be derived from a schedule that takes into account known risk. While not required, conducting a JCL prior to the system integration review would inform NASA about the probability of meeting both its cost and schedule commitments. If the project proceeds with its plan to conduct only a schedule risk analysis, NASA would be provided only with an updated probability of meeting its schedule commitments. Our cost estimating best practices recommend that cost estimates should be updated to reflect changes to a program or kept current as it moves through milestones and as new risks emerge. In addition, government and industry cost and schedule experts we spoke with noted that integration and testing is a critical time for a project when problems can develop. These experts told us that completing a JCL is a best practice for analyzing major risks at the most uncertain part of project execution. Conducting a JCL at system integration review—a review that occurs during the riskiest phase of development, the integration and test phase— would allow the project to update its assumptions of risk and uncertainty based on its experiences in OTIS and spacecraft element integration and test. The project could then determine how those updated assumptions affect overall cost and schedule for the JWST project. As noted above, the project has many risks to mitigate, technical challenges to overcome, and challenging test events to complete, which could affect the project’s schedule and risk posture. Further, the project has an established history of significant cost growth and schedule delays. In its June 2018 letter notifying an appropriate congressional committee of its updated cost and schedule commitments, NASA acknowledged that recent cost growth for the project will likely impact other science missions. Conducting a JCL at system integration review would provide NASA and Congress with critical information for making informed resource decisions on the JWST project and its affordability within NASA’s portfolio of projects more broadly. NASA has taken steps to augment oversight of the contractor and project following the discovery of the embedded design flaws and workmanship errors that contributed to the project’s most recent schedule delays and cost increases. See table 1 for examples of changes NASA has made to contractor and project oversight—some of which NASA self-identified and others that were in response to IRB recommendations. The IRB made 31 recommendations that ranged from improving employee morale to improving security during transporting JWST to its launch site. NASA has also used award fees to try to incentivize Northrop Grumman to improve its performance. In a July 2018 hearing on the JWST program before the House Science, Space, and Technology Committee, Administrator Bridenstine stated that NASA had reduced the available award fee through commissioning by $28 million out of a total of about $60 million. Northrop Grumman also did not earn its full award fee in the two most recent periods of performance that NASA assessed. For the performance period of April 1, 2017 to September 30, 2017, Northrop Grumman earned approximately 56 percent of the available award fee. Reasons that NASA cited for its evaluation of award fees in this period included workmanship errors on the propulsion system, schedule delays, as well as issues with schedule execution, management, and quality control. For the period of October 1, 2017 to March 31, 2018, Northrop Grumman earned none of the available award fee. Northrop Grumman’s overall score was driven by an “unacceptable” rating in schedule and cost due to delays and in anticipation of exceeding the project’s $8 billion cost cap. Northrop Grumman received an “excellent” rating under the technical category, but the evaluation noted ongoing issues with quality controls, which resulted in delays. For example, the process steps for applying voltage to the spacecraft’s pressure transducers were not clear enough, which resulted in technician error and irreparable damage to the hardware. According to Northrop Grumman officials, the contractor has started to take action to try to improve its quality assurance processes. Officials described actions that ranged from rewriting hardware integration and test procedures to starting efforts to change aspects of the company’s culture that contributed to quality control issues. For example, in July 2018, Northrop Grumman initiated a JWST mission assurance culture change campaign to increase focus on product quality and process compliance. This effort includes having inspectors affirm by signature that they have personally inspected, verified, and confirmed that all aspects of an activity meet quality standards. According to the form instructions, if the inspector is uncertain on compliance or if instructions are unclear, workers are to halt work, investigate and assess the situation, and request help to resolve the situation. Project and Northrop Grumman officials provided an example of these changes working. During a manual deployment of a radiator panel, a Northrop Grumman employee discovered that a flap used as thermal protection for a radiator was installed incorrectly and reported the error. Northrop Grumman technicians found that this flap had been swapped with another flap in the process of moving them to be installed and corrected the problem before work proceeded. Further, NASA and Northrop Grumman are conducting audits to try to minimize the risk of failures during the remaining phases of integration and test. These audits are conducted on items that have not been fully tested, are in workmanship-sensitive areas, or have had a late design change. The first phase of the audit was completed in September 2018 and found no major design issues or hardware rework required. The project plans to audit other areas through at least spring 2019, but will add audits if needed. The JWST oversight structure includes a number of positions that could be responsible for ensuring that the recent augmentations to contractor and project oversight are sustained through launch (see table 2). In response to our review, NASA officials clarified that the project manager has sole responsibility for ensuring that these improvements are sustained through launch. Further, these officials stated that the project office is responsible for monitoring these changes at the project level and at Northrop Grumman. The project manager’s continued focus on these efforts will be important because: The project is implementing a wide span of improvement efforts, ranging from more on-site coverage at the contractor facility to cultural improvements, which will now need to be sustained for an additional 29 months. The project has had recurring issues with effective internal and external communication as well as defining key management and oversight responsibilities, both of which are important to sustaining oversight. For example, the Independent Comprehensive Review Panel identified communication problems—between the JWST project and Science Mission Directorate management as well as between NASA and Northrop Grumman—and that the project’s governance structure lacked clear lines of authority and accountability. In December 2012, we found the JWST project had taken several steps to improve communication—such as instituting meetings that include various levels of NASA, contractor, and subcontractor management— but the IRB’s findings in 2018 indicate that communication and governance issues have resurfaced in some areas. For example, the IRB found that communication with key stakeholders including the science community, Congress, and NASA leadership, has been variable and at times inconsistent. The project may encounter new schedule pressures as it proceeds through integration and test. A senior NASA official with expertise in workmanship issues told us that schedule pressure is a key reason for increased quality problems on projects. For example, this official said that companies tend to give experts leniency to operate without the burden of quality assurance paperwork when schedule pressures arise, which can lead to workmanship errors. While JWST project officials told us they do not view this as applicable to their project, the perspective regarding potential schedule pressures and workmanship is important to keep focus on given the magnitude of technical challenges and delays the project has faced. We will continue to monitor the project’s efforts at maintaining these oversight augmentations in future reviews, given that less than a year has passed since the project began implementing many of them. Moreover, the project may find that some actions will be required of officials outside the project, particularly since the communication problems identified by the IRB may well extend to headquarters’ interaction with stakeholders from the science community, industry, and the Congress. JWST is one of NASA’s most expensive and complex science projects, and NASA has invested considerable time and resources on it. The project first established its cost and schedule baseline in 2009. Since then, the project made progress by completing two of five phases of integration and test, but has also experienced significant cost growth and schedule delays. However, the project did not complete a JCL analysis as part of its second replan. Between now and its system integration review planned for August 2019, the JWST program will have to continue to address technical challenges and mitigate risks. Conducting a JCL would better inform decision makers on the status of the project as they determine whether the project can complete remaining project development with acceptable risk and within its cost and schedule constraints. Given the project is now on its third iteration of cost and schedule commitments, conducting a JCL is a small step that NASA can take to demonstrate it is on track to meet these new commitments. We are making the following recommendation to NASA: The NASA Administrator should direct the JWST project office to conduct a JCL prior to its system integration review. (Recommendation 1) We provided a draft of this report to NASA for comment. In written comments, NASA agreed with our recommendation. NASA expects to complete the JCL by September 2019, prior to the system integration review. The comments are reprinted in appendix II. NASA also provided technical comments, which have been addressed in the report, as appropriate. We are sending copies of this report to the appropriate congressional committees, the NASA Administrator, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions on matters discussed in this report, please contact me at (202) 512-4841 or chaplainc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. In addition to the contact named above, Molly Traci (Assistant Director), Karen Richey (Assistant Director), Jay Tallon (Assistant Director), Brian Bothwell, Daniel Emirkhanian, Laura Greifner, Erin Kennedy, Jose Ramos, Sylvia Schatz, Roxanna Sun, and Alyssa Weir made key contributions to this report.	[ "JWST, a large, deployable telescope, is one of NASA's most complex projects and top priorities. The project has delayed its planned launch three times since September 2017 due to problems discovered in testing. In June 2018, NASA approved new cost and schedule estimates for JWST. Since the project established its cost and schedule baselines in 2009, the project's costs have increased by 95 percent and the launch date has been moved back by 81 months. Conference Report No. 112-284, accompanying the Consolidated and Further Continuing Appropriations Act, 2012, included a provision for GAO to assess the project annually and report on its progress. This is the seventh report. This report assesses (1) the considerations NASA took into account when updating the project's cost and schedule commitments and (2) the extent to which NASA has taken steps to improve oversight and performance of JWST, among other issues. GAO reviewed relevant NASA policies, analyzed NASA and contractor data, and interviewed NASA and contractor officials. In June 2018, the National Aeronautics and Space Administration (NASA) revised the cost and schedule commitments for the James Webb Space Telescope (JWST) to reflect known technical challenges, as well as provide additional time to address unanticipated challenges. For example, the revised launch readiness date of March 2021 included 5.5 months to address a design issue for the cover of the sunshield (see image). The purpose of the sunshield is to protect the telescope's mirrors and instruments from the sun's heat. NASA found that hardware on the cover came loose during testing in April 2018. The new cost estimate of $9.7 billion is driven by the schedule extension, which requires keeping the contractor's workforce on board longer than expected. Before the project enters its final phase of integration and test, it must conduct a review to determine if it can launch within its cost and schedule commitments. As part of this review, the project is not required to update its joint cost and schedule confidence level analysis—an analysis that provides the probability the project can meet its cost and schedule commitments—but government and industry cost and schedule experts have found it is a best practice to do so. Such analysis would provide NASA officials with better information to support decisions on allocating resources, especially in light of the project's recent cost and schedule growth. NASA has taken steps to improve oversight and performance of JWST, and identified the JWST project manager as responsible for monitoring the continued implementation of these changes. Examples of recent changes include increasing on-site presence at the contractor facility and conducting comprehensive audits of design processes. Sustaining focus on these changes through launch will be important if schedule pressures arise later and because of past challenges with communications. GAO will follow up on the project's monitoring of these improvements in future reviews. GAO recommends NASA update the project's joint cost and schedule confidence level analysis. NASA concurred with the recommendation made in this report." ]	5,967	gov_report	en	null	f17865b61a0db810e83eb6339a3f8676f648b3676fc7f317
The term child nutrition programs refers to several U.S. Department of Agriculture Food and Nutrition Service (USDA-FNS) programs that provide food to children in institutional settings. The largest are the National School Lunch Program (NSLP) and School Breakfast Program (SBP), which subsidize free, reduced-price, and full-price meals in participating schools. Also operating in schools, the Fresh Fruit and Vegetable Program provides funding for fruit and vegetable snacks in participating elementary schools, and the Special Milk Program provides support for milk in schools that do not participate in NSLP or SBP. Other child nutrition programs include the Child and Adult Care Food Program, which provides meals and snacks in child care and after-school settings, and the Summer Food Service Program, which provides food during the summer months. The child nutrition programs were last reauthorized by the Healthy, Hunger-Free Kids Act of 2010 (HHFKA, P.L. 111-296 ). On September 30, 2015, some of the authorities created or extended by the HHFKA expired. However, these expirations had a minimal impact on program operations, as the child nutrition programs have continued with funding provided by annual appropriations acts. In the 114 th Congress, lawmakers began but did not complete child nutrition reauthorization, which refers to the process of reauthorizing and potentially making changes to multiple permanent statutes—the Richard B. Russell National School Lunch Act, the Child Nutrition Act, and sometimes Section 32 of the Act of August 24, 1935. Both committees of jurisdiction—the Senate Committee on Agriculture, Nutrition, and Forestry and the House Committee on Education and the Workforce—reported reauthorization legislation ( S. 3136 and H.R. 5003 , respectively). This legislation died at the end of the 114 th Congress, as is the case for any bill that has not yet passed both chambers and been sent to the President at the end of a Congress. There were no significant child nutrition reauthorization efforts in the 115 th Congress; however, 2018 farm bill proposals and the final enacted bill included a few provisions related to child nutrition programs. The implementation of the HHFKA, child nutrition reauthorization efforts in the 114 th Congress, and the child nutrition-related topics raised during 2018 farm bill negotiations have raised issues that may be relevant for Congress in future reauthorization efforts or other policymaking opportunities. These issues often relate to the content and type of foods served in schools: for example, the nutritional quality of foods and whether foods are domestically sourced. Other issues relate to access, including alternatives to on-site consumption in summer meals and implementation of the Community Eligibility Provision, an option to provide free meals to all students in certain schools. Stakeholders in these issues commonly include school food authorities (SFAs; school food service departments that generally operate at the school district level), hunger and nutrition-focused advocacy organizations, and food industry organizations, among others. This report provides an overview of these and other current issues in the child nutrition programs. It does not cover every issue, but rather provides a high-level review of some recent issues raised by Congress and/or program stakeholders, drawing examples from legislative proposals in the 114 th and 115 th Congresses . References to CRS reports with more detailed information or analysis on specific issues are provided where applicable, including the following: For an overview of the structure and functions of the child nutrition programs, see CRS Report R43783, School Meals Programs and Other USDA Child Nutrition Programs: A Primer . For more information on the child nutrition reauthorization proposals in the 114 th Congress, see CRS Report R44373, Tracking the Next Child Nutrition Reauthorization: An Overview . For a summary of the HHFKA, see CRS Report R41354, Child Nutrition and WIC Reauthorization: P.L. 111-296 . School meals must meet certain requirements to be eligible for federal reimbursement, including nutritional requirements. These nutrition standards were last updated following the enactment of the HHFKA, which required USDA to update the standards for school meals and create new nutrition standards for "competitive" foods (e.g., foods sold in vending machines, a la carte lines, and snack bars) within a specified timeframe. Specifically, the law required USDA to issue proposed regulations for competitive foods nutrition standards within one year after enactment and for school meals nutrition standards within 18 months after enactment. The law also provided increased federal subsidies (6 cents per lunch) for schools meeting the new requirements and funding for technical assistance. The nutrition standards in the HHFKA were championed by a variety of organizations and stakeholders, including nutrition and public health advocacy organizations, food and beverage companies, school nutrition officials, retired military leaders, and then-First Lady Michelle Obama. The precise nutritional requirements were largely written in the subsequent regulations, not the HHFKA. USDA-FNS published the final rule for school meals in January 2012 and the final rule for competitive foods in July 2016. As required by law, the nutrition standards were based on the Dietary Guidelines for Americans and recommendations from the Institute of Medicine (now the Health and Medicine Division of the National Academies). For school meals, the updated standards increased the amount of fruits, vegetables, and whole grains in school lunches and breakfasts. They also instituted limits on calories, sodium, whole grains, and proteins in meals and restricted milk to low-fat (unflavored) and fat-free (flavored or unflavored) varieties. Other requirements included a provision that senior high school students must select a half-serving of fruits or vegetables with a reimbursable meal. Similarly, the nutrition standards for competitive foods limited calories, sodium, and fat in foods sold outside of meals, among other requirements. The standards applied only to non-meal foods and beverages sold during the school day (defined as midnight until 30 minutes after dismissal) and include some exceptions for fundraisers. The meal standards began phasing in during school year (SY) 2012-2013, and the competitive foods standards took effect in SY2014-2015. However, sodium limits and certain whole grain requirements for school meals were scheduled to phase in over multiple school years. Some schools experienced challenges implementing the changes, reporting difficulty obtaining whole grain and low-sodium products, issues with student acceptance of foods, reduced participation, increased costs, and increased food waste. These accounts were shared in news stories and by the School Nutrition Association (SNA), a national, nonprofit professional and advocacy organization representing school nutrition professionals. Studies by the U.S. Government Accountability Office and USDA confirmed that many of these issues were present in SY2012-2013 and SY2013-2014, the first two years of implementation. SNA advocated for certain changes to the standards, while other groups called for maintaining the standards, arguing that they were necessary for children's health and that implementation challenges were easing with time. In January 2014, USDA removed weekly limits on grains and protein. Then, in the FY2015, FY2016, and FY2017 appropriations laws, Congress enacted provisions that loosened the milk, whole grain, and/or sodium requirements from SY2015-2016 through SY2017-2018. USDA implemented similar changes for SY2018-2019 in an interim final rule. In December 2018, USDA published a final rule that indefinitely changes these three aspects of the standards starting in SY2019-2020. Specifically, the rule allows all SFAs to offer flavored, low-fat (1%) milk as part of school meals and as beverages sold in schools, and requires unflavored milk to be offered alongside flavored milk in school meals; requires SFAs to adhere to a 50% whole grain-rich requirement (the original regulations required 100% whole grain-rich starting in SY2014-2015); states may make exemptions to allow SFAs to offer nonwhole grain-rich products; and maintains Target 1 sodium limits from SY2019-2020 through SY2023-2024, implements Target 2 limits starting in SY2024-2025 and thereafter, and eliminates Target 3 limits (the strictest target). Table 2 provides a timeline from the 2012 final rule to the 2018 final rule, showing the ways in which milk, whole grain, and sodium requirements have been modified over time. Apart from these changes, the nutrition standards for school meals remain largely intact. The changes to the milk requirements also affect other beverages sold in schools; otherwise, the nutrition standards for competitive foods have not been changed substantially. Legislative proposals related to the nutrition standards were considered in the 115 th Congress. For example, the House-passed version of 2018 farm bill (one version of H.R. 2 ) would have required USDA to review and revise the nutrition standards for school meals and competitive foods. According to the bill, the revisions would have had to ensure that the standards, particularly those related to milk, "(1) are based on research based on school-age children; (2) do not add costs in addition to the reimbursements required to carry out the school lunch program … and (3) maintain healthy meals for students." This provision was not included in the enacted bill. Child nutrition reauthorization proposals in the House and Senate during the 114 th Congress also would have altered the nutrition standards. The House committee's proposal ( H.R. 5003 ) would have required USDA to review the school meal standards at least once every three years and revise them as necessary, following certain criteria. In addition, under the proposal, fundraisers by student groups/organizations would no longer have had to meet the competitive food standards and any foods served as part of a federally reimbursable meal would have been allowed to be sold a la carte. The Senate committee's proposal ( S. 3136 ) would have required USDA to revise the whole grain and sodium requirements for school meals within 90 days after enactment. Although not included in the proposal itself, negotiations between the Senate committee, the White House, USDA, and the School Nutrition Association resulted in an agreement that these revisions, if enacted, would have reduced the 100% whole grain-rich requirement to 80% and delayed the Target 2 sodium requirement for two years. Under current law, fruit and vegetable snacks served in FFVP must be fresh. According to USDA guidance, fresh refers to foods "in their natural state and without additives." In recent years, some have advocated for the inclusion of frozen, dried, canned, and other types of fruits and vegetables in the program, while others have advocated for continuing to maintain only fresh products. Stakeholders on both sides include agricultural producers and processors. The 2014 farm bill (Section 4214 of P.L. 113-79 ) funded a pilot project that incorporated canned, dried, and frozen (CDF) fruits and vegetables in FFVP in a limited number of states. USDA selected schools in four states (Alaska, Delaware, Kansas, and Maine) that reported difficulty obtaining, storing, and/or preparing fresh fruits and vegetables. According to the final (2017) evaluation, 56% of the pilot schools chose to incorporate CDF fruits and vegetables during an average week of the demonstration. Schools most often introduced dried and canned fruits, which resulted in decreased vegetable offerings and increased fruit offerings in the FFVP. However, there was no significant impact on students' vegetable consumption, while fruit consumption declined on FFVP snack days (likely because students consumed a smaller quantity of fruit when it was dried or canned). There was also no significant impact on student participation. Student satisfaction with FFVP decreased slightly during the pilot, parents' responses to the pilot were mixed, and school administrators (who opted into the pilot) generally favored the changes. Legislative proposals to change FFVP offerings on a more permanent basis have also been considered. For example, in the 115 th Congress, the House version of H.R. 2 would have allowed CDF and puréed forms of fruits and vegetables in FFVP and removed "fresh" from the program name. This provision was not included in the enacted bill. In the 114 th Congress, child nutrition reauthorization legislation in the House ( H.R. 5003 ) included a similar proposal to allow participating schools to serve "all forms" of fruits and vegetables as well as tree nuts. The Senate committee's proposal ( S. 3136 ) would have provided temporary hardship exemptions for schools with limited storage and preparation facilities or limited access to fresh fruits and vegetables that would have allowed them to serve CDF fruits and vegetables in FFVP. Such schools would have to transition to 100% fresh products over time. Schools participating in the National School Lunch Program (NSLP) and/or School Breakfast Program (SBP) must comply with federal requirements related to sourcing foods domestically. These requirements are outlined in the school meals programs' authorizing laws and clarified in USDA guidance. Under the Buy American requirements, schools participating in the NSLP and/or SBP in the 48 contiguous states must purchase "domestic commodities or products … to the maximum extent practicable." Statute defines "domestic commodities or products" as those that are both produced and processed substantially in the United States. Accompanying conference report language elaborated that "processed substantially" means the product is processed in the United States and contains over 51% domestically grown ingredients, and this definition is also included in USDA guidance (discussed below). USDA regulations essentially restate the statutory requirement. USDA has issued guidance on how SFAs and state agencies should implement the Buy American requirements. The most recent guidance (as of the date of this report) was published in a June 2017 memorandum. According to USDA-FNS guidance, the Buy American requirements apply to any foods purchased with funds from the nonprofit school food service account, whether or not they are federal funds (children's paid lunch fees, for example, also go into the nonprofit school food service account). The guidance encourages SFAs to integrate Buy American into their procurement processes; for example, by monitoring the USDA catalog for appropriate products and placing Buy American language in solicitations, contracts, and other procurement documents. The guidance explains that SFAs are permitted to make exceptions to the Buy American requirements on a limited basis when a product "is not produced or manufactured in the U.S. in sufficient and reasonably available quantities of a satisfactory quality" or when "competitive bids reveal the costs of a U.S. product are significantly higher than the non-domestic product." SFAs must interpret when this is the case and document any exceptions they make. SFAs may also request a waiver from the requirements for a product that does not meet these criteria. State agencies must review SFAs' compliance with the Buy American requirements, including any exceptions an SFA has made, and take corrective action when necessary. The enacted 2018 farm bill (Section 4207 of P.L. 115-334 ) included a provision requiring USDA to "enforce full compliance" with the Buy American requirements and "ensure that States and school food authorities fully understand their responsibilities" within 180 days of enactment. In addition, the bill requires USDA to submit a report to Congress by the 180-day deadline on actions taken and plans to comply with the provision. The provision clarifies the definition of domestic products for the purposes of USDA's enforcement, stating that domestic products are those that are "processed in the United States and substantially contain … meats, vegetables, fruits, and other agricultural commodities" produced in the United States, the District of Columbia, Puerto Rico, or any territory or possession of the United States, or "fish harvested" in the Exclusive Economic Zone or by a U.S.-flagged vessel. The provision in the enacted bill amended a related provision in the Senate-passed version of the farm bill. Proponents of stricter requirements have cited economic and food safety reasons for domestic sourcing and expressed particular concern over sourcing from China. Others have argued for maintaining or increasing schools' discretion in food procurement, arguing that high-quality domestic options are not always available or cost-effective. Under current law, summer meals are generally provided in "congregate" or group settings where children come to eat while supervised. These meals are provided through the Summer Food Service Program (SFSP) and the National School Lunch Program's Summer Seamless Option (SSO). In recent years, policymakers have weighed different proposals and tested alternatives to congregate meals in SFSP and SSO. Some of these alternatives focus on rural areas, which may face particular barriers to onsite consumption of summer meals. According to a May 2018 study by the U.S. Government Accountability Office, states commonly reported that reaching children in rural areas was "very" or "extremely" challenging in SFSP. The 2010 Agriculture Appropriations Act (Section 749(g) of P.L. 111-80 ) provided $85 million in discretionary funding for "demonstration projects to develop and test methods of providing access to food for children in urban and rural areas during the summer months." One of these is the Summer Electronic Benefit Transfer for Children (SEBTC or Summer EBT) project, which began in summer 2011 and has continued each summer since (as of the date of this report) in a limited number of states and Indian Tribal Organizations. The project provides electronic food benefits to households with children eligible for free or reduced-price school meals. Depending on the site and year, either $30 or $60 per month is provided on an electronic benefits transfer (EBT) card for the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) or Supplemental Nutrition Assistance Program (SNAP). Participants in jurisdictions providing benefits through SNAP can redeem benefits for SNAP-eligible foods at any SNAP-authorized retailer, while participants in the WIC EBT jurisdictions are limited to the smaller set of WIC-eligible foods at WIC-authorized retailers. An evaluation of Summer EBT was conducted from FY2011 through FY2013. The study, which used a random assignment design, found a significant decline in the prevalence of very low food security among participants (9.5% of control group children experienced very low food security compared to 6.4% in the Summer EBT group). It also showed improvements in children's consumption of fruits, vegetables, and whole grains. Both the WIC and SNAP models showed increased consumption, but increases were greater at sites operating the WIC model. Congress has provided subsequent funding for Summer EBT projects (see Table 3 ). Most recently, the third FY2019 Consolidated Appropriations Act ( P.L. 116-6 ) provided $28 million for the Summer EBT demonstration. Awardees for summer 2017 were Connecticut, Delaware, Michigan, Missouri, Nevada, Oregon, Virginia, and the Chickasaw and Cherokee nations. For summer 2018, USDA also awarded grants to Tennessee and Texas. Many of these jurisdictions participated in Summer EBT in previous summers as well. In October 2018, USDA-FNS announced a new strategy for determining grant recipients in FY2019, stating that the agency will prioritize new states that have not participated before, statewide projects, and projects that can operate in the summers of 2019 through 2021. There were proposals in the 114 th and 115 th Congresses to expand Summer EBT. For example, the Senate committee's child nutrition reauthorization proposal in the 114 th Congress ( S. 3136 ) would have allowed a portion of SFSP's mandatory funding to cover Summer EBT and authorized up to $50 million in discretionary funding for the program. In addition, in its FY2017 budget proposal, the Obama Administration recommended expansion of Summer EBT nationwide with a phase-in over 10 years. Freestanding bills in the 114 th and 115 th Congresses had similar objectives. Funding from the 2010 Agriculture Appropriations Act (Section 749(g) of P.L. 111-80 ) was also used for other demonstration projects. One of these, the Enhanced Summer Food Service Program (eSFSP), took place during the summers of 2010 through 2012 in eight states. It included four initiatives: (1) incentives for SFSP sites to lengthen operations to 40 or more days, (2) funding to add recreational or educational activities at meal sites, (3) meal delivery for children in rural areas, and (4) food backpacks that children could take home on weekends and holidays. Evaluations of eSFSP were published from 2011 to 2014. Summer meal participation rates rose during the demonstration periods for all four initiatives. In addition, children in the meal delivery and backpack demonstrations had consistent rates of food insecurity from summer to fall (this was not measured for the other initiatives). However, the results from these evaluations should be interpreted with caution due to a small sample size, the lack of a comparison group, and potential confounding factors. Another demonstration project, also operating under authority provided by the 2010 Agriculture Appropriations Act, provided exemptions from the congregate feeding requirement to SFSP and SSO outdoor meal sites experiencing excessive heat each summer since 2015 (as of the date of this report). Exempted sites must continue to serve children in congregate settings on days when heat is not excessive, and provide meals in another form (e.g., a take-home form) on days of excessive heat. USDA also offers exemptions on a case-by-case basis for other extreme weather conditions. This demonstration has not been evaluated. There were other proposals and hearings related to congregate feeding in SFSP in recent years. For example, in the 114 th Congress, committee-reported child nutrition reauthorization proposals in the Senate and the House ( S. 3136 and H.R. 5003 , respectively) would have enabled some rural meal sites to provide SFSP meals for consumption offsite. Specifically, both proposals would have allowed offsite consumption for children (1) in rural areas ( H.R. 5003 to a more limited extent than S. 3136 ) and (2) in nonrural areas in which more than 80% of students are certified as eligible for free or reduced-price meals. The bills would have also permitted congregate feeding sites to provide meals to be consumed offsite episodically under certain conditions such as extreme weather or public safety concerns. The HHFKA created the Community Eligibility Provision (CEP), an option to provide free meals (lunches and breakfasts) to all students in schools with high proportions of students who automatically qualify for free or reduced-price lunches. CEP became available to schools nationwide starting in SY2014-2015, and participation has increased since then. As of SY2016-2017, more than 20,700 schools participated in CEP, according to data from the Food Research and Action Center (FRAC), a nonprofit advocacy organization. This is roughly 22% of NSLP schools. Several groups have expressed support for CEP during its implementation, arguing that the provision improves access to meals, reduces stigma associated with receiving free or reduced-price meals, and reduces schools' administrative costs. Others have sought to change the option. For example, in the 114 th Congress, the House's committee-reported child nutrition reauthorization bill ( H.R. 5003 ) would have restricted schools' eligibility for CEP, which the committee majority argued was "to better target resources to those students in need, while also ensuring all students who are eligible for assistance continue to receive assistance." One secondary effect of CEP is that it has created data issues for other nonnutrition federal and state programs. Many programs, most notably the federal Title I-A program (the primary source of federal funding for elementary and secondary schools), use free and reduced-price lunch data to determine eligibility and/or funding allocations. These data come from school meal applications, which are no longer collected under CEP's automatic eligibility determination process. For more information on this issue, see CRS Report R44568, Overview of ESEA Title I-A and the School Meals' Community Eligibility Provision . Students may qualify for free meals, or they may have to pay for reduced-price or full-price meals. In recent years, the issue of students owing and not paying their meal costs, and schools' responses to such situations, has received increased attention. In many cases, schools serve students a regular meal, charging the unpaid meal cost and creating a debt that they may try to collect later from the family. In other cases, schools respond with what some have called "lunch shaming" practices—most commonly, taking or throwing away a student's selected hot foods and providing an alternative cold meal or, less commonly, barring children from participation in school events until debt is repaid or having children wear a visual indicator of meal debt (e.g., a stamp or sticker). Lunch shaming instances have largely been reported in news articles from different states, and there are limited national data available on the prevalence of such practices (available data are discussed in the text box below). Many school districts report that unpaid meal costs create a financial burden on their meal programs (see text box below for more detail). In addition to federal funds, student payments for full and reduced-price meals are a primary source of revenue for school food programs. Schools have an interest in collecting this revenue to help fund operations. Also, according to federal regulations, if schools are unable to recover unpaid meal funds, the money becomes "bad debt" and the school or school district must use other nonfederal funding sources to cover the costs. Starting in 2010, Congress and USDA have taken actions to address the issue of unpaid meal costs. Section 143 of the HHFKA required USDA to examine states' and school districts' policies and practices regarding unpaid meal charges. As part of the review, the law required USDA to "prepare a report on the feasibility of establishing national standards for meal charges and the provision of alternate meals" and, if applicable, make recommendations related to the implementation of the standards. The law also permitted USDA to take follow-up actions based on the findings from the report. USDA's subsequent Report to Congress in June 2016 ultimately did not recommend national standards, but instead recommended "clarifying and updating policy guidance on specific national policies impacting unpaid meal charges and facilitating the development and distribution of best practices to support decision making by States and localities." USDA-FNS followed up with a memorandum requiring SFAs to institute and communicate, by July 1, 2017, a written meal charge policy, which was to include instructions on how to address situations in which a child does not pay for a meal. USDA-FNS also provided clarification through webinars, other memoranda, and a best practice guide. In the Report to Congress, USDA stated that its recommendation was based on findings from a study published by USDA-FNS in March 2014 and a Request for Information (RFI) on "Unpaid Meal Charges" published by USDA-FNS in October 2014. The findings from both the study and the RFI—which garnered 462 comments—showed that meal charge policies were largely determined at the school and school district levels rather than the state level. The responses to the RFI also indicated that such policies ranged in formality, with varying degrees of review (e.g., some required school board approval while others did not) and enforcement. In the RFI comments, school and district officials generally expressed a preference for local control of meal charge policies, while national advocacy groups generally favored national standards. The topics of lunch shaming and unpaid meal costs also surfaced in the 115 th Congress. For example, a provision in the FY2018 appropriations law stated that funds appropriated in the law could not be used in ways that result in discrimination against children eligible for free or reduced-price meals, including the practices of segregating children and overtly identifying children by special tokens or tickets (note that this does not pertain to children paying for full-price meals). Legislative proposals in the 115 th Congress included the Anti-Lunch Shaming Act of 2017 ( H.R. 2401 / S. 1064 ), which sought to establish national standards for how schools treat children unable to pay for a meal. Unpaid meal costs and lunch shaming have also been active topics at the state level. In recent years, a number of states have enacted legislation aimed at addressing these issues. For example, in 2018, Illinois passed legislation that requires schools to serve a regular (reimbursable) meal to students who do not pay and allows school districts to request an offset from the state for debts exceeding $500. The HHFKA created new requirements related to schools' pricing of paid lunches (sometimes referred to as "paid lunch equity" requirements). Specifically, the law required all NSLP-participating SFAs to review their average price of paid lunches and, if necessary, gradually increase prices based on a formula. The law also gave SFAs the option to meet the requirements with specified nonfederal funding sources instead of raising prices. According to the Senate committee report on the HHFKA, the requirements were intended "to ensure that children receiving free and reduced price lunches receive the full value of federal funds." Prior to the paid lunch equity requirements, a USDA study found that federal subsidies for free and reduced-price lunches were cross-subsidizing other aspects of the meals programs, likely including paid lunches. This can occur because federal reimbursements for free, reduced-price, and paid lunches are all mixed into the same SFA-run "nonprofit school food service account" (NSFSA). Some observers argue, however, that raising prices may reduce participation in paid lunches. Under the paid lunch equity formula, the price per paid lunch must eventually match or exceed the difference between the federal reimbursements for free and paid lunches. If this is not the case, schools must increase prices over time until they make up the difference. For example, the federal reimbursement was $3.37 for free lunches and $0.37 for paid lunches SY2018-2019 for some schools. Under the requirements, if schools were not charging at least $3.00 per paid lunch, they would be required to increase the price of a paid lunch gradually, based on a formula, until they closed the gap (see Figure 1 ). Schools cannot be required to raise the price by more than 10 cents annually, but they may choose to do so. The HHFKA also included related requirements for revenue from "nonprogram" (i.e., competitive) foods. The law required that any revenue from nonprogram foods accrue to the SFA-run NSFSA. In practice, this prevents revenue from competitive foods from being used for other school purposes outside of food service. The law also required that, broadly speaking, revenue from nonprogram foods equal or exceed the costs of obtaining nonprogram foods (see the regulations for a specific formula). In June 2011, USDA-FNS published an interim final rule implementing the requirements starting in SY2011-2012, offering some flexibility for that first year. USDA subsequently provided certain exemptions through agency guidance for SY2013-2014 through SY2017-2018 for SFAs "in strong financial standing," as determined by state agencies based on different criteria. For SY2018-2019, the enacted FY2018 appropriation (Section 775 of P.L. 115-141 ) expanded the exemptions, requiring only SFAs with a negative balance in the NSFSA as of January 31, 2018, potentially to have to raise prices for paid meals. Other legislative proposals related to the paid lunch equity requirements were considered in recent Congresses. For example, the House committee's child nutrition reauthorization proposal in the 114 th Congress would have eliminated the requirements. The Senate committee's proposal would have replaced the requirements with a broader "non-federal revenue target," which could have come from household payments for full-price lunches or other state and local contributions. CACFP: Child and Adult Care Food Program CDF: Canned, dried, or frozen CEP: Community Eligibility Provision eSFSP: Enhanced Summer Food Service Program FFVP: Fresh Fruit and Vegetable Program HHFKA: Healthy, Hunger-Free Kids Act NSFSA: Nonprofit school food service account NSLP: National School Lunch Program SBP: School Breakfast Program SFA: School food authority SFSP : Summer Food Service Program SMP: Special Milk Program SSO: Summer Seamless Option Summer EBT or SEBTC : Summer Electronic Benefit Transfer for Children SY: school year USDA-FNS: U.S. Department of Agriculture Food and Nutrition Service	[ "The term child nutrition programs refers to several U.S. Department of Agriculture Food and Nutrition Service (USDA-FNS) programs that provide food for children in institutional settings. These include the school meals programs—the National School Lunch Program and School Breakfast Program—as well as the Child and Adult Care Food Program, Summer Food Service Program, Special Milk Program, and Fresh Fruit and Vegetable Program. The most recent child nutrition reauthorization, the Healthy, Hunger-Free Kids Act of 2010 (HHFKA; P.L. 111-296), made a number of changes to the child nutrition programs. In some cases, these changes spurred debate during the law's implementation, particularly in regard to updated nutrition standards for school meals and snacks. On September 30, 2015, some of the authorities created by the HHFKA expired. Efforts to reauthorize the child nutrition programs in the 114th Congress, while not completed, considered several related issues and prompted further discussion about the programs. There were no substantial reauthorization attempts in the 115th Congress. Current issues discussed in this report include the following: Nutrition standards for school meals and snacks. The HHFKA required USDA to update the nutrition standards for school meals and other foods sold in schools. USDA issued final rules on these standards in 2012 and 2016, respectively. Some schools had difficulty implementing the nutrition standards, and USDA and Congress have taken actions to change certain parts of the standards related to whole grains, sodium, and milk. Offerings in the Fresh Fruit and Vegetable Program (FFVP). There have been debates recently over whether the FFVP should include processed and preserved fruits and vegetables, including canned, dried, and frozen items. Currently, statute permits only fresh offerings. \"Buy American\" requirements for school meals. The school meals programs' authorizing laws require schools to source foods domestically, with some exceptions, under Buy American requirements. Efforts both to tighten and loosen these requirements have been made in recent years. The enacted 2018 farm bill (P.L. 115-334) instructed USDA to \"enforce full compliance\" with the Buy American requirements and report to Congress within 180 days of enactment. Congregate feeding in summer meals. Under current law, children must consume summer meals on-site. This is known as the \"congregate feeding\" requirement. Starting in 2010, Congress funded demonstration projects, including the Summer Electronic Benefit Transfer (EBT) demonstration, to test alternatives to congregate feeding in summer meals. Congress has increased funding for Summer EBT in recent appropriations cycles and there have been discussions about whether to continue or expand the program. Implementation of the Community Eligibility Provision (CEP). The HHFKA created CEP, an option for qualifying schools, groups of schools, and school districts to offer free meals to all students. Because income-based applications for school meals are no longer required in schools adopting CEP, its implementation has created data issues for federal and state programs relying on free and reduced-price lunch eligibility data. Unpaid meal costs and \"lunch shaming.\" The issue of students not paying for meals and schools' handling of these situations has received increasing attention. Some schools have adopted what some term as \"lunch shaming\" practices, including throwing away a student's selected hot meal and providing a cold meal alternative when a student does not pay. Congress and USDA have taken actions recently to reduce instances of student nonpayment and stigmatization. Paid lunch pricing. One result of new requirements in the HHFKA was price increases for paid (full price) lunches in many schools. Attempts have been made—some successfully—to loosen these \"paid lunch equity\" requirements in recent years." ]	5,157	gov_report	en	null	666d82617c32878d418693bdd0e7f4ff8716b26017869185
CSPF is a defined benefit multiemployer pension plan. Multiemployer plans are often created and maintained through collective bargaining agreements between labor unions and two or more employers, so that workers who move from job to job and employer to employer within an industry can continue to accrue pension benefits within the same plan over the course of their careers. Multiemployer plans are typically found in industries with many small employers such as trucking, building and construction, and retail food sales. In 2017, there were about 1,400 defined benefit multiemployer plans nationwide covering more than 10 million participants. Most multiemployer plans are jointly administered and governed by a board of trustees selected by labor and management. The labor union typically determines how the trustees representing labor are chosen and the contributing employers or an employer association typically determines how the trustees representing management are chosen. The trustees set the overall plan policy, direct plan activities, and set benefit levels (see fig. 1). Multiemployer plans are “prefunded,” or funded in advance, primarily by employer contributions. The employer contribution is generally negotiated through a collective bargaining agreement, and is often based on a dollar amount per hour worked by each employee covered by the agreement. Employer contributions are pooled in a trust fund for investment purposes, to pay benefits to retirees and their beneficiaries, and for administrative expenses. Multiemployer plan trustees typically decide how the trust fund should be invested to meet the plan’s objectives, but the trustees can use investment managers to determine how the trust fund should be invested. Multiemployer plan trust funds can be allocated among many different types of assets, any of which can generally be passively- or actively-managed, domestically or internationally based, or publicly or nonpublicly traded (see table 1). A plan’s funded percentage is its ratio of plan assets to plan liabilities. Because the amount needed to pay pension benefits for many years into the future cannot be known with certainty due to a variety of economic and demographic factors, including the potential volatility of asset values, estimates of a plan’s funded percentage may vary from year to year. Defined benefit pension plans use a “discount rate” to convert projected future benefits into their “present value.” The discount rate is the interest rate used to determine the current value of estimated future benefit payments and is an integral part of estimating a plan’s liabilities. The higher the discount rate, the lower the plan’s estimate of its liability. Multiemployer plans use an “assumed-return approach” that bases the discount rate on a long-term assumed average rate of return on the pension plan’s assets. Under this approach, the discount rate depends on the allocation of plan assets. For example, a reallocation of plan assets into more stocks and fewer bonds typically increases the discount rate, which reduces the estimated value of plan liabilities, and therefore, reduces the minimum amount of funding required. Looking at the entire “multiemployer system”—the aggregation of multiemployer plans governed by ERISA and insured by PBGC—shows that while the system was significantly underfunded around 2001 and 2009, its funded position has improved since 2009. Specifically, analyses published by the Center for Retirement Research at Boston College and the Society of Actuaries used plan regulatory filings to calculate the funded status for the system and determined that it was approaching 80 percent funded by 2014 after falling during the 2008 market downturn. However, some observers have noted that while many plans are making progress toward their minimum targets, a subset of plans face serious financial difficulties. Multiemployer retirement benefits are generally determined by the board of trustees. The bargaining parties negotiate a contribution rate and the trustees adopt or amend the plan’s benefit formulas and provisions. Decisions to increase benefits or change the plan are also typically made by the board of trustees. Benefit amounts are generally based on a worker’s years of service and either a flat dollar amount or the worker’s wage or salary history, subject to further adjustment based on the age of retirement. CSPF was established in 1955 to provide pension benefits to International Brotherhood of Teamsters union members (Teamsters) in the trucking industry, and it is one of the largest multiemployer plans. In the late 1970s, CSPF was the subject of investigations by the IRS within the U.S. Department of the Treasury (Treasury), and by DOL and the U.S. Department of Justice (DOJ). The DOL investigation ultimately resulted in the establishment of a federal court-enforceable consent decree in 1982 that remains in force today. CSPF held more than $4.3 billion in Net Assets at the end of 1982 after the consent decree was established. The plan’s Net Assets peaked at nearly $26.8 billion at the end of 2007 and declined to about $15.3 billion at the end of 2016 (see fig. 2). As of 2016, CSPF reported that it had about 1,400 contributing employers and almost 385,000 participants. The number of active CSPF participants has declined over time. In 2016, 16 percent of about 385,000 participants were active, i.e., still working in covered employment that resulted in employer contributions to the plan. In comparison, CSPF reported in 1982 that 69 percent of more than 466,000 participants were active participants. Since the 1980s, CSPF’s ratio of active to nonworking participants has declined more dramatically than the average for multiemployer plans. By 2015, only three of the plan’s 50 largest employers from 1980 still paid into the plan, and for each full-time active employee there were over five nonworking participants, mainly retirees. As a result, benefit payments to CSPF retirees have exceeded employer contributions in every year since 1984. Thus, CSPF has generally drawn down its investment assets. In 2016, CSPF withdrew over $2 billion from investment assets (see fig. 3.). CSPF has historically had fewer plan assets than were needed to fully fund the accrued liability—the difference referred to as unfunded liability. In 1982, we reported that CSPF was “thinly funded”—as the January 1, 1980, actuarial valuation report showed the plan’s unfunded liability was about $6 billion—and suggested that IRS should closely monitor CSPF’s financial status. In 2015, the plan’s actuary certified that the plan was in “critical and declining” status. The plan has been operating under an ERISA-required rehabilitation plan since March 25, 2008, which is expected to last indefinitely. As of January 1, 2017, the plan was funded to about 38 percent of its accrued liability. In September 2015, CSPF filed an application with Treasury seeking approval to reduce benefits pursuant to provisions in the Multiemployer Pension Reform Act of 2014 (MPRA), which is fully discussed later in this section. The application was denied in May 2016 based, in part, on Treasury’s determination that the plan’s proposed benefit suspensions were not reasonably estimated to allow the plan to remain solvent. In 2017, CSPF announced it would no longer be able to avoid the projected insolvency. (See app. II for a timeline of key events affecting CSPF.) As previously mentioned, CSPF was the subject of investigations in the 1970s by IRS, DOL, and DOJ. DOL’s investigation focused on numerous loan and investment practices alleged to constitute fiduciary breaches under ERISA, such as loans made to companies on the verge of bankruptcy, additional loans made to borrowers who had histories of delinquency, loans to borrowers to pay interest on outstanding loans that the fund recorded as interest income, and lack of controls over rental income. As a result of its investigation, DOL filed suit against the former trustees of CSPF and, in September 1982, the parties entered into a consent decree, which remains in force today. The consent decree provides measures intended to ensure that the plan complies with the requirements of ERISA, including providing for oversight by the court and DOL, and prescribes roles for multiple parties in its administration. For example, certain plan activities must be submitted to DOL for comment and to the court for approval, including new trustee approvals and some investment manager appointments. According to DOL, to prevent criminal influence from regaining a foothold of control over plan assets, the consent decree generally requires court-approved independent asset managers—called “named fiduciaries”—to manage CSPF’s investments. CSPF’s trustees are generally prohibited from managing assets; however, they remain responsible for selecting, subject to court approval, and overseeing named fiduciaries and monitoring plan performance. To focus attention on compliance with ERISA fiduciary responsibility provisions, the consent decree provides for a court-appointed independent special counsel with authority to observe plan activities and oversee and report on the plan. (See app. III for additional detail on the key provisions of the consent decree.) In 1974, Congress passed ERISA to protect the interests of participants and beneficiaries of private sector employee benefit plans. Among other things, ERISA requires plans to meet certain requirements and minimum standards. DOL, IRS, and PBGC are generally responsible for administering ERISA and related regulations. DOL has primary responsibility for administering and enforcing the fiduciary responsibility provisions under Part 4 of Title I of ERISA, which include the requirement that plan fiduciaries act prudently and in the sole interest of participants and beneficiaries. Treasury, specifically the IRS, is charged with determining whether a private sector pension plan qualifies for preferential tax treatment under the Internal Revenue Code. Additionally, the IRS is generally responsible for enforcing ERISA’s minimum funding requirements, among other things. ERISA generally requires that multiemployer plans meet minimum funding standards, which specify a funding target that must be met over a specified period of time. The funding target for such plans is measured based on assumptions as to future investment returns, rates of mortality, retirement ages, and other economic and demographic assumptions. Under the standards, a plan must collect a minimum level of contributions each year to show progress toward meeting its target, or the plan employers may be assessed excise taxes and owe the plan for missed contributions plus interest. Minimum contribution levels may vary from year to year due to a variety of economic and demographic factors, such as addressing differences between assumed investment returns and the plan’s actual investment returns. To protect retirees’ pension benefits in the event that plan sponsors are unable to pay plan benefits, PBGC was created by ERISA. PBGC is financed through mandatory insurance premiums paid by plans and plan sponsors, with premium rates set by law. PBGC operates two distinct insurance programs: one for multiemployer plans and another for single- employer plans. Each program has separate insurance funds and different benefit guarantee rules. The events that trigger PBGC intervention differ between multiemployer and single-employer plans. For multiemployer plans, the triggering event is plan insolvency, the point at which a plan begins to run out of money while not having sufficient assets to pay the full benefits that were originally promised when due. PBGC does not take over operations of an insolvent multiemployer plan; rather, it provides loan assistance to pay administrative expenses and benefits up to the PBGC-guaranteed level. According to PBGC, only once in its history has a financial assistance loan from the multiemployer pension insurance program been repaid. In 2017, PBGC provided financial assistance to 72 insolvent multiemployer plans for an aggregate amount of $141 million. For single-employer plans the triggering event is termination of an underfunded plan—generally, when the employer goes out of business or enters bankruptcy. When this happens, PBGC takes over the plan’s assets, administration, and payment of plan benefits (up to the statutory limit). The PBGC-guaranteed benefit amounts for multiemployer plans and the premiums assessed by PBGC to cover those benefit guarantees are significantly lower than those for single-employer plans. Each insured multiemployer plan pays flat-rate insurance premiums to PBGC based on the number of participants covered. The annual premium rate for plan years beginning in January 2017 was $28 per participant and it is adjusted annually based on the national average wage index. (See app. II for the PBGC premium rates that have been in effect since the consent decree was established in 1982.) When plans receive financial assistance, participants face a reduction in benefits. For example, using 2013 data, PBGC estimated 21 percent of more than 59,000 selected participants in insolvent multiemployer plans then receiving financial assistance from PBGC faced a benefit reduction. The proportion of participants facing reductions due to the statutory guarantee limits is expected to increase. About 51 percent of almost 20,000 selected participants in plans that PBGC believed would require future assistance were projected to face a benefit reduction. Since 2013, the deficit in PBGC’s multiemployer program has increased by nearly 700 percent, from a deficit of $8.3 billion at the end of fiscal year 2013 to $65.1 billion at the end of fiscal year 2017. PBGC estimated that at of the end of 2016, the present value of net new claims by multiemployer plans over the next 10 years would be about $24 billion, or approximately 20 percent higher than its 2015 projections. The program is projected to become insolvent within approximately 8 years. If that happens, participants who rely on PBGC guarantees will receive only a very small fraction of current statutory guarantees. According to PBGC, most participants would receive less than $2,000 a year and in many cases, much less. We have identified PBGC’s insurance programs as high-risk. This designation was made in part because multiemployer plans that are currently insolvent, or likely to become insolvent in the near future, represent a significant financial threat to the agency’s insurance program. We designated the single-employer program as high-risk in July 2003, and added the multiemployer program in January 2009. Both insurance programs remain on our high-risk list. Multiemployer Pension Plan Amendments Act of 1980 Among other things, the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) made employers liable for a share of unfunded plan benefits when they withdraw from a plan, unless otherwise relieved of their liability, and strengthened certain funding requirements. An employer that chooses to withdraw from a multiemployer plan may be required to continue to contribute if the plan does not have sufficient assets to cover the plan’s current and known future liabilities at the time the employer withdraws; however, these payments may not fully cover the withdrawing employer’s portion of the plan’s liabilities. In such cases, the employers remaining in the plan may effectively assume the remaining liability. The Pension Protection Act of 2006 The Pension Protection Act of 2006 (PPA) was intended to improve the funding of seriously underfunded multiemployer plans, among other things. It included provisions that require plans in poor financial health to take action to improve their financial condition over the long term and established two categories of troubled plans: (1) “endangered status” or “yellow zone” plans (this category also includes a sub-category of “seriously endangered”), and (2) more seriously troubled “critical status” or “red zone” plans. PPA further required plans in the endangered and critical zones to develop written plans to improve their financial condition, such as by revising benefit structures, increasing contributions, or both, within a prescribed time frame. Multiemployer plans in yellow or red zone status must document their remediation strategies in a written plan, notify plan participants, and report annually on whether scheduled progress has been made. Since the 2008 market decline, the number of participants in endangered and critical plans has generally been decreasing (see fig. 4). The Multiemployer Pension Reform Act of 2014 In response to the funding crisis facing PBGC and multiemployer pension plans, the Multiemployer Pension Reform Act of 2014 (MPRA) made changes to the multiemployer system that were intended to improve its financial condition. Key changes included: Creation of critical and declining status. MPRA created a new category, “critical and declining,” for plans in critical status projected to become insolvent during the current plan year or within any of the 14 succeeding plan years, or in certain circumstances, within any of the 19 succeeding plan years. In 2017, PBGC reported that more than 100 multiemployer plans (more than 7 percent of plans) representing approximately 1 million participants (about 10 percent of participants) have been determined to be “critical and declining.” Permitted reduction of accrued benefits. MPRA permits plans to reduce participants’ and beneficiaries’ accrued retirement benefits if the plan can demonstrate such action is necessary to remain solvent. Plans apply to Treasury for the authority to reduce benefits. Treasury, in consultation with PBGC and DOL, reviews the applications and determines whether the proposed changes would enable the plan to remain solvent. Increased PBGC premiums. MPRA also increased the PBGC premiums for multiemployer plans from $12 to $26 (per participant per plan year) in 2015 and from $26 to $28 in plan year 2017. The annual premium in subsequent years is indexed to changes in the national average wage index. Creation of new framework of rules for partition. Partition allows a multiemployer plan to split into two plans—the original and a successor. Partitions are intended to relieve stress on the original plan by transferring the benefits of some participants to a successor plan funded by PBGC and to help retain participant benefits in the plans at levels higher than the PBGC-guaranteed levels. At the time the consent decree was established in 1982, CSPF had less than half the estimated funds needed to cover plan liabilities (and to pay associated benefits over the lifetime of participants) and it has not attained 100 percent of its estimated funding need since then, according to regulatory filings. CSPF’s 1982 Form 5500 we reviewed shows that the plan was less than 40 percent funded prior to the consent decree becoming effective. Over the next two decades, the plan generally made progress toward achieving its targeted level of funding but was never more than 75 percent funded, and funding has generally deteriorated since its 2002 filing (see fig. 5). Overall, the plan’s unfunded liability increased by approximately $11.2 billion (in inflation-adjusted dollars) between January 1983 and January 2016. As a consequence, participant benefits were never fully secured by plan assets over this period, as measured by ERISA’s minimum funding standards, and the plan consistently needed to collect contributions in excess of those needed to fund new benefit accruals to try to make up for its underfunded status. CSPF officials and other stakeholders identified several factors that contributed to CSPF’s critical financial condition and reflect the challenges faced by many multiemployer plans. For example, like CSPF, many multiemployer plans have experienced financial difficulties due to a combination of investment losses and insufficient employer contributions. In addition to being underfunded prior to the consent decree going into effect, stakeholders identified other specific factors that contributed to CSPF’s critical financial condition, such as trends within the national trucking industry and its workforce, funding challenges and common investment practices of multiemployer plans, and the impact of market downturns on long-term investment performance. Stakeholders also described the effects of the 2007 withdrawal of a key employer, United Parcel Service (UPS), on CSPF’s critical financial condition. Stakeholders we interviewed said changes to the workforce, such as declining union membership rates and changes resulting from industry deregulation, affected CSPF and some other multiemployer plans by reducing the number of workers able to participate in their plans. While the multiemployer structure distributes bankruptcy risk across many employers, for any particular multiemployer plan employers are often concentrated in the same industry, making the plans vulnerable to industry- specific trends and risks. For example, stakeholders noted the impact that the Motor Carrier Act of 1980 had on the trucking industry. Specifically, deregulation of the trucking industry reduced government oversight and regulation over interstate trucking shipping rates. The trucking industry became increasingly dominated by nonunion trucking companies resulting in the bankruptcy of many unionized trucking companies, according to stakeholders. New trucking companies typically did not join multiemployer plans because their labor force was not unionized and this, coupled with the bankruptcy of many contributing employers, contributed to a decrease in active participant populations for many plans serving the industry. As the total number of active participants in a plan declines, the resources from which to collect employer contributions declines proportionally. Stakeholders also said these changes were unforeseeable. Limitations on a plan’s ability to increase contributions mean that a plan has less capacity to recover from an underfunded position or to make up for investment returns that fall short of expectations. A decline in the number of active workers can also accelerate plan “maturity,” as measured by the ratio of nonworking to working participants. Plan maturity has implications for a plan’s investment practices and the time frame over which the plan must be funded. According to PBGC’s data for the multiemployer plans it insures, there were approximately three active participants for every nonworking participant in 1980 (3:1); by 2014, the ratio was approximately one active worker for every two nonworking participants (1:2). Figure 6 shows the change in the percentages of active and nonworking participants for the multiemployer plans that PBGC insures. CSPF saw an even more dramatic change in its active to nonworking participant ratio from 1982 through 2015. In 1982, there were more than two active workers for every nonworking participant (2:1) and by 2016 that ratio had fallen to approximately one active worker for every five nonworking participants (1:5) (see fig. 7). Because CSPF’s contributing employers were largely trucking companies, stakeholders said this made the fund especially vulnerable to industry-wide shocks. Like the industry as a whole, CSPF was unable to attract new employers to replace exiting employers, in part because of the lack of new unionized employers. CSPF officials said that changes to the trucking industry and its workforce also led to other challenges for the plan. For example, contributions to the plan declined with the shrinking number of active workers. CSPF officials told us they could not significantly increase the contribution rate paid by remaining employers because of the financial hardship it would cause, and as a result, the plan’s ability to recover from its underfunded position was limited. CSPF officials said that this increased the plan’s reliance on investment returns to try to close the gap between its assets and liabilities. Stakeholders we interviewed cited challenges inherent in multiemployer plans’ funding and investment practices, and described how the challenges may have contributed to the critical financial condition of some plans, including CSPF. Stakeholders said that CSPF and many other multiemployer plans have been challenged by employer withdrawals. An employer withdrawal reduces the plan’s number of active worker participants, thereby reducing its contribution base and accelerating plan maturity. A withdrawing employer generally must pay a share of any unfunded benefits. Stakeholders identified several ways in which the withdrawal liability framework could result in a withdrawing employer underpaying its share of an unfunded liability. We have previously reported on the challenges associated with withdrawal liability, including: withdrawal liability assessments are often paid over time, and payment amounts are based on prior contribution rates rather than the employer’s actual withdrawal liability assessment. withdrawal liability payments are subject to a 20-year cap, regardless of whether an employer’s share of unfunded benefits has been fully paid within this 20-year timeframe; plans often did not collect some or all of the scheduled withdrawal liability payments because employers went bankrupt before completing their scheduled payments; and fears of withdrawal liability exposure increasing over time could be an incentive for participating employers to leave a plan and a disincentive for new employers to join a plan; Stakeholders we interviewed also added that the calculation used to determine withdrawal liability may use an investment return assumption that inherently transfers risk to the plan. When exiting employers do not pay their share of unfunded benefits, any remaining and future employers participating in the plan may effectively assume the unpaid share as a part of their own potential withdrawal liability as well as responsibility for the exiting employer’s “orphaned” participants. Participating employers may negotiate a withdrawal if they perceive a risk that the value of their potential withdrawal liability might grow significantly over time. In its MPRA application, CSPF cited employer withdrawals and bankruptcies as a significant challenge for the plan. CSPF reported that after deregulation, the number of contributing employers dropped by over 70 percent. While some of the drop could be due to the consolidation of trucking companies after deregulation, CSPF officials cited several cases in which employers went bankrupt or withdrew from the plan, which reduced the plan’s contribution base and accelerated its maturity. Additionally, when employers went bankrupt, they often did not pay their full withdrawal liability. For example, CSPF said two of its major contributing employers left the plan between 2001 and 2003, and left $290 million of more than $403 million in withdrawal liability unpaid after they went bankrupt. Stakeholders identified funding timeframes as a factor that contributed to the challenges facing many multiemployer plans, including CSPF. ERISA’s minimum funding standards have historically allowed multiemployer plans to amortize, or spread out the period of time for funding certain events, such as investment shortfalls and benefit improvements. For example, CSPF began a 40-year amortization of approximately $6.1 billion in underfunding on January 1, 1981, giving the plan until the end of 2021 to fully fund that amount. Longer amortization periods increase the risk of plan underfunding due to the number and magnitude of changes in the plan’s environment that may occur, such as a general decline in participants or deregulation of an industry. The Pension Protection Act of 2006 shortened amortization periods for single- employer plans to 7 years and the amortization periods for multiemployer plans to 15 years. Shorter amortization periods provide greater benefit security to plan participants by reducing an unfunded liability more rapidly. In addition, shorter amortization periods can be better aligned with the projected timing of benefit payments for a mature plan. However, shorter periods can be a source of hardship for plans with financially troubled contributing employers because they may require higher contributions. According to CSPF officials, CSPF requested and received an additional 10-year amortization extension from the IRS in 2005 after relating that contribution requirements could force participating employers into bankruptcy. One CSPF representative said an amortization extension can also help avoid subjecting the plan’s employers to IRS excise taxes for failing to make required minimum contributions. Stakeholders we interviewed said that certain common investment practices may have played a role in the critical financial condition of CSPF and other mature and declining plans. In general, multiemployer plans invest in portfolios that are expected, on average, to produce higher returns than a low-risk portfolio, such as one composed entirely of U.S. Treasury securities. Stakeholders also stated that these investment practices may have been too risky because returns can be more volatile, and the higher expected returns might not be achieved. In addition, the Congressional Budget Office has reported that if “plans had been required to fund their benefit liabilities—at the time those liabilities were accrued—with safer investments, such as bonds, the underfunding of multiemployer plans would have been far less significant and would pose less risk to PBGC and beneficiaries.” Stakeholders also told us that for mature plans like CSPF, these investment practices can pose further challenges. Mature plans, with fewer active employees, have less ability to recoup losses through increased contributions and have less time to recoup losses through investment returns before benefits must be paid. Market corrections, such as those that occurred in 2001 through 2002 and in 2008, can be particularly challenging to mature plans and their participants, especially if a mature plan is also significantly underfunded. Mature plans could mitigate these risks by investing more conservatively, however, the resulting lower expected returns from more conservative investing necessitates higher funding targets and contribution rates, which could be a hardship for employers in an industry with struggling employers. Alternatively, a plan that invests more conservatively may provide lower promised benefits to accommodate the level of contributions it can collect. Lower investment returns from a more conservative investment policy would cost employers more in contributions and could potentially result in employers leaving the plan. Further, investing in a conservative portfolio would be relatively unique among multiemployer plans, and stakeholders said plan managers may feel they are acting in a prudent fashion by investing similarly to their peers. Underfunded plans like CSPF may not see conservative investment as an option if they cannot raise the contributions necessary to fully fund their vested benefits. Officials from CSPF told us that, because they lacked the ability to significantly increase revenue or decrease accrued benefits, the named fiduciaries sought incrementally higher investment returns to meet funding thresholds required by the amortization extension they received in 2005. On the other hand, there are challenges associated with risk bearing investments. In our prior work, we reported that multiemployer plans generally develop an assumed average rate of investment return and use that assumption to determine funding targets, required contributions, and the potential cost of benefit improvements. Experts we interviewed for that report told us that using a portfolio’s expected return to value the cost of benefits increases the risk that insufficient assets could be on hand when needed. They also told us that using the portfolio’s expected return to calculate liabilities could incentivize plans to invest in riskier assets and to negotiate higher benefit levels because the higher returns expected from riskier portfolios can result in lower reported liabilities. Plan Terms Set through Collective Bargaining Stakeholders we interviewed said that plan terms, such as contribution rates, which are set through the collective bargaining process, can create an additional challenge for multiemployer plans. Employers in multiemployer plans generally are not required to contribute beyond what they have agreed to in collective bargaining, and these required employer contributions generally do not change during the term of a collective bargaining agreement. CSPF officials said that up until the early 2000s, plan officials did not request modifications to collective bargaining agreements, such as reallocating contribution dollars, to respond to adverse investment returns. Stakeholders highlighted the effects of market downturns on multiemployer plan assets as another contributing factor to CSPF’s critical financial condition and that of other multiemployer plans. Failure to achieve assumed returns has the effect of increasing unfunded liabilities. For the multiemployer system in aggregate, the average annual return on plan assets over the 2002 to 2014 period was about 6.1 percent, well short of typical assumed returns of 7.0 or 7.5 percent in 2002. Many multiemployer plans were especially impacted by the 2008 market downturn. PBGC estimated that from 2007 to 2009, the value of all multiemployer plan assets fell by approximately 24 percent, or $103 billion, after accounting for contributions to and payments from the plans. Although asset values recovered to some extent after 2009, some plans continued to be significantly underfunded, and stakeholders said this could be due to the contribution base not being sufficient to help recover from investment shortfalls. CSPF’s investment performance since 2000 has reflected performance similar to other multiemployer plans and the plan went from 73 percent funded in 2000 to about 38 percent funded in 2017. While the plan used an assumed rate of return of 7.5 to 8.0 percent per year between 2000 and 2014, our analysis of the plan’s regulatory filings shows that the plan’s weighted-average investment return over this period was about 4.9 percent per year. CSPF officials said the 2008 downturn significantly reduced CSPF’s assets and it was unable to sufficiently recoup those losses when the market rebounded in 2009. Plan assets declined from $26.8 billion at the beginning of 2008 to $17.4 billion at the beginning of 2009, with $7.5 billion of the decline attributable to investment losses. Despite reporting a 26 percent return on assets during 2009, CSPF had only $19.5 billion in assets at the end of 2009 because benefits and expenses exceeded the contributions it collected and because it had fewer assets generating returns for the plan. By the end of 2009, CSPF’s funding target was $35.9 billion but the fund had less than $20 billion that could be used to generate investment returns. If CSPF’s portfolio had returned 7.5 percent per year over the 2000-2014 period, instead of the approximately 4.9 percent we calculated, we estimate that the portfolio value would have exceeded $32.0 billion at the end of 2014, or 91 percent of its Actuarial Accrued Liability. In addition to the factors mentioned that affected many multiemployer plans, stakeholders we interviewed also noted the unique effect of the UPS withdrawal on CSPF. In 2007, UPS negotiated with the International Brotherhood of Teamsters for a withdrawal from CSPF and paid a withdrawal liability payment of $6.1 billion. This payment was invested just prior to the 2008 market downturn. Moreover, the loss of UPS, CSPF’s largest contributing employer, reduced the plan’s ability to collect needed contributions if the plan became more underfunded. A UPS official said that, following the market decline of 2001-2002, the company considered whether it should withdraw from all multiemployer plans because it did not want to be the sole contributing employer in any plan. According to this official, UPS considered the large number of UPS employees in CSPF and the plan’s demographics—such as an older population and fewer employers—in its decision to withdraw. CSPF officials said they did not want UPS to withdraw because its annual contributions accounted for about one-third of all contributions to the plan. CSPF officials also told us that, prior to the UPS withdrawal, they had expected the population of active UPS workers in the plan to grow over time. UPS’ withdrawal of 30 percent of CSPF’s active workers, in combination with the significant market downturn just after UPS withdrew, reflected the loss of working members and investment challenges on a large scale. Additionally, stakeholders noted that although each of the factors that contributed to CSPF’s critical financial condition individually is important, their interrelated nature also had a cumulative effect on the plan. Industry deregulation, declines in collective bargaining, and the plan’s significantly underfunded financial condition all impaired CSPF’s ability to maintain a population of active workers sufficient to supply its need for contributions when investment shortfalls developed. Given historical rules for plan funding and industry stresses, CSPF was unable to capture adequate funding from participating employers either before or after they withdrew from the plan. The plan’s financial condition was further impaired when long-term investment performance fell short of expectations. For an underfunded, mature plan such as CSPF, the cumulative effect of these factors was described by some stakeholders as too much for CSPF to overcome. There have been three distinct periods related to CSPF’s investment policy after the original consent decree took effect: the early period, from the consent decree’s effective date in September 1982 through October 1993, during which named fiduciaries set different investment policies and sold many of CSPF’s troubled assets—mostly real estate; a middle period from November 1993 through early 2017, during which CSPF’s investment policies were consistently weighted towards equities and its asset allocation varied, with notable equity allocation increases occurring from year-ends 1993-1995 and 2000-2002; and the current period, starting in January 2017, during which named fiduciaries and CSPF trustees are moving assets into fixed income ahead of insolvency. Appendix I has a detailed timeline that includes changes to CSPF’s investment policies since the consent decree was established in 1982. The original consent decree placed exclusive responsibility for controlling and managing the plan’s assets with an independent asset manager, called a named fiduciary. Additionally, the original consent decree prohibited CSPF trustees from managing assets or making investment decisions and gave a single named fiduciary the authority to set and change the plan’s investment objectives and policies, subject to court approval (see fig. 8). During this period, two successive named fiduciaries—first Equitable Life Assurance Society of the United States (Equitable) and then Morgan Stanley—set and executed the plan’s investment objectives using similar investment philosophies, but differing investment return goals and target asset allocations (see fig. 9). Both named fiduciaries planned to sell the plan’s troubled real estate assets from the pre-consent decree era. They also limited nonpublicly traded investments to 35 percent of the plan’s assets and set broad allocation targets for new real estate, fixed income, and equity assets. In 1984, Morgan Stanley considered a dedicated bond portfolio in its capacity as the plan’s named fiduciary, but after review, Morgan Stanley decided similar results could be obtained through other investment strategies. In executing these policies, the plan’s asset allocation varied from year to year. Starting in 1987 and in subsequent years during the early period, Morgan Stanley invested a majority of the plan’s assets in fixed income assets—more than half of which were passively managed—and all equity assets were allocated to domestic equity through 1992. By 1989, CSPF officials reported that nearly all troubled real estate assets had been sold and Morgan Stanley’s responsibilities and risk of potential fiduciary liability were reduced, permitting a concomitant reduction in fees paid to the named fiduciary (see fig. 10). During the middle period, CSPF’s investment policy was broad and consistently directed that asset allocations be weighted toward equities. In 1993, Morgan Stanley revised its investment policy statement for CSPF to eliminate asset allocation targets for each asset class and instead specified that the plan invest a majority of assets in equity or equity-type securities and no more than 25 percent in nonpublicly traded assets. After 1999, CSPF’s investment policy under other, successive named fiduciaries continued to be broad and generally specified that the plan should invest a majority of assets in equity or equity-type securities. Specifically J.P. Morgan’s and Northern Trust’s consecutive investment policies for part of the plan’s assets continued to specify that a majority of the plan’s assets be invested in equity or equity-type securities and no more than 15 percent be invested in nonpublicly traded assets. Goldman Sachs’ investment policy for another part of the plan’s assets did not specify asset allocation details but indicated slightly higher tolerance for risk in conjunction with its equity portfolio. CSPF trustees said that named fiduciaries considered investing in alternative assets, but instead chose to increase the plan’s allocation to equity assets. The named fiduciaries’ investment policies did not vary significantly over this period because CSPF officials said that the plan’s overarching investment objective of achieving full funding did not change, even though there were key changes to the plan’s investment management structure during this time period. Specifically, starting in 1999, the plan temporarily shifted to a dual named fiduciary structure and increased its use of passively-managed accounts—both described in detail below— changing the named fiduciary structure that had been in place since the original consent decree (see fig. 11). More specifically, the two key changes to the plan’s investment management structure were: A temporary shift to a dual named fiduciary structure. Effective in 1999, CSPF proposed and the court approved allocating plan assets between two named fiduciaries instead of one in order to diversify CSPF’s investment approach, among other things. Both named fiduciaries were in charge of setting and executing separate policies for plan assets they managed—called “Group A” and “Group B” assets—irrespective of the other named fiduciary’s allocations. During this time, the two named fiduciaries were J.P. Morgan/Northern Trust and Goldman Sachs. Specifically, J.P. Morgan was named fiduciary between 2000 and 2005 and Northern Trust between 2005 and 2007 for “Group A” assets. Goldman Sachs was named fiduciary for “Group B” assets between 2000 and 2010. In 2010, an investment consultant found the performance of two named fiduciaries under the dual named fiduciary structure had been similar and more expensive than it would be under a proposed move back to a single named fiduciary. Accordingly, CSPF officials proposed, and the court approved, consolidation of all assets allocated to named fiduciaries in August 2010, with Northern Trust as the plan’s single named fiduciary. An increased use of passively-managed accounts. Between 2003 and 2010, the portion of assets that named fiduciaries managed declined as the plan moved 50 percent of its assets into three passively-managed accounts. Specifically, in 2003, 20 percent of CSPF’s assets were transitioned into a passively-managed domestic fixed income account to lower the plan’s investment management fees. In addition, both of the named fiduciaries reported that they had not outperformed the industry index for the domestic fixed income assets they managed after they were approved as named fiduciaries in 1999 and 2000 through February 2003. Similarly, in 2007 and 2010, CSPF officials said that two more passively-managed accounts were created to further reduce plan fees. Specifically, in 2007, 20 percent of plan assets were moved into a passively-managed domestic equity account. Then, in 2010, an additional 10 percent of the plan’s assets were allocated to passively-managed accounts—5 percent were allocated to a new passively-managed international equity account and 5 percent were added to the passively-managed domestic equity account. CSPF officials and named fiduciary representatives also said that the plan’s investment policies did not change in response to a couple of the events that contributed to CSPF’s critical financial condition. For example, when UPS withdrew from the plan in December 2007, it paid $6.1 billion in a lump sum to fulfill its withdrawal liability. Consistent with the named fiduciaries’ investment policies during this time period, the majority of this withdrawal payment was invested in equity assets. Specifically, the court approved the UPS withdrawal liability payment to be allocated: $1 billion to Northern Trust to be invested primarily in short-term fixed income assets, $0.9 billion to the passively-managed domestic fixed income account, and $4.2 billion to partially fund the newly created passively- managed domestic equity account. As a result of the 2008 market downturn, the balance of each of CSPF’s accounts—Northern Trust’s named fiduciary account, the passively-managed domestic fixed income and domestic equity accounts, and Goldman Sachs’ named fiduciary account—declined because of investment losses or withdrawals from investment assets to pay benefits and expenses. Some of the declines in each account were reversed by investment gains in 2009. Although the changes made to CSPF’s investment management structure did not lead to investment policy changes during the middle period, they altered the process by which the policy was set and executed. In particular, trustee responsibilities in the policy process grew after CSPF trustees became responsible for developing investment policy statements and selecting and overseeing managers of the passively-managed accounts, subject to court approval. In addition, CSPF officials said the addition of passively-managed accounts between 2003 and 2010 had the effect of creating broad bounds within which the named fiduciary could set the plan’s asset allocation. For example, when the plan moved 20 percent of total plan assets into the passively-managed domestic fixed income account in 2003, this placed an upper bound on the plan’s total equity allocation at 80 percent. Similarly, since 2010 the 30 percent of total plan assets in passively-managed equity accounts has placed a lower bound on the plan’s total equity allocation at 30 percent (see fig. 12). Nevertheless, named fiduciaries maintained the largest role in setting and executing CSPF’s investment policy throughout the middle period. From 1993 to 2003, named fiduciaries managed all of the plan’s investment assets, and from 2003 to 2009, when the plan added two of the current passively-managed accounts, named fiduciaries still held the majority of the plan’s assets. It has only been since 2010 that the assets in passively-managed accounts equaled those managed by the named fiduciary. Furthermore, Northern Trust representatives said they considered the plan’s allocations to passively-managed accounts when developing the objectives and target asset allocations for the assets they managed. Northern Trust representatives also said they discussed the plan’s overall asset allocation with trustees, but the trustees, and ultimately the court, were responsible for the decision to move 50 percent of the plan’s assets into passively-managed accounts. After the 1993 policy change that specified the plan would invest a majority of assets in equity or equity-type securities, CSPF’s asset allocation changed significantly. For example, during the middle period the plan’s allocation to equities increased from 37 percent at the end of 1993 to 69 percent at the end of 2002, and its allocation to cash plus fixed income decreased from 63 percent at the end of 1993 to 27 percent at the end of 2002. In particular, Morgan Stanley increased the plan’s allocation to equity assets from 37 percent at the end of 1993 to 63 percent at the end of 1995, with the percentage in equities almost or above 50 percent through the end of 1999. From 1993 through 1999, Morgan Stanley generally decreased the plan’s allocation to fixed income assets and increased its allocation to international equity (reaching a high of about 28 percent of the plan’s assets in 1995), an asset class in which the plan had not previously invested (see fig. 13). After 1999, the plan’s asset allocation continued to be weighted towards equities. After the market downturn in 2001, CSPF trustees told us that J.P. Morgan and Goldman Sachs explicitly increased the equity allocation in an attempt to generate higher investment returns and increase the plan’s funded ratio—the plan’s overarching investment objective. Between 2000 and mid-2010, when the plan had two named fiduciaries, equity assets increased from about 58 percent at the end of 2000 to between 66 and 70 percent at the end of 2001 and each year thereafter until the end of 2009, mostly based on the named fiduciaries’ decisions to increase the plan’s allocation to domestic equity assets. When Northern Trust became the sole named fiduciary in 2010, the proportion of equity assets declined from almost 72 percent at the end of 2010 to almost 63 percent at the end of 2016. During this time, Northern Trust generally decreased the plan’s allocation to domestic equity assets, increased the allocation to actively-managed fixed income, and started investing in global infrastructure assets. Northern Trust representatives said CSPF’s recent portfolio had been kept relatively aggressive in an attempt to achieve the returns the plan would need to become fully funded while balancing risk (see fig. 14). CSPF’s deteriorating financial condition precipitated a recent investment policy change that will move plan assets into fixed income and cash equivalent investments ahead of projected insolvency. In early 2017, Northern Trust representatives revised the plan’s investment policy because they, in consultation with the trustees, believed the plan had no additional options to avoid insolvency (see textbox). This change to the plan’s outlook led to a significant change in the plan’s investment objective, from a goal of fully funding the plan to instead forestalling insolvency as long as possible while reducing the volatility of the plan’s funding. Northern Trust representatives and CSPF officials revised applicable plan investment policy statements and started to gradually transition the plan’s “return seeking assets”—such as equities and high yield and emerging markets debt—to high quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities. Northern Trust’s new investment policy specified the assets under its control would not be invested in nonpublicly traded securities, in order to manage risk and provide liquidity. CSPF Has Limited Options to Achieve Solvency As of March 2018, the Central States, Southeast and Southwest Areas Pension Fund (CSPF) was projected to be insolvent on January 1, 2025. As of July 2017, CSPF officials said that the following measures (in isolation) could help the plan avoid insolvency: 18 percent year-over-year investment returns (infinite horizon), or 250 percent contribution increases (with no employer attrition), or 46 percent across-the-board benefit cut. However, CSPF officials said that investment returns and contribution increases of these magnitudes were untenable, and CSPF’s application to reduce accrued benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) was denied in 2016. CSPF officials and Northern Trust representatives said these asset allocation changes are intended to provide participants greater certainty regarding their benefits and reduce the plan’s exposure to market risk and volatility until it is projected to become insolvent on January 1, 2025 (see fig. 15). Northern Trust is expected to continue to manage 50 percent of the plan’s investment assets until the plan becomes insolvent. While the total amount of assets in the passively-managed accounts will continue to constitute 50 percent of the plan’s assets, the trustees plan to transfer assets from the passively-managed domestic and international equity accounts into the passively-managed domestic fixed income account, which will be gradually transitioned to shorter-term or cash-equivalent fixed-income securities sometime before the end of March 2020 (see fig. 16). CSPF officials said the changes will reduce the amount of fees and transaction costs paid by the plan. Specifically, investment management fees are expected to generally decrease as the plan moves into shorter duration fixed income assets. In addition, Northern Trust’s plan is designed to reduce transaction costs in two ways: (1) in the near term, Northern Trust plans to liquidate “return-seeking assets” so the cash it receives can be used directly to pay benefits, and (2) it plans to synchronize the fund’s benefit payments with the maturity dates of fixed income assets it purchases so cash received can be used directly to pay benefits. Both of these design features are intended to eliminate the need to reinvest assets, which might entail additional transaction costs. Our analysis of available data from several different sources shows the returns on CSPF’s investments and the fees related to investment management and other plan administration activities appear generally in line with similar pension plans or other large institutional investors of similar size. The annual returns on CSPF’s investments in recent decades have generally been in line with the annual returns of a customized peer group provided by the investment consultant Wilshire. The comparison group data is from Wilshire’s Trust Universe Comparison Service (TUCS)—a tool used by CSPF to compare its investment returns to a group of peers. Over the 22 years covered by our analysis, CSPF’s returns were above the median in 12 years and below the median the other 10. Figure 17 illustrates how CSPF’s annual investment returns compare to CSPF’s customized peer group of master trusts with over $3 billion in assets. CSPF’s annual investment returns tended to fluctuate relative to the annual median of the TUCS peer group over the 1995 through 2016 period. For example, in 14 of the 22 years analyzed, its annual return was in the highest or lowest 25 percent of returns (7 years each). Further, in 3 years, its investment returns fell either within the top 5 percent of returns (1996, 2009) or bottom 5 percent (1998). In 8 of the 22 years, CSPF’s annual return was within the middle 50 percent of its TUCS peer group. The TUCS data we analyzed also included median portfolio allocations for the group of CSPF’s peers. Table 2 compares CSPF’s asset allocations for selected asset categories to the median allocations of its TUCS comparator group. In 1996, compared to the TUCS medians, CSPF had relatively lower proportions of its assets in both equities and fixed income and a relatively higher proportion in real estate. Twenty years later (2016), CSPF had relatively higher proportions of its assets in both equities and fixed income (about 15 and 7 percentage points, respectively) than the respective medians for its peer group. However, the relatively large difference between CSPF’s 2016 equity allocation and the median allocation of its peer group may be a result of the peers moving into different asset classes. For example, there is a relatively large difference, in the other direction, in the allocation to alternative investments (see table 2). We did not identify an alternative asset category in CSPF’s asset reports for 2016, but the TUCS comparator group median asset allocation in that year is 11.8 percent of assets. Similar to our findings when comparing the returns on CSPF’s investments to a customized peer group of other large institutional funds, the annual returns on CSPF’s investments in recent decades have also generally been in line with the annual returns for a group of similar multiemployer pension plans. To create a group of comparable plans, we selected plans that had a similar degree of “maturity” to CSPF in 2000, as such plans may face similar cash flow challenges to those facing CSPF. This comparator group ultimately consisted of 15 plans in addition to CSPF. Relative to less mature plans, mature plans generally have a greater proportion of liabilities attributable to retired participants receiving benefit payments and a lower proportion attributable to active participants (i.e., workers) earning benefits. Mature plans may have limited capacity to make up for insufficient investment returns through employer contributions. Similar to the comparison against other large institutional fund returns based on TUCS data, our comparison against other mature multiemployer plan returns based on Form 5500 data shows that CSPF’s annual returns fluctuate relative to the median annual return for the mature plan comparator group (see fig. 18). For example, in 12 of the 15 years, CSPF’s annual return was in the highest or lowest 25 percent of returns (7 times high and 5 times low). In 3 of the 15 years analyzed, CSPF’s annual return fell within the middle 50 percent of the peer group. Overall, from 2000 to 2014, CSPF’s annual return was above the group median return in 9 of the 15 years—and lower than the median return in the other 6 years. Relative to its peers, CSPF’s annual returns performed worst during economic downturns and best in years coming out of such downturns. CSPF’s annual investment return was in the bottom 10 percent of returns in 2001, 2002, and 2008. Alternatively, its annual return was in the top 10 percent of returns from 2003 to 2006, in 2009, and in 2012. Additionally, the dollar-weighted average annual return for CSPF over the 2000 through 2014 period was roughly the same as the median for the mature plan comparison group. Specifically, the dollar-weighted average annual return over this period for CSPF was roughly 4.9 percent, while the median dollar-weighted average annual return over this period among the comparison plans with continuous data was 4.8 percent. Our analysis of investment returns for mature plans compares investment returns for a set of peers that includes only multiemployer defined benefit plans. However, as with the comparison against other large institutional funds, the comparisons against other mature plans are not measures of over- or under-performance relative to an index or benchmark. Similarly, as with the earlier comparison, the analysis does not account for variations in the levels of investment risk taken by the plans. Our analysis of Form 5500 data shows CSPF’s investment fees and administrative expenses were in line with other large multiemployer plans. Plan investment fees and administrative expenses are often paid from plan assets so many plans seek to keep these fees and expenses low. Additionally, investment fees are likely to be related to the value of assets under management, and plans with greater asset values tend to be able to negotiate more advantageous fee rates. According to a pension consultant and a DOL publication, investment management fees are typically a large defined benefit plan’s largest category of expense, but a pension plan also incurs a number of lesser expenses related to administering the plan. Administrative expenses (other than investment fees) may include those for: audit and bookkeeping/accounting services; legal services to the plan (opinions, litigation and advice); administrative services provided by contractors; plan staff salaries and expenses; plan overhead and supplies; and other miscellaneous expenses. These administrative expenses relate to plan operations beyond the management of the assets, including the day-to-day expenses for basic administrative services such as participant services and record keeping. Furthermore, some of these expenses can vary based on the number of participants in the plan. To compare CSPF’s fees and expenses against similarly sized plans, we tallied various investment fee-related and other administrative expenses and compared CSPF to a group of multiemployer defined benefit plans that were among the 19 largest plans in terms of assets as of January 1, 2014. According to CSPF’s 2014 Form 5500, CSPF spent about $46.5 million on investment fees (or $47.6 million in 2016 dollars) and had about $17.4 billion in assets (or $17.8 billion in 2016 dollars) as of the end of the year—resulting in an investment fee expense ratio of about 27 basis points, or 0.27 percent. Over the 2000 to 2014 period, CSPF’s average annual investment fee expense ratio was 34 basis points (0.34 percent) while the median of the averages for our large plan comparison group was 37 basis points (0.37 percent). While CSPF’s average investment fee expense ratio was below the median for its comparison group over the period we examined, the relationship of CSPF’s annual ratio to the annual median changed over time. CSPF’s annual investment-fee expense ratio was consistently at or above the median from 2000 through 2006, but was below the median thereafter. In addition, CSPF’s average investment fee expenses over the period that followed 2006 were 26 percent less than the average over the period before 2007. (They averaged 39 basis points, or 0.39 percent, from 2000 through 2006 and 29 basis points, or 0.29 percent, from 2007 through 2014.) Two events may have contributed to this change. First, CSPF introduced the passively-managed accounts beginning in 2003—as noted earlier, and CSPF moved certain assets to those accounts in an effort to reduce fees. Second, the change back to a single named fiduciary, which was suggested as an expense saving move, occurred in the middle of the 2007 to 2014 period analyzed. Figure 19 illustrates how CSPF’s investment fee expense ratio compares to other large plans. Our analysis uses investment fee data reported in the Form 5500 that does not include details about the sources of the fees. Investment fees may be sensitive to a plan’s particular investment strategy and the way assets are allocated. For example, with CSPF, a named fiduciary has responsibility for executing the investment strategy and allocations. According to a representative from Northern Trust—the current named fiduciary—CSPF pays a fee of about 5 basis points for named fiduciary services, and this, combined with investment management fees, is in line with investment fees for other clients (though the overall fees depend on the types of asset allocations and investment strategies). Figure 20 shows how CSPF’s administrative (or non-investment) expenses compare to those of other large plans on a per participant basis. According to CSPF’s 2014 Form 5500, CSPF spent about $38 million on administrative expenses ($39 million in 2016 dollars)—the third most among the 20 peer plans. However, when these expenses are expressed relative to the number of plan participants, CSPF had per participant expenses of $98 in 2014, which is about 16 percent less than the median of the large comparator group, $117. Over the period studied, CSPF’s administrative expenses per participant were at or above the large comparator median in 3 years (2001, 2004, and 2005), but lower than the median in all other years of the 2000 to 2014 period. CSPF’s administrative expenses were also in line with a broader group of comparators. For example, PBGC reported on 2014 administrative expenses of a population of large multiemployer plans (plans with more than 5,000 participants). By closely replicating the methodology of that study, we found CSPF’s expenses of $98 per participant in 2014 fell below the median expense rate of $124 dollars per participant but above the lowest quartile of this group of large multiemployer plans. In comparing administrative expenses as a percentage of benefits paid, we found CSPF’s administrative expenses were among the lowest 5 percent of this group of large multiemployer plans. We performed a similar comparison against the peer group of large plans. CSPF had the lowest administrative expense rate among the large plan peer group in 2014, paying administrative expenses at a rate of 1.4 percent of benefits paid. In addition, CSPF’s annual administrative expenses as a percentage of benefits were below the median of our peer group of large plans in all years we reviewed. Our analysis of administrative expenses is highly summarized and does not account for possibly unique sources of administrative expenses. Plans may have unique organizational structures and attribute expenses differently. For example, one plan may contract a significant portion of administrative duties with a third-party, while another plan may administer the plan in-house. According to an actuary we interviewed, most multiemployer plans are administered by a third-party, but the plan’s in- house staff will still retain a number of duties. Additionally, the amount of individual administrative expenses could vary significantly by plan depending on the importance of the related administrative function in the plan’s organization. We provided a draft of the report to the U.S. Department of Labor, U.S. Department of the Treasury, and the Pension Benefit Guaranty Corporation for review and comment. We received technical comments from the U.S. Department of Labor and the Pension Benefit Guaranty Corporation, which we incorporated as appropriate. The U.S. Department of the Treasury provided no comments. We will send copies to the appropriate congressional committees, the Secretary of Labor, the Secretary of the Treasury, Director of the Pension Benefit Guaranty Corporation, and other interested parties. This report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao.gov or Frank Todisco at (202) 512-2700 or todiscof@gao.gov. Mr. Todisco meets the qualification standards of the American Academy of Actuaries to address the actuarial issues contained in this report. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV. Our objectives were to review: (1) what is known about the factors that contributed to the Central States, Southeast and Southwest Areas Pension Fund’s (CSPF) critical financial condition; (2) what has been CSPF’s investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how has CSPF performed over time, particularly compared to similar pension plans. For all objectives, we reviewed relevant federal laws and regulations, literature, and documentation the U.S. Department of Labor (DOL) and CSPF officials provided, including reports prepared by the court- appointed independent special counsel. We interviewed knowledgeable industry stakeholders, participant advocates, CSPF officials, International Brotherhood of Teamsters officials and members, and federal officials— including officials from the Pension Benefit Guaranty Corporation (PBGC), DOL, and the U.S. Department of the Treasury (Treasury). To describe the major factors that led to CSPF’s critical financial condition, we conducted semi-structured interviews and reviewed CSPF documentation, relevant scholarly materials, trade and industry articles, government reports, conference papers, research publications, and working papers. We also collected actuarial, financial, and other data on current and historical measures of plan assets, liabilities, investment performance, and other factors, and performed our own analyses of these data. The data and documentation collected were generally from the plan or agencies that oversee pensions. We determined the information to be generally reliable for the purposes of our objectives. To describe CSPF’s investment policy and the process by which it was set and executed we (1) reviewed CSPF’s investment policy statements, court orders and consent decree amendments, and other documentation provided by CSPF officials; (2) interviewed CSPF officials, including pension plan staff, the board of trustees, and the investment advisor, and representatives of the named fiduciary serving the plan at the time of our review; and (3) summarized certain aspects of CSPF’s assets using year- end performance reports prepared by the named fiduciaries. To describe how CSPF has performed over time compared to similar pension plans, we analyzed investment and fee data from DOL’s Form 5500, the government’s primary source of pension information. We also examined CSPF’s investment returns in comparison to a customized Wilshire Associates’ (Wilshire) Trust Universe Comparison Service (TUCS) benchmark of trusts with $3 billion or more in assets. CSPF provided these data and the data are included in the independent special counsel reports. Wilshire provided supplemental data using the same benchmark specifications. We reviewed three types of documentation provided by CSPF for changes in named fiduciaries; changes in investment policy, strategy, and asset allocation; major issues that affected funding; and how these issues affected CSPF’s investment strategy and policy. Select independent special counsel reports. CSPF officials provided 4th quarter reports for each year from 1982 through 2002 and available quarterly reports from 2003 through 2007. We downloaded all available quarterly reports from 2008 through 2017 from CSPF’s website. Select board of trustee meeting minutes. We requested board of trustee meeting minutes from 1983, 1994-95, 1998-2005, 2007-2010, and 2016 so we could review trustee discussions from the first full year the plan was covered by the 1982 consent decree, the most recent full year; periods that included a recession and/or when the plan’s assets performed poorly; and periods that preceded a change or reappointment of the named fiduciary. CSPF officials selected portions of the trustee meeting minutes from those years that pertained to the following topics: named fiduciary reports concerning investment performance; discussions relating to the amortization extension the Internal Revenue Service (IRS) granted to the plan and the contribution rate increases the plan required of participating employers in an effort to comply with funding targets required as condition of the IRS-approved amortization extension; major amendments to the plan; significant reports concerning the plan’s financial condition; amendments to the consent decree; discussions relating to any inquiries or issues DOL raised; discussions of named fiduciary appointments or resignations; discussions of particularly significant contributing employer delinquencies, bankruptcies, and settlements; and discussions relating to the independent special counsel. In addition to the board of trustee meeting minutes, CSPF officials provided select documentation on similar topics a former secretary of the board of trustees retained (1995 through 2008). Select correspondence between CSPF and DOL. CSPF officials provided select correspondence with DOL from 1987 through 2017 relating to DOL’s oversight of the plan. CSPF officials said they provided all records of those communications that related to significant, substantive, and nonroutine issues. The correspondence excluded other documents, such as periodic reports concerning asset rebalancing and correspondence related to fairly noncontroversial motions to the consent decree. In addition, DOL provided documentation throughout the course of our engagement, including documentation it provided between September and October 2017 that it had not previously identified as being relevant to our review. We completed an on-site file review at DOL in September 2017, and DOL sent us additional electronic documentation in September and October 2017. Overall, we reviewed extensive documentation from DOL—spanning over 10,000 pages of paper-based and electronic files— and spent substantial time cataloging and categorizing it. However, DOL officials reported that certain documentation related to CSPF was no longer available because it had only been retained for the time specified in the records retention policy of the relevant office. We conducted 23 semi-structured interviews with federal agency officials and other stakeholders, including affected parties, and persons knowledgeable about unions, participants and retirees, the trucking industry, collective bargaining agreements, and multiemployer pension plans. We also interviewed three stakeholders with actuarial expertise to specifically understand actuarial standards and procedures. We selected knowledgeable stakeholders based on review of literature and prior GAO work, and recommendations from other stakeholders. We judgmentally selected stakeholders whose expertise coincided with the scope of our objectives and who would be able to provide a broad range of perspectives. In our semi-structured interviews we asked about key factors affecting the plan, the broader regulatory and financial environment in which multiemployer plans operate, and solvency options for plans like CSPF. We reviewed CSPF’s investment policy statements after CSPF entered into a consent decree in 1982, most of which are documented in the consent decree or other court orders. Seven of the investment policy statements were developed by named fiduciaries in consultation with the plan’s board of trustees and four were developed by the trustees. (See fig. 21.) From each investment policy statement, we compiled relevant information on: (1) investment philosophy and plan characteristics considered in developing it, (2) investment return benchmarks, (3) asset allocation, and (4) strategies and assets. See table 3 for select asset allocation information. To describe how CSPF’s investment policy was executed, we compiled information from performance reports prepared by named fiduciaries. We reported CSPF’s asset allocation generally based on the aggregate asset allocation categories CSPF’s named fiduciaries assigned in those reports. CSPF provided these reports for the end of each year 1984 through 2016—except 1992 and 1995, for which it provided reports as of the end of November. Information we compiled included the plan’s: account breakdown (i.e., assets in named fiduciary and passively- asset allocation; and investment assets withdrawn to pay benefits and administrative expenses. When possible, we checked the information from year-end performance reports against that in other sources. Specifically, to ensure we captured the vast majority of the plan’s assets in our asset summary we compared the total amount of plan assets named fiduciaries reported with Net Assets reported in CSPF’s Form 5500 filings, available from 1982 through 2016. We generally found these totals to be similar for each year—in most years the difference was about or under 1 percent. Also, named fiduciary performance reports included information on withdrawals from investment assets to meet pension and administrative expense obligations as of the end of each year, except for 1995 and 1999-present. For 1995 through 2016, we compiled this information from independent special counsel reports. For years in which we had overlapping information, 1996 through 1998, we found the reported totals were similar—no more than about 0.6 percent difference in each of those years. Based on our review we believe that the differences were insignificant to our overall analysis and did not impact our findings. To determine investment returns, investment fees, and administrative expenses for CSPF and related comparator group multiemployer defined benefit plans, we analyzed electronic Form 5500 information, the primary, federal source of private pension data. We analyzed information from 2000 through 2014, the most current and complete year at the time we performed our analysis. We began our analysis with 2000 data as data on investment returns and plan fees is primarily found in the Schedule H. Schedule H information was first collected in 1999. But we begin our analysis with 2000 data as electronic data became more reliable the year after the schedule was introduced. We have previously reported on the problems associated with the electronic data of the Form 5500. To mitigate problems associated with the data, we used Form 5500 research data from PBGC. PBGC analysts routinely and systematically correct the raw 5500 data submitted by plans, and PBGC’s Form 5500 research data are thought to be the most accurate electronic versions. Although we did not independently audit the veracity of the PBGC data, we took steps to assess the reliability of the data and determined the data to be sufficiently reliable for our purposes. For example, we performed computer analyses of the data and identified inconsistencies and other indications of error and took steps to correct inconsistencies or errors. A second analyst checked all computer analyses. Funded status is a comparison of plan assets to plan liabilities. One measure of funded status is the funded percentage, which is calculated by dividing plan assets by plan liabilities. Another measure of funded status is the dollar amount of difference between plan assets and plan liabilities; the excess of plan liabilities over plan assets is the unfunded liability (or surplus if assets exceed liabilities). In this report, we measured funded status using the Actuarial Value of Assets and the Actuarial Accrued Liability, which are the basic measures used to determine the annual required minimum contribution for multiemployer plans under ERISA. We chose these measures because of the consistent availability of data for these measures. There are other ways to measure plan assets and plan liabilities. The Actuarial Value of Assets can be a “smoothed” value that differs from the market value of plan assets. The Actuarial Accrued Liability depends on the choice of actuarial cost method and discount rate, and on whether it is determined on an ongoing plan basis or a plan close-out basis. While different measures of plan assets and liabilities will produce different measures of funded status at any particular point in time, we found that our use of the Actuarial Value of Assets and the Actuarial Accrued Liability was sufficient for our purposes, which included examining the plan’s progress relative to statutory funding standards as well as its trend over time. We developed multiple comparison groups for our analysis. The general rationale behind these comparator groups is to identify plans with similar fundamental characteristics, such as plan size or plan maturity, for purposes of investment return and fee and expense comparisons. We created the following two comparator groups: 1. Large plans (in terms of assets). We ordered multiemployer defined benefit plans by descending 2014 plan assets (line 2a of the 2014 of the Schedule MB). Because one of our key analyses of the data involves comparing investment returns across plans, we also limited the comparable plans to those that share a common plan year to CSPF (specifically if they have the same plan year-end of December 31). We selected the 20 plans that had the largest plan asset values. This includes CSPF, which was the second largest multiemployer plan as of the beginning of 2014. Because these comparator plans are among the largest, they should have similar cost advantages. For example, for investment management services, they should have similar advantages in obtaining lower fees and thus garner greater net returns due to the more favorable fee structures. 2. Mature plans (in terms of retiree liability proportions). We ordered multiemployer defined benefit plans by their similarity to CSPF’s ratio of retiree to total liabilities as of the beginning of calendar year 2000. The ratio of retiree to total liabilities is defined as line 2(b)1(3) of the 2000 Schedule B divided by total liabilities of line 2(b)4(3) of the 2000 Schedule B. To compare retiree to total liability ratios, we created a variable for the absolute value of the difference between CSPF’s ratio and that of a given plan. We ordered the plans by ascending differences in the ratios (excluding any with missing differences). CSPF was the top plan because its difference is zero by definition. Because one of our key analyses of the data involved comparing investment returns across plans, we also limited the comparable plans to those that shared a common plan year with CSPF (specifically if they have the same plan year-end of December 31). Of the plans that had the same plan year as CSPF and assets over $300 million, we selected the 20 plans (including CSPF) that had the smallest absolute difference from CSPF in the retiree-to-total liability ratio. Plans with a high ratio of liabilities attributable to retirees will have a relatively large portion of future benefit payments attributable to those that are older and retired. By selecting plans that were similarly mature to CSPF (and had $300 million in assets as of the beginning of 2000), we identified plans that may have had a similar basis for their plan investments, similar cash flow characteristics, or similar potential deviations between time-weighted and dollar-weighted average investment returns over time (see section below entitled “Calculation of Average Investment Return over Multiple Years”). That is, these plans should have roughly similar cost advantages and similar considerations in their investment objectives such as the balance of cash flows into and out of the fund and the plans’ investment horizons. Similarity in the balance of cash flows is important because it helps to mitigate the influence of plan maturity on the weighted average investment return over multiple years. The year 2000 was used to select the group because the primary purpose of this group is comparison of investment returns for plans that are similarly situated at the beginning of the period being analyzed. Our calculation of investment returns is based on the investment return calculation expressed in the Form 5500 instructions for the Schedule MB. Specifically the instructions of the 2014 Schedule MB state: Enter the estimated rate of return on the current value of plan assets for the 1-year period ending on the valuation date. (The current value is the same as the fair market value—see line 1b(1) instructions.) For this purpose, the rate of return is determined by using the formula 2I/(A + B – I), where I is the dollar amount of the investment return, A is the current value of the assets 1 year ago, and B is the current value of the assets on the current valuation date. Enter rates to the nearest .1 percent. If entering a negative number, enter a minus sign (“ - “) to the left of the number. After preliminary analysis of the variable and consultation with a GAO senior actuary, we determined that Form 5500, Schedule H contains all the information necessary to derive the calculation for years prior to 2008—as far back as 1999 when the Schedule H first came into existence. Additionally, we made adjustments for the timing of cash flows, to the extent indicated by the data. For example, employer and employee contributions that were considered receivable at the end of the prior year and thus included in the Schedule MB calculation were instead included in the year when the plan received the cash for the contribution. Thus, our calculation of annual rate of return is expressed as line items of the 2014 Schedule H to be: 2 * / [[{item1(f)a} – {item 1(b)1(a)} - {item 1(b)2(a)} - {item 1j(a)}] + [{item1(f)b} – {item 1(b)1(b)} - {item 1(b)2(b)} - {item 1j(b)}] – [{item 2d} - {item 2a(3)} – {item 2c}]] Or expressed with expository names as: (2 * (TLINCOME - TOTLCON - OTHERINCOMEW)) / ((TASSTSBY - (ERCONBOY + EECONBOY + OTHER_LIAB_BOY_AMT)) + (TASSTSEY - (ERCONEOY + EECONEOY + OTHER_LIAB_EOY_AMT)) - (TLINCOME - TOTLCON - OTHERINCOMEW)) For purposes of data reliability and validation of our results, we ran permutations of the calculation to see how, if at all, certain items could influence the calculation. In two permutations, we changed the timing of net asset transfers to or from other plans. (This occurs when, for example, there is a plan merger.) A senior actuary determined whether the calculations with/without net asset transfers affected our calculation. If the timing of the net transfer caused the investment return calculation to vary by more than 0.1 percent, we excluded the data for that particular plan in that particular year. We also ran another calculation that did not include “other” income so we could estimate the impact of not adjusting for such information. Historical average investment returns over multiple years can be calculated in at least two different ways. One measure is the “time- weighted” average return, calculated as a geometric average of the annual returns during the period. A time-weighted average measures average investment performance without regard to the order of the annual returns or the impact of different plan circumstances over time. Another measure is the “dollar-weighted” average return–also known as the “internal rate of return” (and also referred to as the “cash flow weighted” return in this report)—which reflects the impact of the plan’s cash flow pattern. The dollar-weighted average return is the rate that, when applied over time to the asset value at the beginning of the period and to each year’s net cash flow into or out of the plan over the period, reproduces the asset value at the end of the period. We calculated dollar-weighted average returns (along with some time- weighted returns for comparison), for both CSPF and for the multiemployer system as a whole, as discussed in the report. We used a market value of plan assets for this purpose. The dollar-weighted average captures the impact of negative cash flow on average investment return. For example, with negative cash flow, investment results in an earlier year can have a bigger impact than investment results in a later year because more money is at stake in the earlier year. Using the same beginning-of-period asset value, and subsequent annual net cash flows into or out of the plan, used in calculating the dollar- weighted average return, we also performed a hypothetical calculation of what CSPF’s end-of-period asset value would have been if the plan had earned 7.5 percent per year instead of its actual return. Conceptually, there are multiple ways to express investment fees, but our analysis used the following two methods for calculating them: Investment fee ratio. Investment fees [line 2i(3) of the 2014 Schedule H] divided by end-of-year net assets [line 1l(b) of the 2014 Schedule H] less receivables [line 1b(1)(b); line 1b(2)(b); and line 1b(3)(b) of the 2014 Schedule H]. Investment fees per participant. Investment fees [line 2i(3) of the 2014 Schedule H] divided by total (end-of-year) participants [line 6f of the 2014 main form]. We define administrative expenses as all other expenses besides investment fees. In part, we used this definition of administrative expenses as it represents the expenses that remain after excluding investment fees. In addition, according to a PBGC analyst, this is the unit of analysis that they also used in their study of administrative expenses. Administrative expense to benefits paid. This is administrative expenses (professional, contract and other) divided by benefits paid. For administrative expenses we derived the value by taking total expenses less investment fees . For benefits paid, we used the 2014 Schedule H, line 2e(1), “Benefit payment and payments to provide benefits directly to participants or beneficiaries, including direct rollovers.” However, if the benefit payment value for such payments is missing or zero, we used the 2014 Schedule H, line 2e(4) “Total Benefit Payments” since the plan may be expressing their benefit payments on another line. Administrative expense per participant. Administrative expenses (professional, contract and other) divided by total (end-of-year) participants . For administrative expenses we derived the value by taking total expenses [line 2i(5) of the 2014 Schedule H] less investment fees [line 2i(3) of the 2014 Schedule H]. PBGC Study on Administrative Expenses PBGC has reported on administrative expenses and included various breakouts of these data in past data book supplements. The calculations of administrative expenses in this report are similar to those used by PBGC. Certain differences may exist because our calculation did not include certain multiemployer plans that reported missing data. Additionally, our population of multiemployer plans included only those plans exclusively associated with defined benefit features. The table below compares our results for plans with 5,000 or more participants, which is a subset of plans analyzed in the PBGC study. Our results used a sample that includes three fewer plans than the PBGC study, but our distributional results were within one-tenth percent for the administrative expense ratio and within $5 of the administrative expenses per participant (see table 4). Comparing the administrative expenses across reports using other statistics such as the minimum, maximum and standard deviation shows similar results for the PBGC and our analysis (see table 5). The mean administrative expenses per participant differ by $2.47. This difference is 1.5 percent lower than the PBGC estimate and could be a result of the difference in sample size. We also performed additional analyses as summarized below. We compared CSPF’s annual returns against plans that have the largest assets among multiemployer defined benefit plans (with the same plan year as CSPF) and CSPF’s results against these plans were broadly similar to results for the mature plans (see fig. 22). We compared CSPF’s administrative expenses as a percentage of benefit paid against other large plans. As noted in this report, CSPF has the lowest relative administrative expenses among the comparators in 2014 with administrative expenses at 1.4 percent of benefits (see fig. 23). In addition, CSPF’s administrative expenses as a percentage of benefits were consistently below the median. For our analysis of Wilshire TUCS data, we used two sources of data. Data from 1999 through 2016 was provided by CSPF. CSPF provided reports of their TUCS custom comparison group, master trusts with greater than $3 billion in assets. These data also included the year-end return results for the total fund (also known as the combined fund) as well as returns by subcategory such as a specific named fiduciary or fund. For example, subcategories listed for year-end 2006 included the results for both named fiduciaries (Goldman Sachs and Northern Trust) as well as the passively-managed accounts (then known as the CSSS fund). The custom comparison groups for the 1999 through 2016 data were determined each year in early-February of the year following the December 31 return results for the prior year. Thus, over time more master trusts were added (or subtracted) depending on the level of assets for the master trusts in that year. For example, the return results for year- end 1999 are determined as of February 10, 2000 and the group of master trusts with more than $3 billion contains 62 observations. The number of trusts in the custom group of master trusts with more than $3 billion generally grew over time with the number peaking with the return results for year-end 2014 (determined as of February 9, 2015), which contains 124 observations. The TUCS data from 1995 through 1998 was provided by Wilshire. The comparison group for these data were not selected each year, but, instead, selected retrospectively. For example, the comparison group of master trusts with more than $3 billion from 1995 through 1998 was selected as of January 9, 2017. There were 99 reported observations in 1995 and 132 observations in 1998. In addition, the 1995 through 1998 TUCS data did not include specific returns for CSPF. We were able to find the annual year-end return in the December (i.e. year-end) management report, which for these years was provided by the named fiduciary, Morgan Stanley. Below is a list of selected events that have affected the Central States, Southeast and Southwest Areas Pension Fund (CSPF) as identified through a review of relevant documentation and interviews with stakeholders and agency officials. It is not intended to be an exhaustive list of the events that have impacted CSPF, nor is it intended to include comprehensive descriptions of each event. On September 22, 1982, the Department of Labor (DOL) entered into a court-enforceable consent decree with the Central States Southeast and Southwest Areas Pension Fund (CSPF) to help ensure the plan’s assets were managed for the sole benefit of the plan’s participants and beneficiaries as required by the Employee Retirement Income Security Act of 1974 (ERISA). The consent decree has been amended several times and currently remains in effect, as amended, under the jurisdiction of the Federal Court for the Northern District of Illinois, Eastern Division. Below is a description of the key parties to and their primary responsibilities under the consent decree. The consent decree defines roles and responsibilities for its parties, including the court, the court-appointed independent special counsel, DOL, the plan and its Board of Trustees, and the independent asset manager, which is called the named fiduciary. The primary role of the court is to oversee and enforce the consent decree. Specifically, the court: appointed an independent special counsel to assist it in administering has approval over the appointment of named fiduciaries and trustees; has approval over the appointment of investment managers of the may, for good cause shown, remove a named fiduciary after 60 days’ notice provided to the named fiduciary and DOL; and may, upon request by the plan, dissolve the consent decree absent good cause shown by DOL why the consent decree should continue in effect. The court-appointed independent special counsel is intended to serve the court by assisting in identifying and resolving issues that arise in connection with the plan’s compliance with the consent decree and Part 4 of Title I of ERISA, and to report on the plan to the court. Specifically, the independent special counsel: has full authority to examine the plan’s activities and oversee and report on the plan’s performance of the undertakings of the consent decree; may, with court approval, employ attorneys, accountants, investigators, and others reasonably necessary and appropriate to aid him in the exercise of his responsibilities; has full access to all documents, books, records, personnel, files, and information of whatever type or description in the possession, custody, or control of the plan; may attend meetings of the plan, including meetings of the board of trustees and any meetings at which plan-related matters are discussed or considered; can petition the court to compel the plan to cooperate with the independent special counsel in the performance of his duties and responsibilities; may consult with DOL, the Internal Revenue Service, and other agencies, as appropriate, but must provide access to DOL upon its request to any documents prepared by the independent special counsel within the exercise of his power; is required to file quarterly reports, as well as any other reports the independent special counsel deems necessary or appropriate, with the court, and provide copies to DOL and the plan; may have other powers, duties, and responsibilities that the court may later determine are appropriate; and cannot be discharged or terminated during the duration of the consent decree except for leave of court, and upon the termination, discharge, death, incapacity, or resignation of an independent special counsel, the court will appoint a successor. Under the consent decree, DOL has an oversight role and may object to certain proposed plan changes. Specifically, DOL: may request and review certain reports provided by the plan and any documents prepared by the independent special counsel in the exercise of his authority; may object to the appointment of proposed trustees, named fiduciaries, investment managers of the passively-managed accounts, and asset custodians; receives notice of proposed changes to the plan’s investment policy statements from the plan; and may object to the dissolution of the consent decree. The plan must operate in full compliance with the consent decree, with ERISA, and with any conditions contained in determination letters it receives from the Internal Revenue Service. Specifically, CSPF, its board of trustees, and its internal audit staff must meet certain requirements. is required to use an independent asset manager known as the named fiduciary; must rebid the named fiduciary role at least once within every 6 years, with the option to extend the appointment for 1 calendar year; may remove a named fiduciary without cause shown on 6 months’ written notice to the named fiduciary and DOL; must cooperate with the independent special counsel in the performance of his duties and responsibilities and with DOL in its continuing investigation and enforcement responsibilities under ERISA; is required to recommend to the court three replacement candidates, agreeable to DOL, to replace an outgoing independent special counsel; and is required to maintain a qualified internal audit staff to monitor its affairs. is required to appoint, subject to court approval, the investment managers of the passively-managed accounts; is prohibited from authorizing any future acquisitions, investments, or dispositions of plan assets on a direct or indirect basis unless specifically allowed by the consent decree; and is required to comply with ERISA fiduciary duties, such as monitoring the performance of the assets of the plan, under Part 4 of Title I of ERISA. is required to review benefit administration, administrative expenditures, and the allocation of plan receipts to investments and administration; and is required to prepare monthly reports setting forth any findings and recommendations, in cooperation with the executive director of the plan, and make copies available to the independent special counsel and, upon request, to DOL and the court. The independent asset managers, known as named fiduciaries, are appointed by the plan’s trustees, subject to court approval, and have exclusive responsibility and authority to manage and control all assets of the plan allocated to them. Specifically, the named fiduciaries: may allocate plan assets among different types of investments and have exclusive authority to appoint, replace, and remove those have responsibility and authority to monitor the performance of their are required to develop, in consultation with the Board of Trustees, and implement investment policy statements for the assets they manage, giving appropriate regards to CSPF’s actuarial requirements. In addition to the individual named above David Lehrer (Assistant Director), Charles J. Ford, (Analyst-in-Charge), Laurel Beedon, Jessica Moscovitch, Layla Moughari, Joseph Silvestri, Anjali Tekchandani, Margaret J. Weber, Adam Wendel, and Miranda J. Wickham made key contributions to this report. Also contributing to this report were Susan Aschoff, Deborah K. Bland, Helen Desaulniers, Laura Hoffrey, Jennifer Gregory, Sheila McCoy, Mimi Nguyen, Jessica Orr, Monica P. Savoy, and Seyda Wentworth. Central States Pension Fund: Department of Labor Activities under the Consent Decree and Federal Law. GAO-18-105. Washington, D.C.: June 4, 2018. High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15, 2017. Pension Plan Valuation: Views on Using Multiple Measures to Offer a More Complete Financial Picture. GAO-14-264. Washington, D.C.: September 30, 2014. Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved. GAO-14-92. Washington, D.C.: November 21, 2013. Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies. GAO-13-240. Washington, D.C.: March 28, 2013. Private Pensions: Multiemployer Plans and PBGC Face Urgent Challenges. GAO-13-428T. Washington, D.C.: March 5, 2013. Pension Benefit Guaranty Corporation: Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors. GAO-13-58. Washington, D.C.: November 7, 2012. Private Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits. GAO-11-79. Washington, D.C.: October 18, 2010. Private Pensions: Long-standing Challenges Remain for Multiemployer Pension Plans. GAO-10-708T. Washington, D.C.: May 27, 2010. The Department of Labor’s Oversight of the Management of the Teamsters’ Central States Pension and Health and Welfare Funds. GAO/HRD-85-73. Washington, D.C.: July 18, 1985. Investigation to Reform Teamsters’ Central States Pension Fund Found Inadequate. HRD-82-13. Washington, D.C.: April 28, 1982.	[ "Multiemployer plans are collectively bargained pension agreements often between labor unions and two or more employers. CSPF is one of the nation's largest multiemployer defined benefit pension plans, covering about 385,000 participants. Since 1982, the plan has operated under a court-enforceable consent decree which, among other things, requires that the plan's assets be managed by independent parties. Within 7 years, CSPF estimates that the plan's financial condition will require severe benefit cuts. GAO was asked to review the events and factors that led to the plan's critical financial status and how its investment outcomes compare to similar plans. GAO describes (1) what is known about the factors that contributed to CSPF's critical financial condition; (2) what has been CSPF's investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how CSPF's investments have performed over time, particularly compared to similar pension plans. GAO reviewed relevant federal laws and regulations; interviewed CSPF representatives, International Brotherhood of Teamsters officials and members, federal officials, and knowledgeable industry stakeholders; reviewed CSPF documentation including investment policy statements and board of trustee meeting minutes; and analyzed investment returns and fees from required, annual pension plan filings and from consultant benchmarking reports. The Central States, Southeast and Southwest Areas Pension Fund (CSPF) was established in 1955 to provide pension benefits to trucking industry workers, and is one of the largest multiemployer plans. According to its regulatory filings, CSPF had less than half the estimated funds needed to cover plan liabilities in 1982 at the time it entered into a court-enforceable consent decree that provides for oversight of certain plan activities. Since then, CSPF has made some progress toward achieving its targeted level of funding; however, CSPF has never been more than 75 percent funded and its funding level has weakened since 2002, as shown in the figure below. Stakeholders GAO interviewed identified numerous factors that contributed to CSPF's financial condition. For example, stakeholders stated that changes within the trucking industry as well as a decline in union membership contributed to CSPF's inability to maintain a healthy contribution base. CSPF's active participants made up about 69 percent of all participants in 1982, but accounted for only 16 percent in 2016. The most dramatic change in active participants occurred in 2007 when the United Parcel Service, Inc. (UPS) withdrew from the plan. At that time, UPS accounted for about 30 percent of the plan's active participants (i.e. workers). In addition, the market declines of 2001 to 2002 and 2008 had a significant negative impact on the plan's long-term investment performance. Stakeholders noted that while each individual factor contributed to CSPF's critical financial condition, the interrelated nature of the factors also had a cumulative effect on the plan's financial condition. Both CSPF's investment policy and the process for setting and executing it have changed several times since the consent decree was established in 1982. The original consent decree gave an independent asset manager—called a named fiduciary—exclusive authority to set and change the plan's investment policies and manage plan assets, and prohibited CSPF trustees from managing assets or making investment decisions. Initially, the named fiduciaries sold the troubled real estate assets acquired during the pre-consent decree era. Subsequent changes include the following: In 1993, the named fiduciaries started to increase investment in equities, and their policies continued to direct that asset allocations be weighted toward equities until early 2017. Between 2003 and 2010, the court approved three plan decisions to move a total of 50 percent of CSPF's assets into passively-managed accounts (passive management typically seeks to match the performance of a specific market index and reduce investment fees). An early-2017 investment policy change precipitated by CSPF's deteriorating financial condition will continue to move plan assets into fixed income investments ahead of projected insolvency, or the date when CSPF is expected to have insufficient assets to pay promised benefits when due. As a result, assets will be gradually transitioned from “return-seeking assets”—such as equities and emerging markets debt—to high-quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities. The plan is projected to become insolvent on January 1, 2025. CSPF officials and named fiduciary representatives said these changes are intended to reduce the plan's exposure to market risk and volatility, and provide participants greater certainty prior to projected insolvency. GAO found that CSPF's investment returns and expenses were generally in line with similarly sized institutional investors and with demographically similar multiemployer pension plans. For example, GAO's analysis of returns using the peer group measure used by CSPF known as the Wilshire Associates' Trust Universe Comparison Service (TUCS), showed that CSPF's annual investment returns since 1995 were above the median about as many times as they were below. Similarly, comparing CSPF's returns to a peer group of similar multiemployer defined benefit plans using federally required annual reports found that CSPF's annual investment returns were in line with those of its peers. Specifically, CSPF's annual returns were above the median nine times and below it six times—and CSPF's overall (dollar-weighted) average annual return from 2000 through 2014 was close to that of the peer median average return of 4.8 percent. In addition, GAO found that CSPF's investment fees and other administrative expenses have also been in line with other large multiemployer plans. For example: CSPF's investment fees as a percentage of assets were about 9 percent lower than the median of large defined benefit multiemployer plans over the 2000 through 2014 period—though much of that difference is accounted for by a relative reduction in investment fees since 2007. CSPF's investment fees as a percentage of assets were, on average, about 34 basis points (or 0.34 percent). CSPF's administrative expenses related to the day-to-day operations of the plan have also been in line with other large multiemployer plans. CSPF's administrative expenses per participant were below the median for large defined benefit multiemployer plans for 12 of the 15 years over the 2000 through 2014 period. As of 2014, CSPF's administrative expense was $98 per participant, which is about 16 percent less than the median for large defined benefit multiemployer plans. GAO is not making recommendations in this report." ]	15,605	gov_report	en	null	ce19441feee1de58a5c147dc4e878d4cf00f1cce6b945e05
The Veterans Access, Choice, and Accountability Act of 2014 provided up to $10 billion in funding for veterans to obtain health care services from community providers through the Choice Program when veterans faced long wait times, lengthy travel distances, or other challenges accessing care at VA medical facilities. The temporary authority and funding for the Choice Program was separate from other previously existing programs through which VA has the option to purchase care from community providers. Legislation enacted in August and December of 2017 and June 2018 provided an additional $9.4 billion for the Veterans Choice Fund. Authority of the Choice Program will sunset on June 6, 2019. In October 2014, VA modified its existing contracts with two TPAs that were administering another VA community care program—the Patient- Centered Community Care program—to add certain administrative responsibilities associated with the Choice Program. For the Choice Program, each of the two TPAs—Health Net and TriWest—are responsible for managing networks of community providers who deliver care in a specific multi-state region. (See fig. 1.) Specifically, the TPAs are responsible for establishing networks of community providers, scheduling appointments with community providers for eligible veterans, and paying community providers for their services. Health Net’s contract for administering the Choice Program will end on September 30, 2018, whereas TriWest will continue to administer the Choice Program until the program ends, which is expected to occur in fiscal year 2019. VA’s TPAs process claims they receive from community providers for the care they deliver to veterans and pay providers for approved claims. Figure 2 provides an overview of the steps the TPAs follow for processing claims and paying community providers. VA’s contracts with the TPAs do not include a payment timeliness requirement applicable to the payments TPAs make to community providers. Instead, a contract modification effective in March 2016 established a non-enforceable “goal” of processing—approving, rejecting or denying—and, if approved, paying clean claims within 30 days of receipt. To be reimbursed for its payments to providers, the TPAs in turn submit electronic invoices—or requests for payment—to VA. TPAs generate an invoice for every claim they receive from community providers and pay. VA reviews the TPAs’ invoices and either approves or rejects them. Invoices may be rejected, for example, if care provided was not authorized. Approved invoices are paid, whereas rejected invoices are returned to the TPAs. The federal Prompt Payment Act requires VA to pay its TPAs within 30 days of receipt of invoices that it approves. The VA MISSION Act of 2018, among other things, requires VA to consolidate its community care programs once the Choice Program sunsets 1 year after the passage of the Act, authorizes VA to utilize a TPA for claims processing, and requires VA to reimburse community providers in a timely manner. Specifically, the act requires VA (or its TPAs) to pay community providers within 30 days of receipt for clean claims submitted electronically and within 45 days of receipt for clean claims submitted on paper. In December 2016, prior to enactment of the VA MISSION Act of 2018, VA issued an RFP for contractors to help administer the Veterans Community Care Program. The Veterans Community Care Program will be similar to the current Choice Program in certain respects. For example, VA is planning to award community care network contracts to TPAs, which would establish regional networks of community providers and process and pay those providers’ claims. However, unlike under the Choice Program, under the Veterans Community Care Program, VA is planning to have medical facilities—not the TPAs—generally be responsible for scheduling veterans’ appointments with community providers. From November 2014 through June 2018, VA’s TPAs paid a total of about 16 million clean claims—which are claims that contain all required data elements—under the Choice Program, of which TriWest paid about 9.6 million claims and Health Net paid about 6.4 million. Data on the median number of days VA’s TPAs have taken to pay clean claims each month show wide variation over the course of the Choice Program—from 7 days to 68 days. As discussed previously, in March 2016, VA established a non-enforceable goal for its TPAs to process and, if approved, pay clean claims within 30 days of receipt each month. Most recently, from January through June 2018, the median number of days taken to pay clean claims ranged from 26 to 28 days for TriWest, while it ranged from 28 to 44 days for Health Net. (See fig. 3.) In addition to the 16 million clean claims the TPAs paid from November 2014 through June 2018, during this time period they also paid approximately 650,000 claims (or 4 percent of all paid claims) that were classified as non-clean claims when first received after obtaining the required information. Non-clean claims are claims that are missing required information, which the TPA must obtain before the claim is paid. From November 2014 through June 2018, TriWest paid around 641,000 non-clean claims (or 6 percent of all paid claims) while Health Net paid about 9,600 non-clean claims (or less than 1 percent of all paid claims). Data on the median number of days VA’s TPAs have taken to pay non- clean claims each month also show wide variation over the course of the Choice Program—from 9 days to 73 days. (See fig. 4.) The data on the time TPAs have taken to pay approved clean and non- clean claims do not fully account for the length of time taken to pay providers whose claims are initially rejected or denied, as, according to the TPAs, providers are generally required to submit a new claim when the original claim is rejected or denied. Thus, providers that submit claims that are rejected or denied may experience a longer wait for payment for those claims or may not be paid at all. In some cases, providers’ claims may be rejected or denied multiple times after resubmission. VA and its TPAs identified three key factors affecting the timeliness of claim payments to community providers under the Choice Program: (1) VA’s untimely payments of TPA invoices; (2) Choice Program contractual requirements related to provider reimbursement; and (3) inadequate provider education on filing Choice Program claims, as discussed below. VA’s untimely payments of TPA invoices. According to VA and TPA officials, VA made untimely invoice payments to its TPAs—that is, payments made more than 30 days from the date VA received the TPAs’ invoices—which resulted in the TPAs at times having insufficient funds available to pay community providers under the Choice Program. A VA Office of Inspector General (OIG) report estimated that from November 2014 through September 2016, 50 percent of VA’s payments to its TPAs during this time frame were untimely. VA officials stated that VA’s untimely payments to the TPAs resulted from limitations in its fee-basis claims system, which VA used at the beginning of the Choice Program to process all TPA invoices. In addition, the VA OIG found that VA underestimated the number of staff necessary to process Choice Program invoices in a timely manner. Choice Program reimbursement requirements. According to VA and TPA officials, three Choice Program requirements, some of which were more stringent than similar requirements in other federal health care programs, led to claim denials, which, in turn, contributed to the length of time TPAs have taken to pay community providers when the providers did not meet these requirements: 1. Medical documentation requirement. Prior to a March 2016 contract modification, VA required providers to submit relevant medical documentation with their claims as a condition of payment from the TPAs. According to TriWest officials, those Choice Program claims that did not include medical documentation were classified by TriWest as non-clean claims and placed in pending status until the documentation was received. When community providers did not provide the supporting medical documentation after a certain period of time, TriWest typically denied their claims. According to Health Net officials, Choice Program claims that did not include medical documentation were denied by Health Net. 2. Timely filing requirement. VA requires providers to file Choice Program claims within 180 business days from the end of an episode of care. TPAs deny claims that are not filed within the required time frame. 3. Authorization requirement. VA requires authorizations for community providers to serve veterans under the Choice Program and receive reimbursement for their services; however, if community providers deliver care after an authorization period or include services that are not authorized, the TPAs typically deny their claims. According to TPA data, denials related to authorizations are among the most common reasons the TPAs deny community provider claims. Inadequate provider education on filing Choice Program claims. According to VA and TPA officials as well as providers we interviewed, issues related to inadequate provider education may have contributed to the length of time it has taken the TPAs to pay community providers under the Choice Program. These issues have included providers submitting claims with errors, submitting claims to the wrong payer, or otherwise failing to meet Choice Program requirements. For example, some VA community care programs require the claims to be sent to one of VA’s claims processing locations, while the Choice Program requires claims to be sent to TriWest or Health Net. Claims sent to the wrong entity are rejected or denied and have to be resubmitted to the correct payer. Ten of the 15 providers we interviewed stated that that they lacked education and/or training on the claims filing process when they first began participating in the Choice Program, including knowing where to file claims and the documentation needed to file claims that would be processed successfully. Four of these 10 providers stated that they learned how to submit claims through trial and error. At the infancy of the Choice Program, November 2014 through March 2016, VA was unable to monitor the timeliness of its TPAs’ payments to community providers because it did not require the TPAs to provide data on the length of time taken to pay these claims. Effective in March 2016, VA modified its TPA contracts and subsequently began monitoring TPA payment timeliness, requiring TPAs to report information on claims processing and payment timeliness as well as information on claim rejections and denials. However, because VA had not established a payment timeliness requirement, VA officials said that VA had limited ability to penalize TPAs or compel them to take corrective actions to address untimely claim payments to community providers. Instead, the March 2016 contract modification established a non-enforceable goal for the TPAs to process and pay clean claims within 30 days of receipt. As of July 2018, according to VA officials, VA did not have a contractual requirement it could use to help ensure that community providers received timely payments in the Choice Program. Officials from VA’s Office of Community Care told us that VA’s experience with payment timeliness in the Choice Program informed VA’s RFP for new contracts for the Veterans Community Care Program, which includes provisions that strengthen VA’s ability to monitor its future TPAs. For example, in addition to requiring future TPAs to submit weekly reports on claim payment timeliness as well as claim rejections and denials, VA’s RFP includes claim payment timeliness standards that are similar to those in the Department of Defense’s TRICARE program. Specifically, according to the RFP, TPAs in the Veterans Community Care Program will be required to process and pay, if approved, 98 percent of clean claims within 30 return claims, other than clean claims, to the provider with a clear explanation of deficiencies within 30 days of original receipt, and process resubmitted claims within 30 days of resubmission receipt. The RFP also identifies monitoring techniques that VA may employ to assess compliance with these requirements, including periodic inspections and audits. VA officials told us that VA will develop a plan for monitoring the TPAs’ performance on these requirements once the contracts are awarded. We found that VA has made system and process changes that improved its ability to pay TPA invoices in a timely manner. However, while VA has modified two Choice Program requirements that contributed to provider claim payment delays, it has not fully addressed delays associated with authorizations for care. Furthermore, while VA and its TPAs have taken steps to educate community providers in order to help prevent claims processing issues, 9 of the 15 providers we interviewed reported poor customer service when attempting to resolve these issues. VA has taken steps to reduce untimely payments to its TPAs, which contributed to delayed TPA payments to providers, by implementing a new system and updating its processes for paying TPA invoices so that it can pay these invoices more quickly. Specifically, VA has made the following changes: In March 2016, VA negotiated a contract modification with both TPAs that facilitated the processing of certain TPA invoices outside of the fee basis claims system from March 2016 through July 2016. According to VA officials, due to the increasing volume of invoices that the TPAs were expecting to submit to VA during this time period, without this process change, VA would have experienced a high volume of TPA invoices entering its fee basis claims system, which could have exacerbated payment timeliness issues. In February through April 2017, VA transitioned all TPA invoice payments from its fee basis claims system to an expedited payment process under a new system called Plexis Claims Manager. VA officials told us that instead of re-adjudicating community provider claims as part of its review of TPA invoices, Plexis Claims Manager performed up front checks in order to pay invoices more quickly, and any differences in billed and paid amounts were addressed after payments were issued to the TPAs. In January 2018, VA transitioned to a newer version of the Plexis Claims Manager that enabled VA to once again re-adjudicate community provider claims as part of processing TPA invoices, but in a timelier manner compared with the fee basis claims system. According to VA officials, this is due to the automation of claims processing under Plexis Claims Manager, which significantly reduced the need for manual claims processing by VA staff that occurred under the fee basis claims system. Based on VA data, as of July 2018, VA is paying 92 percent of TriWest’s submitted invoices within 7 days, with payments being made in an average of 4 days, and 90 percent of Health Net’s invoices within 7 days, with payments being made in an average of 4 days under the newer version of Plexis Claims Manager. In addition to steps taken to address untimely payments to the TPAs under the current Choice Program contracts, VA has taken steps to help assure payment timeliness in the forthcoming Veterans Community Care Program. Specifically, the RFP includes a requirement for VA to reimburse TPAs within 14 days of receiving an invoice. VA officials stated that to achieve this metric, they are implementing a new payment system that will replace Plexis Claims Manager and will no longer re-adjudicate TPA invoices prior to payment. VA has issued a contract modification and waivers for two Choice Program contract requirements that contributed to provider payment delays—(1) the medical documentation requirement and (2) the timely filing requirement. However, while VA issued a contract modification to amend the requirements for obtaining authorizations for Choice Program care, provider payment delays associated with requesting these authorizations may persist, because VA is not ensuring that VA medical centers review and approve these requests within required time frames. Elimination of medical documentation requirement. Effective beginning March 2016, VA issued a contract modification that eliminated the requirement that community providers must submit medical documentation as a condition of receiving payment for their claims. Data from one TPA showed a reduction in non-clean claims following the implementation of this contract modification. For example, starting in April 2016, after this modification was executed, almost 100 percent of claims submitted to TriWest were classified as clean claims, as opposed to 49 percent of claims submitted in March 2016. However, when the modification first went into effect in March 2016, TriWest and Health Net officials stated that they processed a large amount of claims from community providers that had previously been pended or denied because they lacked medical documentation and, in turn, submitted a large number of invoices to VA for reimbursement. As previously discussed, to help address the increased number of TPA invoices, VA issued lump-sum payments to the TPAs during this time period. Modification of timely filing requirement. In February and May 2018, VA issued waivers that gave TPAs the authority to allow providers to resubmit rejected or denied claims more than 180 days after the end of the episode of care if the original claims were submitted timely—that is, within 180 days of the end of the episode of care. VA officials stated that the waivers were intended to reduce the number of rejected and denied claims by giving community providers the ability to resubmit previously rejected or denied claims for which the date of service occurred more than 180 days ago. VA’s waivers were implemented as follows: In February 2018, VA issued a waiver that allowed community providers to resubmit certain claims rejected or denied for specific reasons when the provider or TPA could verify that the provider made an effort to submit the claim prior to the claims submission deadline. In May 2018, VA issued a second waiver that removed the 180 day timeliness requirement for all Choice Program claims. The waiver also provided instructions to the TPAs on informing providers that they may resubmit claims rejected or denied for specific reasons and how the TPAs are to process the resubmitted claims. In regards to the first waiver, TPA officials stated that the processing of those resubmitted claims adversely affected the timeliness of the TPAs’ payments to community providers because the waiver resulted in a large influx of older claims. As the second waiver was in the process of being implemented by the two TPAs at the time we conducted our work, we were unable to determine if the second waiver affected the TPAs’ provider payment timeliness. Changes to authorization of care requirement. VA issued a contract modification in January 2017 to expand the time period for which authorizations for community providers to provide care to veterans under the Choice Program are valid. In addition, in May 2017, VA expanded the scope of the services covered by authorizations, allowing them to encompass an overall course of treatment, rather than a specific service or set of services. According to VA officials, the changes VA made related to the authorization of care requirement were also intended to reduce the need for secondary authorization requests (SAR). Community providers request SARs when veterans need health care services that exceed the period or scope of the original authorizations. Community providers are required to submit SARs to their TPA, which, in turn, submits the SARs to the authorizing VA medical facility for review and approval. Both Health Net and TriWest officials told us that since VA changed the time frame and scope of authorizations, the number of SARs has decreased. Despite efforts to decrease the number of SARs, payment delays or claim denials are likely to continue if SARs are needed. We found that VA is not ensuring that VA medical facilities are reviewing and approving SARs within required time frames. VA policy states that VA medical facilities are to review and make SAR approval decisions within 5 business days of receipt. However, officials from one of the TPAs and 7 of the 15 providers we interviewed stated that VA medical facilities are not reviewing and approving SARs in a timely manner. According to TriWest officials, as of May 2018, VA medical facilities in their regions were taking an average of 11 days to review and make approval decisions on SARs, with four facilities taking over 30 days for this process. According to an official from VA’s Office of Community Care, VA does not currently collect reliable national data to track the extent of nonadherence to the VA policy to review and make SAR approval decisions within 5 business days. The official told us that instead, VA relies on employees assigned to each Veterans Integrated Service Network to monitor data on VA medical facilities’ timeliness in making these SAR approval decisions. If a VA medical facility is found not to be in adherence with the SAR policy, the official told us that staff assigned to the Veterans Integrated Service Network attempt to identify the reasons for nonadherence, and perform certain corrective actions, including providing education to the facility. Despite these actions, the official told us that there are still VA medical facilities not in adherence with VA’s SAR approval policy. According to a VA official, VA is in the process of piloting software for managing authorizations that will allow VA to better track SAR approval time frames across VA medical facilities in the future. However, even after this planned software is implemented, if VA does not use the data to monitor and assess SAR approval decision time frames VA will be unable to ensure that all VA medical facilities are adhering to the policy. Standards for internal control in the Federal Government state that management should establish and operate monitoring activities to evaluate whether a specific function or process is operating effectively and take corrective actions as necessary. Furthermore, monitoring such data will allow VA to identify and take actions as needed to address any identified challenges VA medical facilities are encountering in meeting the required approval decision time frames. Without monitoring data to ensure that all VA medical facilities are adhering to the SAR approval time frames as outlined in VA policy, community providers may delay care until the SARs are approved or provide care without SAR approval. This in turn increases the likelihood that the community providers’ claims will be denied. Further, continued nonadherence to VA’s SAR policy raises concerns about VA’s ability to ensure timely approval of SARs when VA medical facilities assume more responsibilities for ensuring veterans’ access to care under the forthcoming Veterans Community Care Program. We found that VA and its TPAs have taken steps to educate community providers in order to help prevent claims processing issues that have contributed to the length of time TPAs have taken to pay these providers. Despite these efforts, 9 of the 15 providers we interviewed reported poor customer service when attempting to resolve claims payment issues. While VA’s contracts with the TPAs do not include requirements for educating and training providers on the Choice Program, both TPAs have taken steps to educate community providers on how to successfully submit claims under the Choice Program. Specifically, TriWest and Health Net officials told us that they have taken various steps to educate community providers on submitting claims correctly, including sending monthly newsletters, emails, and faxes to communicate changes to the Choice Program; updating their websites with claims processing information; and holding meetings with some providers monthly or quarterly to resolve claims processing issues. Officials from both TPAs also told us that they provided one-on-one training to some providers on the claims submission process to help reduce errors when submitting claims. In addition, VA’s RFP for the Veterans Community Care Program contracts includes requirements to provide an annual training program curriculum and an initial on-boarding and ongoing outreach and education program for community providers, which includes training on the claims submission and payment processes and TPA points of contact. VA and the TPAs have also made efforts to help providers resolve claims processing issues and outstanding payments. For example, VA launched its “top 20 provider initiative” in January 2018 to work directly with community providers with high dollar amounts of unpaid claims and resolve ongoing claims payment issues. This initiative included creating rapid response teams to work with community providers to settle unpaid claim balances within 90 days and working with both TPAs to increase the number of clean claims paid in less than 30 days. In addition, VA has developed webinars on VA’s community care programs and—in conjunction with trade organizations and health care systems—has delivered provider education on filing claims properly. TriWest officials stated that it has educated the customer service staff at its claims processing sub-contractor, who field community provider calls regarding claims processing issues, to help ensure that the staff are familiar with Choice Program changes and can effectively assist community providers and resolve claims processing issues. Internal TriWest data show that providers’ average wait time to speak to a customer service representative about claims processing issues decreased from as high as 18 minutes in 2016 to as low as 2.5 minutes in 2018. Health Net officials were unable to provide data, but stated that since the fourth quarter of 2017, Health Net has decreased the time it takes for a community provider to speak with a customer service representative by adding additional staff and extending the hours in which providers can call with questions. In addition, Health Net officials stated that they have required customer service staff to undergo additional training related to resolving claims processing issues. Despite these efforts, 7 of the 10 providers that participate in the Health Net network and 2 of the 7 providers that participate in the TriWest network we interviewed between April and June 2018 told us that when they contact the TPAs’ customer service staff to address claim processing questions, such as how to resolve claim rejections or denials, they experience lengthy hold times, sometimes exceeding one hour. In addition, 7 of the 15 providers we spoke with told us they typically reach employees who are unable to answer their questions. According to these providers, this experience frustrated them, as they often did not understand why a claim had been denied or rejected, and they required assistance correcting the claim so it could be resubmitted. One community provider stated that their common practice to resolve questions or concerns was to call customer service enough times until they received the same answer twice from a TPA representative. In addition, 5 of the 10 Health Net providers we interviewed stated that they have significant outstanding claim balances owed to them. One of these providers—who reported over $3 million in outstanding claims—stressed the importance of being able to effectively resolve claims issues with TPA customer service staff, as the administrative burden of following up on outstanding claim balances takes time away from caring for patients. The issues concerning customer service wait times and TPA staff inability to resolve some claims processing issues reported by community providers appear to be inconsistent with VA contractual requirements. VA’s current Choice Program contracts require the TPAs to establish a customer call center to respond to calls from veterans and non-VA providers. The contract requires specified levels of service for telephone inquiries at the call center. For example, VA requires TPA representatives to answer customer service calls within an average speed of 30 seconds or less and requires 85 percent of all inquiries to be fully and completely answered during the initial telephone call. However, VA officials explained that VA does not enforce the contractual requirement for responding to calls from community providers. Furthermore, according to these officials, VA allows the TPAs to prioritize calls from veterans. Officials from VA’s Office of General Counsel, Procurement Law Group, confirmed that this requirement does apply to the TPAs’ handling of calls from community providers. Because VA does not enforce the customer service requirement for providers, VA has not collected data on or monitored the TPAs’ compliance with these requirements for providers’ calls. As previously stated, standards for internal control in the Federal Government state that management should establish and operate monitoring activities to evaluate whether a specific function or process is operating effectively and take corrective actions as necessary. Without collecting data and monitoring customer service requirements for provider calls, VA does not have information on the extent to which community providers face challenges when contacting the TPAs about claims payment issues that could contribute to the amount of time it takes to successfully file claims and receive reimbursement for services under the Choice Program. This, in turn, poses a risk to the Choice Program to the extent that community providers who face these challenges decide not to serve veterans under the Choice Program. Looking forward, VA has included customer service requirements in its RFP for the Veterans Community Care Program contracts, and VA officials have told us that these requirements are applicable to provider calls. For example, the RFP includes a requirement for its future TPAs to establish and maintain call centers to address inquiries from community providers and has established customer service performance metrics to monitor call center performance. Monitoring data on provider calls under the contracts will be important as Veterans Community Care Program TPAs will continue to be responsible for building provider networks, processing claims, and resolving claims processing issues. The Choice Program relies on community providers to deliver care to eligible veterans when VA is unable to provide timely and accessible care at its own facilities. Although VA has taken steps to improve the timeliness of TPA claim payments to providers, VA is not collecting data or monitoring compliance with two Choice Program requirements, and this could adversely affect the timeliness with which community providers are paid under the Choice Program. First, VA does not have complete data allowing it to effectively monitor adherence with its policy for VA medical facilities to review SARs within 5 days of receipt, which impacts its ability to meet the requirement. To the extent that VA medical facilities delay these reviews and approvals, community providers may have to delay care or deliver care that is not authorized, which in turn increases the likelihood that the providers’ claims will be denied and the providers will not be paid. Second, VA requires the TPAs to establish a customer call center to respond to calls from veterans and non-VA providers. However, VA does not enforce the contractual requirement for responding to calls from community providers and allows the TPAs to prioritize calls from veterans. Consequently, VA is not collecting data, monitoring, or enforcing compliance with its contractual requirements for the TPAs to provide timely customer service to providers. As a result, VA does not have information on the extent to which community providers face challenges when contacting the TPAs about claims payment issues, which could contribute to the amount of time it takes to receive reimbursement for services. To the extent that these issues make community providers less willing to continue participating in the Choice Program and the forthcoming Veterans Community Care Program, they pose a risk to VA’s ability to successfully implement these programs and ensure veterans’ timely access to care. We are making the following two recommendations to VA: Once VA’s new software for managing authorizations has been fully implemented, the Undersecretary for Health should monitor data on SAR approval decision time frames to ensure VA medical facilities are in adherence with VA policy, assess the reasons for nonadherence with the policy, and take corrective actions as necessary. (Recommendation 1) The Undersecretary for Health should collect data and monitor compliance with the Choice Program contractual requirements pertaining to customer service for community providers, and take corrective actions as necessary. (Recommendation 2) We provided a draft of this report to VA for review and comment. In its written comments, reproduced in appendix I, VA concurred with our two recommendations and said it is taking steps to address them. For example, VA plans to implement software in spring 2019 that will automate the SAR process and allow for streamlined reporting and monitoring of SAR timeliness to ensure ongoing compliance. Additionally, VA has included provider customer service performance requirements and metrics in its Veterans Community Care Program RFP, and will require future contractors to provide a monthly report to VA on their call center operations and will implement quarterly provider satisfaction surveys. We are sending copies of this report to the Secretary of Veterans Affairs, the Under Secretary for Health, appropriate congressional committees, and other interested parties. This report is also available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact Sharon M. Silas at (202) 512-7114 or silass@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs are on the last page of this report. GAO staff who made major contributions to this report are listed in appendix II. In addition to the contact named above, Marcia A. Mann (Assistant Director), Michael Zose (Analyst-in-Charge), and Kate Tussey made major contributions to this report. Also contributing were Krister Friday, Jacquelyn Hamilton, and Vikki Porter.	[ "Questions have been raised about the lack of timeliness of TPAs' payments to community providers under the Choice Program and how this may affect the willingness of providers to participate in the program as well as in the forthcoming Veterans Community Care Program. You asked GAO to review issues related to the timeliness of TPAs' payments to community providers under the Choice Program. This report examines, among other things, (1) the length of time TPAs have taken to pay community providers' claims and factors affecting timeliness of payments, and (2) actions taken by VA and the TPAs to reduce the length of time TPAs take to pay community providers for Choice Program claims. GAO reviewed TPA data on the length of time taken to pay community provider claims from November 2014 through June 2018, the most recent data available at the time of GAO's review. GAO also reviewed documentation, such as the contracts between VA and its TPAs, and interviewed VA and TPA officials. In addition, GAO interviewed a non-generalizable sample of 15 community providers, selected based on their large Choice Program claims volume, to learn about their experiences with payment timeliness. The Department of Veterans Affairs' (VA) Veterans Choice Program (Choice Program) was created in 2014 to address problems with veterans' timely access to care at VA medical facilities. The Choice Program allows eligible veterans to obtain health care services from providers not directly employed by VA (community providers), who are then reimbursed for their services through one of the program's two third-party administrators (TPA). GAO's analysis of TPA data available for November 2014 through June 2018 shows that the length of time the TPAs took to pay community providers' clean claims each month varied widely—from 7 days to 68 days. VA and its TPAs identified several key factors affecting timeliness of payments to community providers under the Choice Program, including VA's untimely payments to TPAs, which in turn extended the length of time TPAs took to pay community providers' claims; and inadequate provider education on filing claims. VA has taken actions to address key factors that have contributed to the length of time TPAs have taken to pay community providers. For example, VA updated its payment system and related processes to pay TPAs more quickly. According to VA data, as of July 2018, VA was paying at least 90 percent of the TPAs' invoices within 7 days. In addition, VA and the TPAs have taken steps to improve provider education to help providers resolve claims processing issues. However, 9 of the 15 providers GAO interviewed said they continue to experience lengthy telephone hold times. According to VA and TPA officials, steps have been taken to improve the customer service offered to community providers. However, VA officials do not collect data on or monitor TPA compliance with customer service requirements—such as calls being answered within 30 seconds or less—for provider calls because they said they are not enforcing the requirements and are allowing TPAs to prioritize calls from veterans. Without collecting data and monitoring compliance, VA does not have information on challenges providers may face when contacting TPAs to resolve payment issues. GAO is making two recommendations, including that VA should collect data on and monitor compliance with its requirements pertaining to customer service for community providers. VA concurred with GAO's recommendations and described steps it will take to implement them." ]	5,443	gov_report	en	null	dc4d20da774e559790d83f40bc02e80ae9176495947a625a
WMATA was created in 1967 through an interstate compact—matching legislation passed by the District of Columbia, state of Maryland, and Commonwealth of Virginia, and then ratified by Congress—to plan, develop, finance, and operate a regional transportation system in the National Capital area. A board of eight voting directors and eight alternate directors governs WMATA. The directors are appointed by the District of Columbia, Virginia, Maryland, and the federal government, with each appointing two voting and two alternate directors. WMATA operates six rail lines—the Red, Orange, Blue, Green, Yellow, and Silver Lines—connecting various locations within the District of Columbia, Maryland, and Virginia. WMATA’s rail system has 118 linear miles of guideway: 51 miles of subway, 58 miles at ground level, and 9 miles on aerial structures. WMATA’s capital investments are funded through multiple sources. These include a combination of grants it receives from the federal government, along with matching funds and other contributions it receives from the states and local jurisdictions in which it operates (see fig. 1). From fiscal years 2011 through 2017, WMATA received about $5.8 billion in capital funding. Over half of this funding came from the federal government ($3.2 billion), and state and local jurisdictions provided 41 percent ($2.4 billion). WMATA also took on about $230 million in long- term debt to finance its capital program during this time period. The federal funding included grant awards, in addition to annual appropriations authorized under PRIIA. In 2008, PRIIA authorized $1.5 billion to WMATA, available in increments over 10 years beginning in fiscal year 2009, or until expended, for capital improvements and preventive maintenance. PRIIA funding and certain federal grants require state or local jurisdictions to provide matching funds. Additionally, a large portion of funding from state and local jurisdictions is governed by capital-funding agreements, which are periodically negotiated between WMATA and the states and localities. From fiscal years 2011 through 2017, state and local jurisdictions contributed on average about $340 million annually to WMATA, generally for capital purposes. The annual capital contributions from the jurisdictions are expected to more than double as a result of the recent legislation enacted by the District of Columbia, Maryland, and Virginia in 2018. In addition, WMATA officials told us that it will have the ability to further leverage this dedicated funding and issue debt to finance its capital projects. WMATA has several steps in its capital planning process. These include developing the following: Capital Needs Inventory. WMATA periodically identifies its capital investment needs in this inventory. WMATA issued a Capital Needs Inventory in February 2010 and another in November 2016, each covering a 10-year period. According to WMATA, Capital Needs Inventories help inform the annual capital budget and capital improvement program. Annual Capital Budget. Each year, WMATA prepares an annual capital budget, which identifies projects WMATA plans to undertake in the next fiscal year. WMATA’s fiscal year 2019 annual capital budget was approved by the board of directors at $1.3 billion. Six-Year Capital Improvement Program. Within WMATA’s annual capital budget, WMATA includes a Six-Year Capital Improvement Program identifying capital projects WMATA plans to implement over a 6-year period. WMATA’s most recent Six-Year Capital Improvement Program (covering the fiscal year 2019—2024 period) was approved by the board of directors at $8.5 billion. According to WMATA officials, WMATA is currently implementing a new capital planning process through which it will develop its fiscal year 2020 Capital Budget and fiscal year 2020-2025 Six-Year Capital Improvement Program. WMATA adopts and implements the capital budget by June 30 for the new fiscal year, which begins on July 1. The fiscal year 2020 Capital Budget is scheduled to be adopted and implemented by June 30, 2019. Among other things, the goals and objectives of this new capital planning process are to construct an objective, data-driven, and risk-based approach to estimate major rehabilitation and capital asset replacement needs; build a capital investment prioritization methodology aligned with WMATA’s strategic goals and grounded in asset inventory and condition assessments; and develop a process that will support the construction and ongoing stewardship of its Transit Asset Management Plan. The latter is discussed in more detail below. WMATA has also recently undertaken efforts to address issues related to the condition and maintenance of its track. After SafeTrack concluded in June 2017, WMATA implemented what officials describe as its first track preventive maintenance program designed to incorporate industry-wide best practices related to track maintenance, in order to improve the rail system’s long-term safety and reliability. The new program commenced in June 2017, and WMATA’s board reduced late-night service to allow for longer maintenance work hours. To make the best use of the extra maintenance hours, WMATA focused its new program on six separate initiatives that together would address what WMATA viewed as its two most pressing track maintenance concerns—electrical fires caused by cable and insulator defects along the track wayside, and defects to the track itself, including unsecured rail fasteners and worn track switches (see table 1). These initiatives are planned to cover the entire transit system and will take various amounts of time to complete. FTA also plays a role in WMATA activities by providing and directing the use of federal funds, overseeing safety, and requiring transit asset management. FTA provides grants that support capital investment in public transportation, consistent with locally developed transportation plans, and has provided such funding to WMATA as noted above. Additionally, though states play a role in safety oversight of rail transit systems through state safety oversight programs, FTA also has the authority to conduct various safety oversight activities such as inspections and investigations. Furthermore, FTA has the authority to assume temporary, direct safety oversight of a rail transit system if it finds the state safety oversight program is inadequate, among other things. After FTA conducted a safety management inspection and issued a safety directive with 91 required actions, it found WMATA’s state safety- oversight program to be inadequate and assumed direct safety-oversight of WMATA in October 2015. Finally, FTA is responsible for assisting public transportation systems to achieve and maintain their infrastructure, equipment, and vehicles in a state of good repair. Specifically, in July 2016, FTA issued regulations establishing a National Transit Asset Management System. Applicable transit agencies were required to have an initial transit asset management plan completed by October 1, 2018. For “tier I providers,” such as WMATA, this plan is to contain nine elements, including an inventory of the number and type of capital assets, and a condition assessment of those inventoried assets for which a provider has direct capital responsibility. WMATA completed its Transit Asset Management plan, dated October 1, 2018. This plan outlines WMATA’s policy, approach, and targeted actions to improve its asset management practices over the next 4 years. WMATA expends its capital funds on a variety of capital assets as part of its capital budget and Capital Improvement Program. From fiscal year 2011 through 2017, WMATA expended approximately $5.9 billion on capital investments. Of this amount, WMATA expended the largest portion on assets related to the replacement, rehabilitation, and maintenance of its revenue vehicles (railcars, buses, and vans) and lesser amounts on other categories of assets, as discussed below and shown in figure 2. Rail and Bus Vehicle Fleet: WMATA expended approximately $2.16 billion (36 percent) of the total $5.9 billion on projects related to its rail and bus fleet from fiscal years 2011 through 2017. The $2.16 billion included approximately $1.1 billion (51 percent) on replacing, expanding, and rehabilitating its rail fleet and approximately $956 million (44 percent) on its bus fleet. According to WMATA, it initiated its railcar replacement program in 2005 to increase capacity and reduce maintenance costs. In addition, a June 2009 Red Line collision of two trains near Fort Totten resulted in nine deaths and led the NTSB to recommend that WMATA retire and replace all 1000 series railcars. From fiscal year 2011 through 2017, WMATA expended almost $656 million on replacing these and other railcars and expanding its overall fleet. This effort includes WMATA’s planned purchase of a total of 748 new 7000-series railcars (see fig. 3). Approximately $530 million was expended on replacing vehicles from fiscal years 2015 through 2017. For example, in fiscal year 2017 WMATA accepted delivery of about 50 percent (364 railcars) of its planned purchase of 748, 7000-series railcars. WMATA expects to complete its current railcar replacement program by fiscal year 2024, with an estimated total program cost of about $1.7 billion. Fixed Rail Infrastructure: WMATA expended about $1.23 billion of the total $5.9 billion (21 percent) to maintain its fixed-rail infrastructure. Of this $1.23 billion, WMATA expended about $650 million (53 percent) on rail infrastructure and rehabilitation projects and $573 million (47 percent) on improvements to its track and structures (e.g., bridges and tunnels). According to WMATA, the rail infrastructure and rehabilitation projects began in 2009 and were the first comprehensive rehabilitation of WMATA’s rail infrastructure in its history. Typical projects included rehabilitating WMATA’s water drainage pumps and tunnel ventilation, fire, and communications systems, among other things. WMATA work related to track and structures involved the maintenance and rehabilitation of the steel rail that guides railcars, the cross ties and fasteners that hold the rail in place, the third rail that provides power to trains, and the bridges and tunnels the track runs on or through. The share of WMATA’s total capital expenditures going to track and structures increased from about $80 million in fiscal year 2016 to $158 million in fiscal year 2017. This expenditure was primarily to implement SafeTrack. Maintenance Facilities and Equipment: WMATA expended approximately $1.1 billion of the total $5.9 billion (19 percent) on assets related to maintenance facilities and equipment, which include rail yards, bus garages, and equipment used to rehabilitate and maintain WMATA’s track and vehicle fleet. For example, from fiscal years 2011 through 2017 WMATA expended approximately $75 million in constructing the Cinder Bed Road bus maintenance facility in Lorton, Virginia. Passenger and Other Facilities: WMATA expended about $814 million of the total $5.9 billion (14 percent) on passenger, business, and security support facilities. Such facilities include rail and bus stations, police facilities, and elevator and escalator rehabilitation. Business Systems and Project Management Support: WMATA also expended about $628 million of the total $5.9 billion (11 percent) on assets related to operations and business support software and equipment. From fiscal years 2011 through 2017, WMATA frequently over-estimated in its annual budgets the annual amount of capital investments it could implement (see fig.4). Out of the approximately $7.5 billion that WMATA budgeted for capital investments over this period, it expended approximately $5.9 billion (80 percent). WMATA’s ability to fully expend its capital budget has varied from year to year. Specifically, WMATA expended about 65 percent ($700 million) of its $1.1 billion capital budget in fiscal year 2015, compared with 85 percent ($1.1 billion) of its $1.2 billion capital budget in fiscal year 2016. In fiscal year 2017, WMATA expended nearly 100 percent of its $1.18 billion capital budget. WMATA attributed the increased expenditures to intensified efforts to address deferred maintenance, primarily through the SafeTrack initiative and an increased delivery and acceptance rate for the new 7000-series railcars, among other things. The total amount expended in fiscal year 2017 to replace the older railcars with new vehicles totaled about $335 million. According to WMATA, there are a number of reasons why it has not fully expended its capital budget in any given year: Contracting and Scheduling Issues: WMATA officials stated that there were contract and scheduling delays in the implementation of planned capital projects. For example, WMATA officials said contracts were sometimes not executed during the fiscal year in which funds were originally budgeted for the work, and in other instances contract work was not carried out according to schedule and expenditures were delayed. Changing Priorities: WMATA officials stated that in some instances, the reevaluation and reprioritization of contracted projects affected WMATA’s ability to expend its capital budget. In such cases, new capital needs were sometimes identified and prioritized over other needs, which caused delays in work schedules and potential financial claims by contractors due to delays. For example, WMATA stated that in fiscal year 2011 the initiation of the Red Line rehabilitation program was delayed as a result of the prioritization of the safety needs in response to the 2009 Fort Totten accident. Federal Reimbursement Restrictions: WMATA officials cited FTA restrictions on its reimbursement of federal funds between fiscal years 2014 and 2015 as a reason for its inability to expend budgeted capital funds in those years. In a financial management oversight review completed by FTA in 2014, FTA found material weaknesses and significant deficiencies in WMATA’s financial management controls, policies, and procedures regarding its receipt of federal grant funds. Based on these preliminary findings, FTA restricted WMATA’s ability to automatically access federal grant reimbursements until WMATA undertook corrective actions. During these years, WMATA reported its management slowed expenditures on targeted capital projects due to concerns over reimbursement of grants. By October 2017, after WMATA implemented an action plan to improve its financial controls, FTA reinstated WMATA’s ability to automatically receive all awarded federal funds on a regular schedule. Unpredictable Funding: WMATA officials stated that unpredictable funding affected the level of its capital expenditures from year to year. Since WMATA had multi-year capital projects with multi-year procurements, according to WMATA officials, uncertainty with regard to how much capital funding would be received on an annual basis affected the implementation of projects. Inadequate Capital Planning Process: WMATA attributed some of its inability to expend budgeted capital funds to the absence of a uniform and efficient capital planning process. According to WMATA, it lacked formal procedures to initiate projects and newer projects often experienced delays in implementation, which delayed expenditures on these projects. Later in this report, we discuss WMATA’s efforts to develop a new capital planning process. Although WMATA expended more of its capital budget in fiscal year 2017 than it had in prior years, it estimated that capital spending will need to increase even more to address state-of-good-repair needs. In 2016, WMATA projected that its state-of-good-repair needs amounted to about $17.4 billion from 2017 through 2026. This level is almost $10 billion more than WMATA estimated for its state-of-good-repair needs from 2011 through 2020 in its February 2010 Capital Needs Inventory. WMATA officials attributed the increase to a capital planning process insufficient to identify capital needs and an increase in cost of needs that were previously unmet. In addition, WMATA officials said the quality and quantity of asset data had improved over time. To address its state-of- good-repair needs, in November 2016 WMATA estimated that it will need to expend about $1.74 billion annually on capital expenditures from 2017 through 2026. This is more than twice the $845 million average annual capital expenditures from fiscal year 2011 through fiscal year 2017. WMATA’s new capital planning process could address some of the weaknesses it identified in the previous process, such as better distinguishing capital needs (investments in groups of related assets) from capital projects (investments in specific assets). However, WMATA has not established documented policies and procedures to guide the developed performance measures to assess capital projects and the capital planning process; and developed a plan to obtain complete information about the inventory and condition of WMATA assets. These remaining weaknesses could hinder sound capital investment decisions. WMATA’s new capital planning process could facilitate better identification of capital investment needs. Leading practices for capital planning, among other things, call for an organization to conduct a comprehensive assessment of its needs to meet its mission. WMATA uses the Capital Needs Inventory to assess its capital needs over a 10- year period across its various assets and help identify specific projects to include on subsequent capital improvement programs. In November 2016, WMATA issued its most recent Capital Needs Inventory, covering calendar year 2017 through 2026, and reported there were weaknesses and limitations in the process used to prepare the previous Capital Needs Inventory, issued in 2010. Those weaknesses and the actions WMATA has taken to address them include the following: Distinguishing capital needs from capital projects. WMATA reported in 2016 that the 2010 Capital Needs Inventory was primarily a list of proposed projects and did not provide proper attention to evaluating WMATA’s overall asset needs and the readiness of projects for programming in the capital improvement program. WMATA has taken actions to potentially address this weakness. In April 2016, WMATA issued a policy/instruction document that established policies and procedures for preparing capital needs inventories. This document defined the process for capital needs identification and established a framework evaluating and prioritizing capital investment needs. Among other things, this framework requires that WMATA departments develop capital needs justification packages and that these packages be reviewed by the Capital Program Advisory Committee for completeness and accuracy before being forwarded for further review. The guidance also requires that WMATA’s strategic objectives be considered when identifying and prioritizing capital projects. Qualitative rather than quantitative prioritization of needs. In 2016, WMATA reported that the prioritization of capital needs in the 2010 Capital Needs Inventory was primarily based on qualitative assessments by management rather than being driven by quantitative information and condition assessments. According to WMATA, the 2010 Capital Needs Inventory was largely based on the professional judgment of staff in consideration of WMATA’s strategic goals but was not data-driven. WMATA has taken actions to address this weakness by issuing a policy that requires WMATA’s senior management serving on the Capital Program Advisory Committee to use a more quantitative-based capital prioritization formula in preparing the Capital Needs Inventory. For example, the November 2016 Capital Needs Inventory used a quantitative approach to rank and prioritize capital needs. This approach included the use of four criteria—asset condition, safety and security, service delivery, and ridership impact— to numerically score capital needs and WMATA then used a risk- based weighting approach to combine these criteria into a single overall prioritization score. While WMATA has addressed some weaknesses it identified in its prior planning, it has not established documented policies and procedures to guide the annual capital planning process, or developed measures to assess capital project and program performance and a plan to obtain complete information on its assets and their physical condition. Although WMATA established policies and procedures for prioritizing capital needs—that is, investments in groups of related assets—for the 2016 Capital Needs Inventory, it has not established documented policies and procedures for the new capital planning process, including how WMATA will rank and select individual projects to address those needs through its annual capital budgets and Six-Year Capital Improvement Program. For example, through its Capital Needs Inventory WMATA stated it needed to invest $17.4 billion over a 10-year period to address its state-of-good-repair needs, including replacing vehicles, rehabilitating stations, and investing in other types of assets. WMATA uses the annual capital budget and Six-Year Capital Improvement Program to identify the specific projects to be funded to meet the 10-year investment needs. However, because WMATA has not established documented policies and procedures for the new capital planning process, it has not yet identified the specific methodologies to rank and select projects for funding on an annual basis. According to WMATA officials, the legacy annual capital planning process was based on implementing the list of projects that resulted from its 2010 Capital Needs Inventory and WMATA did not have a documented capital planning process that it followed on an annual basis. WMATA officials told us that the legacy capital planning process was “ad hoc” in nature, in part because WMATA was reacting to emergencies. For example, because WMATA needed to address the NTSB recommendation to replace the 1000-series railcars and address FTA safety directives after the 2015 smoke incident at the L’Enfant Plaza Station, it did not adhere to a formal annual-planning process. The COSO internal control standards point out the importance of organizations documenting their processes to facilitate retention and sharing of organizational knowledge. Leading practices contained in the Executive Guide also recommend that organizations have defined processes for ranking and selecting projects for capital funding. In addition, the Executive Guide noted that organizations find it beneficial to rank projects because the number of requested projects often exceeds available funding. Officials from all five of the peer transit agencies we spoke with told us they had or planned to develop documented processes for making capital investment decisions. For example, officials from four of the five peer transit agencies we spoke with said they use a project scoring and ranking system in their capital planning process, and officials from the fifth agency told us it plans to develop such a system. Officials from one agency provided us with its project evaluation and scoring system that assigns scores using eight selection criteria that are tied to the agency’s strategic business plan and state priorities. The selection criteria include such things as system preservation, safety, and cost-effectiveness. Officials from another agency told us they use an analytical tool to score projects and that every project (new or existing) gets re-scored annually. As a result of WMATA not having documented policies and procedures for its capital planning process, it is unclear how important parts of the process will work and the basis for WMATA’s investment decisions. WMATA has outlined some high-level policies for the capital planning process and prepared limited guidance for certain parts of the process. For example, WMATA officials told us that its recently issued Transit Asset Management Plan contains asset management policies that address the ranking and selecting of capital projects. Although the Transit Asset Management Plan discusses the process for estimating and prioritizing capital needs and, which are precursors of projects, the plan does not specifically address how projects would be selected for annual capital budgets and the capital improvement program. In addition, WMATA developed limited guidance for staff to use in developing new capital projects. Under this guidance, capital funds could be provided to evaluate, plan, and develop projects. While this guidance may be useful for developing projects, it does not establish the policies and procedures WMATA will follow to decide which projects will be funded through the annual capital budget and the capital improvement program. Further, the documentation prepared by WMATA to date does not establish policies and procedures for the entire capital planning process and how decisions will be made throughout the process. WMATA reported in its fiscal year 2019 annual budget that it had created a capital program manual that identifies the roles, responsibilities, processes, and calendars of events to inform the fiscal year 2020 capital program. WMATA officials told us that the previous Director of the Capital Planning and Program Management Department had included this information in the draft budget proposal when these documents were being developed. However, WMATA officials told us that these documents were not completed, and that the information was mistakenly not removed from the budget before the previous director of the department left the agency. WMATA officials told us they plan to formalize policies, procedures, and manuals for the fiscal year 2021–2026 capital-investment program cycle. The current leadership of the Capital Planning and Program Management Department told us that given the time-constraints facing WMATA in the current fiscal year 2020 planning cycle, WMATA decided not to formally document the new capital planning process until after WMATA has had a chance to test it through the current planning cycle to see how it works. According to the official, the department’s leadership has instructed staff to document steps taken in implementing the new process so that WMATA will have the opportunity to learn from the new process and make necessary changes before developing formal, written procedures that will guide future planning cycles. Although delaying formal development of policies and procedures may provide an opportunity to learn from the process while implementing it, it does not provide the guidance necessary now as WMATA uses its new capital planning process to develop the fiscal year 2020 capital program. In particular, because WMATA has not established policies and procedures for ranking and selecting projects, WMATA does not have a framework or clear criteria for programming projects in the annual capital budget for fiscal year 2020. WMATA has proposed a fiscal year 2020 capital budget of $1.4 billion. In addition, WMATA’s plan to document steps taken in implementing the new process as it is occurring does not provide reasonable assurance that WMATA is making decisions using a consistent process to direct investments toward WMATA’s highest priority needs. A consistent process is all the more important to ensure that WMATA does not continue to use an ad-hoc process for capital investment decisions, as it did in its legacy process. WMATA’s annual capital spending is anticipated to increase substantially over the fiscal year 2020-2025 period, as WMATA expects to be programing the additional $500 million annually for capital purposes committed by the District of Columbia, Maryland, and Virginia. Without a documented planning process that includes procedures for ranking and selecting projects for funding in the fiscal year 2020 capital budget, WMATA’s stakeholders lack reasonable assurance that WMATA’s capital investment decisions will be made using a sound and transparent process. WMATA has also not developed performance measures to assess capital projects and the capital planning process. Leading practices from the Executive Guide suggest that one way to determine if a capital investment achieved the benefits that were intended when it was selected is to evaluate its performance using measures that reflect a variety of outcomes and perspectives. By looking at a mixture of measures, such as financial improvement and customer satisfaction, managers can assess performance based on a comprehensive view of the needs and objectives of the organization. Leading organizations we studied in preparing the Executive Guide, such as private sector companies, use financial and non-financial criteria for success that are tied to organizational goals and objectives. According to the Executive Guide, project-specific performance measures are then used to develop unit performance measures and goals, which are ultimately used to determine how well an organization is meeting its goals and objectives. WMATA officials told us they have not developed performance measures for assessing the performance of individual projects or the capital planning process as a whole. One WMATA official told us that WMATA would like to evaluate results of the new capital planning process to determine whether organizational goals have been met. The official suggested that WMATA would work with a consultant to demonstrate a linkage between capital planning goals and WMATA’s organizational goals. However, the official did not indicate when this step would occur or provide additional information. Moreover, it is unclear whether the official’s intentions for this effort would result in measures for assessing individual projects as well as the overall capital planning process. By developing measures, WMATA will be better positioned to assess whether specific capital investments met their intended outcomes or if the capital planning process itself is helping WMATA achieve its strategic goals and objectives and effectively using taxpayer funds. WMATA also does not have a complete inventory or physical condition assessments of its assets. Leading practices for good capital decision- making call for organizations to conduct a comprehensive assessment of their needs and identify the organization’s capabilities to meet these needs. This process includes taking an inventory of assets and their condition and assessing where there are gaps in meeting organizational needs. The Transit Cooperative Research Program has also identified asset inventory and condition assessments as the first step in determining what asset rehabilitations and replacements are needed as transit providers address their state-of-good-repair requirements. Asset inventories and condition assessments provide critical information for capital-investment decision making. WMATA has initiated various efforts to obtain better information about its assets and their condition. These efforts have included: Transit Asset Inventory and Condition Assessment Project. In 2016, WMATA began this project to provide a physical inventory of WMATA assets and their condition, in part to comply with FTA’s Transit Asset Management regulations. According to WMATA, this project was to be the cornerstone in ensuring a complete, consistent, accurate, and centralized repository of relevant asset-related data. However, WMATA officials said that the project primarily focused on obtaining an inventory and condition assessment of WMATA facilities and equipment. A February 2018 WMATA memo to senior management stated that even when the project was completed, WMATA would still lack a robust database of track, guideway, infrastructure (e.g., tunnels and bridges), systems, and communication assets—elements that the November 2016 Capital Needs Inventory noted were the largest gaps in the asset information used to support capital needs forecasting. According to WMATA, this project produced inventory and condition assessments for about 30 percent of WMATA’s asset base. As of October 2018, WMATA considered the project complete since it provided information to help prepare WMATA’s completed Transit Asset Management Plan, dated October 1, 2018. WMATA officials noted that they will continue to develop their asset inventories and condition assessments through its new Enterprise Asset Management Program, described below. Enterprise Asset Management Program. In December 2017, WMATA began development of an Enterprise Asset Management Program. According to WMATA, this program is an effort to institutionalize asset management practices that are aligned with industry best practices to provide, among other things, high quality asset data for informed decision-making, including for capital planning. Expected program tasks include updating asset records and improving and consolidating asset inventories in WMATA’s asset system of record (called Maximo). WMATA’s efforts to develop more complete asset inventory and condition assessments are not complete. Among other things, WMATA documentation on the Enterprise Asset Management Program cited “inattention, poor standardization, and organizational silos” as factors that have resulted in WMATA having multiple sets of asset records in various states of accuracy and usefulness. The Enterprise Asset Management Program, according to WMATA, is an effort to help address this situation and improve asset data quality, including inventory and condition assessments. Although WMATA is developing a new Enterprise Asset Management Program, it has yet to develop a plan for obtaining a complete inventory or physical condition assessments of its assets. The Project Management Institute’s Guide to the Project Management Body of Knowledge, PMBOK® Guide describes the elements of good project management and their importance in achieving organizational goals. Among these elements are: Having a project charter that formally authorizes a project, that commits resources to the activity, and that provides a direct link to organizational strategic objectives; Preparing a project plan to define the basis of the project’s work and how the work will be performed; and Establishing a monitoring and control process to track, review, and report overall progress in meeting the plan’s objectives. WMATA has prepared draft documents that describe how it will implement the Enterprise Asset Management Program and that contain some elements of good project management. For example, in January 2018 WMATA circulated a proposed charter that once approved would authorize the Enterprise Asset Management program, identify needed resources, and link to WMATA’s strategic goals. As of October 2018, this proposed charter had not yet been finalized. Draft program documents also indicate there would be a monitoring and control process that would establish regular reporting to internal stakeholders to assess program accomplishments and progress implementing the program. While WMATA has developed a proposed charter and a monitoring and control process for its Enterprise Asset Management Program, it has not established a plan for collecting asset inventory and condition assessment information. The draft program charter includes general tasks for updating asset records and improving and consolidating asset inventory data in Maximo. However, a plan would provide more specific details for how the work would be completed, such as the information to be collected on different assets, how and when this information would be consolidated into Maximo, milestones for completing the work, or how the effort would be funded. Without a plan to obtain asset inventory and condition assessment information WMATA will continue to lack critical information needed for good capital planning and sound investment decision-making. WMATA has reported significant progress toward its goals of reducing track defects and fire incidents, but still faces several challenges with implementing its track preventive maintenance program. WMATA defines an incident as any unplanned event that disrupts rail revenue service. According to WMATA officials, within the track preventive maintenance program WMATA seeks to reduce incidents specifically caused by electrical wayside fires and track defects each by 50 percent from fiscal year 2017 to fiscal year 2019. WMATA reported that in fiscal year 2018 it had met its goal for track defect incidents but not for electrical wayside fires. According to officials, track defect incidents—which include incidents caused by defective fasteners, switches, and “ballast”—were reduced by 50 percent from a total of 778 in fiscal year 2017 to 387 in fiscal year 2018. Electrical-wayside-fire incidents—including incidents caused by cable and insulator fires—went down 20 percent from a total of 55 in fiscal year 2017 to 44 in fiscal year 2018 (see fig.5). Although WMATA has reduced both track defect incidents and electrical fires, the track preventive maintenance program is not intended to address the full range of all defects and track fires that may occur on the system. WMATA officials told us that the track preventive maintenance program specifically seeks to reduce electrical-wayside-fire incidents, which are a specific sub-set of overall track fires, and does not include non-electrical fires or smoke incidents, such as the ones caused by railcars or debris. WMATA captures and publicly reports the non-electrical fires as part of its quarterly Metro Performance Report, but according to WMATA officials, these fires are not specifically addressed through the track preventive maintenance program. While electrical fires decreased in fiscal year 2018, non-electrical fires did not change, as WMATA reported 23 non-electrical fires for both fiscal years 2017 and 2018. Additionally the track preventive maintenance program addresses a certain sub-set of track defect incidents such as those caused by loose fasteners and defective switches. According to WMATA, these track defect incidents can be addressed through its track geometry, torqueing, and switch maintenance initiatives. WMATA addresses other types of track defects, such as rail breaks and third-rail defects, through its capital program. However, according to WMATA, track defects attributable to the capital program are still included as part of the overall goal to reduce all track defect incidents by 50 percent by fiscal year 2019. WMATA established goals for completing each of the six track preventive maintenance initiatives within a certain time period and reported that in fiscal year 2018 it was on-track to meet or exceed those goals for four of the initiatives. For example, in implementing its “cable meggering” initiative, WMATA established a goal to inspect and replace electric cables across its entire rail system within 4 years. According to WMATA, it met its target for fiscal year 2018 by completing 25 percent of the entire system in that year. In addition to cable meggering, WMATA also met its annual targets for the switch maintenance, track bed cleaning, and stray current-testing initiatives. As for the two initiatives behind schedule, the torqueing initiative was 70 percent complete and the tamping initiative stood at 90 percent for the 2018 target (see table 2). Officials told us they have developed various ways to improve efficiency with these initiatives. For instance, WMATA improved the productivity of its switch maintenance initiative by separating the work to inspect the switches from the follow-up repair work to grind and weld them. These activities had previously been conducted by the same team. However, WMATA faces challenges in implementing the track preventive maintenance program moving forward. WMATA officials described track preventive maintenance as a necessary operation that must be continuously performed and balanced in conjunction with regular train operations that provide service to their customers. According to WMATA officials, executing this new program requires regular refinements to ensure it continues to progress toward its desired outcomes. Among the implementation challenges identified by WMATA officials were the following: Securing Sufficient Track Time. WMATA officials told us that getting adequate time to perform track maintenance is difficult because it requires reducing the number of hours in which WMATA provides service to customers. Consequently, increased maintenance hours can result in lost revenue. Officials from the peer transit agencies we interviewed stated that the tension between conducting maintenance and providing service is common in the transit industry. According to WMATA officials, prior to SafeTrack, windows for performing track maintenance were not sufficient to complete all necessary work, partially because of this need to balance maintenance hours and service hours. To address this issue, WMATA increased its weekly overnight work hours from 33 hours to 39 hours during SafeTrack. After SafeTrack was complete, WMATA extended weekly overnight work hours again to a total of 41 hours. However, maintaining these extended overnight work hours past fiscal year 2019 requires approval from WMATA’s board of directors. As a result, the long-term viability of WMATA’s track preventive maintenance program is partially dependent on the board’s decision to balance the competing demands for service hours and maintenance time. Work Time Productivity. To maintain extended track-maintenance hours into succeeding years, it will be important for WMATA to demonstrate the new program’s productivity. According to WMATA officials, making the most productive use of the extended working hours is a challenge, but it will be necessary to justify the extended maintenance windows. WMATA officials told us that only a portion of overnight work hours yields productive maintenance time. For example, once a line ceases operations, it takes an additional hour for all trains to reach their final destination, and another hour after that to safely turn off all power running to the track and then establish a work zone. Once maintenance work is completed, additional time must be allotted for restoring power and allowing trains to move back into position. Because of these requirements, a five-hour work window may only yield two hours of productive work time (called “wrench time”). For this reason, WMATA began tracking its wrench time at the beginning of fiscal year 2018. As of June 2018, WMATA reported that average wrench time had increased from about 2.0 hours per day in July 2017 to 2.37 hours. Resource Constraints. According to WMATA officials, having sufficient people with the necessary skills and experience to perform track maintenance work is a significant challenge. For instance, expanded maintenance windows have increased WMATA’s workforce requirements. As a result, WMATA has used contractors to assist with its stray-current testing and track bed cleaning initiatives. In another example, WMATA’s torqueing initiative is particularly resource intensive as the entire rail system contains 135 miles of “direct fixation” track, where the torqueing work is being done, and over 504,000 fasteners to check and tighten as necessary. According to WMATA officials, bolts and fasteners are torqued during their initial installment and then again 90 days afterward as part of the initial capital expenditure. After that, any subsequent torqueing is executed as part of the new track preventive maintenance program. WMATA stated that the torqueing initiative seeks to torque all 135 miles of direct fixation track annually. WMATA officials said the torqueing initiative is a mix of contractor and in-house staff, with contractors supplementing WMATA forces as needed. WMATA’s track preventive maintenance program has followed certain leading program management practices such as establishing key performance metrics and monitoring progress toward them. Leading practices recommend that organizations establish performance baselines for their programs and communicate performance metrics to key stakeholders. For instance, as previously noted, WMATA established a measureable program goal to reduce track-defect and electrical-wayside- fire incidents by 50 percent within 2 years, and WMATA also established time periods to complete its system-wide preventive maintenance initiatives. In addition, WMATA’s Rail Services Department—which manages the track preventive maintenance program—among other things, holds a monthly “RailSTAT” meeting in which the teams leading the preventive maintenance initiatives report their progress toward these goals to WMATA’s management. However, WMATA’s program does not fully align with other applicable internal-control standards or leading program-management practices. Specifically, COSO internal control standards and leading practices identified by the Project Management Institute’s The Standard for Program Management stresses the importance of identifying and assessing program risks and developing a program management plan. COSO recommends that organizations identify risks to the achievement of its objectives and analyze risks as a basis for determining how the risks should be managed. Furthermore, the risk identification is to be comprehensive. The Standard for Program Management also recommends that when identifying risks, the assessments be both qualitative and quantitative in nature. Regarding program management plans: The Standard for Program Management recommends that organizations develop program management plans that align with organizational goals and objectives. This includes aligning the program management plan with the organization’s overall strategic plan. Elements of the plan are to provide a roadmap that identifies such things as milestones and decision points to guide program activities. In developing the track preventive maintenance program, WMATA did not fully identify or quantitatively assess risks associated with the program. WMATA officials told us that in developing the track preventive maintenance program they used their professional judgment to identify track-defect and fire incidents as the most significant risks that they needed to address through the program. However, WMATA’s risk identification was not comprehensive in nature, as it only considered two technical aspects of track maintenance: electrical fires and track defects. As previously mentioned, non-electrical fires—which were not included in the scope of the program or risk assessment—did not change from fiscal year 2017 through 2018 and represent approximately 30 percent of all fires on the system over those years. Although WMATA officials told us in designing the program they reviewed track-related incident data from 2016, they did not quantitatively analyze the impact of these incidents on service or safety. In addition, WMATA did not consider broader strategic risks to its program, such as the availability of a program’s funding and stakeholders’ support for the continuation of the program. Specifically, while WMATA has identified several challenges with implementing the program—such as securing sufficient track time, demonstrating work time productivity, and overcoming resource constraints—none of these factors, or potential mitigations, were documented in a risk assessment in developing the program. WMATA has also not prepared a program management plan for the track preventive maintenance program. Although WMATA has identified program goals, officials told us that WMATA has not formally documented the overall structure of the program or how it would be implemented. Instead, the officials said the presentations they provide to WMATA’s board of directors, along with their ongoing staff and executive team meetings, regarding the track preventive maintenance program cover the relevant information needed for running the program. While providing such information to the WMATA board of directors provides some accountability for the program, these presentations do not represent a formal program management plan that links with WMATA’s strategic plan or that identifies milestones and decision points necessary to guide the program. As we previously reported, WMATA did not develop a project management plan before starting its SafeTrack work, and due to this omission and other issues, we found that WMATA lacked assurance that the approach taken with SafeTrack was the most effective way to identify and address safety issues. Furthermore, as this is the first time WMATA has implemented a track preventive maintenance program, a program management plan could help formally establish the program, provide strategic guidance for this new program by providing accountability for both internal and external stakeholders, and ensure that program goals are met. A program management plan could also provide practical benefits, such as helping ensure that WMATA’s extended overnight work hours are efficiently implemented and that sufficient resources are devoted to the program. Without the strategic direction provided by a comprehensive risk assessment and a formal program management plan, WMATA lacks a documented vision for how the track preventive maintenance program should be structured and implemented in order to meet the agency’s strategic goals and improve track safety. Specifically, without a risk assessment that uses quantitative and qualitative data to assess risks— such as data for all fires on the system and qualitative risks such as securing sufficient time for maintenance—WMATA lacks assurance that the program is comprehensively designed to address risks affecting the safety of the rail system or other risks that could hinder the program’s success. Moreover, a program management plan that draws on information from a comprehensive risk assessment would provide WMATA officials with the assurance that they are prepared to respond to current and future challenges that could threaten the long-term viability of the program. Finally, although WMATA developed the track preventive maintenance program to prevent the need for another emergency repair project like SafeTrack, without a formal program management plan, the WMATA employees charged with managing and implementing the program lack an important document to guide their decision-making to meet that objective and the agency’s overall strategic objectives. Developing a program management plan would outline the specific requirements to successfully implement the program, including necessary track time, expected productivity of program initiatives, and required resources. Furthermore, it would provide WMATA’s board of directors with confidence that the program has a clear roadmap with milestones and decision points as the board considers maintaining the extended overnight work hours necessary to implement the program. WMATA’s rail and bus systems provide nearly a million passenger trips each day, and those passengers rely on WMATA for safe and reliable public transportation in the nation’s capital and the surrounding areas. The federal, state, and local jurisdictions that fund WMATA expect WMATA to wisely use taxpayer funds to ensure the system is safe and reliable. WMATA can better meet these expectations by establishing documented policies and procedures that outline how the new capital planning process will work and the basis of investment decisions. In addition, developing measures to assess the performance of individual projects and the capital planning process would provide greater assurance to WMATA’s funding partners that its investment decisions result in a measurable improvement in operating performance, reliability, or other metrics. Furthermore, WMATA’s recent efforts to establish an Enterprise Asset Management Program, once finalized, could help WMATA develop a more complete inventory of its assets and collect critical information on their condition—both of which are consistent with sound capital planning. However, without a plan that provides specific details for obtaining this information, WMATA will continue to lack the critical asset information necessary to make lasting improvements in its capital planning process and make sound capital-investment decisions. Similarly, track preventive maintenance plays a critical role as WMATA works to reduce the track defects and fires that have endangered safety and service reliability. WMATA could better demonstrate the direction of the track preventive maintenance program and how it can improve track safety by more comprehensively assessing the technical and broader risks facing the program and by developing a formal plan that provides greater assurance WMATA is prepared to address challenges that could threaten the long-term viability of the program. Both actions would help WMATA better focus the program on critical maintenance needs and demonstrate its value to WMATA’s board of directors and other stakeholders as WMATA endeavors to provide safe, reliable, and quality service to its riders. We are making the following five recommendations to WMATA. The General Manager of WMATA should establish documented policies and procedures for the new capital planning process. These policies and procedures should include methodologies for ranking and selecting capital projects for funding in WMATA’s fiscal year 2020 capital budget and fiscal years 2020-2025 Capital Improvement Program and for future planning cycles. (Recommendation 1) The General Manager of WMATA should develop performance measures to be used for assessing capital investments and the capital planning process to determine if the investments and planning process have achieved their planned goals and objectives. (Recommendation 2) The General Manager of WMATA should develop a plan for obtaining complete information regarding WMATA’s asset inventory and physical condition assessments, including assets related to track and structures. (Recommendation 3) The General Manager of WMATA should conduct a comprehensive risk assessment of the track preventive maintenance program that includes both a quantitative and qualitative assessment of relevant program risks. In addition to considering technical program risks, WMATA should also consider broader program risks, such as the availability of funding for the program and stakeholders’ support. (Recommendation 4) The General Manager of WMATA should prepare a formal program management plan for the track preventive maintenance program that aligns with WMATA’s strategic plan, addresses how the program is linked to overall strategic goals and objectives, and includes program milestones and decision points. (Recommendation 5) We provided a draft of this report to WMATA and the Department of Transportation for review and comment. WMATA provided written comments, which are reprinted in appendix II, and technical comments, which we incorporated as appropriate in the report. The Department of Transportation provided technical comments, which we incorporated as appropriate. WMATA concurred in part, or with the intent of four of the recommendations, and disagreed with a fifth. Specifically, regarding the first recommendation, which is that WMATA establish documented policies and procedures for the new capital planning process, and that the policies and procedures include methodologies for ranking and selecting capital projects for the fiscal year 2020 capital budget and fiscal year 2020—2025 capital-improvement program. WMATA stated that it agreed with the recommendation, in part. WMATA said it will continue its efforts to finalize and document policies and procedures for the capital planning process for fiscal year 2021 and beyond. WMATA noted that it already has in place numerous planning tools, such as the 2016 Capital Needs Inventory assessment, which helped inform the fiscal year 2020 capital planning process. According to WMATA, it is currently reviewing policies, procedures, training materials, and other documents for the fiscal year 2020 planning process, and those documents will be updated and formalized through final documentation in fiscal year 2021. WMATA noted that it anticipates that many of the elements we recommend regarding the capital planning process will be part of the process documented in fiscal year 2021. For example, WMATA expects that additional automation, decision-making, governance, and reporting capabilities, will be part of the process that will be documented for fiscal year 2021. However, while WMATA has tools available to inform the capital planning process, it has not prepared documented policies and procedures for this process in fiscal year 2020. As we reported, without documented policies and procedures, including those for ranking and selecting projects for the fiscal year 2020 capital budget, WMATA’s stakeholders do not have reasonable assurance that capital investment decisions are made using a sound and transparent process. Taking action now to establish methodologies for ranking and selecting projects for the fiscal year 2020 capital budget would provide WMATA with an opportunity to improve upon those methodologies for the fiscal year 2021 capital planning process to better ensure investments are directed to WMATA’s highest priority needs. As such, we continue to believe this recommendation is valid and that WMATA should fully implement it. Regarding the second recommendation that WMATA develop performance measures for assessing capital investments and the capital planning process, WMATA stated that it agreed with the intent of the recommendation. WMATA also stated that it has developed such measures through compliance with federal requirements, including the FTA’s performance-based planning requirements and the requirement under MAP-21 that tier I transit providers, such as WMATA, establish state-of-good-repair targets that are linked to the capital program. WMATA noted these targets are set forth in its Transit Asset Management Plan. Although WMATA’s October 2018 Transit Asset Management plan includes some broad performance measures and targets for the state-of-good-repair for its various asset classes, as we reported, WMATA has not developed performance measures to assess individual capital projects or the capital planning process itself, as suggested by leading practices in the Executive Guide. As discussed in the report, such measures are important to determine if capital investments have achieved their expected benefits and if they have achieved organizational goals. Leading practices also indicate that by using a mixture of measures managers can assess performance based on a comprehensive view of the needs and objectives of an organization. These needs and objectives can go beyond just the state-of-good-repair to include such things as measures for assessing projects that would improve service reliability, expand capacity, or achieve financial objectives. We continue to believe that fully implementing this recommendation would help ensure that capital investments meet their intended outcomes and that the capital planning process helps WMATA achieve its strategic goals and objectives. Regarding the third recommendation that WMATA develop a plan for obtaining complete information about asset inventories and condition assessments, WMATA stated that it agreed with the intent of the recommendation and that its 2018 Transit Asset Management Plan outlines plans for continuing its asset inventory update. WMATA also said that it is working to ensure it has a complete asset inventory that addresses legacy information and that includes accurate, up-to-date condition assessments. As we reported, the Enterprise Asset Management Program—the program that WMATA told us it plans to use to continue development of asset inventories and condition assessments—includes some elements of good project management, but it also lacks an established plan for collecting asset inventory and condition assessment information. Without a plan to obtain asset inventory and condition assessment information WMATA will continue to lack critical information needed for good capital planning and sound investment decision-making. Thus, we continue to believe that this recommendation is valid and that WMATA should fully implement it. Regarding the fourth recommendation that WMATA conduct a comprehensive risk assessment of the track preventive maintenance program that includes both quantitative and qualitative assessment of relevant program risks, WMATA stated that it agreed with the intent of the recommendation and is putting in place a new process that will address it. Specifically, WMATA stated it is in the process of developing a new Reliability Centered Maintenance process that will include a comprehensive risk assessment of track infrastructure that includes consideration of broader risks such as costs, funding, and track access. According to WMATA, the new process is an engineering framework that will define the maintenance regimen, including preventive maintenance, and improve safety, reliability, and cost-effectiveness. During our review, WMATA officials did not discuss the Reliability Centered Maintenance process in detail or provide documentation that allowed us to evaluate how this process might interface with the current track preventive maintenance program. As a result, we were not able to evaluate how it might address identification and assessment of risks associated with track preventive maintenance. As we reported, going forward track preventive maintenance will play a critical role as WMATA works to reduce track defects and fires. We will review WMATA’s actions to conduct a comprehensive risk assessment as part of our routine recommendation follow-up process. Regarding the fifth recommendation that WMATA prepare a formal program management plan for the track preventive maintenance program, WMATA stated that it disagreed with the recommendation. WMATA noted that specific technical details of the track preventive maintenance program are evolving as it better understands the most effective maintenance regime through implementation of the Reliability Centered Maintenance process. WMATA stated that it believes the framework of Reliability Centered Maintenance is better suited to the ongoing mission of physical asset management than traditional project and program management tools. According to WMATA, the purpose of Reliability Centered Maintenance is to ensure that all efforts are focused on the safety, reliability, and cost-effectiveness of assets through their lifecycle, which is more relevant and applicable to WMATA’s strategic plan than any individual preventive maintenance program. As stated above, WMATA did not provide details about Reliability Centered Maintenance during our review so we are not able to evaluate this process in relation to the track preventive maintenance program. We will review WMATA’s actions related to implementation of the Reliability Centered Maintenance process as part of our routine recommendation follow-up process. We continue to believe this recommendation is valid and that WMATA should fully implement it. We will send copies of this report to appropriate congressional committees, the Secretary of Transportation, the Administrator of the Federal Transit Administration, and the General Manager of WMATA. In addition, we will make copies available to others upon request, and the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. This report examines: (1) How WMATA expended its capital funding from fiscal years 2011 through 2017; (2) How WMATA’s new capital planning process addresses weaknesses it identified in the previous process; and (3) WMATA’s progress toward its track preventive maintenance goals and how the program aligns with leading program management practices. For each of our objectives we reviewed pertinent federal statutes and regulations as well as WMATA and FTA policies and documents. We also selected a non-generalizable sample of five similar U.S. transit agencies based on similarity to WMATA in transit route mileage, system use, capital spending, system age, and rail fleet age. We also factored geographical diversity into our selection process. We then interviewed the officials from these selected transit agencies using a standard set of questions to learn how they utilize their capital funds, conduct capital planning, and oversee maintenance; and then we compared their processes to WMATA. Transit route mileage, system use, capital spending, and rail fleet age were measured using data from FTA’s National Transit Database. We measured system age according to data available within the American Public Transportation Association’s 2017 Public Transportation Fact Book, and geographical diversity was determined through data available from the U.S. Census Bureau. The transit agencies we selected were: (1) Bay Area Rapid Transit, Oakland, California; (2) Chicago Transit Authority, Chicago, Illinois; (3) Massachusetts Bay Transportation Authority, Boston, Massachusetts; (4) Metropolitan Atlanta Rapid Transit Authority, Atlanta, Georgia; and (5) Southeastern Pennsylvania Transportation Authority, Philadelphia, Pennsylvania. To assess WMATA’s capital spending from 2011 through 2017, we interviewed knowledgeable officials from WMATA and FTA and also reviewed WMATA annual budgets, fourth-quarter and year-end financial reports, budget reconciliation reports, comprehensive annual financial reports, and FTA grant awards. We selected fiscal year 2011 because it was the first year in which WMATA received federal funding authorized by the Passenger Rail Investment and Improvement Act of 2008 (PRIIA), and we selected fiscal year 2017 because it was the most recent year that capital expenditure data were available at the time of our review. By analyzing this information we determined that the following sources provided the most comprehensive and reliable available data on each of the following topics for our report (see table 3): We collected the aforementioned data, analyzed them to identify errors or other anomalies, and interviewed officials to determine how the data are compiled and checked for accuracy. We determined that these data had some limitations, as an external audit report of WMATA financial information for fiscal year 2016 noted a material weakness with WMATA’s process for accounting acquisition costs of capital assets. Specifically, there were inconsistencies between WMATA’s general ledger and sub- ledger, which are used to record acquisition costs, depreciation, and other financial information related to capital assets. As a result, additional steps were required to reconcile the differences between the two sources and could have resulted in a material error. However, after interviewing WMATA officials about the weakness and assessing the available financial information, we determined that the data we used were sufficiently reliable for our purpose of showing general trends of capital expenditures. Our analysis sought to depict how WMATA allocates and expends funds according to major asset categories within its capital-improvement plan. However, these asset categories only remained consistent from 2011 through 2015, and were revised during 2016 and 2017. However, we determined that each asset category consisted of Capital Improvement Projects that were each assigned a number. These projects and their corresponding numbers remained in existence from fiscal year 2011 through 2017, even though the asset categories were updated in fiscal year 2016. Tracking by Capital Improvement Project number provided a means to report consistently through that time period. Therefore, we used the asset categories from fiscal years 2011 through 2015 as our base reporting categories. These categories consisted of: (1) Vehicles/Vehicle Parts, (2) Rail System Infrastructure Rehabilitation, (3) Maintenance Facilities, (4) Systems and Technology, (5) Track and Structures, (6) Passenger Facilities, (7) Maintenance Equipment, (8) Other Facilities, and (9) Project Management and Support. We consolidated WMATA’s nine asset categories into five asset categories in order to represent broader categories of investment: Rail and Bus Vehicle Fleet (Vehicle/Vehicle Parts), Fixed Rail Infrastructure (Rail System Infrastructure and Track and Structures), Maintenance Facilities and Equipment (Maintenance Facilities and Maintenance Equipment), Passenger and Other Facilities (Passenger Facilities and Other Facilities), and Business Systems and Project Management Support (Systems and Technology and Project Management and Support). We then reviewed WMATA’s fiscal year 2016 Fourth Quarter Report, fiscal year 2017 Fourth Quarter Report, and fiscal year 2017 Budget Reconciliation Report to match each project number from those two years to their corresponding category from fiscal year 2011 through 2015. To assess WMATA’s new capital planning process and how it addresses weaknesses WMATA identified in the previous process, we interviewed WMATA officials about their capital planning process and reviewed WMATA documentation related to the capital planning process. This included Capital Needs Inventories, WMATA’s policy for preparation of the 2010 and 2016 Capital Needs Inventories, annual capital budgets—to include capital improvement programs, and guidance documents issued by WMATA related to submitting projects for inclusion in the annual capital budget. We also reviewed the fiscal year 2018 business plan for WMATA’s Capital Planning and Program Management Department. We also interviewed officials from the Metropolitan Washington Council of Governments, the American Public Transportation Association, and FTA to discuss WMATA’s capital planning and budgeting processes. Furthermore, we compared WMATA’s capital planning practices to leading practices identified in GAO’s Executive Guide. The Executive Guide was used since it identifies leading practices for capital decision- making that are applicable to a wide variety of organizations, both public and private. For example, the Executive Guide developed leading capital planning practices by (1) identifying government and private sector organizations recognized for outstanding capital decision-making practices and (2) identifying and describing the leading capital decision- making practices implemented by these organizations. To identify leading practices for capital planning, we also reviewed Transit Cooperative Research Program Report 157. This report developed a framework for transit agencies to use when prioritizing the rehabilitation and replacement of capital assets and discusses leading practices in how to do this. We also identified project management principles from the Project Management Institute, Inc. Finally, we discussed capital planning with the peer transit agencies and prepared a summary of various aspects of capital planning in these agencies. To examine progress toward goals in WMATA’s track preventive maintenance program and how the program compares with leading program management practices, we reviewed WMATA documentation about the program, interviewed WMATA officials, and analyzed track- defect data and electrical-wayside-fire data provided by WMATA for fiscal years 2016 through 2018—which were the only years detailed track defect and electrical fire incident data were available. In order to determine whether the data provided were sufficiently reliable, we checked the data for errors, conducted interviews with knowledgeable officials to learn their procedures for collecting and analyzing the data, and performed independent tests that included verifying WMATA’s final tally of track defect and fire incidents and verifying there were no extended periods of time where data was missing. We also provided a set of data reliability questions to determine whether procedures were sufficient. After performing these steps we determined that the data were sufficiently reliable for the purposes of our report. In our interviews with WMATA, officials also described what goals they had created for the track preventive maintenance program, their progress in meeting those goals, and provided documentation to demonstrate their progress, which we reviewed. We also interviewed officials from the American Public Transportation Association and the American Railway Engineering and Maintenance-of-Way Association about best maintenance practices in the transit industry. We then compared WMATA’s track preventive maintenance program to leading program management practices identified by the Project Management Institute, Inc.’s The Standard for Program Management and internal control standards published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Project Management Institute’s, standards are utilized worldwide and provide guidance on how to manage various aspects of projects, programs, and portfolios. In particular, The Standard for Program Management provides guidance that is generally recognized to support good program-management practices for most programs, most of the time. We conducted our work from November 2017 to January 2019 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Matt Barranca (Assistant Director), Richard Jorgenson (Analyst in Charge), Melissa Bodeau, Lacey Coppage, Cory Gerlach, Erin Guinn-Villareal, Kirsten Lauber, Joshua Ormond, and Patrick Tierney made significant contributions to this report.	[ "Safety incidents in recent years on WMATA's rail system have raised questions about its processes for performing critical maintenance and replacing capital assets. WMATA initiated a new preventive maintenance program for its rail track in 2017, and is currently implementing a new capital planning process. GAO was asked to examine issues related to WMATA's capital funding and maintenance practices. This report examines: (1) how WMATA spent its capital funds from fiscal years 2011 through 2017, (2) how WMATA's new capital planning process addresses weaknesses it identified in the prior process, and (3) WMATA's progress toward its track preventive maintenance program's goals and how the program aligns with leading program management practices. GAO analyzed WMATA's financial and program information, interviewed officials of WMATA, the Federal Transit Administration, and five transit agencies selected for similarities to WMATA. GAO compared WMATA's capital planning process and track maintenance program with leading practices. From fiscal years 2011 through 2017, the Washington Metropolitan Area Transit Authority (WMATA) spent almost $6 billion on a variety of capital assets, with the largest share spent on improving its rail and bus fleet (see figure). Over this period, WMATA's capital spending was, on average, about $845 million annually. WMATA's new capital planning process could address some weaknesses it identified in the prior process. WMATA established a framework for quantitatively prioritizing capital needs (investments to a group of related assets) over a 10-year period. However, WMATA has not established documented policies and procedures for implementing the new process, such as those for selecting specific projects for funding in its annual capital budget. WMATA is currently using its new capital planning process to make fiscal year 2020 investment decisions. WMATA has proposed a fiscal year 2020 capital budget of $1.4 billion. Without documented policies and procedures for implementing the new planning process, WMATA's stakeholders do not have reasonable assurance that WMATA is following a sound process for making investment decisions. WMATA has made significant progress toward its track preventive maintenance program's goals, which are to reduce both track-defect and electrical-fire incidents by 50 percent in fiscal year 2019 compared with 2017. In fiscal year 2018, WMATA met its goal for reducing track defect incidents and reduced electrical fire incidents by 20 percent. However, in designing the program, WMATA did not fully assess risks. For example, WMATA did not quantitatively assess the impact of track defects or electrical fires on its ability to provide service, nor did it consider other risks such as non-electrical track fires, which represent about 30 percent of all fires on the system, or other factors, such as resources or track time. Without a comprehensive risk assessment, WMATA lacks reasonable assurance that the program is designed to address risks affecting the safety of the rail system or other risks that could hinder the new program's success. GAO is making five recommendations, including that WMATA establish documented policies and procedures for the new capital planning process and conduct a comprehensive risk assessment for the track preventive maintenance program. WMATA described actions planned or underway to address GAO's recommendations. GAO believes the recommendations should be fully implemented, as discussed in the report." ]	10,886	gov_report	en	null	45c9d84fac2d35cc13b5a0b6716a3d1a9a5ccff921c4dd6a
The World Trade Organization (WTO) is an international organization that administers the trade rules and agreements negotiated by its 164 members to eliminate trade barriers and create nondiscriminatory rules to govern trade. It also serves as an important forum for resolving trade disputes. The United States was a major force behind the establishment of the WTO in 1995 and the rules and agreements that resulted from the Uruguay Round of multilateral trade negotiations (1986-1994). The WTO encompassed and expanded on the commitments and institutional functions of the General Agreement on Tariffs and Trade (GATT), which was established in 1947 by the United States and 22 other nations. Through the GATT and WTO, the United States and other countries sought to establish a more open, rules-based trading system in the postwar era, with the goal of fostering international economic cooperation, stability, and prosperity worldwide. Today, the vast majority of world trade, approximately 98%, takes place among WTO members. The evolution of U.S. leadership in the WTO and the institution's future agenda have been of interest to Congress. The terms set by the WTO agreements govern the majority of U.S. trading relationships. Some 65% of U.S. global trade is with countries that do not have free trade agreements (FTAs) with the United States, including China, the European Union (EU), India, and Japan, and thus rely on the terms of WTO agreements. Congress has recognized the WTO as the "foundation of the global trading system" within U.S. trade legislation and plays a direct legislative and oversight role over WTO agreements. U.S. FTAs also build on core WTO agreements. While the U.S. Trade Representative (USTR) represents the United States at the WTO, Congress holds constitutional authority over foreign commerce and establishes U.S. trade negotiating objectives and principles and implements U.S. trade agreements through legislation. U.S. priorities and objectives for the GATT/WTO are reflected in trade promotion authority (TPA) legislation since 1974. Congress also has oversight of the USTR and other executive branch agencies that participate in WTO meetings and enforce WTO commitments. The WTO's effectiveness as a negotiating body for broad-based trade liberalization has come under intensified scrutiny, as has its role in resolving trade disputes. The WTO has often struggled to reach consensus over issues that can place developed against developing country members (such as agricultural subsidies, industrial goods tariffs, and intellectual property rights protection). It has also struggled to address newer trade barriers, such as digital trade restrictions and the role of state-owned enterprises (SOEs) in international commerce, which have become more prominent in the years since the WTO was established. Global supply chains and advances in technology have transformed global commerce, but trade rules have failed to keep up with the pace of change; since 1995 WTO members have been unable to reach consensus for a new comprehensive multilateral agreement. As a result, many countries have turned to negotiating FTAs with one another outside the WTO to build on core WTO agreements and advance trade liberalization and new rules. Plurilateral negotiations, involving subsets of WTO members rather than all members, are also becoming a more popular forum for tackling newer issues on the global trade agenda. The most recent round of WTO negotiations, the Doha Round, began in November 2001, but concluded with no clear path forward, leaving multiple unresolved issues after the 10 th Ministerial conference in 2015. Efforts to build on current WTO agreements outside of the Doha agenda continue. While WTO members have made some progress toward determining future work plans, no major deliverables or negotiated outcomes were announced at the 11 th Ministerial conference in December 2017 and no consensus Ministerial Declaration was released. Many have concerns that the growing use of protectionist trade policies by developed and developing countries, recent U.S. tariff actions and counterretaliation, and escalating trade disputes between major economies may further strain the multilateral trading system. The WTO is faced with resolving several significant pending disputes, which involve the United States, and resolving debates about the role and procedures of its Appellate Body, which reviews appeals of dispute cases. In a break from past Administrations' approaches, U.S. officials have recently expressed doubt over the value of the WTO institution to the U.S. economy and questioned whether leadership in the organization is a benefit or cost to the United States. While USTR Robert Lighthizer acknowledged at the most recent Ministerial that the WTO is an "important institution" that does an "enormous amount of good," the Trump Administration has expressed deep skepticism toward multilateral trade deals, including those negotiated within the WTO. In remarks to the Asia-Pacific Economic Cooperation (APEC) forum in November 2017, President Trump stated the following: "Simply put, we have not been treated fairly by the World Trade Organization.... What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty, and make meaningful enforcement practically impossible." President Trump has also at times threatened to withdraw the United States from the WTO. In addition, amid concerns about "judicial overreach" in WTO dispute findings, the Administration is currently withholding approval for judge appointments to the WTO Appellate Body—a practice that began under the Obama Administration. While many of the U.S. concerns are not new and are shared by other trading partners, questions remain about U.S. priorities for improving the system. With growing debate over the role and future direction of the WTO, a number of issues may be of interest to Congress, including the value of U.S. membership and leadership in the WTO, whether new U.S. negotiating objectives or oversight hearings are needed to address prospects for new WTO reforms and rulemaking, and the relevant authorities and the impact of potential WTO withdrawal on U.S. economic and foreign policy interests. This report provides background history of the WTO, its organization, and current status of negotiations. The report also explores concerns some have regarding the WTO's future direction and key policy issues for Congress. Following World War II, nations throughout the world, led by the United States and several other developed countries, sought to establish a more open and nondiscriminatory trading system with the goal of raising the economic well-being of all countries. Aware of the role of tit-for-tat trade barriers resulting from the U.S. Smoot-Hawley tariffs in exacerbating the economic depression in the 1930s, including severe drops in world trade, global production, and employment, the countries that met to discuss the new trading system considered open trade as essential for peace and economic stability. The intent of these negotiators was to establish an International Trade Organization (ITO) to address not only trade barriers but other issues indirectly related to trade, including employment, investment, restrictive business practices, and commodity agreements. Unable to secure approval for such a comprehensive agreement, however, they reached a provisional agreement on tariffs and trade rules, known as the GATT, which went into effect in 1948. This provisional agreement became the principal set of rules governing international trade for the next 47 years, until the establishment of the WTO. The GATT was neither a formal treaty nor an international organization, but an agreement between governments, to which they were contracting parties. The GATT parties established a secretariat based in Geneva, but it remained relatively small, especially compared to the staffs of international economic institutions created by the postwar Bretton Woods conference—the International Monetary Fund and World Bank. Based on a mission to promote trade liberalization, the GATT became the principal set of rules and disciplines governing international trade. The core principles and articles of the GATT (which were carried over to the WTO) committed the original 23 members, including the United States, to lower tariffs on a range of industrial goods and to apply tariffs in a nondiscriminatory manner—the so-called most-favored nation or MFN principle (see text box ). By having to extend the same benefits and concessions to members, the economic gains from trade liberalization were magnified. Exceptions to the MFN principle are allowed, however, including for preferential trade agreements outside the GATT/WTO covering "substantially" all trade among members and for nonreciprocal preferences for developing countries. GATT members also agreed to provide "national treatment" for imports from other members. For example, countries could not establish one set of health and safety regulations on domestic products while imposing more stringent regulations on imports. Although the GATT mechanism for the enforcement of these rules or principles was generally viewed as largely ineffective, the agreement nonetheless brought about a substantial reduction of tariffs and other trade barriers. The eight "negotiating rounds" of the GATT succeeded in reducing average tariffs on industrial products from between 20%-30% to just below 4%, facilitating a 14-fold increase in world trade over its 47-year history (see Table 1 ). When the first round concluded in 1947, 23 nations had participated, which accounted for a majority of global trade at the time. When the Uruguay Round establishing the WTO concluded in 1994, 123 countries had participated and the amount of trade affected was nearly $3.7 trillion. As of the end of 2018, there are 164 WTO members, and trade flows totaled $22.6 trillion in 2017. During the first trade round held in Geneva in 1947, members negotiated a 20% reciprocal tariff reduction on industrial products, and made further cuts in subsequent rounds. The Tokyo Round represented the first attempt to reform the trade rules that had existed unchanged since 1947 by including issues and policies that could distort international trade. As a result, Tokyo Round negotiators established several plurilateral codes dealing with nontariff issues such as antidumping, subsidies, technical barriers to trade, import licensing, customs valuation, and government procurement. Countries could choose which, if any, of these codes they wished to adopt. While the United States agreed to all of the codes, the majority of GATT signatories, including most developing countries, chose not to sign the codes. The Uruguay Round, which took eight years to negotiate (1986-1994), proved to be the most comprehensive GATT trade round. This round further lowered tariffs in industrial goods and liberalized trade in areas that had eluded previous negotiators, notably agriculture and textiles and apparel. It also extended rules to new areas such as services, trade-related investment measures, and intellectual property rights. It created a trade policy review mechanism, which periodically examines each member's trade policies and practices. Significantly, the Uruguay Round created the WTO as a legal international organization charged with administering a revised and stronger dispute settlement mechanism—a principal U.S. negotiating objective (see text box )—as well as many new trade agreements adopted during the long negotiation. For the most part, the Uruguay Round agreements were accepted as a single package or single undertaking , meaning that all participants and future WTO members were required to subscribe to all of the agreements. The WTO succeeded the GATT in 1995. In contrast to the GATT, the WTO was created as a permanent organization. But as with the GATT, the WTO secretariat and support staff is small by international standards and lacks independent power. The power to write rules and negotiate future trade liberalization resides specifically with the member countries, and not the WTO director-general (DG) or staff. Thus, the WTO is referred to as a member-driven organization. Decisions within the WTO are made by consensus, although majority voting can be used in limited circumstances. The highest-level body in the WTO is the Ministerial Conference, which is the body of political representatives (trade ministers) from each member country ( Figure 1 ). The body that oversees the day-to-day operations of the WTO is the General Council, which consists of a representative from each member country. Many other councils and committees deal with particular issues, and members of these bodies are also national representatives. In general, the WTO has three broad functions: administering the rules of the trading system; establishing new rules through negotiations; and resolving disputes between member states. The WTO administers the global rules and principles negotiated and signed by its members. The main purpose of the rules is "to ensure that trade flows as smoothly, predictably, and freely as possible." WTO rules and agreements are essentially contracts that bind governments to keep their trade policies within agreed limits. A number of fundamental principles guide WTO rules. In general, as with the GATT, these key principles are nondiscrimination and the notion that freer trade through the gradual reduction of trade barriers strengthens the world economy and increases prosperity. The WTO agreements apply the GATT principles of nondiscrimination as discussed above: MFN treatment and national treatment. The trade barriers concerned include tariffs, quotas, and a growing range of nontariff measures, such as product standards, food safety measures, subsidies, and discriminatory domestic regulations. The fundamental principle of reciprocity is also behind members' aim of "entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations." Transparency is another key principle of the WTO, which aims to reduce information asymmetry in markets, ensure trust, and, therefore, foster greater stability in the global trading system. Transparency commitments are incorporated into individual WTO agreements. Active participation in various WTO committees also aims to ensure that agreements are monitored and that members are held accountable for their actions. For example, members are required to publish their trade practices and policies and notify new or amended regulations to WTO committees. Regular trade policy reviews of each member's trade policies and practices provide a deeper dive into an economy's implementation of its commitments—see " Trade Policy Review Mechanism (Annex 3) ." In addition, the WTO's annual trade monitoring report takes stock of trade-restrictive and trade-facilitating measures of the collective body of WTO members. While opening markets can encourage competition, innovation, and growth, it can also entail adjustments for workers and firms. Trade liberalization can also be more difficult for the least-developed countries (LDCs) and countries transitioning to market economies. WTO agreements thus allow countries to lower trade barriers gradually. Developing countries and sensitive sectors in particular are usually given longer transition periods to fulfill their obligations; developing countries make up about two-thirds of the WTO membership—WTO members self-designate developing country status. The WTO also supplements this so-called "special and differential" treatment (SDT) for developing countries with trade capacity-building measures to provide technical assistance and help implement WTO obligations, and with permissions for countries to extend nonreciprocal, trade preference programs. In WTO parlance, when countries agree to open their markets further to foreign goods and services, they "bind" their commitments or agree not to raise them. For goods, these bindings amount to ceilings on tariff rates. A country can change its bindings, but only after negotiating with its trading partners, which could entail compensating them for loss of trade. As shown in Figure 2 , one of the achievements of the Uruguay Round was to increase the amount of trade under binding commitments. Bound tariff rates are not necessarily the rates WTO members apply in practice to imports from trading partners; so-called applied MFN rates can be lower than bound rates, as reflected in tariff reductions under the GATT. Figure 3 shows average applied MFN tariffs worldwide. In 2017, the United States simple average MFN tariff was 3.4%. A key issue in the Doha Round for the United States was lowering major developing countries' relatively high bound tariffs to below their applied rates in practice to achieve commercially meaningful new market access. Promising not to raise a trade barrier can have a significant economic effect because the promise provides traders and investors certainty and predictability in the commercial environment. A growing body of economic literature suggests certainty in the stability of tariff rates may be just as important for increasing global trade as reduction in trade barriers. This proved particularly important during the 2009 global economic downturn. Unlike in the 1930s, when countries reacted to slumping world demand by raising tariffs and other trade barriers, the WTO reported that its 153 members (at the time), accounting for 90% of world trade, by and large did not resort to protectionist measures in response to the crisis. The promotion of fair and undistorted competition is another important principle of the WTO. While the WTO is often described as a "free trade" organization, numerous rules are concerned with ensuring transparent and nondistorted competition. In addition to nondiscrimination, MFN treatment and national treatment concepts aim to promote "fair" conditions of trade. WTO rules on subsidies and antidumping in particular aim to promote fair competition in trade through recourse to trade remedies, or temporary restriction of imports, in response to alleged unfair trade practices—see " Trade Remedies ." For example, when a foreign company receives a prohibited subsidy for exporting as defined in WTO agreements, WTO rules allow governments to impose duties to offset any unfair advantage found to cause injury to their domestic industries. The scope of the WTO is broader than the GATT because, in addition to goods, it administers multilateral agreements on agriculture, services, intellectual property, and certain trade-related investment measures. These newer rules in particular are forcing the WTO and its dispute settlement system to deal with complex issues that go beyond tariff border measures. As the GATT did for 47 years, the WTO provides a negotiating forum where members reduce barriers and try to sort out their trade problems. Negotiations can involve a few countries, many countries, or all members. As part of the post-Uruguay Round agenda, negotiations covering basic telecommunications and financial services were completed under the auspices of the WTO in 1997. Selected WTO members also negotiated deals to eliminate tariffs on certain information technology products and improve rules and procedures for government procurement. A recent significant accomplishment was the WTO Trade Facilitation Agreement in 2017, addressing customs and logistics barriers. The latest round of multilateral negotiations, the Doha Development Agenda (DDA), or Doha Round, launched in 2001, has achieved limited progress to date, as the agenda proved difficult and contentious. Despite a lack of consensus on its future, many view the round as effectively over. The negotiations stalled over issues such as reducing domestic subsidies and opening markets further in agriculture, industrial tariffs, nontariff barriers, services, intellectual property rights, and SDT for developing countries. The negotiations exposed fissures between developed countries, led by the United States and the EU, on the one hand, and developing countries, led by China, Brazil, and India, on the other hand, who have come to play a more prominent role in global trade. The inability of countries to achieve the objectives of the Doha Round prompted many to question the utility of the WTO as a negotiating forum, as well as the practicality of conducting a large-scale negotiation involving 164 participants with consensus and the single undertaking as guiding principles. At the same time, many proposals have been advanced for moving forward from Doha and making the WTO a stronger forum for negotiations in the future. (See " Policy Issues and Future Direction .") The WTO arguably has been more successful in the negotiation of discrete items to which not all parties must agree or be bound (see " Plurilateral Agreements (Annex 4) "). Some view these plurilaterals as a more promising negotiating approach for the WTO moving forward given their flexibility, as they can involve subsets of more "like-minded" partners and advance parts of the global trade agenda. Some experts have raised concerns, however, that this approach could lead to "free riders"—those who benefit from the agreement but do not make commitments—for agreements on an MFN basis, or otherwise, could isolate some countries who do not participate and may face new trade restrictions or disadvantages as a result. Others argue that only though the single undertaking approach to negotiations can there be trade-offs that are sufficient to bring all members on board. The third function of the WTO is to provide a mechanism to enforce its rules and settle trade disputes. A central goal of the United States during the Uruguay Round negotiations was to strengthen the dispute settlement mechanism that existed under the GATT. While the GATT's process for settling disputes between member countries was informal, ad hoc, and voluntary, the WTO dispute settlement process is more formalized and enforceable. Under the GATT, panel proceedings could take years to complete; any defending party could block an unfavorable ruling; failure to implement a ruling carried no consequence; and the process did not cover all the agreements. Under the WTO, there are strict timetables—though not always followed—for panel proceedings; the defending party cannot block rulings; there is one comprehensive dispute settlement process covering all the agreements; and the rulings are enforceable. WTO adjudicative bodies can authorize retaliation if a member fails to implement a ruling or provide compensation. Yet, under both systems, considerable emphasis is placed on having the member countries attempt to resolve disputes through consultations and negotiations, rather than relying on formal panel rulings. See " Dispute Settlement Understanding (DSU) " for more detail on WTO procedures and dispute trends. The statutory basis for U.S. membership in the WTO is the Uruguay Round Agreements Act (URAA, P.L. 103-465 ), which approved the trade agreements resulting from the Uruguay Round. The legislation contained general provisions on approval and entry into force of the Uruguay Round Agreements, and the relationship of the agreements to U.S. laws (Section 101 of the act); authorities to implement the results of current and future tariff negotiations (Section 111 of the act); oversight of activities of the WTO (Sections 121-130 of the act); procedures regarding implementation of dispute settlement proceedings affecting the United States (Section 123 of the act); objectives regarding extended Uruguay Round negotiations; statutory modifications to implement specific agreements, including the following: Antidumping Agreement; Agreement on Subsidies and Countervailing Measures (ASCM); Safeguards Agreement; Agreement on Government Procurement (GPA); Technical Barriers to Trade (TBT) (product standards); Agreement on Agriculture; and Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). U.S. priorities and objectives for the GATT/WTO have been reflected in various trade promotion authority (TPA) legislation since 1974. For example, the Omnibus Trade and Competitiveness Act of 1988 specifically contained provisions directing U.S. negotiators to negotiate disciplines on agriculture, dispute settlement, intellectual property, trade in services, and safeguards, among others, that resulted in WTO agreements in the Uruguay Round (see text box above). The Trade Act of 2002 provided U.S. objectives for the Doha Round, including seeking to expand commitments on e-commerce and clarifications to the WTO dispute settlement system. The 2015 TPA, perhaps reflecting the impasse of the Doha Round, was more muted, seeking full implementation of existing agreements, enhanced compliance by members with their WTO obligations, and new negotiations to extend commitments to new areas. Section 125(b) of the URAA sets procedures for congressional disapproval of WTO participation. It specifies that Congress's approval of the WTO agreement shall cease to be effective "if and only if" Congress enacts a joint resolution calling for withdrawal. Congress may vote every five years on withdrawal; resolutions were introduced in 2000 and 2005, however neither passed. The WTO member-led body negotiates, administers, and settles disputes for agreements that cover goods, agriculture, services, certain trade-related investment measures, and intellectual property rights, among other issues. The WTO core principles are enshrined in a series of trade agreements that include rules and commitments specific to each agreement, subject to various exceptions. The GATT/WTO system of agreements has expanded rulemaking to several areas of international trade, but does not extensively cover some key areas, including multilateral investment rules, trade-related labor or environment issues, and emerging issues like digital trade or the commercial role of state-owned enterprises. The Marrakesh Agreement is the umbrella agreement under which the various agreements, annexes, commitment schedules, and understandings reside. The Marrakesh Agreement itself created the WTO as a legal international organization and sets forth its functions, structure, secretariat, budget procedures, decisionmaking, accession, entry-into-force, withdrawal, and other provisions. The Agreement contains four annexes. The three major substantive areas of commitments undertaken by the members are contained in Annex 1. The Multilateral Agreement on Trade in Goods establishes the rules for trade in goods through a series of sectoral or issue-specific agreements (see Table 2 ). Its core is the GATT 1994, which includes GATT 1947, the amendments, understanding, protocols, and decisions of the GATT from 1947 to 1994, cumulatively known as the GATT- acquis , as well as six Understandings on Articles of the GATT 1947 negotiated in the Uruguay Round. In addition to clarifying the core WTO principles, each agreement contains sector- or issue-specific rules and principles. The schedule of commitments identifies each member's specific binding commitments on tariffs for goods in general, and combinations of tariffs and quotas for some agricultural goods. Through a series of negotiating rounds, members agreed to the current level of trade liberalization (see Figure 2 above). In the last four rounds of negotiations, WTO members aimed to expand international trade rules beyond tariff reductions to tackle barriers in other areas. For example, agreements on technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures aim to protect a country's rights to implement domestic regulations and standards, while ensuring they do not discriminate against trading partners or unnecessarily restrict trade. The Agreement on Agriculture (AoA) includes rules and commitments on market access and disciplines on certain domestic agricultural support programs and export subsidies. Its objective was to provide a framework for WTO members to reform certain aspects of agricultural trade and domestic farm policies to facilitate more market-oriented and open trade. Regarding market access, members agreed not to restrict agricultural imports by quotas or other nontariff measures, converting them to tariff-equivalent levels of protection, such as tariff-rate quotas—a process called "tariffication." Developed countries committed to cut tariffs (or out-of-quota tariffs, those tariffs applied to any imports above the agreed quota threshold) by an average of 36% in equal increments over six years; developed countries committed to 24% tariff cuts over 10 years. Special safeguards to temporarily restrict imports were permitted in certain events, such as falling prices or surges of imports. The AoA also categorizes and restricts agricultural domestic support programs according to their potential to distort trade. Members agreed to limit and reduce the most distortive forms of domestic subsidies over 6 to 10 years, referred to as "amber box" subsidies and measured by the Aggregate Measure of Support (AMS) index. Subsidies considered to cause minimal distortion on production and trade were not subject to spending limits and exempted from obligations as "green box" and "blue box" subsidies or under de minimis (below a certain threshold) or SDT provisions. In addition, export subsidies were to be capped and subject to incremental reductions, both by value and quantity of exports covered. A so-called "peace" clause protected members using subsidies that comply with the agreement from being challenged under other WTO agreements, such as through use of countervailing duties; the clause expired after nine years in 2003. Members are required to regularly submit notifications on the implementation of AoA commitments—though some countries, including the United States, have raised concerns that these requirements are not abided by in a consistent fashion. Further agricultural trade reform was a major priority under the Doha Round, but negotiations have seen limited progress to date (see " Ongoing WTO Negotiations "). However, in 2015, members reached an agreement to fully eliminate export subsidies for agriculture. The framework of the GATT did not address the growing linkages between trade and investment. During the Uruguay Round, the Agreement on Trade-Related Investment Measures (TRIMS) was drafted to address certain investment measures that may restrict and distort trade. The agreement did not address the regulation or protection of foreign investment, but focused on investment measures that may violate basic GATT disciplines on trade in goods, such as nondiscrimination. Specifically, members committed not to apply any TRIM that is inconsistent with provisions on national treatment or a prohibition of quantitative restrictions on imports or exports. TRIMS includes an annex with an illustrative list of prohibited measures, such as local content requirements—requirements to purchase or use products of domestic origin. The agreement also includes a safeguard measure for balance of payment difficulties, which permits developing countries to temporarily suspend TRIMS obligations. While TRIMS and other WTO agreements, such as the GATS (see below), include some provisions pertaining to investment, the lack of comprehensive multilateral rules on investment led to several efforts under the Doha Round to consider proposals, which to date have been unfruitful (see " Future Negotiations "). In December 2017, 70 WTO members announced plans to begin new discussions on developing a multilateral framework on investment facilitation, in part to complement the successful negotiation of rules on trade facilitation. The GATT agreements focused solely on trade in goods, excluding services. Services were eventually covered in the GATS as a result of the Uruguay Round agreements. The GATS provides the first and only multilateral framework of principles and rules for government policies and regulations affecting trade in services. It has served as the foundation on which rules in other trade agreements on services are based. The services trade agenda is complex due to the characteristics of the sector. "Services" refers to a growing range of economic activities, such as audiovisual, construction, computer and related services, express delivery, e-commerce, financial, professional (e.g., accounting and legal services), retail and wholesaling, transportation, tourism, and telecommunications. Advances in information technology and the growth of global supply chains have reduced barriers to trade in services, expanding the services tradable across national borders. But liberalizing trade in services can be more complex than for goods, since the impediments faced by service providers occur largely within the importing country, as so-called "behind the border" barriers, some in the form of government regulations. While the right of governments to regulate service industries is widely recognized as prudent and necessary to protect consumers from harmful or unqualified providers, a main focus of WTO members is whether these regulations are applied to foreign service providers in a discriminatory and unnecessarily trade restrictive manner that limits market access. The GATS contains multiple parts, including definition of scope (excluding government-provided services); principles and obligations, including MFN treatment and transparency; market access and national treatment obligations; annexes listing exceptions that members take to MFN treatment; as well as various technical elements. Members negotiated GATS on a positive list basis, which means that the commitments only apply to those services and modes of delivery listed in each member's schedule of commitments. WTO members adopted a system of classifying four modes of delivery for services to measure trade in services and classify government measures that affect trade in services, including cross-border supply, consumption abroad, commercial presence, and temporary presence of natural persons ( Figure 4 ). Under GATS, unless a member country has specifically committed to open its market to suppliers in a particular service, the national treatment and market access obligations do not apply. In addition to the GATS, some members made specific sectoral commitments in financial services and telecommunications. Negotiations to expand these commitments were later folded into the broader services negotiations. WTO members aimed to update GATS provisions and market access commitments as part of the Doha Round. Several WTO members have since submitted revised offers of services liberalization, but in the view of the United States and others the talks have not yielded adequate offers of improved market access (see " Future Negotiations "). Given the lack of progress, in 2013, 23 WTO members, including the United States, representing approximately 70% of global services trade, launched negotiations of a services-specific plurilateral agreement. Although outside of the WTO structure, participants designed the Trade in Services Agreement (TiSA) negotiations in a way that would not preclude a concluded agreement from someday being brought into the WTO. TiSA talks were initially led by Australia and the United States, but have since stalled; the Trump Administration has not stated a formal position on TiSA. The TRIPS Agreement marked the first time multilateral trade rules incorporated intellectual property rights (IPR)—legal, private, enforceable rights that governments grant to inventors and artists to encourage innovation and creative output. Like the GATS, TRIPS was negotiated as part of the Uruguay Round and was a major U.S. objective for the round. The TRIPS Agreement sets minimum standards of protection and enforcement for IPR. Much of the agreement sets out the extent of coverage of the various types of intellectual property, including patents, copyrights, trademarks, trade secrets, and geographical indications. TRIPS includes provisions on nondiscrimination and on enforcement measures, such as civil and administrative procedures and remedies. IPR disputes under the agreement are also subject to the WTO dispute settlement mechanism. The TRIPS Agreement's newly placed requirements on many developing countries elevated the debate over the relationship between IPR and development. At issue is the balance of rights and obligations between protecting private right holders and securing broader public benefits, such as access to medicines and the free flow of data, especially in developing countries. TRIPS includes flexibilities for developing countries allowing longer phase-in periods for implementing obligations and, separately, for pharmaceutical patent obligations—these were subsequently extended for LDCs until January 2033 or until they no longer qualify as LDCs, whichever is earlier. The 2001 WTO "Doha Declaration" committed members to interpret and implement TRIPS obligations in a way that supports public health and access to medicines. In 2005, members agreed to amend TRIPS to allow developing and LDC members that lack production capacity to import generic medicines from third country producers under "compulsory licensing" arrangements. The amendment entered into force in January 2017. While WTO agreements uphold MFN principles, they also allow exceptions to binding tariffs in certain circumstances. The WTO Agreement on Subsidies and Countervailing Measures (ASCM), Agreement on Safeguards, and articles in the GATT, commonly known as the Antidumping Agreement, allow for trade remedies in the form of temporary measures (e.g., primarily duties or quotas) to mitigate the adverse impact of various trade practices on domestic industries and workers. These include actions taken against dumping (selling at an unfairly low price) or to counter certain government subsidies, and emergency measures to limit "fairly"-traded imports temporarily, designed to "safeguard" domestic industries. Supporters of trade remedies view them as necessary to shield domestic industries and workers from unfair competition and to level the playing field. Other domestic constituents, including some importers and downstream consuming industries, voice concern that antidumping (AD) and countervailing duty (CVD) actions can serve as disguised protectionism and create inefficiencies in the world trading system by raising prices on imported goods. How trade remedies are applied to imports has become a major source of disputes under the WTO (see below). The United States has enacted trade remedy laws that conform to the WTO rules: U.S. antidumping laws (19 U.S.C. §1673 et seq.) provide relief to domestic industries that have been, or are threatened with, the adverse impact of imports sold in the U.S. market at prices that are shown to be less than fair market value. The relief provided is an additional import duty placed on the dumped imports. U.S. countervailing duty laws (19 U.S.C. §1671 et seq.) give similar relief to domestic industries that have been, or are threatened with, the adverse impact of imported goods that have been subsidized by a foreign government or public entity, and can therefore be sold at lower prices than U.S.-produced goods. The relief provided is a duty placed on the subsidized imports. U.S. safeguard laws give domestic industries relief from import surges of goods; no allegation of "unfair" practices is needed to launch a safeguard investigation. Although used less frequently than AD/CVD laws, Section 201 of the Trade Act of 1974 (19 U.S.C. §2251 et seq.), is designed to give domestic industry the opportunity to adjust to import competition and remain competitive. The relief provided is generally a temporary import duty and/or quota. Unlike AD/CVD, safeguard laws require presidential action for relief to be put into effect. The dispute settlement system, often called the "crown jewel" of the WTO, has been considered by some observers to be one of the most important successes of the multilateral trading system. WTO agreements contain provisions that are either binding or nonbinding. The WTO Understanding on Rules and Procedures Governing the Settlement of Disputes—Dispute Settlement Understanding or DSU—provides an enforceable means for WTO members to resolve disputes arising under the binding provisions. The DSU commits members not to determine violations of WTO obligations or impose penalties unilaterally, but to settle complaints about alleged violations under DSU rules and procedures. The Dispute Settlement Body (DSB) is a plenary committee of the WTO, which oversees the panels and adopts the recommendation of a dispute settlement panel or Appellate Body (AB) panel. Panels are composed of three (or five in complex cases) panelists—not citizens of the members involved—chosen through a roster of "well qualified governmental and/or non-governmental individuals" maintained by the Secretariat. WTO members must first attempt to settle a dispute through consultations, but if these fail, a member seeking to initiate a dispute may request that a panel examine and report on its complaint. A respondent party is able to block the establishment of a panel at the DSB once, but if the complainant requests its establishment again at a subsequent meeting of the DSB, a panel is established. At its conclusion, the panel recommends a decision to the DSB that it will adopt unless all parties agree to block the recommendation. The DSU sets out a timeline of one year for the initial resolution of disputes (see Figure 5 ); however, cases are rarely resolved in this timeframe. The DSU also provides for AB review of panel reports in the event a panel decision is appealed. The AB is composed of seven rotating panelists serving four-year terms, with the possibility of a one-term reappointment. According to the DSU, appeals are to be limited to questions of law or legal interpretation developed by the panel in the case (Article 17.6). The AB is to make a recommendation and the DSB is to ratify that recommendation within 120 days of the ratification of the initial panel report, but again, such timely resolution rarely occurs. The United States has raised several issues regarding the practices of the AB and has blocked the appointments of several judges—for more on the current debate, see " Proposed Institutional Reforms ." Following the adoption of a panel or appellate report, the DSB oversees the implementation of the findings. The losing party is then to propose how it is to bring itself into compliance "within a reasonable period of time" with the DSB-adopted findings. A reasonable period of time is determined by mutual agreement with the DSB, among the parties, or through arbitration. If a dispute arises over the manner of implementation, the DSB may form a panel to judge compliance. If a party declines to comply, the parties negotiate over compensation pending full implementation. If there is still no agreement, the DSB may authorize retaliation in the amount of the determined cost of the offending party's measure to the aggrieved party's economy. There have been some calls for reform of the dispute settlement system to deal with the procedural delays and new strains on the system, including the growing volume and complexity of cases. Filing a dispute settlement case provides a way for countries to resolve disputes through a legal process and to do so publicly, signaling to domestic and international constituents the need to address outstanding issues. Dispute settlement procedures can serve as a deterrent for countries considering not abiding by WTO agreements, and rulings can help build a body of case law to inform countries when they implement new regulatory regimes or interpret WTO agreements. That said, WTO agreements and decisions of panels are not self-executing and cannot directly modify U.S. law. If a case is brought against the United States and the panel renders an adverse decision, the United States would be expected to remove the offending measure within a reasonable period of time or face the possibility of either paying compensation to the complaining member or becoming subject to sanctions, often in the form of higher tariffs on imports of certain U.S. products. As of the beginning of 2019, the WTO has initiated nearly 580 disputes on behalf of its members and issued more than 350 rulings, with 2018 marking its most active year to date. Nearly two-thirds of WTO members have participated in the dispute settlement system. Not all complaints result in formal panel proceedings; about half were resolved during consultations. The complainants usually win their cases, in large part because they initiate disputes that they have a high chance of winning. In the words of WTO Director-General (DG) Roberto Azevêdo, the widespread use of the DS system is evidence it "enjoys tremendous confidence among the membership, who value it as a fair, effective, efficient mechanism to solve trade problems." The United States is an active user of the DS system. Among WTO members, the United States has been a complainant in the most dispute cases since the system was established in 1995, initiating 123 disputes, followed by the EU with 100 disputes. The two largest targets of complaints initiated by the United States are China and the EU, which, combined, account for more than one-third ( Figure 6 ). The latest summary by USTR reports that among WTO disputes through 2015 the United States largely prevailed on "core issues" in 46 of its complaints and lost in 4. Since the report was released, additional cases have been ruled in favor of the United States, including disputes over India's solar energy policies and Indonesia's import licensing requirements. The majority of disputes initiated by the United States between 2016 and early 2019 remain in the consultation or panel stages and have not been decided. As a respondent in 153 dispute cases since 1995, the United States has also had the most disputes filed against it by other WTO members, followed by the EU (85 disputes) and China (43 disputes). The EU is the largest source of disputes filed against the United States, followed by Canada, China, South Korea, Brazil, and India. A large number of complaints concern U.S. trade remedies, in particular the methodologies used for calculating and imposing antidumping duties on U.S. imports. The latest summary by USTR reports that as a respondent, the United States won on "core issues" in 17 cases and lost in 57 cases through 2015. Since then, the WTO has ruled against the United States on certain aspects of complaints related to U.S. trade remedies, including in cases initiated by South Korea, China, Canada, and Turkey. The United States has prevailed in other cases, for example in December 2017, a panel ruled in U.S. favor in a case brought by Indonesia over U.S. duties on coated paper imports. The DSB has authorized retaliation against the United States for maintaining a measure in violation of WTO rules in just a handful of cases. Most recently, in February 2019, a panel authorized South Korea to retaliate in a complaint over U.S. methodology for calculating antidumping duties on South Korean imports of large residential washers. Several pending WTO disputes are of significance to the United States. One involves China's complaints over U.S. and EU failure to grant China market economy status (see " China's Accession and Membership " ) . Other cases involve challenges to the tariff measures imposed by the Trump Administration under U.S. trade laws, including Section 201 (safeguards), Section 232 (national security), and Section 301 ("unfair" trading practices) ( Table 3 ). Nine WTO members, including China, the EU, Canada, and Mexico, initiated separate complaints at the WTO, based on allegations that U.S. Section 232 tariffs on steel and aluminum imports are inconsistent with WTO rules. Consultations were unsuccessful in resolving the disputes, and panels have been established in all nine cases. Most countries notified their consultation requests pursuant to the Agreement on Safeguards, though some countries also allege that U.S. tariff measures and related exemptions are contrary to U.S. obligations under several provisions of the GATT. Several other WTO members have requested to join the disputes as third parties. On July 16, 2018, the United States filed its own WTO complaints over retaliatory tariffs imposed by five countries (Canada, China, EU, Mexico, and Turkey) in response to U.S. actions, and in late August, it filed a similar case against Russia. The United States has invoked the so-called national security exception (GATT Article XXI) in defense of the tariffs (see " Key Exceptions under GATT/WTO "), and states that the tariffs are not safeguards as claimed by other countries. By the end of January 2019, all of the disputes had entered the panel phase. Annex 3 sets out the procedures for the regular trade policy reviews that are conducted by the Secretariat to report on the trade policies of the membership. These reviews are carried out by the Trade Policy Review Body (TPRB) and are conducted periodically with the largest economies (United States, EU, Japan, and China) evaluated every three years, the next 16 largest economies every five years, and remaining economies every seven years. These reviews are meant to increase transparency of a country's trade policy and enable a multilateral assessment of the effect of policies on the trading system. These reviews also allow each member country to question specific practices of other members, and may serve as a forum to flag, and possibly avoid, future disputes. The most recent trade policy review of China occurred in July 2018. During the review members noted and commended some recent initiatives of China to open market access and liberalize its foreign investment regime. Several concerns were also raised, including "the preponderant role of the State in general, and of state-owned enterprises in particular," and "China's support and subsidy policies and local content requirements, including those that may be part of the 2025 [Made in China] plan." Most WTO agreements in force have been negotiated on a multilateral basis, meaning the entire body of WTO members subscribes to them. By contrast, plurilateral agreements are negotiated by a subset of WTO members and often focus on a specific sector. A handful of such agreements supplement the main WTO agreements discussed previously. Within the WTO, members have two ways to negotiate on a plurilateral basis, also known as "variable geometry." A group of countries can negotiate with one another provided that the group extends the benefits to all other WTO members on an MFN basis—the foundational nondiscrimination principle of the GATT/WTO. Because the benefits of the agreement are to be shared among all WTO members and not just the participants, the negotiating group likely would include those members forming a critical mass of world trade in the product or sector covered by the negotiation in order to avoid the problem of free riders—those countries that receive trade benefits without committing to liberalization. An example of this type of plurilateral agreement granting unconditional MFN is the Information Technology Agreement (ITA), in which tariffs on selected information technology goods were lowered to zero, as negotiated by WTO members comprising more than 90% of world trade in these goods (see below). A second type of WTO plurilateral is the non-MFN agreement, often referred to as "conditional-MFN." In this type, participants undertake additional obligations among themselves, but do not extend the benefits to other WTO members, unless they directly participate in the agreement. Also known as the "club" approach, non-MFN plurilaterals allow for willing members to address policy issues not covered by WTO disciplines. However, these types of agreements require a waiver from the entire WTO membership to commence negotiations. Some countries are reluctant even to allow other countries to negotiate for fear of being left out, even while not being ready to commit themselves to new disciplines. Yet, according to one commentator, these members are "simply outsmarting themselves" by encouraging more ambitious members to take negotiations out of the WTO altogether, such as the proposed expansion of the GATS through the plurilateral (and outside the WTO) TiSA. The Government Procurement Agreement (GPA) is an early example of a plurilateral agreement with limited WTO membership—first developed as a code in the 1979 Tokyo Round. As of the end of 2018, 47 WTO members (including the 28 EU member countries and United States) participate in the GPA; non-GPA signatories do not enjoy rights under the GPA. The GPA provides market access for various nondefense government projects to contractors of its signatories. Each member specifies government entities and goods and services (with thresholds and limitations) that are open to procurement bids by foreign firms of the other GPA members. For example, the U.S. GPA market access schedules of commitments cover 85 federal-level entities and voluntary commitments by 37 states. Negotiations to expand the GPA were concluded in March 2012, and a revised GPA entered into force on April 6, 2014. Several countries, including China—which committed to pursuing GPA participation in its 2001 WTO accession process—are in long-pending negotiations to accede to the GPA. South Korea, Moldova, and Ukraine were the latest WTO members to join the GPA in 2016. According to estimates by the U.S. Government Accountability Office (GAO), from 2008 to 2012, 8% of total global government expenditures, and approximately one-third of U.S. federal government procurement, was covered by the GPA or similar commitments in U.S. FTAs. Unlike the GPA, the Information Technology Agreement (ITA) is a plurilateral agreement that is applied on an unconditional MFN basis. In other words, all WTO members benefit from the tariff reductions enacted by parties to the ITA regardless of their own participation. Originally concluded in 1996 by a subset of WTO members, the ITA provides tariff-free treatment for covered IT products; however, the agreement does not cover services or digital products like software. In December 2015, a group of 51 WTO members, including the United States, negotiated an expanded agreement to cover an additional 201 products and technologies, valued at over $1 trillion in annual global exports. Members committed to reduce the majority of tariffs by 2019. In June 2016, the United States initiated the ITA tariff cuts. China began its cuts in mid-September 2016 with plans to reduce tariffs over five to seven years. ITA members are expected to review the agreement's scope in 2018 to determine if additional product coverage is needed. The Trade Facilitation Agreement (TFA) is the newest WTO multilateral trade agreement, entering into force on February 22, 2017, and perhaps the lasting legacy of the Doha Round, since it is the only major concluded component of the negotiations. The TFA aims to address multiple trade barriers confronted by exporters and importers and reduce trade costs by streamlining, modernizing, and speeding up the customs processes for cross-border trade, as well as making it more transparent. Some analysts view the TFA as evidence that achieving new multilateral agreements is possible and that the design, including special and differential treatment provisions, could serve as a template for future agreements. The TFA has three sections. The first is the heart of the agreement, containing the main provisions, of which many, but not all, are binding and enforceable. Mandatory articles include requiring members to publish information, including publishing certain items online; issue advance rulings in a reasonable amount of time; and provide for appeals or reviews, if requested. The second section provides for SDT for developing country and LDC members, allowing them more time and assistance to implement the agreement. The TFA is the first WTO agreement in which members determine their own implementation schedules and in which progress in implementation is explicitly linked to technical and financial capacity. The TFA requires that "donor members," including the United States, provide the needed capacity building and support. Finally, the third section sets institutional arrangements for administering the TFA. Under WTO agreements, members generally cannot discriminate among trading partners, though specific market access commitments can vary significantly by agreement and by member. WTO rules permit some broad exceptions, which allow members to adopt trade policies and practices that may be inconsistent with WTO disciplines and principles such as MFN treatment, granting special preferences to certain countries, and restricting trade in certain sectors, provided certain conditions are met. Some of the key exceptions follow. General e xceptions . GATT Article XX grants WTO members the right to take certain measures necessary to protect human, animal, or plant life or health, or to conserve exhaustible natural resources, among other aims. The measures, however, must not entail "arbitrary" or "unjustifiable" discrimination between countries where the same conditions prevail, or serve as "disguised restriction on international trade." GATS Article XIV provides for similar exceptions for trade in services. National security exception. GATT Article XXI protects the right of members to take any action they consider "necessary for the protection of essential national security interests" as related to (i) fissionable materials; (ii) traffic in arms, ammunition, and implements of war, and such traffic in other goods and materials carried out to supply a military establishment; and (iii) taken in time of war or other emergency in international relations. Similar exceptions relate to trade in services (GATS Article XIV bis) and intellectual property rights (TRIPS Article 73). More f avorable t reatment to d eveloping c ountries . The so-called "enabling clause" of the GATT—called the "Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries" of 1979—enables developed country members to grant differential and more favorable treatment to developing countries that is not extended to other members. For example, this permits granting unilateral and nonreciprocal trade preferences to developing countries under special programs, such as the U.S. Generalized System of Preferences (GSP), and also relates to regional trade agreements outside the WTO (see below). Exceptions for r egi onal tr ade agreements (RTAs ) . WTO countries are permitted to depart from the MFN principle and grant each other more favorable treatment in trade agreements outside the WTO, provided certain conditions are met. Three sets of rules generally apply. GATT Article XXIV applies to goods trade, and allows the formation of free trade areas and customs unions (areas with common external tariffs). These provisions require that RTAs be notified to the other WTO members, cover "substantially all trade," and do not effectively raise barriers on imports from third parties. GATS Article V allows for economic integration agreements related to services trade, provided they entail "substantial sectoral coverage," eliminate "substantially all discrimination," and do not "raise the overall level of barriers to trade in services" on members outside the agreement. Paragraph 2(c) of the "enabling clause," which deals with special and differential treatment, allows for RTAs among developing countries in goods trade, based on the "mutual reduction or elimination of tariffs." RTA provisions in the GATS also allow greater flexibility in sectoral coverage within services agreements that include developing countries. There are currently 164 members of the WTO. Another 22 countries are seeking to become members. Joining the WTO means taking on the commitments and obligations of all the multilateral agreements. Governments are motivated to join not just to expand access to foreign markets but also to spur domestic economic reforms, help transition to market economies, and promote the rule of law. While any state or customs territory fully in control of its trade policy may become a WTO member, a lengthy process of accession involves a series of documentation of a country's trade regime and market access negotiation requirements (see Figure 7 ). For example, Kazakhstan joined the WTO on November 30, 2015, after a 20-year process. Afghanistan became the 164th WTO member on July 29, 2016, after nearly 12 years of negotiating its accession terms. Other countries have initiated the process but face delays. Iran first applied for membership in 1996 and, while it submitted its Memorandum on the Foreign Trade Regime in 2009 (a prerequisite for negotiating an accession package), Iran has not begun the bilateral negotiation process, and the United States is unlikely to support its accession. As the WTO generally operates by member consensus, any single member could block the accession of a prospective new member. As part of the process, a prospective member must satisfy specific market access conditions of other WTO members by negotiating on a bilateral basis. The United States has been a central arbiter of the accession process for countries like China (joined in 2001, see below), Vietnam (2007), and Russia (2012), with which permanent normal trade relations had to be established concurrently under U.S. law for the United States to receive the full benefits of their membership. China formally joined the WTO in December 2001. China has emerged as a major player in the global economy, as the fastest-growing economy, largest merchandise exporter, and second-largest merchandise importer worldwide. China's accession into the WTO on commercially meaningful terms was a major U.S. trade objective during the late 1990s. Entry into the WTO was viewed as an important catalyst for spurring additional economic and trade reforms and the opening of China's economy in a market, rules-based direction. These reforms have made China an increasingly significant market for U.S. exporters , a central factor in global supply chains, and a major source of low -cost goods for U.S. consumers. At the same time, China has yet to fully transit ion to a market economy and the government continue s to intervene in many parts of the econom y, which has created a growing debate over the role of the WTO in both respects . Negotiations for China's accession to the GATT and then the WTO began in 1986 and took more than 15 years to complete. During WTO negotiations, China sought to enter the WTO as a developing country, while U.S. trade officials insisted that China's entry into the WTO had to be based on "commercially meaningful terms" that would require China to significantly reduce trade and investment barriers within a relatively short time. In the end, a compromise was reached that required China to make immediate and extensive reductions in various trade and investment barriers, while allowing it to maintain some level of protection (or a transitional period of protection) for certain sensitive sectors (see text box ). According to USTR, after joining the WTO, China began to implement economic reforms that facilitated its transition toward a market economy and increased its openness to trade and foreign direct investment (FDI). China also generally implemented its tariff cuts on schedule. However, by 2006, U.S. officials and companies noted evidence of some trends toward a more restrictive trade regime and more state intervention in the economy. In particular, observers voiced concern about various Chinese industrial policies, such as those that foster indigenous innovation based on forced technology transfer, domestic subsidies, and IP theft. Some stakeholders have expressed concerns over China's mixed record of implementing certain WTO obligations and asserted that, in some cases, China appeared to be abiding by the letter but not the "spirit" of the WTO. The United States and other WTO members have used dispute settlement procedures on a number of occasions to address China's alleged noncompliance with certain WTO commitments. As a respondent, China accounts for about 12% of total WTO disputes since 2001. The United States has brought 23 dispute cases against China at the WTO on issues, including IPR protection, subsidies, and discriminatory industrial policies, and has largely prevailed in most cases. Though some issues remain contested, China has largely complied with most WTO rulings. China has also increasingly used dispute settlement to confront what it views as discriminatory measures; to date, it has brought 15 cases against the United States (as of February 2019). More broadly, the Trump Administration has questioned whether WTO rules are sufficient to address the challenges that China's economy presents. USTR Robert Lighthizer expressed this view in remarks in September 2017: "The sheer scale of their coordinated efforts to develop their economy, to subsidize, to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented. Unfortunately, the World Trade Organization is not equipped to deal with this problem." USTR views efforts to resolve concerns over Chinese trade practices to date as limited in effectiveness, including through WTO dispute settlement, as well as recent proposals by WTO members to craft new rules and WTO reforms. In its latest report to Congress on China's WTO compliance, USTR stated the following: [The WTO dispute settlement] mechanism is not designed to address a trade regime that broadly conflicts with the fundamental underpinnings of the WTO system. No amount of WTO dispute settlement by other WTO members would be sufficient to remedy this systemic problem. Indeed, many of the most harmful policies and practices being pursued by China are not even directly disciplined by WTO rules. Another related concern some have is whether China claims it is a "developing country" under the WTO. Through developing country status, which countries self-designate, countries are entitled to certain rights under special and differential treatment (SDT), among other provisions in WTO agreements (see " Treatment of Developing Countries " and text box ). USTR has claimed that "China persists in claiming to be a 'developing Member'" in future negotiations at the WTO. While it is unclear what SDT provisions China has sought in ongoing negotiations, China is a part of the coalition group of Asian developing members at the WTO and has claimed to be a developing country in various fora. Chinese officials have asserted that despite being the world's second-largest economy, China remains a developing country, due to its relatively low GDP per capita and other economic challenges. Concerns over China's trade actions have led the Trump Administration to increase the use of unilateral mechanisms outside the WTO that in its view more effectively address Chinese "unfair trade practices;" the recent Section 301 investigation of Chinese IPR and technology transfer practices and resulting imposition of tariffs is evidence of this strategy. Prior to the establishment of the WTO, the United States resorted to Section 301 relatively frequently, in particular due to concerns that the GATT lacked an effective dispute settlement system. When the United States joined the WTO in 1995, it agreed to use the dispute settlement mechanism rather than act unilaterally; many analysts contend that the United States has violated its WTO obligations by imposing tariffs against China under Section 301. The United States also initiated a WTO dispute settlement case against China's "discriminatory technology licensing" in March 2018. Subsequently, China filed its own complaints at the WTO over U.S. tariff actions. The United States has pursued cooperation to some extent with other countries with similar concerns over certain Chinese trade practices and the need to clarify and improve WTO rules on industrial subsidies and SOEs in particular. At the WTO Ministerial meeting in December 2017, USTR Lighthizer, the European Commissioner for Trade Cecelia Malmström, and Japan's Minister of the Economy, Trade and Industry Hiroshige Seko announced new trilateral efforts to cooperate on issues related to government-supported excess capacity, unfair competition caused by market-distorting subsidies and SOEs, forced technology transfer, and local content requirements. Observers believe that China, while not specifically named, is the intended target of the coordinated action. The three officials continued talks in 2018 and 2019, issuing a scoping paper on stronger rules on industrial subsidies, as well as joint statements on technology transfer and "market-oriented conditions." They indicated plans to propose a draft text on subsidies rules by spring 2019. Some experts have questioned whether recent U.S. tariff actions might undermine efforts to coordinate further action to address these challenges (see " Selected Challenges and Issues for Congress "). Another pending dispute involving China could have significant implications for the treatment of China's economy under WTO rules, in particular debate over the terms of China's "nonmarket economy" (NME) status under its WTO accession protocol. Under its accession, China agreed to allow other WTO members to continue to use alternative methodologies, such as surrogate countries, for assessing prices and costs on products subject to antidumping measures. This concession was a result of WTO members' concerns that distortions in the Chinese economy caused by government intervention result in Chinese prices that do not reflect market forces, making them poorly suited to determining dumping margins. China contends that language in its WTO accession protocol requires all WTO members to terminate their use of the alternative methodology by December 11, 2016, including the United States, which has classified China as a NME for trade remedy cases since 1981. The NME distinction is important to China because it has often resulted in higher antidumping margins on Chinese exports; moreover, a significant share of Chinese exports is subject to trade remedies, namely AD duties. The United States and the EU have argued that the WTO language is vague and did not automatically obligate them to extend market economy status (MES) to China because it is still not a market economy. On December 12, 2016, China requested consultations under WTO dispute settlement with the United States and EU over the failure to grant China MES, and the cases are now pending. In April 2017, a panel was established in the EU case, and in November 2017, the United States formally submitted arguments as a third party in support of the EU. The panel said it expected to issue its final report during the second quarter of 2019. The 11 th WTO Ministerial Conference took place December 10-13, 2017, in Buenos Aires, Argentina. The Ministerial generally convenes every two years to make decisions and announce progress on multilateral trade agreements. After countries were unable to complete the Doha Round (see text box ), many questioned what could effectively be achieved in 2017. Members have made some progress in recent years, reaching the Trade Facilitation Agreement in 2013, followed by a small package of deals in 2015 concerning agriculture and rules for LDCs. Still, they remain sharply divided over how to prioritize both unresolved and new issues on the agenda, and, more fundamentally, how to conduct negotiations to better facilitate successful outcomes. WTO Director-General Azevêdo had tempered expectations for major negotiated outcomes or announcements at the 11 th Ministerial, acknowledging that "members' positions continue to diverge significantly on the substantial issues." These differences were perhaps most apparent by the inability of WTO members to reach consensus over a draft Ministerial Declaration, largely due to staunch disagreements over including references to the mandate of the Doha Round (see text box ). Instead the Ministerial became primarily an opportunity for members to take stock of ongoing talks and further define priority work areas. WTO members had worked intensively to build consensus over proposals in several areas, including reducing fisheries subsidies, a permanent solution to public stockholding for food security, domestic services regulations, and e-commerce. Some members pushed for new initiatives in areas such as investment facilitation; others like India advocated for a greater focus on trade facilitation in services. The U.S. proposal to improve overall transparency at the WTO, with penalties for countries that fail to comply with notification requirements, did not garner enough support to be discussed extensively at the Ministerial. The 11 th Ministerial did not result in major breakthroughs. WTO members committed to intensify fisheries subsidies negotiations, "with a view to adopting" an agreement by the next Ministerial; the United States has supported these efforts. A joint statement was issued by 60 members in support of advancing multilateral negotiations on domestic regulations in services. Subsets of WTO members also issued statements committing to new work programs or open-ended talks for interested parties to potentially conclude plurilateral agreements in areas, including the following: E-commerce : among 71 WTO members (covering 77% of global trade); Investment facilitation : among 70 WTO members (covering 73% of global trade and 66% of inward FDI); and Micro, small and medium-sized enterprises (MSMEs) : among 87 WTO members (covering 78% of global trade). Of these, the United States signed on to the declaration in support of e-commerce. The lack of concrete multilateral outcomes at the 11 th Ministerial was a reminder of the continued resistance of some countries to a new agenda outside of the original 2001 Doha mandate. In the view of EU Trade Commissioner Malmström, the Ministerial "laid bare the deficiencies of the negotiating function at the WTO" and that "members are systematically being blocked from addressing the pressing realities of global trade." Malmström blamed the lack of progress on "procedural excuses and vetoes" and "cynical hostage taking." Some developing country members, including India, attempted to block progress in a range of areas—including the renewal of the decades-old moratorium on e-commerce customs duties—absent more progress on Doha issues such as agricultural stockholding for food security. Such "hostage-taking" tactics, widely acknowledged to have hindered progress in the Doha Round, further highlight the difficulty of achieving future consensus among all 164 members. While the United States provided input and signaled support for select proposals, the overall perception of many was a lack of U.S. leadership in the Ministerial discussions. Consistent with the Trump Administration's "America First" trade policy, the U.S. stated objective for the Ministerial was broadly to "advocate for U.S. economic and trade interests, including WTO institutional reform and market-based, fair trade policies." Several observers were relieved when USTR Lighthizer acknowledged in Ministerial remarks that the WTO plays an important role, even as he outlined key criticisms. The United States viewed the Ministerial outcome positively—that it signaled "the impasse at the WTO was broken," paving the way for like-minded countries to pursue new work in other areas. USTR expressed U.S. support in particular for forthcoming work on e-commerce, scientific standards for agriculture, and disciplines on fisheries subsidies. While WTO members did not announce any negotiated outcomes at the 11 th Ministerial meeting, several countries committed to make progress on ongoing talks, including fisheries subsidies and e-commerce. In other areas, such as agriculture and environmental goods, talks remain stalled with no clear path forward. For some issues multilateral solutions arguably remain ideal, for example, disciplines on agricultural subsidies, which are widely used by developed and advanced developing countries alike. One concern is that such important, unresolved issues may founder for want of a negotiating venue. While the Doha Round largely did not achieve its comprehensive negotiating mandate to lower agricultural tariffs and subsidies, negotiations more limited in scope have continued. The 2015 Nairobi Ministerial agreed to eliminate export subsidies for agriculture, but the issue of public stockholding remains seemingly intractable. Public stockholding, also known as food security programs, is used by governments, especially in developing countries, to purchase and stockpile food to release to the public during periods of market volatility or shortage. These programs become problematic when governments purchase food at a price and quantity that effectively become trade-distorting domestic support. While no agreement was reached at Buenos Aires, some developing countries, such as India, have demanded that the issue be resolved before new issues are considered in the WTO work program. The United States has also flagged the broader issue of notification and transparency. Under WTO agreements, members are required to notify subsidies and trade-distorting support to ensure transparency and consistency with a member's obligation. Compliance with notifications has been notoriously lax, with some countries years behind on their reporting. According to U.S. Department of Agriculture trade counsel Jason Hafemeister, these practices have consequences: In the absence of transparency, how are we to determine whether Members are complying with existing obligations? Moreover, only with comprehensive and current information can negotiators understand, discuss, and address the problems that face farmers today: high tariffs, trade distorting support, and non-tariff barriers. The United States with other countries recently issued new proposals to address these concerns—see " Transparency/Notification ." As noted above, WTO members committed to negotiate disciplines related to fisheries subsidies at the 11 th Ministerial with a view toward reaching an agreement by 2020. The proposals aim to meet the goals outlined in United Nations Sustainable Development Goal 14 targeting illegal, unregulated, and unreported (IUU) fishing. Though multiple areas of disagreement remain, members have been negotiating on the scope of exemptions, such as for fuel subsidies. The United States reportedly seeks to minimize the level and scope of such exclusions. Members are expected to move from discussions of proposals into negotiations on a consolidated draft text by early 2019. The Trump Administration has voiced support for the talks, stating that it continues "to support stronger disciplines and greater transparency in the WTO with respect to fisheries subsidies." Digital trade has emerged as a major force in world trade since the Uruguay Round, creating end products (e.g., email or social media), enabling trade in services (e.g., consulting), and facilitating goods trade through services, such as logistics and supply chain management that depend on digital data flows. While the GATS contains explicit commitments for telecommunications and financial services that underlie e-commerce, trade barriers related to digital trade, information flows, and other related issues are not specifically included. The WTO Work Program on Electronic Commerce was established in 1998 to examine trade-related issues for e-commerce under existing agreements. Under the work program, members agreed to continue a temporary moratorium on e-commerce customs duties, and have renewed the moratorium at each ministerial meeting. Some developing countries, however, have begun to question the moratorium, seeing it as blocking a potential government revenue stream. Progress under the work program has largely stalled as multiple members have put forward competing views on possible paths forward. In advance of the 2017 Ministerial, various members had submitted proposals for specific work agendas in e-commerce. The U.S. submission, dated July 4, 2016, reflected many of the ideas included in the proposed Trans-Pacific Partnership (TPP), an FTA with 11 other countries in the Asia-Pacific from which the United States withdrew in January 2017. The proposal may gain the support of other TPP members as several have already ratified a slightly modified agreement—the Comprehensive and Progressive Agreement for TPP (CPTPP or TPP-11)—which maintained the digital trade provisions as negotiated by the United States. The Chinese WTO submission, on the other hand, more narrowly focuses on facilitating e-commerce. India has said it would not agree to any new obligations in the WTO related to e-commerce or digital trade, preferring to focus on issues identified under the original Doha mandate, including agriculture. As a result, the 2017 Ministerial ended with an agreement to "endeavor to reinvigorate our work." The plurilateral effort announced at the ministerial agreeing to "initiate exploratory work on negotiations on electronic commerce issues in the WTO" may provide the best avenue to pursue an agreement within the WTO framework. A U.S. discussion paper on the initiative outlined potential provisions, including protecting cross-border data flows, source code, and encryption technology; prohibiting discrimination, customs duties, technology transfer or localization requirements; and promoting cybersecurity and open government data. The United States also included the WTO Telecommunications Reference Paper, seeking all WTO members to adopt its principles on telecommunications competition. Notably, the U.S. submission did not list privacy or consumer protection among its provisions. The group of 49 WTO members formally launched the e-commerce initiative in January 2019, on the sidelines of the World Economic Forum annual meetings. Their joint statement lists not only the United States and EU as participants, but also several developing countries, including China and Brazil. In the statement, the group agreed to seek a "high standard outcome that builds on existing WTO agreements and frameworks with the participation of as many WTO Members as possible," but did not specify which trade barriers and issues are to be addressed. USTR's statement after the meeting emphasized the need for an enforceable agreement with the "same obligations for all participants." The negotiation process is expected to begin in March 2019. It is unclear how, or if, the plurilateral effort will overlap or be incorporated into the existing multilateral work program. Some countries viewed the 11 th Ministerial meeting as a missed opportunity to reinvigorate the stalled EGA plurilateral negotiations. The EGA negotiations, initiated in mid-2014 by 14 WTO members including the United States and China, seek to liberalize trade in environmental goods through tariff liberalization. Current EGA members represent 86% of global trade in covered environmental goods. Like the ITA, the EGA would be an open plurilateral agreement so that the benefits achieved through negotiations would be extended on an MFN basis to all WTO members. Despite 18 rounds of negotiations, members were unable to conclude the agreement at the December 2016 General Council meeting, and talks have since stalled. Most parties blamed China for the lack of progress, as it rejected the list of products to be included and requested several lengthy tariff phaseout periods which other countries refused to accept. The EGA's future now remains uncertain—while several countries have expressed support for resuming the talks, the Trump Administration has not put forward a public position on the agreement. The inability of WTO members to conclude a comprehensive agreement during the Doha Round raised new questions about the WTO's future direction. Many intractable issues from Doha remain unresolved, and members have yet to reach consensus on a way forward. Persistent differences about the extent and balance of trade liberalization continue to stymie progress, as evidenced by the outcomes of recent ministerial meetings. Further, members remain divided over adopting new issues on the agenda, amid concerns that the WTO could lose relevance if its rules are not updated to reflect the modern global economy. Some WTO members seek to incorporate new issues that pose challenges to the trading system, such as digital trade, competition with SOEs, global supply chains, and the relationship between trade and environment issues. These divisions have called into question the viability of the "single undertaking," or one-package approach in future multilateral negotiations and suggest broader need for institutional reform if the WTO is to remain a relevant negotiating body. Moreover, the consistent practice of some countries like India to block discussion of new issues serves as a reminder of the power of a single member to halt progress in the WTO's consensus-based system. As a result of slow progress at the WTO, countries have increasingly turned to other venues to advance trade liberalization and rules, namely plurilateral agreements and preferential FTAs outside the WTO. Plurilaterals have been seen as having the potential to resurrect the WTO's relevance as a negotiating body, but have also been seen as possibly undermining multilateralism if the agreements are not extended to all WTO members on an MFN basis. Regional trade agreements have also been seen as potential laboratories for new rules. How these negotiations and agreements will ultimately affect the WTO's status as the preeminent global trade institution is widely debated. In addition, an open question is whether U.S. leadership within these initiatives will continue under the Trump Administration. More recently, concerns for some have been mounting about further strains on the multilateral system, due to the growing use of trade protectionist policies by both developed and developing countries, the recent U.S. tariff actions and counterretaliation by other countries, and the escalating trade disputes between major economies. Many countries are questioning whether the WTO is equipped to effectively handle the challenges of emerging markets, as well as the deepening trade tensions. Some experts view the system as facing a potential crisis, while o thers remain optimistic that the current state of affairs could spur renewed focus on reforms of the system. Certain WTO members, like the EU and Canada, have begun to explore some areas for reform (see below). In contrast to the consensus-based agreements of the WTO, some members, including the United States, point to the progress made in sectoral or plurilateral settings as the way forward for the institution. By assembling coalitions of interested parties, negotiators may more easily and quickly achieve trade liberalizing objectives, as shown by the ITA. Sectoral agreements are viewed as one way to pursue new agreements and extend WTO disciplines and commitments in new areas, including, for example, U.S. trade priorities in digital trade and SOEs. The commitments by some WTO members to pursue talks in e-commerce, investment facilitation, and SMEs could plant the seeds for future plurilaterals. Plurilateral negotiations, however, still involve resolving divisions among developed and advanced developing countries. Members were able ultimately to overcome their differences in the ITA negotiation, but thus far have been unable to reach consensus in the EGA. At the same time, the participation of developing and emerging market economies, such as China and India, is critical to achieving agreements that cover a meaningful share of global trade. There is also a concern that plurilateral agreements not applied on an MFN basis could lead nonparticipating countries to become marginalized from the trading system and face new trade restrictions. To attract a critical mass of participants and lower barriers for developing countries and LDCs who may be hesitant to agree to ambitious commitments, agreements could allow flexibility in implementation timeframes and provide additional assistance, as in the TFA. Some experts question whether potential waning U.S. leadership in plurilateral and multilateral trade negotiations might slow momentum toward concluding new agreements (see " Value of the Multilateral System and U.S. Leadership and Membership "). The Trump Administration has yet to clarify its position on plurilaterals pursued under the Obama Administration, such as EGA and TiSA, which have stalled, but is supporting new efforts on e-commerce/digital trade. Given that the WTO allows its members to establish preferential FTAs outside the WTO that are consistent with WTO rules, many countries have formed bilateral or regional FTAs and customs areas; since 1990, the number of RTAs in force has increased seven-fold, with 290 trade agreements notified to the WTO and in force, as of the end of 2018. FTAs have often provided more negotiating flexibility for countries to advance new trade liberalization and rulemaking that builds on WTO agreements; however, the agreements vary widely in terms of scope and depth. Like plurilaterals, many view comprehensive FTAs as having potential for advancing the global trade agenda. Also like plurilaterals, however FTAs can also have downsides compared to multilateral deals. The United States currently has 14 FTAs in force with 20 countries. The Trump Administration has stated a preference for negotiating bilateral FTAs, rather than multiparty agreements. In September 2018, the United States, Mexico, and Canada completed negotiations of the proposed USMCA, which revamps the North American Free Trade Agreement (NAFTA). The United States and South Korea also agreed to some modifications of their bilateral FTA. In addition, USTR notified Congress of its intent to begin trade negotiations with the EU, Japan, and the UK. In general, U.S. FTAs are considered to be "WTO-plus" in that they reaffirm the WTO agreements, but also eliminate most tariff and nontariff barriers and contain rules and obligations in areas not covered by the WTO. For example, most U.S. FTAs include access to services markets beyond what is contained in the GATS or, more recently, digital trade obligations. While U.S. FTAs cover some major trading partners, the majority of U.S. trade, including with significant trade partners such as China, the EU, and Japan, continues to rely solely on the terms of market access and rulemaking in WTO agreements. In 2017, the United States traded $3.4 trillion with non-FTA partners, compared to $1.8 trillion with its FTA partners ( Figure 8 ). More recently, groups of countries have also been pursuing so-called "mega-regional" trade agreements that cover significant shares of global trade. These include the CPTPP signed in March 2018 between 11 countries in the Asia-Pacific to replace the TPP, ongoing negotiations over the Regional Comprehensive Economic Partnership (RCEP) between the Association of Southeast Asian Nations (ASEAN) and six of its FTA partners including China, and the Pacific Alliance signed in June 2012 among Chile, Colombia, Mexico, and Peru. Negotiations on the proposed Transatlantic Trade and Investment Partnership (T-TIP) between the United States and EU stalled, and though new U.S.-EU trade talks are to resume, their scope remains unclear. Such agreements could potentially consolidate trade rules across regions and to a varying extent address new issues not covered by the WTO. There has been wide debate regarding the relationship of preferential FTAs to the WTO and multilateral trading system. Some argue that crafting new rules through mega-regionals could undermine the trading system, create competing regional trade blocs, lead to trade diversion, and marginalize countries not participating in the initiatives. On the other hand, some view such agreements as potentially spurring new momentum at the global level. WTO DG Azevêdo has supported the latter sentiment, expressing that "RTAs [regional trade agreements] are blocks which can help build the edifice of global rules and liberalization." Many analysts have viewed the CPTPP specifically through this lens. Some experts view plurilateral agreements in particular as potential vehicles for bringing new rulemaking from RTAs into the multilateral trading system. While RTAs may propagate precisely what the multilateral system—with MFN and national treatment at its underpinnings—was designed to prevent, namely trade diversion and fragmented trading blocs, some observers believe it may be the only way trade may be liberalized in the future as additional interested parties could join the agreements over time. Since the founding of the WTO, the landscape of global trade has changed dramatically. The commercial internet, the growth of supply chains, and increasing trade in services have all contributed to the tremendous expansion of trade. However, WTO disciplines have not been modernized or expanded since 1995, aside from the TFA and the renegotiation of the ITA and the GPA. In addition to ongoing WTO efforts to negotiate new trade liberalization and rules in areas like e-commerce and digital trade, the following are selected areas of trade policy that could be subjects for future negotiations multilaterally within the WTO, or as plurilaterals. Meaningful progress in areas such as services, competition with SOEs, investment, and labor and environment issues could help increase the relevance of the WTO as a negotiating body. Since the GATS, the scope of global trade in services has increased tremendously, spurred by advances in IT and the growth of global supply chains. Yet, these advances are largely not reflected in the GATS. WTO members committed to further services negotiations (GATS Article XIX), which began in 2000 and were incorporated into the Doha Round. Further talks were spurred by the recognition among many observers that the GATS, while it extended the principles of nondiscrimination and transparency to services trade, was not thought to provide much actual liberalization, as many countries simply bound existing practices. However, services negotiations during Doha also succumbed to the resistance of developing countries to open their markets in response to developed country demands, as well as dissatisfaction with other aspects of the single undertaking. Whether the stalled plurilateral TiSA talks will ultimately lead to services reform in the WTO is an open question. Aside from increased market access, several issues are ripe for future negotiations at the WTO, such as transition from the current positive list schedule of commitments to a negative list. Instead of a member declaring which services are open for competition, it would need to declare which sectors are exempted. This exercise in itself could force members to reexamine their approximately 25-year-old commitments and decide whether current market access barriers will be maintained. New services sectors, such as online education and telemedicine, that were not envisioned at the founding of GATS could also be the subject of future negotiations, at least on a plurilateral basis. The issue of "servicification" of traditional goods industries—for example, services that are sold with a good, such as insurance or maintenance services, or enabling services, such as distribution, transportation, marketing, or retail—has also attracted attention as the subject of possible WTO negotiations. Other issues of interest to members include services facilitation (transparency, streamlining administrative procedures, simplifying domestic regulations), and emergency safeguards, envisioned in the GATS (Article X) as an issue for future negotiation. The United States and other members of the WTO see an increased need to discipline state-owned or state-dominated enterprises engaged in international commerce, and designated monopolies, whether through the WTO or through regional or bilateral FTAs. However, WTO rules on competition with state-owned or state-dominated enterprises are limited to state trading enterprises (STE)—enterprises, such as agricultural marketing boards, that influence the import or export of a good. GATT Article XVII requires them to act consistently with GATT commitments on nondiscrimination, to operate in accordance with commercial considerations, and to abide by other GATT disciplines, such as disciplines on import and export restrictions. The transparency obligations consist of reporting requirements describing the reason and purpose of the STE, the products covered by STE, a description of its functions, and pertinent statistical information. Meanwhile, countries desiring disciplines on SOEs have turned to FTAs. The TPP and the proposed USMCA have dedicated chapters on SOEs. The USMCA includes commitments that SOEs of a party act in accordance with commercial considerations; requires parties to provide nondiscriminatory treatment to like goods or services to those provided by SOEs; and prohibits most noncommercial assistance to its SOE, among other issues. The SOE chapter in USMCA likely is aimed at countries other than the three USMCA parties, such as China, to signal their negotiating intentions going forward. While there could be a desire to multilateralize these disciplines, they likely would face objections from those members engaged in such practices. State support provided to SOEs, including subsidies, is a closely related issue, as it can play a major role in market-distorting behavior under current rules. The WTO ASCM covers the provision of specified subsidies granted to SOEs, including by the government or any "public body." Some members, including the United States and EU, have contested past interpretations by the WTO Appellate Body of what qualifies as a public body as too narrow, and remain concerned that a large share of Chinese and other SOEs in effect have avoided being subject to disciplines. As discussed, the United States, EU, and Japan are engaged in ongoing discussions on strengthening rules on industrial subsidies and SOEs, including "how to develop effective rules to address market-distorting behavior of state enterprises and confront particularly harmful subsidy practices." They commit to both "maintain effectiveness of existing WTO disciplines" and also initiate negotiations on "more effective subsidy rules" in the near future. At the latest meetings in January 2019, the three partners indicated plans to finalize a proposed text on industrial subsidies by spring 2019. With limited provisions under TRIMS and GATS, rules and disciplines covering international investment are not part of WTO. More extensive protection for investors was one of the "Singapore issues" proposed at the 1996 WTO Ministerial as a topic for future negotiations, but then dropped under opposition from developing countries at the 2003 Cancun Ministerial. The OECD also attempted to liberalize investment practices and provide investor protections through a Multilateral Agreement on Investment, however, that effort was abandoned in 1998 in the face of widespread campaigns by nongovernment organizations in developed countries. While multilateral attempts to negotiate investment disciplines have not borne fruit, countries have agreed to investment protections within bilateral investment treaties (BITs) and chapters in bilateral and regional FTAs. The U.S. "model BIT" serves as the basis for most recent U.S. FTAs. These provisions are often negotiated between developed countries and developing countries—often viewed as having less robust legal systems—that want to provide assurance that incoming FDI will be protected in the country. Developed countries themselves have begun to diverge on the use and inclusion of provisions on investor-state dispute settlement (ISDS). Incorporating investment issues more fully in the WTO would recognize that trade and investment issues are increasingly interlinked. Moreover, bringing coherence to the nearly 3,000 BITs or trade agreements with investment provisions could be a role for the WTO. In addition, agreement on investment disciplines could help to resolve the thorny issue of investment adjudication between the competing models of ISDS and an investment court, as proposed by the EU in its recent FTAs, given that disputes likely would remit to WTO dispute settlement. While it remains unclear whether developing countries would be more amenable to negotiating investment disciplines multilaterally than they were in 2003, this area could be ripe for plurilateral activity. In the meantime, since the Ministerial some WTO members are pursuing the development of a multilateral framework on investment facilitation. The group is comprised of a mix of developed and developing economies, including the EU, Canada, China, Japan, Mexico, Singapore, and Russia, but not the United States. Labor and environmental provisions were not included in the Uruguay Round agreements, largely at the insistence of developing countries. Some observers maintain that this has created major gaps in global trade rules and call for the WTO to address these issues. Related provisions have developed and evolved within U.S. FTAs outside the WTO. Recent U.S. FTAs require partner countries to adhere to internationally recognized labor principles of the International Labor Organization (ILO) and applicable multilateral environmental agreements, and to enforce their labor or environmental laws and not to derogate from these laws to attract trade and investment. The CPTPP and proposed USMCA also contain provisions, though not identical, prohibiting the most harmful fisheries subsidies, and relating to illegal trafficking, marine species, air quality, marine litter, and sustainable forestry. More broadly, while inclusion of labor and environmental provisions within FTAs has expanded in the past decade, in general the commitments can vary widely in their scope and depth, with only some subject to dispute settlement mechanisms. While general provisions on labor and environment may be a heavy lift at this time given these differences, the WTO has undertaken an effort to discipline fisheries subsidies, which could have a beneficial environmental effect (see above). However, fisheries subsidies may be a special case, as it directly pertains to an existing trade-related agreement, the ASCM. Many observers believe the WTO needs to adopt reforms to continue its role as the foundation of the world trading system. In particular, its negotiating function has atrophied following the collapse of the Doha Round. Its dispute settlement mechanism, while functioning, is viewed by some as cumbersome and time consuming. And some observers, including U.S. officials, contend it has exceeded its mandate when deciding cases. Potential changes described below address institutional and negotiation reform, as well as reforms to the dispute settlement system. Reforms concern the administration of the organization, including its procedures and practices, and attempts to address the inability of WTO members to conclude new agreements. Dispute settlement reforms attempt to improve the working of the dispute settlement system, particularly the Appellate Body (AB). Addressing concerns related to the dispute settlement system may take priority in the near term, as the WTO faces a pending crisis should the AB fall below its three-member quorum in late 2019. Certain WTO members have begun to explore some aspects of reform. In July 2018, the European Commission produced a discussion paper on WTO reform proposals, and in September published a revised paper on its comprehensive approach "to modernise the WTO and to make international trade rules fit for the challenges of the global economy." As noted, the United States, EU, and Japan have issued scoping papers and joint statements on strengthening WTO disciplines on industrial subsidies and SOEs and cooperating on forced technology transfer. In addition, Canada organized a ministerial among a small group of "like-minded" countries interested in WTO reform, including Australia, Brazil, Chile, the EU, Japan, Kenya, Mexico, New Zealand, Norway, Singapore, South Korea, and Switzerland, held in Ottawa on October 24-25, based on a discussion draft of its proposals. Canadian trade officials have said that "starting small has allowed us to address problems head-on and quickly develop proposals," while acknowledging that a larger effort must include the United States and China. In a joint communiqué, the group of 13 countries emphasized that "the current situation at the WTO is no longer sustainable," and identified three areas requiring "urgent consideration": safeguarding and strengthening the dispute settlement system; reinvigorating the WTO's negotiating function; including how the development dimension can be best pursued in rulemaking; and strengthening the monitoring and transparency of WTO members' trade policies. The group met again in January 2019 on the sidelines of the annual World Economic Forum meetings, committing to make "significant progress" toward WTO reform before the G20 meetings convene in June 2019. Some Members of Congress have expressed support for these new efforts to address long-standing concerns of the United States. While consensus in decisionmaking is a long-standing core practice at the GATT/WTO, voting on a nonconsensus basis is authorized for certain activities on a one member-one vote basis. For example, interpretations of the WTO agreements and country waivers from certain provisions require a three-fourths affirmative vote for some matters, while a two-thirds affirmative vote is required for an amendment to an agreement. However, even when voting is possible, the practice of consensus decisionmaking remains the norm. As an organization of sovereign entities, some observers believe the practice of consensus decisionmaking gives legitimacy to WTO actions. Consensus assures that actions taken are in the self-interest of all its members. Consensus also reassures small countries that their concerns must be addressed. However, the practice of consensus has often led to deadlock, especially in the Doha Round negotiations. The ability to block consensus also has perpetuated so-called "hostage taking," in which a country can block consensus over an unrelated matter. In order to attempt to expedite institutional decisionmaking, some expert observers have proposed alternatives to the current system, such as the following: Use the voting procedures currently prescribed in the WTO agreements. Adopt a weighted voting system based on a formula that includes criteria relating to a member's gross domestic product, trade flows, population, or a combination thereof. Establish an executive committee composed of a combination of permanent and rotating members, or composed based on a formula as above or representatives of differing groups of countries. Maintain current consensus voting but require a member stating an objection to explain why it is doing so, or why it is a matter of vital national interest. The "single undertaking" method by which WTO members negotiate agreements means that during a negotiating round, all issues are up for negotiation until everything is agreed. On one hand, this method, in which nothing is agreed until everything is agreed, is suited for large, complex rounds in which rules and disciplines in many areas of trade (goods, services, agriculture, IPR, etc.) are discussed. It permits negotiation on a cross-sectoral basis, so countries can make a concession in one area of negotiation and receive a concession elsewhere. The method is intended to prevent smaller countries from being "steamrolled" by the demands of larger economies, and helps ensure that each country sees a net benefit in the resulting agreement. On the other hand, arguably, the single undertaking has contributed to the breakdown of the negotiating function under the WTO, exemplified by the never-completed Doha Round, as issues of importance to one country or another served to block consensus at numerous points during the round. Some members, including the EU, have called for "flexible multilateralism," based on continued support for full multilateral negotiations where possible, but pursuit of plurilateral agreements on an MFN basis where multilateral consensus is not possible. An important task of the WTO is to monitor each member's compliance with various agreements. A WTO member is required to notify the Secretariat of certain relevant domestic laws or practices so that other members can assess the consistency of WTO members' domestic laws, regulations, and actions with WTO agreements. Required notifications include measures concerning subsidies, agricultural support, quantitative restrictions, technical barriers to trade, and sanitary and phytosanitary standards. Compliance with the WTO agreement's notification requirements, especially regarding government subsidy programs, has become a serious concern among certain members, including the United States. Many WTO members are late in submitting their required notifications or do not submit them at all. This effectively prevents other members from fully examining the policies of their trading partners. In response, some members—notably the United States and the EU—have proposed incentives for compliance or sanctions for noncompliance with notification reporting requirements. These include the following: A U.S. proposal to impose a series of sanctions including steps to "name and shame" an offending member, limiting the member from using certain WTO resources, and designating a member "inactive." An EU proposal to create a rebuttable presumption that a non-notified subsidy measure is an actionable subsidy or a subsidy causing serious prejudice, thereby allowing a member to challenge the subsidy under WTO dispute settlement. An EU proposal to encourage counternotifications—a challenge to the accuracy or existence of another member's notification—against members that do not voluntarily notify on their own. In May and November 2018, for example, the United States launched counternotifications of India's farm subsidy notifications regarding wheat, rice, and cotton. In November 2018, the United States, EU, Japan, Argentina, and Costa Rica put forward a joint proposal that reflects several of these elements, including penalties for noncompliance. It also specifies exemptions for developing countries that lack capacity and have requested assistance to help fulfill notification obligations. A country's development status can affect the pace at which a country undertakes its WTO obligations. Given that WTO members self-designate their status, some members hold on to developing-country status even after their economies begin more to resemble their developed-country peers. In addition, some of the world's largest economies, including China, India, and Brazil, may justify developing country status because their per capita incomes more closely resemble those of a developing country than those of developed countries. Developing country status enables a country to claim special and differential treatment (SDT) both in the context of existing obligations and in negotiations for new disciplines (see text box ). The WTO specifies, however, that while the designated status is on the basis of self-selection, it is "not necessarily automatically accepted in all WTO bodies." Developed countries, including the EU and United States, have expressed frustration at this state of affairs. In January 2019, the United States circulated a paper warning that the WTO is at risk of becoming irrelevant due to the practice of allowing members to self-designate their development status to obtain special and differential treatment. The paper noted that some of the world's richest nations, including Singapore, South Korea, and the United Arab Emirates, as well as some of the world's major trading economies, such as China and India, consider themselves developing countries at the WTO. The paper maintained that self-designation has damaged the negotiating function of the WTO, and contributed to the failure of the Doha Round and possibly ongoing negotiations, if countries can avoid making meaningful offers by claiming exemptions from the rules. Several suggestions have been made to address the situation, including encouraging countries to graduate from developing country status; setting quantifiable criteria for development status; targeting SDT in future agreements on a needs-driven, differential basis; and requiring full eventual implementation of all new agreements. Some of these steps were implemented in the WTO Trade Facilitation Agreement. Supporters of the multilateral trading system consider the dispute settlement mechanism (DSM) not only a success of the system, but essential to maintain the relevance of the institution, especially while the WTO has struggled as a negotiating body. However, the DSM is facing increased pressure for reform, in part due to long-standing U.S. objections over certain rules and procedures. USTR Lighthizer contends that the WTO has become a "litigation-centered organization," which has lost its focus on negotiations. While WTO members have actively used the DSM since its creation, some have also voiced concerns about various aspects, including procedural delays and compliance, and believe the current system could be reformed to be fairer and more efficient. The Doha Round included negotiations to reform the dispute settlement system through "improvements and clarifications" to DSU rules. A framework of 50 proposals was circulated in 2003 but countries were unable to reach consensus. Discussions have continued beyond Doha with a primary focus on 12 issues, including third-party rights, panel composition, and remand authority of the Appellate Body. Under prior Administrations, the United States proposed greater control for WTO members over the process, guidelines for the adjudicative bodies, and greater transparency, such as public access to proceedings. However, these negotiations have yet to achieve results. Some experts suggest that enhancing the capabilities and legitimacy of the dispute settlement system will likely require several changes, including improving mechanisms for oversight, narrowing the scope of and diverting sensitive issues from adjudication, improving institutional support, and providing WTO members more input over certain procedures. The immediate flashpoint to the system is the refusal of the United States to consent to the appointment of new AB jurists. The United States has long-standing objections to decisions involving the AB's interpretation of certain U.S. trade remedy laws in particular—the subject of the majority of complaints brought by other WTO members against the United States. The AB consists of seven jurists appointed to four-year terms on a rolling basis, with the possibility of a one-term reappointment. Each dispute case is heard by three jurists. Like the previous Administration, the Trump Administration blocked the process to appoint new jurists in 2017 and 2018, leaving only three AB jurists remaining to hear all cases. Concerns are rising that the AB, already facing a backlog of cases, could come to a halt in 2019 if additional appointments are not made. Deputy DG of the WTO Alan Wolff summarized the stakes in recent remarks, noting that if the Appellate Body were to cease to function, member countries would be unable to appeal an adverse panel decision against one of their policies, and without that option, "there is a risk of every trade dispute devolving into small and not so small trade wars, consisting of retaliation and counter-retaliation." The United States expounded on some of the perceived shortcomings of the dispute settlement system in its most recent trade policy agenda. Arguably the main U.S. complaint is that the system, particularly the AB, is "adding to or diminishing U.S. rights by not applying the WTO agreements as written" in the areas of subsidies, antidumping and countervailing duties, standards, and safeguards. At its crux, the current controversy is over the autonomy of the AB, its deference to the DSB, and its obligations to implement the provisions of the DSU. The United States has been the most vocal in its criticisms, yet other WTO members have expressed similar concerns. While the United States has not tabled specific reforms for these complaints to the WTO membership, other members have. Two groups (G-12, G-3) submitted specific proposals for the December 2018 General Council meeting to attempt to break the impasse. The G-12 submission reflects proposals of all 12 members; the G-3 submission contains supplementary proposals put forward by a subset of the 12. The United States criticized the proposals as seeking to change WTO DS rules to fit the practices objectionable to the United States, rather than adhering to the rules as originally negotiated. Instead of seeking to accommodate current practices, U.S. Ambassador to the WTO Dennis Shea proposed that WTO members "engage in a deeper discussion of the concerns raised, to consider why the Appellate Body has felt free to depart from what WTO Members agreed to, and to discuss how best to ensure that the system adheres to WTO rules as written." Ambassador Shea also criticized the G-3 proposals as lessening the accountability of the Appellate Body, rather than increasing it. Under each of the following issues, these proposals are raised along with other reform proposals that members or observers have put forward to address current concerns. Disregard for the 90-day, DSU-mandated deadline for AB appeals. USTR claims that the AB does not have the authority to fail to meet the deadline without consulting the DSB, maintaining that the deadline "helps ensure that the AB focuses its report on the issue on appeal." The G-12 submission proposes to amend the DSU to allow parties, based on a proposal by the AB, to extend the length of time to conclude an appeal. If the parties do not agree on an extension, the AB would propose work procedures or arrangements to allow it to conclude the appeal within 90 days. In addition, the G-3 submission proposes to amend the DSU to increase the number of AB jurists from seven to nine to allow for greater efficiency and geographical diversity. Extension of service by former AB jurists on cases continuing after their four-year terms have expired. The United States maintains that the AB does not have the authority unilaterally to extend the terms of jurists, rather that authority lies with the DSB and that it is a matter of adherence to the DSU. In actual practice, however, it may be the case that having former jurists stay on to finish an appeal may be more efficient than having a new jurist join the case. The G-12 submission proposes to amend the DSU to allow outgoing AB jurists to complete the disposition of a pending appeal, provided that the hearing stage has taken place. In addition, the G-3 submission proposes that outgoing AB members continue to serve until replaced, but not more than two years following expiration of their term. Alternatively, some trade experts have suggested that the AB could refrain from assigning cases to jurists less than 90 days before their exits. During the Obama Administration, the United States blocked the reappointment of a South Korean jurist to the AB in May 2016. The United States cited what it considered "abstract discussions" in prior decisions by the jurist that went beyond the legal scope of the WTO. This action has led to the concern that the prospect of non-reappointment could affect the independence of the AB system. However, one former AB jurist opines that, "reappointment is an option, not a right," and calls for the WTO members to determine if a more formal process similar to initial appointment of AB jurists is needed for reappointment. The G-3 submission proposes to amend the DSU to permit AB members to serve one term of longer length (6-8 years) and not allow for reappointment. Other criticisms of the AB involve the extent to which it can interpret WTO agreements. The United States, in arguing for a more restrictive view of the power of the DSB, points to Article 3.2 that "recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements" (see text box above). However, those supporting a more expansive view of the DSU's role can point to the same article, which highlights the role "to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law." The scope and reach of the AB's activities is an enduring controversy for the organization, not limited to the Trump Administration. USTR has flagged several specific practices relating to these issues, such as the following: Issuing advisory opinions on issues not relevant to the issue on appeal. This point is related to the U.S. concern that the AB is engaged in "judicial overreach" by going beyond deciding the case at hand. USTR contends that the ability to issue advisory opinions or interpretations of text rests with the Ministerial Conference or General Council. The G-12 proposes to amend the DSU to stipulate that the AB address each issue raised in a dispute "to the extent necessary for the resolution of the dispute." Rather than issue advisory opinions, some observers have suggested that the AB also could "remand" issues of uncertainty to the standing committees of the WTO for further negotiation. In addition, members could also use a provision of the WTO Agreement (Article IX.2) to seek an "authoritative interpretation" of a WTO text at the General Council or Ministerial Conference, which could be adopted by a three-fourths vote. De novo review of facts or domestic law in cases on appeal. The United States alleges that the AB is not giving the initial panel due deference on matters of fact, including regarding the panel's interpretation of domestic law. This point derives from USTR's view that a country's domestic law should be considered as fact, and that the panel's interpretation of the domestic law is thus not reviewable by the AB. The G-12 submission proposes to amend the DSU to clarify that the meaning of a party's domestic laws is a matter of fact, and not reviewable by the AB. Treatment of AB decisions as precedent. Like the previous two concerns, this complaint speaks to the alleged overreach of the AB. USTR asserts that while AB reports can provide "valuable clarification" of covered agreements, they cannot be considered or substituted for the WTO agreements and obligations negotiated by members. However, according to a former DG of the WTO, "the precedent concept used in the WTO jurisprudence is ... centrally important to the effectiveness of the WTO dispute settlement procedure goals of security and predictability." A related concern some WTO members have is "gap-filling" by the DS system, where the legal precedent is unclear or ambiguous or there are no or incomplete WTO rules regarding a contested issue. Here there are diametrically opposite beliefs: a U.S. trade practitioner asks, "Is filling gaps and construing silences really not the creation of rights and obligations through disputes vs. leaving such function to negotiations by the members?" The former DG, however, contends that "every juridical institution has at least some measure of gap-filling responsibility as part of its efforts to resolve ambiguity." The issue of the legitimacy of precedence or gap-filling may be one of the thorniest issues of all with few solutions proposed that would potentially satisfy differences among members. The G-12 submission proposes to amend the DSU to establish a yearly meeting between the AB and the DSB. This session would allow for WTO members to comment on rulings made during the year. According to the submission, it could be a venue "where concerns with regard to some Appellate Body approaches, systemic issues or trends in the jurisprudence could be voiced." It is likely that many of the issues that could arise from proposed reforms to the WTO system would require clarification of or amendment to the language of the Marrakesh Agreement or the DSU. Clarification could take the form of interpretation of the agreements. As noted above, interpretation can be undertaken by the Ministerial Conference (held every two years), General Council, or Dispute Settlement Body, with a three-fourths vote of the WTO membership. Amending the decisionmaking provisions of the Marrakesh Agreement (Article IX) or the DSU would require consensus of the membership at the Ministerial Conference (Marrakesh Agreement, Article X.8). Amendments to the Marrakesh Agreement would require a two-thirds vote of the membership. As noted above, negotiations related to reforms of the DSM occurred during the Doha Round, and despite the criticism of the DSM by the United States and others, the General Council or the DSB has not undertaken serious consideration of these reforms. The United States has served as a leader in the WTO and the GATT since their creation. The United States played a major role in shaping GATT/WTO negotiations and rulemaking, many of which reflect U.S. laws and norms. It was a leading advocate in the Uruguay Round for expanding negotiations to include services and IPR, key sources of U.S. competitiveness, as well as binding dispute settlement to ensure new rules were enforceable. Today, many stakeholders across the United States rely on WTO rules to open markets for importing and exporting goods and services, and to defend and advance U.S. economic interests. The Trump Administration has expressed doubt over the value of the WTO and multilateral trade negotiations to the U.S. economy. As a candidate, President Trump asserted that WTO trade deals are a "disaster" and that the United States should "renegotiate" or "pull out." In late June 2018, media reports suggested that President Trump was considering withdrawing the United States from the WTO. While U.S. officials have downplayed talks of withdrawal as "premature" and an "exaggeration," the President has since reportedly repeated these threats in July and August 2018. The Administration has continued to express skepticism toward the value of multilateral agreements, preferring bilateral negotiations to address "unfair trading practices." In addition, "reform of the multilateral trading system" is a stated Administration trade policy objective. While some U.S. frustrations with the WTO are not new and are shared by other trading partners, the Administration's overall approach has spurred new questions regarding the future of U.S. leadership of and participation in the WTO. Most observers would maintain that the possibility of U.S. withdrawal from the WTO remains unlikely for procedural and substantive reasons. Procedurally, a withdrawal resolution would have to pass the House and Senate; it has also been debated what legal effect the resolution would have if adopted. Moreover, if the United States were to consider such a step, withdrawal would have a number of practical consequences. The United States could face economic costs, since absent WTO membership, remaining members would no longer be obligated to grant the United States MFN status under WTO agreements. WTO rules also restrict members' ability to use quotas, regulations, trade-related investment measures, or subsidies in ways that discriminate or disadvantage U.S. goods and services. They also require members to respect U.S. IPR. Consequently, U.S. businesses could face significant disadvantages in other markets, as members without FTAs with the United States could raise tariffs or other trade barriers at will. Nondiscrimination, a key bedrock principle of the multilateral trading system, could be eroded, particularly given the added impetus U.S. withdrawal could give to the proliferation of FTAs. Withdrawal could also lead to a U.S. loss of influence over how important international trade matters are decided and who writes global trade rules. In the process, economic inefficiencies and political tensions could increase. Exiting the WTO and the international trading relationships it creates and governs could have broader policy implications, including for cooperation between the United States and allies on foreign policy issues. Another question is whether the WTO would flounder without U.S. leadership, or whether other WTO members like the EU and China would increase their roles. As some in the United States question the value of WTO participation and leadership, other countries have begun to assert themselves as leaders and advocates for the global trading system. As noted, cooperation on WTO reform has become elevated as a major topic of discussion at recent high-level meetings, including the latest EU-China Summit held in July 2018 and at the October summit held in Canada among trade ministers from 13 WTO members. Congressional oversight could examine the value, both economic and political, of U.S. membership and leadership in the WTO. As part of its oversight, Congress could consider, or could ask the U.S. International Trade Commission to investigate, the value of the WTO or potential impact of withdrawal from the WTO on U.S. businesses, consumers, federal agencies, laws and regulations, and foreign policy. Congress could vote on a resolution expressing support of the WTO, instructing USTR to prioritize WTO engagement, or, conversely, a resolution for disapproval of U.S. membership under the URAA in 2020. The founding of the GATT and creation of the WTO were premised on the notion that an open and rules-based multilateral trading system was necessary to avoid a return to the nationalistic interwar trade policies of the 1930s. There are real costs and benefits to the United States and other countries to uphold the rules and enforce their commitments and those of other WTO members. A liberalized, rules-based global trading system increases international competition for companies domestically, but also helps to ensure that companies and their workers have access and opportunity to compete in foreign markets with the certainty of a stable, rules-based system. A framework for resolving disputes that inevitably arise from repeated commercial interactions may also help ensure such trade frictions do not spill over into broader international relations. However, certain actions by the Trump Administration and other countries have raised questions about respect for the rules-based trading system, and could weaken the credibility of the WTO. In particular, recent U.S. actions to raise tariffs against major trading partners under Section 232 and Section 301, and to potentially obstruct the functioning of the dispute settlement system by withholding approval for appointments to the AB, have prompted concerns that the United States and other countries who have retaliated to the U.S. actions may undermine the effectiveness and credibility of the institution that it helped to create. Moreover, the outcomes of controversial ongoing dispute cases at the WTO, initiated by several countries over U.S. tariffs, could set precedents and have serious implications for the future credibility of the global trading system. In particular, several U.S. trading partners view U.S. action as blatant protection of domestic industry and not a legitimate use of the national security exception. Some are concerned that U.S. actions may embolden other countries to protect their own industries under claims of protecting their own national security interests. Furthermore, U.S. tariff actions outside of the multilateral system's dispute settlement process may open the United States to criticism and could impede U.S. efforts to use the WTO for its own enforcement purposes. Respect for the rules is also weakened when any country imposes new trade restrictions and takes actions that are not in line with WTO agreements. In particular, China's industrial state policies, including IPR violations and forced technology transfer practices, arguably damage the credibility of the multilateral trading system that is based on respect for the consensus-based rules. In part, the WTO's perceived inability to address certain Chinese policies led to the United States resorting to Section 301 actions. Other countries' pursuit of industrial policy or imposition of discriminatory measures broadly in the name of national or economic security further call into question the viability of the WTO rules-based system. Under the Trump Administration, USTR has put new emphasis on "preserving national sovereignty" within the U.S. trade policy agenda, emphasizing that any multinational system to resolve trade disputes "must not force Americans to live under new obligations to which the United States and its elected officials never agreed." The question of sovereignty is not a new one. The withdrawal procedures in the URAA responded to concerns that the WTO would infringe on U.S. sovereignty. During the congressional debate over the Uruguay Round agreements, there were some proposals to create extra review mechanisms of WTO dispute settlement, and many Members stressed that only Congress can change U.S. laws as a result of dispute findings. While U.S. concerns regarding alleged "judicial overreach" in WTO dispute findings are long-standing, the Trump Administration has also emphasized unilateral action outside the WTO as a means of defending U.S. interests, including national security. Some observers fear that disagreements at the WTO on issues related to national security (e.g., Section 232 tariffs) may be difficult to resolve through the existing dispute settlement procedures, given current disagreements related to the WTO AB and concerns over national sovereignty that would likely be raised if a dispute settlement panel issued a ruling relating to national security. As noted previously, Article XXI of the GATT allows WTO members to take measures to protect "essential security interests." WTO members and parties to the GATT have invoked Article XXI in other trade disputes. These parties, including the United States, have often argued that each country is the sole judge of questions relating to its own security interests. However, neither the WTO members nor a WTO panel have formally interpreted the Article XXI exception to define its scope. Accordingly, there is little guidance as to (1) whether a WTO panel would decide, as a threshold matter, that it had the authority to evaluate whether U.S. invocation of the exception was proper; and (2) how a panel might apply the national security exception, if invoked, in any dispute before the WTO involving the steel and aluminum tariffs. The broadened membership of the WTO over the past two decades has promoted greater integration of emerging markets such as Brazil, Russia, India, and China in the global economy, and helped ensure that developing country interests are represented on the global trade agenda. At the same time, many observers have attributed the inability of WTO members to collectively reach compromise over new rules and trade liberalization to differing priorities for reforms and market opening among developed countries and emerging markets. One question is to what extent emerging countries like China, with significant economic clout, will take on greater leadership; will such countries play a constructive role, advance the global trade agenda, and facilitate compromise among competing interests? China has voiced support for globalization and the multilateral trading system under which it has thrived. The Chinese government's recent white paper on the WTO stated the following: "The multilateral trading system, with the WTO at its core, is the cornerstone of international trade and underpins the sound and orderly development of global trade. China firmly observes and upholds the WTO rules, and supports the multilateral trading system that is open, transparent, inclusive and nondiscriminatory." At the same time, China has blocked further progress in certain initiatives, including the WTO plurilateral Environmental Goods Agreement, and has not put forward a sufficiently robust offer on government procurement to join that WTO agreement, a long-standing promise. With its industrial policies that advantage domestic industries, some analysts contend that China often abides by the letter but not the "spirit" of WTO rules, raising questions about the country's willingness in practice to take on more leadership responsibility in the WTO context. Another related concern voiced by the United States and other WTO members is the role of large emerging markets and the use of developing country status by those and other countries to ensure flexibility in implementing future liberalization commitments. The United States could work with other WTO members to set specific criteria to clarify the "developing" country qualification, such as using a combination of metrics including GDP, per capita income, and trade volume. Members could be given incentives to graduate from developing status; different WTO agreements could offer different incentives. The Administration included "reform of the multilateral trading system" in its 2018 trade policy objectives. Congress may also hold oversight hearings to ask the USTR about specific plans or objectives regarding WTO reforms for the institution, dispute settlement, or in regards to updating or amending existing agreements to address trade barriers and market-distorting behaviors not sufficiently covered by current rules. Congress could also consider directing the executive branch to increase U.S. engagement in reform negotiations, by, for example, endorsing the current trilateral negotiations announced by USTR, the EU, and Japan to address nonmarket practices, mostly aimed at China. Congress may also want to review the recent report by economists from the WTO, the IMF, and the World Bank that identifies potential areas for greater trade integration, and determine which are in the U.S. national economic interest. Congress could further consider establishing specific or enhanced new negotiating objectives for multilateral trade agreement negotiations, possibly through amendment to TPA. Congress may request that USTR provide an update of ongoing plurilateral negotiations to address new issues, including digital trade—specified by Congress as a principal trade negotiating objective of TPA. Some experts argue however, that recent U.S. unilateral tariff actions may limit other countries' interest in engaging in future WTO or other negotiations to reduce international trade barriers and craft new rules. Such concerns are amplified given the proliferation of preferential FTAs outside the context of the WTO, which have the potential for discriminatory effects on countries not participating, including the United States. Congress may consider the long-term implications of the U.S. actions on current and future trade negotiations. The future outlook of the multilateral trading system is the subject of growing debate, as it faces serious challenges, some long-standing and some emerging more recently. Some experts view the system as long stagnant and facing a potential crisis; others remain optimistic that the current state of affairs could spur new momentum toward reforms and alternative negotiating approaches moving forward. Despite differing views, there is a growing consensus that the status quo is no longer sustainable, and that there is urgent need to improve the system and find ground for new compromises if the WTO is to remain the cornerstone of the trading system. Debate about the path forward continues. Recent proposals for WTO reforms and for new rules have provided the seeds for new ideas, though concrete solutions and next steps have yet to be agreed among countries involved in discussions. In the near term, several events on the horizon could provide added impetus for resolving differences and assessing progress. The dispute settlement system could cease to function by late 2019 if the terms of the three remaining AB members continue to expire without the approval of new appointments. WTO members will also face their biennial Ministerial Conference in June 2020, which could provide an opportunity for countries to announce completion of ongoing negotiations, such as on fisheries subsidies, and concrete progress in other areas of long-standing priority, including the plurilateral efforts launched during the 2017 Ministerial. Meanwhile, other ambitious trade initiatives outside the WTO are proceeding, including the CPTPP, which entered into force in December 2018 for several members and which many analysts view as providing a possible template for future trade liberalization and rulemaking in several areas.	[ "Historically, the United States' leadership of the global trading system has ensured the United States a seat at the table to shape the international trade agenda in ways that both advance and defend U.S. interests. The evolution of U.S. leadership and the global trade agenda remain of interest to Congress, which holds constitutional authority over foreign commerce and establishes trade negotiating objectives and principles through legislation. Congress has recognized the World Trade Organization (WTO) as the \"foundation of the global trading system\" within trade promotion authority (TPA) and plays a direct legislative and oversight role over WTO agreements. The statutory basis for U.S. WTO membership is the Uruguay Round Agreements Act (P.L. 103-465), and U.S. priorities and objectives for the General Agreement on Tariffs and Trade (GATT)/WTO have been reflected in various TPA legislation since 1974. Congress also has oversight of the U.S. Trade Representative and other agencies that participate in WTO meetings and enforce WTO commitments. The WTO is a 164-member international organization that was created to oversee and administer multilateral trade rules, serve as a forum for trade liberalization negotiations, and resolve trade disputes. The United States was a major force behind the establishment of the WTO in 1995, and the rules and agreements resulting from multilateral trade negotiations. The WTO encompassed and succeeded the GATT, established in 1947 among the United States and 22 other countries. Through the GATT and WTO, the United States, with other countries, sought to establish a more open, rules-based trading system in the postwar era, with the goal of fostering international economic cooperation and raising economic prosperity worldwide. Today, 98% of global trade is among WTO members. The WTO is a consensus and member-driven organization. Its core principles include nondiscrimination (most favored nation treatment and national treatment), freer trade, fair competition, transparency, and encouraging development. These are enshrined in a series of WTO trade agreements covering goods, agriculture, services, intellectual property rights, and trade facilitation, among other issues. Some countries, including China, have been motivated to join the WTO not just to expand access to foreign markets but to spur domestic economic reforms, help transition to market economies, and promote the rule of law. The WTO Dispute Settlement Understanding (DSU) provides an enforceable means for members to resolve disputes over WTO commitments and obligations. The WTO has processed more than 500 disputes, and the United States has been an active user of the dispute settlement system. Supporters of the multilateral trading system consider the dispute settlement mechanism an important success of the system. At the same time, some members, including the United States, contend it has procedural shortcomings and has exceeded its mandate in deciding cases. Many observers are concerned that the effectiveness of the WTO has diminished since the collapse of the Doha Round of multilateral trade negotiations, which began in 2001, and believe the WTO needs to adopt reforms to continue its role as the foundation of the global trading system. To date, WTO members have been unable to reach consensus for a new comprehensive multilateral agreement on trade liberalization and rules. While global supply chains and technology have transformed international trade and investment, global trade rules have not kept up with the pace of change. Many countries have turned to negotiating free trade agreements (FTAs) outside the WTO as well as plurilateral agreements involving subsets of WTO members rather than all members. At the latest WTO Ministerial conference in December 2017, no major deliverables were announced. Several members committed to make progress on ongoing talks, such as fisheries subsidies and e-commerce, while other areas remain stalled. While many were disappointed by the limited progress, in the U.S. view, the outcome signaled that \"the impasse at the WTO was broken,\" paving the way for groups of like-minded countries to pursue new work in other key areas. Certain WTO members have begun to explore aspects of reform and future negotiations. Potential reforms concern the administration of the organization, its procedures and practices, and attempts to address the inability of WTO members to conclude new agreements. Proposed DS reforms also attempt to improve the working of the dispute settlement system, particularly the Appellate Body—the seven-member body that reviews appeals by WTO members of a panel's findings in a dispute case. Some U.S. frustrations with the WTO are not new and many are shared by other trading partners, such as the European Union. At the same time, the Administration's overall approach has spurred new questions regarding the future of U.S. leadership and U.S. priorities for improving the multilateral trading system. Concerns have emphasized that the Administration's recent actions to unilaterally raise tariffs under U.S. trade laws and to possibly impede the functioning of the dispute settlement system might undermine the credibility of the WTO system. A growing question of some observers is whether the WTO would flounder for lack of U.S. leadership, or whether other WTO members like the EU and China taking on larger roles would continue to make it a meaningful actor in the global trade environment. The growing debate over the role and future direction of the WTO may be of interest to Congress. Important issues it may address include how current and future WTO agreements affect the U.S. economy, the value of U.S. membership and leadership in the WTO, whether new U.S. negotiating objectives or oversight hearings are needed to address prospects for new WTO reforms and rulemaking, and the relevant authorities and impact of potential U.S. withdrawal from the WTO on U.S. economic and foreign policy interests." ]	21,561	gov_report	en	null	8ea6dbec3f301d7d0fc538441e0a776832f777a928c44666
Executive branch agencies are required to take various steps regarding improper payments under IPIA, as amended by IPERA and IPERIA, and related OMB guidance. The steps include the following: 1. reviewing all programs and activities and identifying those that may be susceptible to significant improper payments (commonly referred to as a risk assessment), 2. developing improper payment estimates for those programs and activities that the agency identified as being susceptible to significant improper payments, 3. analyzing the root causes of improper payments and developing corrective actions to reduce them for those programs and activities that the agency identified as being susceptible to significant improper payments, and 4. reporting on the results of addressing the foregoing requirements. Figure 1 lays out these steps, as well as the major components of developing an improper payment estimate. IPERA also directs executive branch agencies’ inspectors general to annually determine and report on whether their respective agencies complied with six criteria listed in the law. On an annual basis, agencies are required to develop improper payment estimates for programs that they consider susceptible to significant improper payments. This generally involves selecting a sample of program payments (or other items, such as invoices) and reviewing them in order to determine whether the relevant payments were proper. OMB guidance for developing improper payment estimates focuses on the statistical nature of the estimates and provides agencies with flexibility in developing their estimates. IPIA, as amended, provides the definition of “improper payment” with IPERIA further instructing OMB to issue guidance requiring agencies to include in the estimate all improper payments, regardless of whether those payments have been or are being recovered. OMB incorporated this requirement into Appendix C to Circular No. A-123, Requirements for Effective Estimation and Remediation of Improper Payments. In accordance with these relevant laws and OMB guidance, agencies must apply “improper payment” in the context of their programs when developing improper payment estimates. The 10 programs we reviewed serve a variety of purposes and are administered by various agencies across the federal government. Table 2 summarizes each of these programs. IPIA, as amended, requires agencies to develop statistically valid improper payment estimates or estimates that are otherwise appropriate using a methodology approved by the Director of OMB. The six agencies we reviewed reported using either statistically valid or alternative sampling approaches for the 10 selected programs, and some agencies reported additionally incorporating actual improper payment amounts into their estimates, as shown in table 3. If an agency is unable to produce a statistically valid improper payment estimate, it can use an alternative approach if approved by OMB. For example, the Department of Education (Education) reported using an alternative methodology for the Direct Loan program after conducting a cost-benefit analysis comparing use of a statistical and an alternative methodology. Similarly, the Department of Health and Human Services (HHS) reported using an alternative methodology for Medicaid to better manage resources needed to conduct the required reviews. In addition to their statistical approaches, two agencies reported incorporating actual improper payment amounts into the estimates for 2 of the programs we reviewed. Officials at the Department of Defense (DOD) stated that the agency calculates its Military Pay improper payment estimate by adding the amount of debts due to DOD entered into its financial system based on overpayments (i.e., debts due to DOD by a recipient of an overpayment) identified during the fiscal year to a projected estimate of improper payments. Officials at the Office of Personnel Management (OPM) stated that the agency calculates its Retirement program improper payment estimate by adding the amount of debts due to OPM entered into its financial system based on overpayments (i.e., debts due to OPM by a recipient of an overpayment) identified during the fiscal year to a projected estimate of underpayments. To implement their sampling approaches, agencies select a sample of data to test from a larger, specified population of data. For the six agencies we reviewed, data sampled varied by program and include payments, claims, tax returns, and pay accounts. For example, according to their policies and procedures DOD samples invoices related to payments made from 12 financial systems for Defense Finance and Accounting Service Commercial Pay, HHS samples medical claims for Medicare Fee-for-Service, and DOD samples pay accounts for Military Pay. Agencies subject specific data populations to sampling, which may not include all payments made for a program. Reasons for sampling exclusions varied across programs, as shown by the examples in table 4. Some of the selected agencies reported sampling multiple sets of data. For example, for its Direct Loan improper payment estimate, Education officials stated that the agency reviews Program Review Reports to identify improper payments in originations and also samples loan consolidation and refund payments. According to agency officials, Direct Loan origination, consolidation, and refund transactions carry different risks of improper payment. To estimate improper payments for fiscal year 2017, the six agencies we reviewed reported sampling and testing data that varied in age from calendar year 2013 to fiscal year 2017. Figure 2 shows the range of data used. OMB guidance states that to the extent possible, data used for estimating improper payments should coincide with the fiscal year being reported, but agencies may use a different 12-month reporting period with approval from OMB. OMB staff acknowledged there are costs and benefits to sampling newer or older data. OMB staff stated that although they review agencies’ sampling and estimation plans, they defer to the agencies regarding the appropriateness of the age of data used to estimate improper payments. OMB staff stated that they approve the timeframe of the data used in alternative methodologies as part of the approval of the methodology overall, whereas OMB silence provides tacit approval (i.e., no communication to the agency) for statistically valid methodologies. After agencies determine what subsets of data and types of transactions to review, they generally test the data and calculate their improper payment estimates. Testing processes varied among the 10 programs, with some of the six agencies using processes designed specifically to estimate improper payments and others leveraging existing processes designed for other purposes. Some of the selected agencies reported using multiple testing processes and combining the results to develop a program’s improper payment estimate. For example, according to their policies and procedures the Direct Loan estimate comprises three component estimates for loan originations, consolidations, and refunds and the Medicaid estimate includes fee-for-service, managed care, and eligibility components. Table 5 summarizes the processes used by the six agencies we reviewed. Although agencies’ testing processes varied, most included steps to address aspects of eligibility of beneficiaries, goods, or services—a key component of determining the appropriateness of a payment—in their programs. For example, according to their policies and procedures for Medicare Fee-for-Service, reviewers examine the medical necessity, compliance with documentation requirements, and coding of services provided, among other things; for the Earned Income Tax Credit (EITC), auditors examine whether the taxpayer properly reported income and whether the taxpayer meets eligibility criteria, including income and qualifying child requirements, and auditors examine, among other things, whether the taxpayer is subject to a disallowance period on receiving EITC; for Medicaid, reviewers examine fee-for-service claims and managed care payments to determine the eligibility status of the beneficiary and the provider, as well as support for the medical necessity of fee-for- service claims, among other things; for Old-Age, Survivors, and Disability Insurance (OASDI), reviewers examine factors to support the beneficiary’s eligibility, including, among other things, citizenship, relationship (in the case of survivor benefits), and receipt of other government benefits; and although Education’s Direct Loan program reviews can vary in scope, they may include, among other things, steps to verify educational institution eligibility (such as licensing and accreditation) and student eligibility (such as enrollment status and satisfactory academic progress). In contrast, per their policies and procedures, eligibility is not tested for DOD’s Military Pay or the overpayment component of OPM’s Retirement estimate. DOD Military Pay. DOD reported using the results of monthly payment reviews to calculate a projected improper payment amount for Military Pay. However, DOD’s policies and procedures do not require a review of servicemember eligibility for special pay or allowances as part of these monthly reviews. DOD’s Standard Operating Procedures (SOP) direct reviewers to recalculate payments to servicemembers solely based on the pay account data included in DOD systems (i.e., to verify that components of servicemember pay were calculated appropriately). DOD’s SOP does not direct reviewers to verify that servicemembers were eligible for special pay or allowances by verifying the information included in the pay account (such as pay grade) with supporting documentation. According to DOD officials, reviewers may investigate potential inconsistencies in pay account data identified during their reviews—which may include eligibility issues—but this process is not consistently performed or documented. According to DOD officials, an example of a potential inconsistency is when a servicemember receives jump pay (a hazard pay for parachute jumps) but is located at a site where no jump activity occurred. According to DOD officials, to help compensate for the limitations of its monthly reviews, DOD calculates the final reported Military Pay improper payment estimate by adding actual debts due to DOD (related to overpayments) identified during the year to the projected estimate of the monthly reviews. DOD identifies the actual overpayments through various methods, including other postpayment reviews and servicemember self- reporting. Standards for Internal Control in the Federal Government states that management should identify, analyze, and respond to risks related to achieving the defined objectives. DOD has acknowledged internal control deficiencies related to the Military Pay program, which—if addressed in improper payment testing—could have an impact on the program’s improper payment rate. However, these deficiencies were identified through other internal control reviews not related to estimating improper payments. For the purposes of estimating improper payments, DOD has not fully assessed the risks in its Military Pay program and evaluated whether its approach for estimating improper payments effectively addresses these risks. As a result, DOD’s process for estimating Military Pay improper payments may not reflect significant risks of improper payment in the program, specifically whether servicemembers are eligible for the special pay or allowances they receive, calling into question the improper payment estimate and its usefulness for developing effective corrective actions. OPM Retirement. OPM relies on its existing Quality Assurance (QA) process to estimate Retirement underpayments. The QA process is designed to determine whether new Retirement claims (i.e., claims paid for the first time) have been adjudicated correctly. Therefore, only new Retirement claims are sampled and tested for accuracy. OPM applies historical results of QA testing to older claims; however, these historical results do not reflect any different risks of underpayment that the older claims may face. Although OPM’s QA process also produces an estimate of overpayments, the agency’s policies and procedures instead use actual debts due to OPM (related to overpayments) that were identified during the fiscal year as its overpayment amount (i.e., the overpayment amount does not reflect any testing of Retirement payments to verify eligibility or accuracy). These actual overpayments represent amounts that have been identified through various means, such as inspector general fraud referrals. OPM officials stated that the agency uses actual amounts because the QA estimate may overstate overpayments. However, the fiscal year 2016 QA overpayment estimate was lower than the actual amount of debts identified as due to OPM. Standards for Internal Control in the Federal Government states that management should identify, analyze, and respond to risks related to achieving the defined objectives. OPM has not fully assessed the risks of improper payments in its Retirement program—particularly related to the risk of underpayments in older claims and the risk of overpayments— and evaluated whether its approach for estimating improper payments effectively addresses these risks. As a result, OPM’s processes for estimating Retirement improper payments may not reflect significant risks of improper payment in the program, calling into question the improper payment estimate and its usefulness for developing effective corrective actions. OMB guidance. OMB issues guidance for agencies to implement various requirements of the improper payment laws. Specifically, OMB is required by IPERIA to issue guidance to set standards for agencies to follow in determining the underlying validity of sampled payments to ensure that amounts being billed, paid, or obligated for payment are proper. Although existing OMB guidance addresses requirements for sampling, it does not address how agencies test to identify improper payments, such as using a risk-based approach to help ensure that key risks of improper payments, like eligibility, are addressed through testing processes. Without such guidance, there is increased risk that agencies’ processes may not address key risks of improper payments in their programs—for example, the cases of DOD Military Pay and OPM Retirement described above—calling into question the improper payment estimates for such programs and their usefulness for developing effective corrective actions. According to OMB guidance, when an agency’s review is unable to determine whether a payment was proper because of insufficient or lack of documentation, the payment must be considered an improper payment. Among the six agencies and 10 programs we reviewed, treatment of insufficient documentation varied by program, as did the classification of these issues for root cause reporting in the AFRs. HHS’s programs were the only ones we reviewed that reported improper payments in the insufficient documentation root cause category for fiscal years 2016 or 2017, as shown in table 6. Some agencies stated that they report insufficient documentation in other root cause categories that they consider more appropriate. For example, Education officials stated that for the Direct Loan program, payments that lack sufficient supporting documentation may be placed in the “Administrative or Process Error Made by Other Party” root cause category. In these cases, a third party—such as a loan servicer—is unable to provide sufficient documentation supporting that the sampled payment was proper. OMB guidance states that in cases where the agency believes that more than one root cause category might be suitable, the agency should determine which category it believes to be the most appropriate. Additionally, some agencies stated that the “insufficient documentation” category was not always relevant when they recreated sampled cases to estimate a program’s improper payments. For example, according to officials, to complete an OASDI stewardship review of a sampled case, a Social Security Administration (SSA) quality reviewer reviews the documentation related to the original determination and then independently re-develops all factors of the payment and interviews the associated beneficiary. According to agency officials, insufficient documentation would not apply as all improper payments identified in the stewardship sample are supported by documentation and payment has been verified in all reviewed cases. As noted previously, the processes for estimating DOD Military Pay and OPM Retirement improper payments were limited, and these limitations may have an impact on the agencies’ ability to identify improper payments related to insufficient documentation. Treatment of cases of nonresponse. Some agencies contact outside entities—such as payees or beneficiaries—as part of their improper payment testing processes. Among the six agencies we reviewed, treatment of cases of nonresponse differed. For example: SSA officials stated that in cases where quality reviewers do not receive responses from OASDI beneficiaries they contact, they exclude the cases from review (unless the reviewer identifies an improper payment in the initial review that is completed prior to reaching out to the beneficiary). For EITC improper payment estimation purposes, the Internal Revenue Service (IRS) stated that the agency does not consider the sampled payment associated with a nonresponse case to be proper or improper. It sets the sampling weight of nonresponse cases to zero and adjusts the sampling weights of respondents upward to account for the nonresponse cases. IRS’s methodology assumes nonresponse and response cases have an equal likelihood of improper payment. For Medicare Fee-for-Service and Medicaid, HHS’s policies and procedures consider payments associated with nonresponse cases to be improper. OMB guidance states that when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or lack of documentation, this payment must be considered an improper payment. However, it does not specifically address the appropriate treatment of nonresponse cases for improper payment estimation purposes. As a result, without clearer guidance there is increased risk that agencies’ improper payment estimates may be understated and that estimates for similar programs may not be comparable. When agencies identify improper payments, they must determine the amount of the payment that was improperly made. The six agencies we reviewed generally reported using the definition of improper payment in relevant laws and OMB guidance to determine the amount of improper payments identified. OMB guidance provides agencies with instructions on how to calculate the amount of improper payments. However, when developing its improper payment estimate for EITC, IRS subtracted overpayments that were paid out and later recovered. By subtracting recovered overpayments, IRS excluded them from the EITC improper payment estimate. For 2013—the tax year used to produce the fiscal year 2017 improper payment estimate—IRS estimated that $1.2 billion in EITC overpayments would be recovered. IPERIA directed OMB to provide guidance that requires agencies to include all improper payments in their improper payment estimates, regardless of whether they have been or are being recovered. Although the OMB guidance was revised in October 2014 to implement this requirement, IRS has not updated its estimation methodology for EITC. By not updating its guidance and continuing to remove EITC overpayments that may be subsequently recovered, IRS is understating its improper payment estimate and potentially limits its ability to address these types of improper payments before they occur. Improper payments are a long-standing, significant problem in the federal government. Estimation of improper payments is key to understanding the extent of the problem and to developing effective corrective actions to address it. Among the six agencies we reviewed, processes to estimate improper payments in their programs varied, and certain differences in these processes may affect the quality of the resulting estimates and consequently these agencies’ efforts to reduce improper payments. Specifically, policies and procedures for DOD’s Military Pay and OPM’s Retirement programs’ improper payment estimation methodologies do not address certain key risks, like eligibility, in part because these agencies have not fully assessed their processes. Further, although OMB guidance addresses requirements for sampling, it does not address how agencies test to identify improper payments. Without such assessments and guidance, there is increased risk that agencies’ processes may not address key risks of improper payments in their programs, calling into question the improper payment estimates for such programs and their usefulness for developing effective corrective actions. Additionally, for agencies we reviewed that contact outside entities as part of their improper payment estimation processes, the treatment of cases of nonresponse varied. OMB guidance does not specifically address the appropriate treatment of nonresponse cases for improper payment estimation purposes. Without clearer guidance there is increased risk that agencies’ improper payment estimates may be understated and that estimates for similar programs may not be comparable. Finally, although IPERIA directed OMB to provide guidance that requires agencies to include all improper payments in their improper payment estimates, regardless of whether they have been or are being recovered, IRS has not updated its processes to reflect the change. By not updating its guidance and continuing to remove EITC overpayments that may be subsequently recovered, IRS is understating its improper payment estimate and potentially limits its ability to address these types of improper payments before they occur. We are making two recommendations to the Director of OMB that have government-wide implications and specific recommendations to DOD, OPM, and IRS regarding their programs included in this review. The Director of OMB should develop guidance on how agencies test to identify improper payments, such as using a risk-based approach to help ensure that key risks of improper payments, such as eligibility, are addressed through testing processes. (Recommendation 1) The Director of OMB should develop guidance clarifying the appropriate treatment of nonresponse cases during improper payment testing. (Recommendation 2) The Under Secretary of Defense (Comptroller) should assess the processes for estimating Military Pay improper payments to determine whether they effectively address key risks of improper payments— including eligibility for different types of pay and allowances—and take steps to update the processes to incorporate key risks that are not currently addressed. (Recommendation 3) The Director of OPM should assess the processes to estimate Retirement improper payments to determine whether they effectively address key risks of improper payments—including eligibility and whether older claims face different risks of improper payments than new claims—and take steps to update the processes to incorporate key risks that are not currently addressed. (Recommendation 4) The Commissioner of IRS should update IRS’s improper payment estimation methodology to not exclude recovered overpayments from its EITC improper payment estimate. (Recommendation 5) We provided a draft of this report for comment to OMB, DOD, Education, HHS, Treasury, OPM, SSA, and USDA. OMB provided oral comments, which are summarized below. OPM, DOD, and IRS provided written comments, which are reproduced in appendixes II through IV, respectively. Education, HHS, SSA, and USDA did not provide written comments on the draft report. In addition, HHS, IRS, OMB, OPM, and SSA provided technical comments, which we have incorporated, as appropriate. In oral comments provided on April 30, 2018, a Senior Policy Advisor in OMB’s Office of Federal Financial Management stated that OMB partially agreed with our first recommendation and agreed with our second recommendation. Regarding the first recommendation, the Senior Policy Advisor stated that OMB should not have to develop more specific guidance as each program and activity has its own risks. Instead, inspectors general are better equipped and positioned to review the sampling and estimation plans as part of their annual IPERA compliance audits and that agencies, their statisticians, and inspectors general should work out the best testing procedures for their agencies. OMB could provide suggestions during OMB’s annual town hall meeting related to improper payments for areas that inspectors general may consider. Although we agree that programs and activities may face different risks of improper payment, we continue to believe that guidance from OMB on how agencies test to identify improper payments—such as directing agencies to take a risk-based approach in developing their testing procedures—could help ensure that agencies address the specific risks they identify when developing improper payment estimates. Further, such guidance could also help ensure that testing processes are designed to address an agency’s identified risks before the estimate is developed, whereas an inspector general’s review—as well as related recommendations for improvement—would generally occur after the agency’s improper payment estimate had been developed and reported. Regarding the second recommendation, the Senior Policy Advisor noted that OMB plans to update its guidance to direct agencies to treat nonresponse cases as improper payments and to include a new category for tracking such cases. In its written comments, OPM partially concurred with our recommendation to assess the processes to estimate Retirement improper payments to determine whether they effectively address the key risks of improper payments. OPM agreed to conduct an audit of older claims to determine if they face different risks than new claims. However, OPM did not agree with the part of the recommendation to assess the risk of improper payments related to eligibility in the estimation process. OPM stated that eligibility is determined before annuity or survivor benefits are fully adjudicated. However, the objective of an improper payment estimate is to determine whether payments were made properly. To do so, an agency should determine whether the payee was eligible for the payment that was made, among other things. As such, we continue to believe that the recommendation—including the assessment of the risk of improper payments related to eligibility—is warranted. In their written comments, DOD and IRS both agreed with our recommendations directed to them and described the steps they plan to take to implement them. We are sending copies of this report to the appropriate congressional committees; the Secretaries of Agriculture, Defense, Education, Health and Human Services, and the Treasury; the Director of the Office of Personnel Management; the Administrator of the Social Security Administration; the Director of the Office of Management and Budget; and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-2623 or davisbh@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Table 7 lists the fiscal year 2017 improper payment estimates by agency and program, as reported by agencies in their fiscal year 2017 agency financial reports and compiled on the Office of Management and Budget’s payment integrity website, paymentaccuracy.gov. In addition to the contact named above, Phillip McIntyre (Assistant Director), James M. Healy (Auditor in Charge), Daniel Flavin, and Fabiola Torres made key contributions to this report.	[ "Improper payments—which include payments that should not have been made or were made in an incorrect amount—are a long-standing, significant problem in the federal government, estimated at almost $141 billion for fiscal year 2017. Executive branch agencies are required to annually estimate improper payments for certain programs. Estimation of improper payments is key to understanding the extent of the problem and to developing effective corrective actions. Relevant laws and guidance provide agencies flexibility in developing estimates. This report describes agencies' processes to estimate improper payments in selected programs for fiscal year 2017 and the extent to which certain differences in these processes can affect the usefulness of the resulting estimates. GAO selected 10 programs across six agencies with the largest reported program outlays in fiscal years 2015 and 2016. For these programs, GAO reviewed relevant laws and guidance, analyzed agencies' policies and procedures, and interviewed officials at relevant agencies and OMB staff. The six agencies GAO reviewed reported taking various approaches related to key components of estimating improper payments—shown in the figure below—for 10 selected programs, which collectively reported outlays of over $2.5 trillion for fiscal year 2017. Sample selection. Eight of the 10 programs GAO reviewed reported using statistically valid approaches, and the remaining 2 reported using alternative methodologies approved by the Office of Management and Budget (OMB). The sampled data elements varied, including payments, medical claims, and tax returns. The age of the data used to develop fiscal year 2017 improper payment estimates also varied, ranging from calendar year 2013 to fiscal year 2017. Identification of improper payments. Some of the six agencies reported using processes designed specifically to estimate improper payments, whereas others reported leveraging existing reviews. These agencies' policies and procedures include a review of aspects of eligibility, except for those related to the Department of Defense's (DOD) Military Pay and the Office of Personnel Management's (OPM) Retirement overpayments. DOD and OPM have not fully assessed whether their estimation processes effectively consider key program risks. OMB guidance does not specifically address how agencies are to test to identify improper payments, such as using a risk-based approach to help ensure that key risks of improper payments are addressed. The six agencies also varied in the treatment of insufficient documentation, both in identifying and in reporting the root causes of improper payments. For the agencies that contact entities outside the agency to estimate improper payments, the treatment of nonresponse differed, with one agency including nonresponses as improper payments and another generally excluding the nonresponse cases from review. Although OMB guidance states that agencies should treat cases of insufficient documentation as improper payments, it does not specifically address the treatment of nonresponse cases. Calculation of the improper payment estimate. The six agencies generally reported using law and OMB guidance to calculate improper payment estimates for the selected programs, except for the Earned Income Tax Credit (EITC). The Internal Revenue Service (IRS) removed overpayments that were recovered when developing its estimate. OMB guidance requires agencies to include recovered amounts in their estimates. Removing these overpayments understates the EITC improper payment estimate and may limit IRS's ability to develop corrective actions to prevent improper payments. GAO recommends that OMB develop guidance on treatment of nonresponse cases and testing to identify improper payments, that DOD and OPM assess their estimation processes, and that IRS revise its methodology to not exclude recovered payments from its estimate. All of the agencies either agreed or partially agreed with the specific recommendations to them. GAO believes that the actions are warranted, as discussed in the report." ]	4,147	gov_report	en	null	001a23a1f95252057227d5728ed820bfa446b91f46dbb394
Coast Guard staffing for the TAP program reflects the organizational structure of its Health, Safety, and Work-Life Directorate, which oversees TAP policy. The Coast Guard’s TAP managers are assigned to 13 installations where Health, Safety, and Work-Life offices are located. One or two TAP managers are assigned to each of the Coast Guard’s nine districts, which often span multiple states and territories, and these TAP managers oversee operations both for the installation where they work and for units stationed throughout the region (see fig. 1). For example, the TAP manager assigned to Coast Guard Base Cleveland oversees TAP implementation both for that installation and for Coast Guard units serving in Coast Guard District 9—a region that encompasses portions of eight states and the Great Lakes area. The program manager in Coast Guard Headquarters manages Coast Guard’s Transition Assistance Program. The Coast Guard protects and defends over 100,000 miles of U.S. coastline and inland waterways, and consequently, TAP-eligible Coast Guard servicemembers sometimes work in small, widely dispersed units assigned to remote locations, including on Coast Guard vessels. One aspect of the Coast Guard’s mission—a first responder for maritime search and rescue in United States waters—can require Coast Guard servicemembers to respond to emergency situations at a moment’s notice. The Coast Guard, which is overseen by DHS, not DOD, generally oversees TAP implementation for its servicemembers. Federal law requires DOD and DHS to require eligible servicemembers under their respective command to participate in TAP, with some exceptions. In response to this statutory requirement, DOD has promulgated regulations and developed issuances which require that servicemembers complete the component parts of the TAP program, and that commanding officers ensure that servicemembers under their command complete these parts, with some exceptions. In contrast, according to Coast Guard officials, Coast Guard has not promulgated any regulations to implement TAP. Further, Coast Guard issued its most recent Commandant Instruction in 2003, approximately 8 years prior to TAP redesign in 2011. However, Coast Guard issued policy guidance in 2014 that made some limited updates to the Commandant Instruction. Coast Guard officials also said the Coast Guard plans to issue a new TAP Commandant Instruction in May 2018. Under the redesigned TAP, Coast Guard servicemembers—like their DOD counterparts—begin TAP by attending pre-separation or transition counseling where they are briefed on TAP requirements and available transition resources. Pre-separation or transition counseling can be delivered by TAP managers, uniformed career counselors, or online (see fig. 2). Coast Guard servicemembers are able to participate in TAP either through the Coast Guard or at a DOD installation, if space is available. During or at the end of pre-separation or transition counseling, participants register for and attend TAP courses. The core curriculum includes three required courses—the Department of Labor (DOL) Employment Workshop, unless exempt, and Department of Veterans Affairs (VA) Benefits Briefings I and II—and other courses that focus on aspects such as translating military skills and experiences into credentialing for civilian jobs and preparing a financial plan. Participants may also elect to attend additional 2-day classes either at a Coast Guard or DOD installation or online through the Joint Knowledge Online platform, according to agency officials. These additional 2-day classes include Accessing Higher Education, Career Technical Training, and Entrepreneurship. Federal law requires the Coast Guard to permit servicemembers who elect to take these additional 2-day classes to receive them. Federal law establishes a time frame within which servicemembers with anticipated separation or retirement dates should begin the program. According to federal law, retirees with anticipated separation dates are expected to begin TAP as soon as possible during the 24-month period preceding that date, but not later than 90 days before separation. Similarly, servicemembers with anticipated separation dates who are not retiring are expected to begin as soon as possible during the 12-month period preceding that date, but not later than 90 days before separation. Servicemembers who learn that they will separate or retire from the military fewer than 90 days before their anticipated separation or retirement date are expected to begin TAP as soon as possible within their remaining period of service. As we previously reported, officials from multiple federal agencies collaborate to deliver and assess TAP. The TAP interagency governance structure includes senior officials from DOD, VA, DOL, DHS, the Department of Education, the U.S. Office of Personnel Management, and the Small Business Administration (SBA), who participate in TAP Senior Steering Group meetings at least every month and TAP Executive Council meetings each quarter. Further, officials tasked to particular interagency working groups focus on specific elements of TAP (e.g., curriculum or performance measures), meet more frequently (typically at least once a month), and generally communicate weekly, according to agency officials. The TAP program manager for the Coast Guard told us that he participates in several of the working groups. One such working group is the performance management working group that oversees the interagency TAP evaluation plan, which includes monitoring performance measures related to TAP requirements, indicators of post-program outcomes, and formal evaluations sponsored by interagency partners. While DOD tracks TAP-specific performance measures, other interagency partners track indicators of how well veterans fare after leaving military service. For example, DOD tracks performance measures prior to servicemembers’ separation, such as TAP participation and credential attainment rates, while other agencies track post-separation indicators, such as unemployment rates among veterans ages 18 to 24. The performance management working group also reviews the formal evaluation efforts led by individual agencies and provides feedback to help shape their efforts in accordance with the TAP Evaluation Plan. The Coast Guard does not have complete or reliable data on participation levels in TAP. According to Coast Guard officials, a major reason why the data are not reliable is that the Coast Guard lacks an up-to-date Commandant Instruction that specifies when to record TAP participation data. Consequently, the data are updated on an ad-hoc basis, according to agency officials, and may not be timely or complete. For example, one TAP manager said she updates the list of TAP participants for her installation only once every few months because of her other duties. According to federal internal control standards, management should use quality information—including current and timely information— to achieve the entity’s objectives and to communicate quality information to external parties. Given the lack of timely and complete data, we determined the Coast Guard’s TAP data were not sufficiently reliable for an analysis of participation in TAP classes. Because it lacks policies and procedures governing reliable data collection, including when data should be entered and by whom, the Coast Guard cannot determine to what extent its servicemembers attend TAP, although federal law mandates that DHS ensure all TAP-eligible servicemembers participate in the program. In addition, the data collection system currently used to track TAP participation is not sufficient to ensure reliable data. For example, according to Coast Guard staff, TAP staff enter TAP participation data into a shared spreadsheet that all TAP managers can edit. Specifically, staff record the names of servicemembers they identify as TAP-eligible and whether these individuals completed required portions of TAP. Coast Guard officials said they are in the process of adopting a new data system, in October 2018, to more reliably track TAP participation and that they expect to fully adopt this system–DOD’s TAP-IT Enterprise System—after a new Commandant Instruction is finalized, in May 2018. In November 2016, DOD launched the new system to collect TAP-related data for servicemembers in the Army, Navy, Air Force, and Marine Corps. In addition to standardizing data collection and improving data completeness and accuracy, the TAP-IT Enterprise System is expected to track information related to the time frames of servicemembers’ participation. According to a senior DOD official, the military services will not be able to use the system to generate unit-level or installation-level reports until October 2018. According to our survey, the most common factor affecting TAP participation, cited at 11 of the 12 Coast Guard installations we surveyed, pertained to servicemembers assigned to geographically remote locations. The next three most commonly cited factors–each cited by 7 of the 12 installations surveyed—relate to the timing of TAP participation: rapid separation from the military, not being sufficiently aware of the need to attend TAP, and starting the transition process too late to attend. (See fig. 3.) Headquarters-based TAP officials identified additional factors that may affect servicemember participation, such as separating from the Coast Guard Reserves or retiring with no plans to work after leaving the military. However, the Coast Guard lacks participation data to verify whether participation rates for these groups are in fact lower than for other Coast Guard servicemembers. Coast Guard installations we surveyed did not indicate that unit commanders or direct supervisors affected participation in TAP’s required courses or additional 2-day classes. However, Coast Guard servicemembers and TAP officials we spoke with said unit commanders or direct supervisors sometimes prevented participation. All three TAP managers we spoke with (of 12 nationwide) told us that while commanders generally allowed servicemembers to register for TAP courses, they occasionally required them to return to their duties before completing the courses. We observed this during a TAP class at a Coast Guard installation we visited when a servicemember’s commander ordered her to return to the unit during TAP training and she missed a briefing she wanted to attend. Two of three TAP managers we interviewed also said commanders sometimes required servicemembers under their command to wait to take TAP classes until close to their separation date because of mission priorities. Two of three TAP managers interviewed said that commanders in the Coast Guard face unique challenges in ensuring TAP participation. They said commanders in all branches of the military must balance competing demands, including their primary mission and the training needs of the personnel they oversee. They said it can be particularly difficult for Coast Guard commanders to juggle these priorities because Coast Guard servicemembers are sometimes assigned to very small units or called to return to duty for emergency situations during scheduled TAP classes. One TAP manager said that a commander in a remote location had collaborated with her to provide a classroom-based TAP class for transitioning Coast Guard servicemembers within the commander’s unit, but rescue efforts occurred during the class which resulted in most of those servicemembers returning to their vessel to respond to the emergency. In addition, all three TAP managers we spoke with said there are limited resources for holding TAP in a classroom setting. Consequently, classroom-based TAP may not be offered frequently in remote locations, making rescheduling difficult. One TAP manager said that her installation typically offers three or four TAP classes a year and because classes are so infrequent, servicemembers are encouraged to start TAP as soon as possible prior to separation. Coast Guard staff we interviewed said that juggling competing priorities affected the Coast Guard’s ability to implement TAP. Both the frontline and headquarters staff who oversee TAP implementation said they oversee at least three other programs in addition to TAP at their installation and throughout their regions, including the Coast Guard’s relocation and spousal employment programs. The Coast Guard relies on online delivery of TAP information and classes for servicemembers who are rapidly separating and assigned to remote and geographically dispersed units, according to our survey results and several Coast Guard staff we interviewed. For example, all 12 installations we surveyed cited servicemembers facing rapid separations as a reason for accessing TAP training online, and 11 cited servicemembers being remotely stationed as a reason. Coast Guard staff also said online TAP was used for servicemembers interested in attending additional 2-day classes. The three TAP managers we interviewed also identified several reasons why installations had to rely on online TAP classes. For example, one manager corroborated our survey results, saying that many Coast Guard servicemembers worked in small units assigned to remote and geographically dispersed locations, making it difficult to convene a sufficient number of transitioning Coast Guard servicemembers to meet minimum class size requirements. In addition, all three managers said they used the online version of TAP for remotely stationed Coast Guard servicemembers because the Coast Guard lacked the resources for them to attend classes in person. Although they preferred that servicemembers participate in live, classroom-based TAP classes, all of the managers acknowledged that the online version of TAP played an integral role in ensuring that more servicemembers could participate in the program. However, two of them noted that while classroom delivery of TAP classes provided an interactive learning environment that allowed participants to ask questions and learn from their peers, online participants generally clicked quickly through the slides and had difficulty understanding the information being presented. Two managers told us that they regularly used the online version to deliver parts of the TAP curriculum. For example, one TAP manager said she required participants to complete the crosswalk of military and civilian occupations class online before attending required classes in person. Two managers noted that additional 2-day classes were available online, and one noted that some servicemembers attended these classes in a classroom setting either on a Coast Guard base or a DOD installation. Finally, all three TAP managers said that many participants in online TAP classes would benefit from participating in a real-time virtual version of TAP led by live facilitators. Two managers told us that having a remote facilitator delivering TAP in real time would give participants more opportunity to ask questions and better understand and absorb class content. Despite these challenges, TAP managers and separating Coast Guard servicemembers we interviewed provided generally positive feedback about the TAP program. All of the 25 Coast Guard servicemembers we spoke with said that the information they received during the courses was useful and they liked the instructors. One Coast Guard servicemember praised the classroom courses for being interactive, and several Coast Guard servicemembers said they wanted the opportunity to retake TAP before or shortly after they separated from the Coast Guard. However, many said the volume of information presented in a short period of time could be overwhelming and was like “trying to drink from a firehose.” The Coast Guard has not set a formal performance goal for TAP participation, according to a Coast Guard official, and as previously discussed, does not have complete, reliable data. Without reliable information, the Coast Guard cannot effectively monitor TAP implementation or measure program performance. DHS is mandated to ensure that all TAP- eligible servicemembers of the Coast Guard participate in TAP before leaving military service. However, without effective monitoring of program participation, the Coast Guard cannot know to what extent its servicemembers receive the required training they need to prepare for civilian life. According to federal internal control standards, management should consider external requirements—such as the laws with which the entity is required to comply—to clearly define objectives in specific and measurable terms. In addition, establishing goals can help agencies define expected performance and articulate results. A Coast Guard official said the Coast Guard’s long-term goal is for full compliance with TAP requirements, but in the interim, the Coast Guard uses DOD’s 85 percent VOW compliance goal as an informal benchmark against which to gauge the Coast Guard’s TAP performance. However, the Coast Guard has not communicated a specific, measurable goal to TAP staff implementing the program, or to Coast Guard commanders who oversee separating and retiring Coast Guard servicemembers, according to a Coast Guard official. Establishing and communicating a formal goal could help the Coast Guard define expected performance. The official also told us that, like DOD, the Coast Guard tracks the elements of TAP mandated under the VOW Act— transition or pre-separation counseling, VA Benefits I and II, and the DOL Employment Workshop. The Coast Guard does not monitor the (1) timeliness of participation in TAP, and (2) access to additional 2-day classes. A Coast Guard official said the Coast Guard does not currently monitor TAP beyond tracking whether separating servicemembers participate in the required courses, and currently lacks the capacity to undertake additional monitoring efforts. However, he said additional monitoring would be possible once the Coast Guard completed the move to the DOD TAP-IT Enterprise data system. According to a Coast Guard official, the Coast Guard does not currently monitor the timeliness of TAP participation although federal law prescribes time frames for servicemembers to begin TAP participation. Generally, separating servicemembers who are not retiring are to begin TAP participation no later than 90 days before their separation date. Without a systematic method for monitoring timeliness, the Coast Guard cannot know whether its servicemembers begin the program on time or account for the timeliness of TAP participation. As a result, the Coast Guard cannot know whether its servicemembers are starting TAP early enough to complete the training they need to adequately prepare for their transition to civilian life. The Coast Guard does not track which of its servicemembers participate in the additional 2-day classes, according to a Coast Guard official we interviewed, even though federal law requires that DHS ensure those who elect to participate are able to receive the training. By not tracking which Coast Guard servicemembers participate in 2-day classes or requiring transition staff to document when servicemembers ask to attend, the Coast Guard cannot determine the extent to which servicemembers who wished to attend these courses were able to do so, as required by law. Coast Guard commanders and TAP managers do not have clearly defined roles and responsibilities in implementing TAP because of the lack of an up-to-date Commandant Instruction, according to TAP staff we interviewed. As previously discussed, the Coast Guard’s last Commandant Instruction on TAP was issued in 2003, approximately 8 years prior to TAP’s redesign. According to federal internal control standards, to achieve the entity’s objectives, management should assign responsibility and delegate authority to key roles throughout the entity. Without an up-to-date Commandant Instruction, TAP managers and commanders may be unclear on who is ultimately responsible for ensuring servicemembers attend TAP. Moreover, two TAP managers also told us that an up-to-date Commandant Instruction might lead some commanders to place higher priority on ensuring TAP participation. Coast Guard officials said the Coast Guard was in the process of revising the TAP Commandant Instruction and anticipated issuing the new instruction in May 2018. The Coast Guard lacks the ability to share data with commanders, limiting its ability to monitor TAP participation and ensure servicemembers attend the program. According to a Coast Guard official, the Coast Guard’s current data collection system also cannot generate installation or unit- level participation rates to share with commanders who oversee transitioning and retiring servicemembers. Federal internal control standards state that management should share quality information throughout an organization to enable personnel to perform key roles, and we have previously reported that by regularly sharing useful performance information with leaders at multiple levels of an organization, agencies can help leaders make informed decisions. Without this information, individual unit commanders or the commanders’ supervisors cannot determine whether Coast Guard servicemembers under their command completed TAP or identify whether there is a need for corrective actions to ensure they do so. As we mention earlier in this report, the Coast Guard plans to adopt DOD’s TAP-IT Enterprise System, which according to officials, could help the Coast Guard ensure eligible servicemembers participate in the program. According to a Coast Guard official, once the system is fully implemented by the Coast Guard, commanders will be required to verify and document whether Coast Guard servicemembers under their command completed TAP, potentially making commanders more vested in the process. We previously reported that a senior DOD official said that the TAP-IT Enterprise System may be able to generate unit- and installation-level reports for the four DOD-led military services by October 2018, and a Coast Guard official said he would work with DOD to identify whether this capability could also extend to the Coast Guard. Once data reliability improves, sharing installation and unit-level TAP performance information with Coast Guard commanders could support monitoring efforts. The performance measures tracked by the TAP interagency working group do not reflect TAP implementation broadly across all five military services, according to a Coast Guard official we interviewed. The Coast Guard does not currently share TAP data it collects with DOD or other members of the interagency performance working group. While the benefits of interagency data sharing cannot be realized without the Coast Guard first improving the quality and completeness of its TAP data, we have identified leading practices for interagency collaboration, including that members of interagency working groups identify and share relevant agency performance data. Moreover, federal internal control standards call for management to communicate quality information to external parties. Because the Coast Guard does not share TAP data, the performance measures tracked by the interagency group do not reflect Coast Guard servicemembers’ experiences and thus do not provide a complete picture of TAP implementation across the five military services. More specifically for the Coast Guard, without such data sharing, future TAP evaluations may not be able to assess the effectiveness of TAP delivery, hindering the Coast Guard’s ability to make program adjustments to better prepare its servicemembers to successfully transition to life after military service. Coast Guard officials said migrating to DOD’s TAP-IT Enterprise System will facilitate information sharing with interagency partners and that improving data completeness and reliability is a top priority for 2018. Given the sacrifices servicemembers have made to serve their country, it is imperative they are afforded every chance to adequately prepare for civilian life before leaving military service. In order to make a successful transition, servicemembers need to be well-positioned to get a job or make an informed decision about whether to pursue additional education or start a small business. As such, the Transition Assistance Program (TAP) serves a critically important function—to give servicemembers the tools and information they need to successfully transition to life outside the military. Federal law requires that the Coast Guard ensure all eligible servicemembers participate in the program, but thousands of Coast Guard servicemembers may have transitioned without the support provided by TAP. Reliably tracking participation has proven to be a challenge for the Coast Guard, in part because it lacks a current Commandant Instruction that defines the roles and responsibilities of staff responsible for implementing TAP and ensuring complete and reliable data are collected. In preparing to issue an updated Commandant Instruction, the Coast Guard has taken a positive step toward addressing the limitations of its current TAP data, and will be better positioned to ensure compliance with VOW Act requirements using reliable data. In addition to collecting reliable data, the Coast Guard could further demonstrate its commitment to meeting TAP requirements by establishing formal performance goals that measure the extent to which Coast Guard servicemembers participate in TAP. By establishing interim performance goals, the agency would be able to show its progress towards achieving full compliance. Moreover, communicating performance goals to unit and installation commanders could enhance accountability and might spur progress toward meeting federal program requirements. By expanding its monitoring efforts beyond tracking participation in TAP’s required classes, the Coast Guard could enhance its ability to ensure other TAP requirements are met and that its servicemembers are able to access additional transition resources. Monitoring the timeliness of participation would help ensure Coast Guard servicemembers have adequate time to complete TAP before leaving the military. Further, by monitoring requests to participate in additional 2-day classes and 2-day class attendance, the Coast Guard would be in a better position to identify whether servicemembers who wish to attend the classes are able to do so, to determine whether more classes are needed, and to communicate this information to the interagency partners responsible for delivering these classes. Commanders can also play a key role in bolstering TAP participation. Having an up-to-date written Commandant Instruction that explicitly describes commanders’ roles and responsibilities could enhance commanders’ ability to ensure TAP’s proper implementation and compliance with VOW Act requirements. Moreover, once data quality improves, providing commanders a mechanism to readily determine whether servicemembers under their command have completed TAP could help them monitor the program to ensure that all TAP-eligible servicemembers receive the resources they need to successfully transition to civilian life. Finally, once more reliable data on Coast Guard servicemember participation are available, sharing this information with interagency partners could improve TAP implementation on a broader scale. Sharing reliable data, such as participation figures for the Coast Guard, would give TAP interagency partners a more complete picture of implementation across all five military services. Sharing such information would also enhance the interagency group’s ability to evaluate how well TAP serves the entire population of servicemembers. Improving the reliability of the Coast Guard’s TAP data will be essential for the benefits of data sharing to be realized. To ensure that all eligible Coast Guard servicemembers are provided the opportunity to complete the Transition Assistance Program (TAP), we recommend the Commandant of the Coast Guard take the following seven actions: Issue an updated Commandant Instruction that establishes policies and procedures to improve the reliability and completeness of TAP data by including when and by whom data should be recorded and updated. (Recommendation 1) Establish a formal performance goal with a measurable target for participation rates in VOW Act-mandated portions of TAP. (Recommendation 2) Monitor the extent to which Coast Guard servicemembers participate in TAP within prescribed time frames. (Recommendation 3) Monitor the extent to which Coast Guard servicemembers who elect to participate in additional 2-day classes are afforded the opportunity to attend. (Recommendation 4) Issue an updated Commandant Instruction that defines the roles and responsibilities of the personnel who administer the program and ensure servicemembers’ participation. (Recommendation 5) Once reliable data are available by installation or unit, enable unit commanders and the higher-level commanders to whom they report to access TAP performance information specifically for the units they oversee so that they can monitor compliance with all TAP requirements. (Recommendation 6) Once reliable data are available, share TAP information with DOD and other interagency partners, such as data on participation in required TAP courses and additional 2-day classes. (Recommendation 7) We provided a draft of this report to the Departments of Homeland Security, Defense, Education, Labor, and Veterans Affairs, the Office of Personnel Management, and the Small Business Administration for their review and comment. The formal written response of the Department of Homeland Security (DHS) is reproduced in appendix II. In addition, DHS provided technical comments from Coast Guard officials that we incorporated into the report as appropriate. The other agencies did not provide any comments. In its written comments, DHS agreed with all seven of our recommendations. If you or your staff have any questions about this report, please contact me at (202) 512-7215 or brownbarnesc@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix III. This report examines (1) what is known about the reliability of Transition Assistance Program (TAP) data on participation levels and the factors that affect Coast Guard servicemembers’ participation, and (2) the extent to which the Coast Guard measures TAP performance and monitors key areas of TAP implementation. To address these questions, we surveyed Coast Guard installations with full-time TAP operations; reviewed Coast Guard data on TAP participation for fiscal years 2012 to 2017; visited one Coast Guard installation and interviewed TAP managers from two additional Coast Guard installations selected for diversity in location, among other reasons; and interviewed Coast Guard officials responsible for overseeing TAP implementation for the Coast Guard. We also reviewed relevant federal laws, regulations, policies, documents, and publications. Information in this report is current as of the date GAO received formal agency comments from DHS. Our survey of Coast Guard installations with full-time TAP operations asked about how TAP was being implemented. The survey included questions about the accessibility of TAP components, challenges Coast Guard servicemembers faced in attending the components, and the level of commander support for participation. Our survey targeted front-line TAP managers, who could draw on the expertise of TAP course facilitators, transition counselors, career counselors, and other key TAP staff as necessary. After drafting the survey questions, we pretested them with a TAP manager to ensure (1) the questions were clear and unambiguous, (2) terminology was used correctly, (3) the survey did not place an undue burden on agency officials, (4) the information could feasibly be obtained, and (5) the survey was comprehensive and unbiased. We revised the content and format of the survey based on the feedback we received. We initially sent the survey to TAP managers at all 13 Coast Guard installations at which TAP staff were located. We removed one installation when we later found that the TAP manager position was vacant and revised the total to 12 Coast Guard installations. The survey was accessible online from October 31, 2016, through January 18, 2017, through a secure server that recipients were able to access using unique usernames and passwords. We sent an email announcement to TAP staff at all 13 Coast Guard installations at which TAP staff are located on October 24, 2016. We sent a second email on October 31, 2016 to notify participants the survey was available online, and provided their unique passwords and usernames. We sent two follow-up e-mails (November 14, 2016 and November 28, 2016) to those who had not responded. Finally, we contacted all remaining nonrespondents by telephone starting December 5, 2016. The survey was available online until we reached a 100 percent response rate. To increase our understanding into how TAP was being implemented at installations and supplement our survey findings, we visited one Coast Guard installation and interviewed TAP managers from two additional installations. We selected the installations based on several factors, including the size of the installation, proximity to Department of Defense (DOD) installations, and diverse locations in the United States. (See table 1.) At Coast Guard Base Elizabeth City in North Carolina, the installation we visited, we interviewed the TAP manager, uniformed career counselors, and senior installation leadership. During our interviews with TAP managers at all three installations, we asked about the extent to which Coast Guard servicemembers participate in TAP’s required and additional 2-day classes, including whether the servicemembers attended classes online or in a classroom setting, challenges to ensuring Coast Guard servicemembers participate in TAP, and the extent to which they monitor Coast Guard servicemembers’ participation in TAP. At Coast Guard Base Elizabeth City, we also interviewed 25 Coast Guard servicemembers (both officers and enlisted personnel) to get their perspective on how well TAP worked and any challenges they had participating. To help guide the interviews with the Coast Guard servicemembers, we asked them to complete a short questionnaire that asked about their experiences with the TAP program. We also interviewed TAP staff at Coast Guard headquarters to learn about TAP policy, monitoring efforts, and performance measures for the service overall. For example, we asked what policies and procedures guide installations’ TAP implementation; what performance measures the Coast Guard uses to monitor TAP; how performance results are reported and shared with different levels of Coast Guard leadership; and to what extent the Coast Guard uses results from TAP participant satisfaction assessments. We also asked whether the Coast Guard plans to shift to DOD’s new TAP-IT Enterprise System and how using the new system could affect its monitoring efforts in the future. In evaluating the Coast Guard’s performance measures, we focused on measures related to servicemembers’ transition experiences before leaving the military. We did not gather information on post-program evaluations and outcomes because they were determined to be outside the scope of this review. We reviewed DHS data on TAP participation for fiscal years 2012 to 2017. To assess the reliability of the Coast Guard’s TAP participation data, we interviewed agency officials knowledgeable about the data. We determined these data were not sufficiently reliable due to limitations with the Coast Guard’s data collection system. Specifically, the system lacks adequate controls to ensure TAP data are complete and accurate. We conducted this performance audit from February 2016 to April 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. In addition to the contact named above, Meeta Engle (Assistant Director), Amy MacDonald (Analyst-in-Charge), James Bennett, Holly Dye, David Forgosh, Ying Long, Jonathan McMurray, Jean McSween, Andrew Sherrill, Benjamin Sinoff, and Timothy Young, made significant contributions to this report. Also contributing to this report were Susan Aschoff, Jessie Battle, Ramona Burton, Melinda Cordero, Elizabeth Curda, Dawn Hoff, Ben Licht, Serena Lo, Sheila McCoy, Almeta Spencer, Christopher Schmitt, James Whitcomb, and Jill Yost. Transitioning Veterans: DOD Needs to Improve Performance Reporting and Monitoring for the Transition Assistance Program, GAO-18-23. Washington, D.C.: November, 8, 2017. Transitioning Veterans: Improvements Needed in DOD’s Performance Reporting and Monitoring of the Transition Assistance Program, GAO-18-225T. Washington, D.C.: November 8, 2017. Department of Defense: Transition Assistance Program (TAP) for Military Personnel, GAO-16-302R. Washington, D.C.: December 17, 2015. Veterans’ Employment: Need for Further Workshops Should Be Considered before Making Decisions on Their Future, GAO-15-518. Washington, D.C.: July 16, 2015. Military and Veteran Support: DOD and VA Programs That Address the Effects of Combat and Transition to Civilian Life, GAO-15-24. Washington, D.C.: November 7, 2014. Veterans Affairs: Better Understanding Needed to Enhance Services to Veterans Readjusting to Civilian Life, GAO-14-676. Washington, D.C.: September 10, 2014. Transitioning Veterans: Improved Oversight Needed to Enhance Implementation of Transition Assistance Program, GAO-14-144. Washington, D.C.: March 5, 2014. Military and Veterans’ Benefits: Enhanced Services Could Improve Transition Assistance for Reserves and National Guard, GAO-05-544. Washington, D.C.: May 20, 2005. Military and Veterans’ Benefits: Observations on the Transition Assistance Program, GAO-02-914T (July 18, 2002).	[ "Thousands of Coast Guard servicemembers have left the military and transitioned into civilian life, and some of these new veterans may face significant challenges, such as finding and maintaining employment. To help them prepare, federal law mandated that DHS provide separating Coast Guard servicemembers with counseling, employment assistance, and information on veterans' benefits through TAP. GAO was asked to examine TAP implementation. This review analyzes (1) the reliability of TAP data on participation levels for Coast Guard servicemembers and the factors that affect participation, and (2) the Coast Guard's performance measures and monitoring efforts related to TAP. GAO interviewed Coast Guard headquarters staff; surveyed 12 Coast Guard installations that conduct TAP (100 percent response rate); collected and reviewed participation data for reliability; and interviewed TAP managers from three installations selected for size and location, and 25 Coast Guard servicemembers at one location. (For a companion report on TAP implementation for separating and retiring servicemembers in other military services, see GAO-18-23 .) The United States Coast Guard (Coast Guard), which is overseen by the Department of Homeland Security (DHS), lacks complete or reliable data on participation in the Transition Assistance Program (TAP), designed to assist servicemembers returning to civilian life. According to senior Coast Guard officials, a major reason why data are not reliable is the lack of an up-to-date Commandant Instruction that specifies when to record TAP participation data. Consequently, the data are updated on an ad-hoc basis and may not be timely or complete, according to officials. Federal internal control standards call for management to use quality information to achieve the entity's objectives. Until the Coast Guard issues an up-to-date Commandant Instruction that establishes policies and procedures to improve the reliability and completeness of TAP data, it will lack quality information to gauge the extent to which it is meeting TAP participation requirements in the VOW to Hire Heroes Act of 2011. According to GAO's survey of Coast Guard installations, various factors affected participation, such as servicemembers serving at geographically remote locations or separating from the Coast Guard rapidly. TAP officials and Coast Guard servicemembers GAO interviewed said commanders and direct supervisors sometimes pulled servicemembers out of TAP class or postponed participation because of mission priorities. TAP managers also said they rely on delivering TAP online because many Coast Guard servicemembers are stationed remotely. The Coast Guard cannot effectively measure performance to ensure key TAP requirements are met because it lacks reliable data and does not monitor compliance with several TAP requirements. Further, the Coast Guard has not established a formal performance goal against which it can measure progress, although federal internal control standards stipulate that management should consider external requirements—such as the laws with which the entity is required to comply—to clearly define objectives in specific and measurable terms. Establishing a goal could help the Coast Guard define expected performance. In addition, the Coast Guard does not monitor TAP requirements regarding the timeliness of servicemembers' TAP participation or their access to additional 2-day classes. Consequently, it cannot know whether servicemembers are starting TAP early enough to complete the program or those who elected to attend additional 2-day classes were able to do so before separation or retirement, as required by the Act. Finally, the Coast Guard lacks an up-to-date Commandant Instruction that establishes the roles and responsibilities of Coast Guard staff in implementing TAP. Federal internal control standards stipulate that management should assign responsibility and delegate authority to key roles throughout the entity. Issuing an up-to-date Commandant Instruction that defines roles and responsibilities would clarify who is ultimately responsible for ensuring Coast Guard servicemembers attend TAP, thereby facilitating accountability. GAO is making seven recommendations, including that the Coast Guard issue a new Commandant Instruction establishing data collection policies, set TAP performance goals, monitor timeliness and access, and define roles and responsibilities. DHS agreed with all of GAO's recommendations." ]	5,657	gov_report	en	null	7f21e3c570659ad20f8f3fd0d75185871326886b253a3f92
According to NRC’s website, the higher the radiation dose, the sooner the effects of radiation will appear, and the higher the probability of death. Radiation doses such as those received by survivors of the atomic bombs in Japan can cause cancers such as leukemia and colon cancer and, if levels are high enough, acute radiation syndrome. The symptoms of this syndrome range from nausea, fatigue, and vomiting to death within days or weeks. In contrast, the effects of low-dose radiation are more difficult to detect. In particular, below about 100 millisieverts (mSv) (10 rem)—the level below which the National Academies of Sciences, Engineering, and Medicine’s (National Academies) 2006 report on radiation and human health considered radiation to be low dose—data do not definitively establish the dose-response relationship between cancer and radiation exposure. In developing and applying radiation protection requirements and guidance for workers and the public—specifically, limits on dose or increased health risk and guidance levels on exposure—EPA, NRC, DOE, and FDA have generally taken the advice of scientific advisory bodies. In particular, they have relied on the advice of the International Commission on Radiological Protection, the National Council on Radiation Protection and Measurements, and the National Academies’ Nuclear and Radiation Studies Board. This advice includes the use of the linear no-threshold model, which assumes that the risk of cancer increases with every incremental increase in radiation exposure. For example, the National Academies published a report in 2006 stating that the balance of evidence from various types of studies tends to favor a simple proportionate relationship between radiation at low doses and cancer risk. According to the National Academies, the availability of new and more extensive data since the publication of its previous report in 1990 strengthened confidence in the 2006 report’s estimates of cancer risk. The advisory bodies have recognized challenges in accurately estimating cancer risks from very low doses of radiation exposure when using the linear no-threshold model. For example, much of the data on health effects of radiation exposure come from non-U.S. populations, such as Japanese atomic bomb survivors. These individuals received a large exposure to radiation over a short period of time (an acute exposure), and there is uncertainty about the extent to which the health effects for these populations can be extrapolated to a U.S. population that is regularly (chronically) exposed to low-dose radiation. Nevertheless, NRC officials told us that, in the absence of convincing evidence that there is a dose threshold below which low levels of radiation are beneficial or not harmful, NRC will continue to follow the recommendations of scientific advisory bodies to use the linear no- threshold model. Similarly, officials from EPA told us that they would consider changing the use of the linear no-threshold model as the basis of their requirements and guidance only if there were a strong recommendation from scientific advisory bodies on radiation protection as well as an endorsement of the change by the National Academies. Under this model, federal regulations set dose limits for radiation exposure that are below the level in the National Academies’ 2006 report on radiation and human health for defining low-dose radiation. For example, NRC’s annual dose limit for members of the public (excluding natural, or background, sources of radiation) from operation of nuclear power plants is a hundredth of the level the National Academies considers low dose. NRC based the dose limit on an advisory body recommendation that the cancer risk to the general public from exposure to radiation should be comparable to the public’s risk from everyday activities, such as taking public transportation. The low-dose radiation limits and guidance that federal agencies have developed and applied vary depending on the settings in which exposure can occur. For example, NRC has established limits on occupational dose that apply to nuclear power-plant workers; these limits are higher than NRC’s annual dose limit for members of the public but are still below the level the National Academies considers low dose. In keeping with advisory body recommendations, NRC also applies the principle that doses should be kept as low as reasonably achievable (ALARA). NRC defines ALARA to mean making every reasonable effort to maintain exposures to radiation as far below dose limits as is practical. At a nuclear power plant we visited as part of our work, representatives told us that under their ALARA plan, the plant set its own dose limit for workers at 40 percent of the NRC’s regulatory limit. Moreover, officials at the plant told us that they have been able to keep exposures below the plant’s own limit by continuously seeking opportunities to reduce unnecessary worker exposure to radiation, such as using robots to perform maintenance work in radiation areas. In contrast to radiation exposure received from nuclear power plants, FDA officials stated that the agency regulates the maximum radiation output of medical equipment, instead of setting limits on the total amount of radiation exposure to patients. According to FDA officials, FDA does not generally have the authority to regulate the total amount of radiation exposure a patient receives from medical imaging equipment. However, in keeping with the principle that radiation exposure should be kept as low as reasonably achievable, FDA encourages voluntary measures by health care providers, such as to investigate and determine whether it is possible to reduce radiation exposure to patients from the use of medical- imaging equipment. From fiscal year 2012 through fiscal year 2016, seven federal agencies obligated $209.6 million for research on the health effects of low-dose radiation, but they did not use a collaborative mechanism to address overall research priorities in this area. DOE and NIH accounted for most of the funding, with DOE obligating $116.3 million and NIH obligating $88.6 million, or about 56 percent and 42 percent of the total, respectively. The five other agencies—NRC, NASA, DOD, EPA, and CDC—obligated the remaining $4.7 million, or about 2 percent of the total. DOE has two offices that have funded research on the health effects of low-dose radiation—the Office of Science and the Office of Environment, Health, Safety and Security—according to funding information DOE provided. The Office of Science established the Low Dose Radiation Research Program in 1998 and funded it through fiscal year 2016. A primary focus of this program was radiobiological research, which examines molecular and cellular responses to radiation exposure. According to DOE’s website for the program, the program provided data and information about the low-dose range of exposure, producing 737 peer-reviewed publications as of March 2012. The Office of Environment, Health, Safety and Security provided funding for epidemiological studies, including studies involving Japanese atomic bomb survivors. NIH has funded and conducted both epidemiological and radiobiological studies on low-dose radiation, according to NIH officials. The officials stated that the studies are conducted through the National Cancer Institute’s internal research program for radiation epidemiology, as well as through NIH’s research programs for external funding of investigator- initiated research. Other institutes of NIH, including the National Institute of Environmental Health Sciences, also fund research related to the health effects of radiation exposure as part of NIH’s overall mission to fund medical research. Among the other agencies that provided some funding to low-dose radiation studies, several provided funding to the Epidemiological Study of One Million U.S. Radiation Workers and Veterans (Million Person Study)—an ongoing study headed by the National Council on Radiation Protection and Measurements. DOE also provided funding for this study. In fiscal years 2012 through 2016, the seven agencies who provided funding for research on health effects of low-dose radiation collectively decreased their annual funding obligations in this area by 48 percent, from $57.9 million in fiscal year 2012 to $30.4 million in fiscal year 2016. DOE accounted for a large portion of this overall decrease in annual funding. Specifically, over this 5-year period, DOE reduced its annual funding obligations for this area of research by 45 percent—from $32.6 million in fiscal year 2012 to $18.0 million in fiscal year 2016. According to DOE, the decrease was primarily due to DOE’s reduction in funding for its Low Dose Radiation Research Program. According to DOE officials, decreases in funding for the program reflected a shift toward bioenergy and environmental research. Similarly, over the 5-year period, NIH’s funding for low-dose radiation research decreased by 48 percent—from $23.1 million in fiscal year 2012 to $12.0 million in fiscal year 2016. NIH officials explained that funding levels for a particular disease or research area can fluctuate depending on several factors, including the number and quality of research proposals submitted and the outcome of NIH’s peer reviews of the proposals, as well as the overall research budget. The seven agencies that funded research on health effects of low-dose radiation for fiscal years 2012 through 2016 collaborated on particular research projects through various mechanisms, including joint funding of individual projects, but they did not use a collaborative mechanism to address overall research priorities. As previously noted, the 2016 report of DOE’s Biological and Environmental Research Advisory Committee provided information about research needs in low-dose radiation and found that further research could decrease uncertainty in predicting cancer risk from low-dose radiation. The report stated that other agencies—including NRC, NIH, EPA, DOD, and NASA—could benefit from the reduction in uncertainty that could be obtained by this research. In our September 2017 report, we recommended that the Secretary of Energy lead the development of a mechanism for interagency collaboration to determine roles and responsibilities for addressing priorities related to research on the health effects of low-dose radiation. We made this recommendation because our previous work has shown that collaborative mechanisms can serve multiple purposes, such as leading interagency efforts to develop and coordinate sound science and technology policies across the federal government. Although collaborative mechanisms differ in complexity and scope, they all benefit from certain key features, such as leadership. We directed this recommendation to DOE for several reasons. In the past, DOE took a leading role in advocating for greater communication and coordination between the fields of radiation biology and epidemiology. In addition, DOE is the federal agency that currently has primary responsibility under the Atomic Energy Act of 1954 for research related to the protection of health during activities that can result in exposure to radiation. DOE is well positioned to lead an effort to ensure that federal agencies have a mechanism for interagency collaboration to address overall research priorities related to low-dose radiation health effects because of the agency’s past experience as a leader in this area of research. Such an effort could help DOE and the collaborating agencies determine roles and responsibilities, including leadership when addressing shared research priorities. DOE did not agree with our recommendation. In particular, DOE stated that EPA and NRC also have legal mandates to research low-dose radiation exposure and that these agencies establish their research priorities in accordance with their respective budget authorities and recommendations from independent advisory bodies. DOE stated that as a result, it would not be appropriate for DOE to lead the development of a mechanism for interagency collaboration. We believe that DOE’s concerns stem from a misinterpretation of our recommendation, and we made several changes to our report and our recommendation to clarify DOE’s role. We noted that we did not recommend that a mechanism for interagency collaboration serve as a replacement for agencies’ legal mandates, budget authorities, and recommendations from independent advisory bodies. Instead, this mechanism would help agencies address shared research priorities. In making our recommendation, we did not specify the coordinating mechanism that agencies should use and instead left it to DOE to lead the development of an appropriate mechanism. We continue to believe that an interagency coordination mechanism for low-dose research is needed and that DOE is in the best position to lead agencies in developing the most appropriate mechanism. Chairman Weber, Ranking Member Veasey, and Members of the Subcommittee, this concludes my prepared statement. I would be pleased to respond to any questions that you may have at this time. If you or your staff have any questions about this statement, please contact John Neumann at (202) 512-3841 or neumannj@gao.gov. In addition, contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals who made key contributions to the report on which this testimony is based include Allen Chan, Kendall Childers, Joseph Cook, Richard Johnson, Cynthia Norris, Josie Ostrander, Amber Sinclair, and Jack Wang. This is a work of the U.S. government and is not subject to copyright protection in the United States. The published product 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.	[ "This testimony summarizes the information contained in GAO's September 2017 report, entitled Low-Dose Radiation: Interagency Collaboration on Planning Research Could Improve Information on Health Effects ( GAO-17-546 ). The Department of Energy (DOE), Nuclear Regulatory Commission (NRC), Environmental Protection Agency (EPA), and Food and Drug Administration generally used the advice of scientific advisory bodies to develop and apply radiation protection requirements and guidance for workers and the public in the radiation exposure settings that GAO reviewed. These settings were: (1) the operation and decommissioning of nuclear power plants; (2) the cleanup of sites with radiological contamination; (3) the use of medical equipment that produces radiation; and (4) accidental or terrorism-related exposure to radiation. Specifically, the agencies relied on the advice of three scientific advisory bodies that supported the use of a model that assumes the risk of cancer increases with every incremental radiation exposure. Accordingly, the agencies have set regulatory dose limits and issued guidance to confine exposure to levels that reduce the risk of cancer, while recognizing that scientific uncertainties occur in estimating cancer risks from low-dose radiation. For example, NRC requires nuclear power plants to consider measures for limiting workers' exposure below NRC's regulatory dose limit, such as by using robots for maintenance work in radiation areas. GAO identified seven federal agencies that funded research on low-dose radiation's health effects. In fiscal years 2012 to 2016, DOE, NRC, EPA, and four other federal agencies obligated about $210 million for such research . Although the agencies have collaborated on individual projects on radiation's health effects, they have not established a collaborative mechanism to set research priorities. GAO's previous work has shown that federal agencies can use such mechanisms to implement interagency collaboration to develop and coordinate sound science policies. In the past, DOE took a leading role in this area because DOE provided stable funding and advocated for greater coordination on research on low-dose radiation's health effects. However, since fiscal year 2012, DOE has phased out funding for one of its main research programs in this area. This has created a void in coordination efforts among federal agencies, and no other agency has stepped forward to fill this void. Because of DOE's prior experience as a leader in this area of research and its research responsibility under the Atomic Energy Act of 1954, it could play an important role in helping federal agencies establish a coordinating mechanism for low-dose radiation research. Dollars are in millions and have not been adjusted for inflation Source: GAO analysis of agency data. \| GAO-17-546" ]	2,125	gov_report	en	null	f7ab1326e80935ff0a1a0a048a074a9807500a4efb0caec6
Congress passed the Community Reinvestment Act of 1977 (CRA; P.L. 95-128 , 12 U.S.C. §§2901-2908) in response to concerns that federally insured banking institutions were not making sufficient credit available in the local areas in which they were chartered and acquiring deposits. According to some in Con gress, the granting of a public bank charter should translate into a continuing obligation for that bank to serve the credit needs of the public where it was chartered. Consequently, the CRA was enacted to "re-affirm the obligation of federally chartered or insured financial institutions to serve the convenience and needs of their service areas" and "to help meet the credit needs of the localities in which they are chartered, consistent with the prudent operation of the institution." The CRA requires federal banking regulators to conduct examinations to assess whether a bank is meeting local credit needs. The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit low- and moderate-income (LMI) areas and entities—that occur within assessment areas (where institutions have local deposit-taking operations). These credits are then used to issue each bank a performance rating from a four-tiered system of descriptive performance levels (Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance). The CRA requires federal banking regulators to take those ratings into account when institutions apply for charters, branches, mergers, and acquisitions, or seek to take other actions that require regulatory approval. Congress became concerned with the geographical mismatch of deposit-taking and lending activities for a variety of reasons. Deposits serve as a primary source of borrowed funds that banks may use to facilitate their lending. Hence, there was concern that banks were using deposits collected from local neighborhoods to fund out-of-state as well as various international lending activities at the expense of addressing the local area's housing, agricultural, and small business credit needs. Another motivation for congressional action was to discourage redlining practices. One type of redlining can be defined as the refusal of a bank to make credit available to all of the neighborhoods in its immediate locality, including LMI neighborhoods where the bank may have collected deposits. A second type of redlining is the practice of denying a creditworthy applicant a loan for housing located in a certain neighborhood even though the applicant may qualify for a similar loan in another neighborhood. This type of redlining pertains to circumstances in which a bank refuses to serve all of the residents in an area, perhaps due to discrimination. The CRA applies to banking institutions with deposits insured by the Federal Deposit Insurance Corporation (FDIC), such as national banks, savings associations, and state-chartered commercial and savings banks. The CRA does not apply to credit unions, insurance companies, securities companies, and other nonbank institutions because of the differences in their financial business models. The Office of the Comptroller of the Currency (OCC), the Federal Reserve System, and the FDIC administer the CRA, which is implemented via Regulation BB. The CRA requires federal banking regulatory agencies to evaluate the extent to which regulated institutions are effectively meeting the credit needs within their designated assessment areas, including LMI neighborhoods, in a manner consistent with the federal prudential regulations for safety and soundness . The CRA's impact on lending activity has been publicly debated. Some observers are concerned that the CRA may induce banks to forgo more profitable lending opportunities in nontargeted neighborhoods by encouraging a disproportionate amount of lending in LMI communities. Furthermore, some argue that the CRA compels banks to make loans to higher-risk borrowers that are more likely to have repayment problems, which may subsequently compromise the financial stability of the banking system. For example, some researchers have attributed the increase in risky lending prior to the 2007-2009 recession to banks attempting to comply with CRA objectives. Others are concerned that enforcement of CRA objectives has not been stringent enough to compel banks to increase financial services in LMI areas. Almost all banks receive Satisfactory or better performance ratings (discussed in more detail below) on their CRA examinations, which some may consider indicative of weak enforcement. This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI customers. It begins with a description of bank CRA examinations, including how a bank delineates its assessment area; the activities that may qualify for points under the three tests (i.e., lending, investment, and service) that collectively make up the CRA examination; and how the composite CRA rating is calculated. Next, the report analyzes the difficulty in attributing bank lending decisions to CRA incentives. For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that CRA compliance does not require adherence to lending quotas or benchmarks. Without explicit benchmarks, linking the composition of banks' loan portfolios to either too strong or too weak CRA enforcement is difficult. Banks are also unlikely to get CRA credit for all of the loans they make to LMI customers. Specifically, higher-risk loans that banking regulators explicitly discourage are unlikely to be eligible for CRA consideration. Furthermore, greater mobility of lending and deposit-taking activity across regional boundaries due to various financial market innovations has complicated the ability to geographically link various financial activities. Hence, many banks' financial activities occurring in a designated assessment area that are eligible for CRA consideration may simply be profitable, meaning they may have occurred without the CRA incentive. Finally, this report summarizes recent policy discussions regarding modernization of the CRA. As noted above, the federal banking regulators conduct regular examinations of banks to assess whether they meet local credit needs in designated assessment areas. The regulators issue CRA credits, or points, when banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur within assessment areas. Regulation BB provides the criteria that a bank's board of directors must use to determine the assessment area(s) in which its primary regulator will conduct its CRA examination. The assessment area typically has a geographical definition—the location of a bank's main office, branches, and deposit-taking automatic teller machines, as well as surrounding areas where the bank originates and purchases a substantial portion of loans. Assessment areas must generally include at least one metropolitan statistical area (MSA) or at least one contiguous political subdivision, such as a county, city, or town. Regulation BB also requires that assessment areas may not reflect illegal discrimination, arbitrarily exclude LMI geographies, and extend substantially beyond an MSA boundary or a state boundary (unless the assessment area is located in a multistate MSA). Banking regulators regularly review a bank's assessment area delineations for compliance with Regulation BB requirements as part of the CRA examination. Instead of a more conventionally delineated assessment area, certain banking firms may obtain permission to devise a strategic plan for compliance with Regulation BB requirements. For example, wholesale and limited purpose banks are specialized banks with nontraditional business models. Wholesale banks provide services to larger clients, such as large corporations and other financial institutions; they generally do not provide financial services to retail clients, such as individuals and small businesses. Limited purpose banks offer a narrow product line (e.g., concentration in credit card lending) rather than provide a wider range of financial products and services. These banking firms typically apply to their primary regulators to request designation as a wholesale or limited purpose bank and, for CRA examination purposes, are evaluated under strategic plan options that have been tailored for their distinctive capacities, business strategies, and expertise. The option to develop a strategic plan of pre-defined CRA performance goals is available to any bank subject to the CRA. The public is allowed time (e.g., 30 days) to provide input on the draft of a bank's strategic plan, after which the bank submits the plan to its primary regulator for approval (within 60 days after the application is received). Regulation BB does not impose lending quotas or benchmarks. Instead, Regulation BB provides banks with a wide variety of options to serve the needs of their assessment areas. Qualifying CRA activities include mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities. For example, banks may receive CRA credits for such activities as investing in special purpose community development entities (CDEs), which facilitate capital investments in LMI communities (discussed below); providing support (e.g., consulting, detailing an employee, processing transactions for free or at a discounted rate, and providing office facilities) to minority- and women-owned financial institutions and low-income credit unions (MWLIs), thereby enhancing their ability to serve LMI customers; serving as a joint lender for a loan originated by MWLIs; facilitating financial literacy education to LMI communities, including any support of efforts of MWLIs and CDEs to provide financial literacy education; opening or maintaining bank branches and other transactions facilities in LMI communities and designated disaster areas; providing low-cost education loans to low-income borrowers; and offering international remittance services in LMI communities. The examples listed above are not comprehensive, but they illustrate several activities banks may engage in to obtain consideration for CRA credits. The banking regulators will consider awarding CRA credits or points to a bank if its qualifying activities occur within an assigned assessment area. The points are then used to compute a bank's overall composite CRA rating. Regulators apply up to three tests, which are known as the lending , investment , and service tests, respectively, to determine whether a bank is meeting local credit need in designated assessment areas. The lending test evaluates the number, amount, and distribution across income and geographic classifications of a bank's mortgage, small business, small farm, and consumer loans. The investment test grades a bank's community development investments in the assessment area. The service test examines a bank's retail service delivery, such as the availability of branches and low-cost checking in the assessment area. The point system for bank performance under the lending, investment, and service tests is illustrated in Table 1 . The lending test is generally regarded as the most important of the three tests, awarding banks the most points (CRA credits) in all rating categories. As shown in Table 1 , banks receive fewer credits for making CRA-qualified investments than for providing direct loans to individuals under the lending test. In some instances, an activity may qualify for more than one of the performance tests. Federal banking regulators evaluate financial institutions based upon their capacity, constraints, and business strategies; demographic and economic data; lending, investment, and service opportunities; and benchmark against competitors and peers. Because these factors vary across banks, the CRA examination was customized in 1995 to account for differences in bank sizes and business models. In 2005, the bank size definitions were revised to include small , intermediate small , and large banks. The bank regulators also indexed the asset size thresholds—which are adjusted annually—to inflation using the Consumer Price Index. As of January 1, 2019, a small bank is defined as having less than $1.284 billion in assets as of December 31 of either of the prior two calendar years; an intermediate small bank has at least $321 million as of December 31 of both of the prior two calendar years but less than $1.284 billion as of December 31 of either of the prior two calendar years; and a large bank has $1.284 billion or more in assets. Small banks are typically evaluated under the lending test. Regulators review (1) loan-to-deposit ratios; (2) percentage of loans in an assessment area; (3) lending to borrowers of different incomes and in different amounts; (4) geographical distribution of loans; and (5) actions on complaints about performance. Intermediate small banks are subject to both the lending and investment tests. Large banks are subject to all three tests. As mentioned previously, direct lending to borrowers, taking place in what is referred to as primary lending markets , qualify for CRA credit under the lending test. Investments taking place in secondary lending markets , in which investors purchase loans that have already been originated (such that little or no direct interaction occurs between investors and borrowers), qualify for CRA credit under the investment test. Secondary market investors may assume the default risk associated with a loan if the entire loan is purchased. Alternatively, if a set of loans are pooled together, then numerous secondary investors may purchase financial securities in which the returns are generated by the principal and interest repayments from the underlying loan pool, thereby sharing the lending risk. Direct ownership of loans or purchases of smaller portions (debt securities) of a pool of loans, therefore, are simply alternative methods to facilitate lending. As shown in Table 1 above, a bank may receive CRA consideration under the lending test for making a loan to LMI individuals that is guaranteed by a federal agency, such as the Federal Home Administration (FHA). If, however, a bank purchases securities backed by pools of FHA-guaranteed mortgage originations, this activity receives credit under the investment test. Thus, the bank receives less CRA credit when the financial risk is shared with other lenders than it would for making a direct loan (and holding all of the lending risk) even though it would still facilitate lending to LMI borrowers. In 2005, the activities that qualify for CRA credit were expanded to encourage banks to make public welfare investments. More specifically, qualifying activities include a public welfare investment (PWI) that promotes the public welfare by providing housing, services, or jobs that primarily benefit LMI individuals; and a community development investment (CDI), economic development investment , or project that meets the PWI requirements. Examples of CDI activities include promoting affordable housing, financing small businesses and farms, and conducting activities that revitalize LMI areas. Banks may engage in certain activities that typically would not be permitted under other banking laws as long as these activities promote the public welfare and do not expose institutions to unlimited liability. For example, banks generally are not allowed to make direct purchases of the preferred or common equity shares of other banking firms; however, banks may purchase equity shares of institutions with a primary mission of community development (discussed in more detail in the Appendix ) up to an allowable CDI limit. The Financial Services Regulatory Relief Act of 2006 ( P.L. 109-351 ) increased the amount that national banking associations and state banks (that are members of the Federal Reserve System) may invest in a single institution from 10% to 15% of a bank's unimpaired capital and unimpaired surplus. CDIs that benefit a bank's designated assessment area may qualify for CRA credit. For CRA purposes, the definition of a CDI was expanded in 2005 to include "underserved and distressed" rural areas and "designated disaster areas" to aid the regional rebuilding from severe hurricanes, flooding, earthquakes, tornados, and other disasters. The disaster area provision allows banks anywhere in America to receive consideration for CRA credit if they facilitate making credit available to a distressed location or geographic area outside of their own assessment areas. Thus, the 2005 revisions to the PWI and CDI definitions made more banking activities eligible for CRA credits. The banking regulators would consider awarding full CRA credits under the lending test to banks that make CDI loans directly in their assessment areas. Under the investment test, however, the banking regulators may choose to prorate the credits awarded to indirect investments. The Appendix provides examples of CDI activities that would qualify for CRA consideration under the investment test. Any awarded CRA credits could be prorated given that investing banks typically would have less control over when and where the funds are loaned. The CRA was revised in 1989 to require descriptive CRA composite performance ratings that must be disclosed to the public. The composite ratings illustrated in Table 2 are tabulated using the points assigned from the individual tests (shown in Table 1 above). Grades of Outstanding and Satisfactory are acceptable; Satisfactory ratings in both community development and retail lending are necessary for a composite Satisfactory . Large banks must receive a sufficient amount of points from the investment and service tests to receive a composite Outstanding rating. Regulators include CRA ratings as a factor when lenders request permission to engage in certain activities, such as moving offices or buying another institution. Denying requests, particularly applications for mergers and acquisitions, is a mechanism that may be applied against banking organizations with ratings below Satisfactory . In 2005, the banking regulators also ruled that any evidence of discrimination or credit practices that violate an applicable law, rule, or regulation by any affiliate would adversely affect an agency's evaluation of a bank's CRA performance. Applicants with poor ratings may resubmit their applications after making the necessary improvements. Covered institutions must post a CRA notice in their main offices and make publicly available a record of their composite CRA performance. Given that the CRA is not a federal assistance program and that several regulators implement it separately, no single federal agency is responsible for evaluating its overall effectiveness. In 2000, Congress directed the Federal Reserve to study the CRA's effectiveness. The Federal Reserve's study reported that lending to LMI families had increased since the CRA's enactment but found it was not possible to directly attribute all of that increase to the CRA. For example, advancements in underwriting over the past several decades have enabled lenders to better predict and price borrower default risk, thus making credit available to borrowers that might have been rejected prior to such technological advances. This section examines the difficulty linking bank lending outcomes directly to the CRA, considering questions raised about the subjectivity of the CRA examination itself, whether prudential regulators use CRA to encourage banks to engage in high-risk lending, and whether the increased lending to LMI borrowers since CRA's enactment can be attributed to other profit-incentives that exist apart from the CRA. Questions have been raised as to whether the CRA examination itself is effective at measuring a bank's ability to meet local credit needs. For example, the CRA examinations have an element of subjectivity in terms of measuring both the quality and quantity of CRA compliance. In terms of quality, regulators determine the "innovativeness or flexibility" of qualified loan products; the "innovativeness or complexity" of qualified investments; or the "innovativeness" of ways banks service groups of customers previously not served. The number of points some CRA-qualifying investments receive relative to others is up to the regulator's judgment given that no formal definition of innovativeness has been established (although regulators provide a variety of examples as guidelines for banks to follow). In terms of quantity, there is no official quota indicating when banks have done enough CRA-qualified activities to receive a particular rating. Without specific definitions of the criteria or quotas, the CRA examination may be considered subjective. Almost all banks pass their CRA examinations. Figure 1 shows the average annual composite scores of banks that received CRA examinations as well as the annual number of bank examinations by size. In general, most banks receive a composite Satisfactory or better rating regardless of the number of banks examined in a year. For all years, approximately 97% or more of banks examined received ratings of Satisfactory or Outstanding . Whether the consistently high ratings reflect the CRA's influence on bank behavior or whether the CRA examination procedures need improvement is difficult to discern. Another issue raised is whether the CRA has resulted in banks making more high-risk loans given that it encourages banks to lend to LMI individuals (perhaps under the presumption that LMI individuals are less creditworthy relative to higher-income individuals). Since passage of the CRA, however, innovations have allowed lenders to better evaluate the creditworthiness of borrowers (e.g., credit scoring, the adoption of automated underwriting), thus enhancing credit availability to both high credit quality and credit-impaired individuals. Credit-impaired borrowers can be charged higher interest rates and fees than those with better credit histories to compensate lenders for taking on greater amounts of credit or default risk. Nontraditional loan products (e.g., interest-only, initially low interest rate) allow borrowers to obtain lower regular payments during the early stages of the loan, perhaps under the expectation that their financial circumstances may improve in the later stages as the loan payments adjust to reflect the true costs. The ability to charge higher prices or offer such nontraditional loan products may result in greater higher-risk lending. Because these technological developments in the financial industry occurred after enactment of the CRA, banks' willingness to enter into higher-risk lending markets arguably cannot be attributed solely to the CRA. Regulators arguably are more reluctant to award banks CRA credit for originating higher-risk loans given the scrutiny necessary to determine whether higher loan prices reflect elevated default risk levels or discriminatory or predatory lending practices. Primary bank regulators are concerned with both prudential regulation and consumer protection. It is difficult for regulators to monitor how well borrowers understood the disclosures regarding loan costs and features, or whether any discriminatory or predatory behavior occurred at the time of loan origination. Regulators use fair lending examinations to determine whether loan pricing practices have been applied fairly and consistently across applicants or if some steering to higher-priced loan products occurred. Nevertheless, although it is not impossible for banks to receive CRA credits for making some higher-priced loans, regulators are mindful of practices such as improper consumer disclosure, steering, or discrimination that inflate loan prices. Prudential regulators are also unlikely to encourage lending practices that might result in large concentrations of high-risk loans on bank balance sheets. Hence, certain lending activities—subprime mortgages and payday lending—have been explicitly discouraged by bank regulators, as discussed in more detail below. Although no consensus definition has emerged for subprime lending, this practice may generally be described as lending to borrowers with weak credit at higher costs relative to borrowers of higher credit quality. In September 2006, the banking regulatory agencies issued guidance on subprime lending that was restrictive in tone. The guidance warned banks of the risk posed by nontraditional mortgage loans, including interest-only and payment-option adjustable-rate mortgages. The agencies expressed concern about these loans because of the lack of principal amortization and the potential for negative amortization. Consequently, a study of 2006 Home Mortgage Disclosure Act data reported that banks subject to the CRA and their affiliates originated or purchased only 6% of the reported high-cost loans made to lower-income borrowers within their CRA assessment areas. Banks, therefore, received little or no CRA credit for subprime mortgage lending. Instead, federal regulators offered CRA consideration to banks that helped mitigate the effects of distressed subprime mortgages. On April 17, 2007, federal regulators provided examples of various arrangements that financial firms could provide to LMI borrowers to help them transition into affordable mortgages and avoid foreclosure. The various workout arrangements were eligible for favorable CRA consideration. Banks are unlikely to receive CRA consideration for originating subprime mortgages going forward. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203 ) requires lenders to consider consumers' ability to repay before extending them mortgage credit, and one way for lenders to comply is to originate qualified mortgages (QMs) that satisfy various underwriting and product-feature requirements. For example, QMs may not have any negative amortization features, interest-only payments, or points and fees that exceed specified caps of the total loan amount; in most cases, borrowers' debt-to-income ratios shall not exceed 43%. QM originations will give lenders legal protections if the required income verification and other proper underwriting procedures were followed. Given the legal protections afforded to QMs, some banks might show greater reluctance toward making non-QM loans. With this in mind, the federal banking regulators announced that banks choosing to make only or predominately QM loans should not expect to see an adverse effect on their CRA evaluations; however, the regulators did not indicate that CRA consideration would be given for non-QMs. Arguably, the federal banking regulators appear less inclined to use the CRA to encourage lending that could be subject to greater legal risks. Banks have demonstrated interest in providing financial services such as small dollar cash advances, which are similar to payday loans, in the form of subprime credit cards, overdraft protection services, and direct deposit advances. However, banks are discouraged from engaging in payday and similar forms of lending. Legislation, such as the Credit Card Accountability Responsibility and Disclosure Act of 2009 ( P.L. 111-24 ), placed restrictions on subprime credit card lending. In addition, federal banking regulators expressed concern when banks began offering deposit advance products due to the similarities to payday loans. Specifically, on April 25, 2013, the OCC, FDIC, and Federal Reserve expressed concerns that the high costs and repeated extensions of credit could add to borrower default risks and issued final supervisory guidance regarding the delivery of these products. Many banks subsequently discontinued offering deposit advances. In general, these legislative and regulatory efforts explicitly discourage banks from offering high-cost consumer financial products and thus such products are unlikely to receive CRA consideration. When various financial products are deemed unsound by bank regulators and not offered by banks, a possible consequence may be that some customers migrate to nonbank institutions willing to provide these higher-cost products. Accordingly, the effectiveness of the CRA diminishes if more individuals choose to seek financial products from nonbank institutions. In general, it can be difficult to determine the extent to which banks' financial decisions are motivated by CRA incentives, profit incentives, or both. Compliance with CRA does not require banks to make unprofitable, high-risk loans that would threaten the financial health of the bank. Instead, CRA loans have profit potential; and bank regulators require all loans, including CRA loans, to be prudently underwritten. As evidenced below, it may be difficult to determine whether banks have made particular financial decisions in response to profit or CRA incentives in cases where those incentives exist simultaneously. For example, banks increased their holdings of municipal bonds in 2009. Although banks may receive CRA consideration under the investment test for purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas, banks may choose this investment for reasons unrelated to CRA. During recessions, for example, banks may reduce direct (or primary market) lending activities and increase their holdings of securities in the wake of declining demand for and supply of direct loan originations that occur during economic slowdowns and early recovery periods. In addition, a provision of the American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ) provided banks with a favorable tax incentive to invest in municipal bonds in the wake of the 2007-2009 recession. Hence, determining whether banks increased their municipal holdings because of a turn to securities markets for higher yields following a recession, a favorable tax incentive, or the CRA incentive is challenging. Similarly, banks increased their investments in Small Business Investment Corporations (SBICs, defined in the Appendix ) in 2010. Investments in SBICs allow banks to provide subordinate financing (rather than senior debt) to businesses. Senior lenders have first claims to the business's assets in case of failure; however, subordinate financiers provide funds in the form of mezzanine capital or equity, requiring a higher return because they are repaid after senior lenders. Banks generally are not allowed to act as subordinate financiers because they are not allowed to acquire ownership interests in private equity funds, unless such investments promote public welfare. Hence, attributing community development financing activities, such as SBIC investments, to CRA incentives may arguably be easier (relative to other financing activities) because the ability to engage in subordinate financing activities typically represents a CRA exemption from ordinary permissible banking activities. Following the 2007-2009 recession, however, U.S. interest rates dropped to historically low levels for an abnormally long period of time. Because low-yielding interest rate environments squeeze profits, banks were likely to search for higher-yielding and larger-sized lending opportunities, such as investments in SBICs. Hence, it remains difficult to determine whether a particular bank's decision to increase SBIC financing activities was driven by normal profit or CRA-related incentives. Between June 2016 and June 2017, more than 1700 U.S. bank branches were closed. Many branch closings occurred primarily in rural and low-income tract areas, raising concerns that banks would be able to circumvent their CRA obligation to lend and be evaluated in these areas. A traditional bank business model, however, relies primarily on having access to core deposits , a stable source of funds used to subsequently originate loans. Banks value geographic locations with greater potential to attract high core deposit volumes, which is also consistent with the CRA's requirement that assessment areas include at least one MSA or contiguous political subdivision (as previously discussed). Furthermore, using FDIC and U.S. Census Bureau data, the Federal Reserve noted that the number of branches per capita in 2017 was higher than two decades ago. Hence, determining whether branch closures reflect a bank's intentions to circumvent CRA compliance or to facilitate its ability to attract core deposits is challenging. On April 3, 2018, the U.S. Department of Treasury (Treasury) released recommendations to modernize CRA in a memorandum to the federal banking regulators (OCC, FCIC, and the Fed). Treasury highlighted four of its recommendations, summarized below. When the CRA was enacted in 1977, banks received deposits and made loans primarily through geographical branches. Assessment areas defined geographically arguably may not fully reflect the community served by a bank because of technology developments, such as the internet and mobile phone banking, prompting Treasury to call for revisiting the approach for determining banks' assessment areas. In 2016, the banking regulators issued Interagency Questions and Answers (Q&As) to provide banks guidance pertaining to CRA-eligible activities; however, Treasury noted that each regulator provides its examiners with additional guidance. Also, the Interagency Q&As illustrate past CRA-qualifying activities, but Treasury noted that no formal process currently exists to help determine whether potential (complex, innovative, or innovative) activities would qualify for CRA credit. Treasury recommends establishing clearer standards for CRA-qualifying activities and flexibility (expanding the types of loans, investments, and services that qualify for CRA credit), which may encourage banks to venture beyond activities that typically receive CRA credit. Treasury reports that each bank regulator follows a different examination schedule; the examinations are lengthy; and delays associated with the release of performance evaluations may limit the time banks can react to recommendations before their next CRA examination. Treasury recommends increasing the timeliness of the CRA examination process. Treasury recommends incorporating performance incentives that might result in more efficient lending activities. For example, CRA-qualifying loans may receive credit in the year of origination, but equity investments may receive credit each year that the investment is held. Treasury recommends consistent treatment of loans and investments, which may encourage banks to make more long-term loans (rather than sequences of short-term loans for the sake of being awarded CRA credits at each CRA examination). On August, 28, 2018, the OCC released an Advance Notice of Proposed Rulemaking (ANPR) to seek comments on ways to modernize the CRA framework. The ANPR solicited comments on the issues raised by Treasury among other things. The OCC's ANPR does not propose specific changes, but its content and the questions posed suggest that the OCC is exploring the possibility of adopting a quantitative metric-based approach to CRA performance evaluation, changing how assessment areas are defined, expanding CRA-qualifying activities, and reducing the complexity, ambiguity, and burden of the regulations on the bank industry. When the comment period closed on November 19, 2018, the OCC had received 1584 comments. The Federal Reserve and the FDIC did not join the OCC in releasing the ANPR. The Federal Reserve System, however, did host research symposiums around the country to gather comments pertaining to CRA reform. As reported by the Federal Reserve, some banking industry comments suggested, among other things, the need for consistency of the CRA examinations to facilitate CRA compliance. Yet some tailoring may still be necessary with respect to determining assessment areas that better reflect each bank's business models, particularly for models that use technology to deliver products and services. The regulators also heard from community and consumer groups. While expressing the need to retain focus on the historical context of the CRA, these groups highlighted the need to address issues pertaining to banking deserts in underserved communities. Community development investments (CDIs) that meet public welfare investment (PWI) requirements are those that promote the public welfare, primarily resulting in economic benefits for low- and moderate-income (LMI) individuals. This appendix provides examples of CDI activities that would qualify for consideration under the CRA investment test. In many cases, covered banks are more likely to take advantage of these optional vehicles to obtain CRA credits if they perceive the underlying investment opportunities to have profit potential. Loan Participations Banks and credit unions often use participation (syndicated) loans to jointly provide credit. When a financial firm (e.g., bank, credit union) originates a loan for a customer, it may decide to structure loan participation arrangements with other institutions. The loan originator often retains a larger portion of the loan and sells smaller portions to other financial institutions willing to participate. Suppose a financial firm originates a business or mortgage loan in a LMI neighborhood. A bank may receive CRA investment credit consideration by purchasing a participation, thus becoming a joint lender to the LMI borrower. An advantage of loan participations is that the default risk is divided and shared among the participating banks (as opposed to one financial firm retaining all of the risk). CRA consideration is possible if the activity occurs within the designated assessment area. For all participating banks to receive credit, some overlap in their designated assessment areas must exist. An exception is made for participations made to benefit designated disaster areas, in which all participating banks would receive CRA consideration regardless of location. State and Local Government Bonds State and local governments issue municipal bonds, and the proceeds are used to fund public projects, community development activities, and other qualifying activities. The interest that nonbank municipal bondholders receive is exempt from federal income taxes to encourage investment in hospitals, schools, infrastructure, and community development projects that require state and local funding. Legislative actions during the 1980s eliminated the tax-exempt status of interest earned from holdings of municipal bonds for banks. Although banks no longer have a tax incentive to purchase municipal bonds, they still consider the profitability of holding these loans, as they do with all lending opportunities. Furthermore, banks receive CRA investment consideration when purchasing state and local municipal bonds that fund public and community development projects in their designated assessment areas. CRA-Targeted Secondary Market Instruments Secondary market financial products have been developed to facilitate the ability of banks to participate in lending activities eligible for CRA consideration, such as purchasing mortgage-backed securities (MBSs) or shares of real estate investment trusts (REITs). A MBS is a pool of mortgage loans secured by residential properties; a multifamily MBS is a pool of mortgage loans secured by multifamily properties, consisting of structures designed for five or more residential units, such as apartment buildings, hospitals, nursing homes, and manufactured homes. CRA-MBSs are MBSs consisting of loans that originated in specific geographic assessment areas, thereby allowing bank purchases into these pools to be eligible for CRA consideration under the investment test. Similarly, REITs may also pool mortgages, mortgage MBSs, and real estate investments (e.g., real property, apartments, office buildings, shopping malls, hotels). Investors purchase shares in REIT pools and defer the taxes. Banks may only invest in mortgage REITs and MBS REITs. Similar to the CRA-MBSs, the REITs must consist of mortgages and MBSs that would be eligible for CRA consideration. The Community Development Trust REIT is an example of a REIT that serves as a CRA-qualified investment for banks. Community Development Financial Institutions and Equity Equivalent Investments The Community Development Financial Institutions (CDFI) Fund was created by the Riegle Community Development Regulatory Improvement Act of 1994 (the Riegle Act; P.L. 103-325 ). The CDFI Fund was established to promote economic development for distressed urban and rural communities. The CDFI Fund, currently located within the U.S. Department of the Treasury, is authorized to certify banks, credit unions, nonprofit loan funds, and (for-profit and nonprofit) venture capital funds as designated CDFIs. In other words, a bank may satisfy the requirements to become a CDFI, but not all CDFIs are banks. The primary focus of institutions with CDFI certification is to serve the financial needs of economically distressed people and places. The designation also makes these institutions eligible to receive financial awards and other assistance from the CDFI Fund. In contrast to non-CDFI banks, some CDFI banks have greater difficulty borrowing funds and then transforming them into loans for riskier, economically distressed consumers. The lack of loan level data for most CDFI banks causes creditors to hesitate in making low-cost, short-term loans to these institutions. Specifically, the lack of information on loan defaults and prepayment rates on CDFI banking assets is likely to result in limited ability to sell these loan originations to secondary loan markets. Consequently, the retention of higher-risk loans, combined with limited access to low-cost, short-term funding, makes CDFI banks more vulnerable to liquidity shortages. Hence, CDFIs rely primarily on funding their loans (assets) with net assets , which are proceeds analogous to the equity of a traditional bank or net worth of a credit union. CDFI net assets are often acquired in the form of awards or grants from the CDFI Fund or for-profit banks. Funding assets with net assets is less expensive for CDFIs than funding with longer-term borrowings. Banks may obtain CRA investment credit consideration by making investments to CDFIs, which provides CDFIs with net assets (equity). Under PWI authority, banks are allowed to make equity investments in specialized financial institutions, such as CDFIs, as long as they are considered by their safety and soundness regulator to be at least adequately capitalized . Furthermore, the final Basel III notification of proposed regulation (NPR) allows for preferential capital treatment for equity investments made under PWI authority, meaning equity investments to designated CDFIs may receive more favorable capital treatment. Consequently, banks often provide funds to CDFIs through equity equivalent investments (EQ2s), which are debt instruments issued by CDFIs with a continuous rolling (indeterminate) maturity. EQ2s, from a bank's perspective, are analogous to holding convertible preferred stock with a regularly scheduled repayment. Hence, banks may view EQ2s as a potentially profitable opportunity to invest in other specialized financial institutions and receive CRA consideration, particularly when the funds are subsequently used by CDFIs to originate loans in the banks' assessment areas. Small Business Investment Companies The Small Business Administration (SBA) was established in 1953 by the Small Business Act of 1953 (P.L. 83-163) to support small businesses' access to capital in a variety of ways. Although issuing loan guarantees for small businesses is a significant component of its operations, the SBA also has the authority to facilitate the equity financing of small business ventures through its Small Business Investment Company (SBIC) program, which was established by the Small Business Investment Act of 1958 (P.L. 85-699). SBICs that are licensed and regulated by the SBA may provide debt and equity financing and, although not a program requirement, educational (management consulting) resources for businesses that meet certain SBA size requirements. Banks may act as limited partners if they choose to provide funds to SBICs, which act as general partners. Banks may establish their own SBICs, jointly establish SBICs (with other banks), or provide funds to existing SBICs. SBICs subsequently use bank funding to invest in the long-term debt and equity securities of small, independent (SBA-eligible) businesses, and banks may receive CRA investment consideration if the activities benefit their assessment areas. Community banks invest in SBICs because of the profit potential as well as the opportunity to establish long-term relationships with business clients during their infancy stages. Banks that are considered by their regulators to be adequately capitalized are allowed to invest in these specialized financial institutions under PWI authority, but the investments still receive risk-based capital treatment. SBIC assets, similar to CDFIs, are illiquid given the difficulty to obtain credit ratings for SBIC investments; thus, they cannot be sold in secondary markets. Because banks risk losing the principal of their equity investments, they are required to perform the proper due diligence associated with prudent underwriting. Tax Credits The low-income housing tax credit (LIHTC) program was created by the Tax Reform Act of 1986 ( P.L. 99-514 ) to encourage the development and rehabilitation of affordable rental housing. Generally speaking, government (federal or state) issued tax credits may be bought and, in many cases, sold like any other financial asset (e.g., stocks and bonds). Owners of tax credits may reduce their tax liabilities either by the amount of the credits or by using the formulas specified on those credits, assuming the owners have participated in the specified activities that the government wants to encourage. For LIHTCs, banks may use a formula to reduce their federal tax liabilities when they provide either credit or equity contributions (grants) for the construction and rehabilitation of affordable housing. If a bank also owns a LIHTC, then a percentage of the equity grant may be tax deductible if the CDFI uses the funds from the grant to finance affordable rental housing. Furthermore, banks may receive consideration for CRA-qualified investment credits. After a domestic corporation or partnership receives designation as a Community Development Entity (CDE) from the CFDI Fund, it may apply for New Markets Tax Credits (NMTCs). Encouraging capital investments in LMI communities is the primary mission of CDEs, and CDFIs and SBICs automatically qualify as CDEs. Only CDEs are eligible to compete for NMTCs, which are allocated by the CDFI Fund via a competitive process. Once awarded an allocation of NMTCs, the CDE must obtain equity investments in exchange for the credits. Then, the equity proceeds raised must either be used to provide loans or technical assistance or deployed in eligible community investment activities. Only for-profit CDEs, however, may provide NMTCs to their investors in exchange for equity investments. Investors making for-profit CDE equity investments can use the NMTCs to reduce their tax liabilities by a certain amount over a period of years. As previously discussed, a bank may receive CRA credit for making equity investments in nonprofit CDEs and for-profit subsidiaries, particularly if the investment occurs within the bank's assessment area. Furthermore, banks may be able to reduce their tax liabilities if they can obtain NMTCs from the CDEs in which their investments were made.	[ "The Community Reinvestment Act (CRA; P.L. 95-128, 12 U.S.C. §§2901-2908) addresses how banking institutions meet the credit needs of the areas they serve, particularly in low- and moderate-income (LMI) neighborhoods. The federal banking regulatory agencies—the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC)—currently implement the CRA. The regulators issue CRA credits, or points, where banks engage in qualifying activities—such as mortgage, consumer, and business lending; community investments; and low-cost services that would benefit LMI areas and entities—that occur with a designated assessment area. These credits are then used to issue each bank a performance rating. The CRA requires these ratings be taken into account when banks apply for charters, branches, mergers, and acquisitions among other things. The CRA, which was enacted in 1977, was subsequently revised in 1989 to require public disclosure of bank CRA ratings to establish a four-tiered system of descriptive performance levels (i.e., Outstanding, Satisfactory, Needs to Improve, or Substantial Noncompliance). In 1995, the CRA examination was customized to account for differences in bank sizes and business models. In 2005, the bank size definitions were revised and indexed to the Consumer Price Index. The 2005 amendments also expanded opportunities for banks to earn CRA credit for public welfare investments (such as providing housing, services, or jobs that primarily benefit LMI individuals). Qualifying activities under the CRA have evolved to include consumer and business lending, community investments, and low-cost services that would benefit LMI areas and entities. Congressional interest in the CRA stems from various perceptions of its effectiveness. Some have argued that, by encouraging lending in LMI neighborhoods, the CRA may also encourage the issuance of higher-risk loans to borrowers likely to have repayment problems (under the presumption that low-income is correlated with lower creditworthiness), which can translate into losses for lenders. Others are concerned that the CRA is not generating sufficient incentives to increase credit availability to qualified LMI borrowers, which may impede economic recovery for some, particularly following the 2007-2009 recession. This report informs the congressional debate concerning the CRA's effectiveness in incentivizing bank lending and investment activity to LMI borrowers. After a discussion of the CRA's origins, it presents the CRA's examination process and bank activities that are eligible for consideration of CRA credits. Next, it discusses the difficulty of determining the CRA's influence on bank behavior. For example, the CRA does not specify the quality and quantity of CRA-qualifying activities, meaning that compliance with the CRA does not require adherence to lending quotas or benchmarks. In the absence of benchmarks, determining the extent to which CRA incentives have influenced LMI credit availability relative to other factors is not straightforward. Banks also face a variety of financial incentives—for example, capital requirements, the prevailing interest rate environment, changes in tax laws, and technological innovations—that influence how much (or how little) they lend to LMI borrowers. Because multiple financial profit incentives and CRA incentives tend to exist simultaneously, it is difficult to determine the extent to which CRA incentives have influenced LMI credit availability relative to other factors." ]	7,111	gov_report	en	null	94f563e56143c3d06aefcf8e166786722d595c1f4d83cd2a
VA comprises a Veterans Affairs Central Office (VACO) and over 1,000 facilities and offices throughout the nation, as well as the U.S. territories and the Philippines. As shown in figure 1, VA’s three major administrations are the Veterans Health Administration (VHA), Veterans Benefits Administration (VBA), and National Cemetery Administration (NCA). The largest of the administrations, in terms of workforce, is VHA and its associated Veterans Integrated Service Networks (VISN). VHA is estimated to employ about 316,800 employees in 2017, followed by the VBA and NCA with about 22,700 and 1,850 employees, respectively. The remaining 15,000 employees are in various staff offices. VA’s budget request for fiscal year 2018 of $186.4 billion includes $82.1 billion in discretionary resources and $104.3 billion in mandatory funding. The following offices are involved in addressing misconduct at VA. Office of Human Resource Management (OHRM): OHRM develops policies with regard to performance management and assesses the effectiveness of department-wide human-resource programs and policies. Office of Accountability Review (OAR): OAR was established in 2014 within VA’s Office of General Counsel and was intended to ensure leadership accountability for improprieties related to patient scheduling and access to care, whistle-blower retaliation, and related disciplinary matters that affect public trust in VA. Office of Inspector General (OIG): The VA OIG provides oversight through independent audits, inspections, and investigations to prevent and detect criminal activity, waste, abuse, and mismanagement in VA programs and operations. Office of Accountability and Whistleblower Protection (OAWP): As required by the Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017, OAWP will take on the responsibility of, among other things, receiving whistle-blower complaints. Corporate Senior Executive Management Office (CSEMO): CSEMO supports the entire life-cycle management of VA’s senior executives by developing policy and providing corporate-level personnel services, such as training and coaching to VA’s senior executive workforce. Client Services Response Team (CSRT): CSRT serves to centralize and streamline internal processes to improve VHA’s overall responsiveness to concerns of veterans, employees, and other internal and external stakeholders. This office works closely with VA and VHA program offices and facilities to review, research, and respond to inquiries sent to the Office of the Under Secretary for Health, Office of the Secretary, and other concerns received via program offices within VACO, which lack a formalized response process. National Cemetery Administration (NCA): NCA honors veterans and their families with final resting places in national shrines that commemorate their service. NCA’s Office of Management oversees and administers all human-resource management, including activities associated with labor and employee relations. Office of the Medical Inspector (OMI): OMI is responsible for assessing the quality of VA health care through investigations of VA facilities nationwide, which include employee whistle-blower allegations referred to VA by the OSC; veteran complaints referred by the OIG, Congress, or other stakeholders; and site-specific internal reviews directed by the Office of the Under Secretary for Health. Office of Research Oversight (ORO): ORO promotes the responsible conduct of research, serves as the primary VHA office in advising the Office of the Under Secretary for Health on matters of research compliance, and is to provide oversight of compliance with VA and other federal requirements related to research misconduct. Office of Resolution Management (ORM): ORM provides Equal Employment Opportunity (EEO) discrimination complaint processing services to VA employees, applicants for employment, and former employees, which include counseling, investigation, and final agency procedural decisions. Office of Security and Law Enforcement (OS&LE): OS&LE develops policies, procedures, and standards that govern VA’s infrastructure law- enforcement program. The Law Enforcement Oversight and Criminal Investigations Division is responsible for conducting investigations of serious incidents of misconduct. Veterans Benefits Administration (VBA): VBA provides benefits and services to veterans, their families and survivors. VBA’s Office of Management directs and oversees nationwide human-resources activities and supports ORM in processing EEO complaints filed by employees and applicants who allege employment discrimination. The process for addressing employee misconduct involves various components within VA that are responsible for investigating and adjudicating allegations, as shown in figure 2. Receipt of Allegation: The OIG receives allegations of criminal activity and employee misconduct from VA employees, the OSC, members of Congress, the public, or other stakeholders. The allegations received by the OIG are initially routed to the OIG Hotline Division. The OIG also receives other types of allegations outside the scope of this review, such as issues pertaining to VA employee benefits and contracts. In addition to reporting allegations of employee misconduct to the OIG, VA employees may also report allegations of misconduct directly to their supervisors. Review and Referral of Allegation: Due to the substantial number of allegations received through the OIG Hotline Division, the OIG exercises a “right of first refusal” on misconduct cases, which allows it to take no further action, refer the case to program offices within VA for review and response, or open an investigation. For example, the OIG can either decide to (1) take no further action on matters not within the OIG’s jurisdiction or too vague to warrant further review; (2) refer allegations that warrant some action to the OMI, OAR, or VA facilities or program offices within each administration to conduct an independent review of the allegations; or (3) open cases for further review for serious allegations of criminal activity, fraud, waste, abuse, and mismanagement. Cases opened by the OIG typically involve misconduct by senior officials, or matters relating to the quality of care provided by licensed professionals. In contrast, the OIG typically refers allegations to VA facility or program offices for matters where the OIG does not have sufficient resources to open an internal case. The OIG generally does not review matters that are addressed in other legal or administrative forums, such as allegations of discrimination or whistle-blower retaliation. Notice to Employee Once Allegations Are Substantiated: The type of appointment an employee holds determines whether an employee is to be provided advance notice of planned disciplinary action once misconduct is substantiated at the conclusion of an investigation. Employees holding a permanent appointment are entitled to receive a notice of proposed action that states the specific charges for which the proposed disciplinary action is based and informs the employee of his or her right to review the material that is relied upon to support the reasons for the action. Employees in the competitive service serving in a permanent appointment (who have completed their probationary period) are treated differently than those who are still in their probationary period or serving under temporary appointments. An employee serving a probationary period or under a temporary appointment does not receive a notice of proposed action and may be immediately terminated because his or her work performance or conduct fails to demonstrate fitness or qualifications for continued employment. Temporary employees are terminated by notifying employees in writing as to why they are being separated and the effective date of the action. Disciplinary Action: VA Handbook 5021, Employee/Management Relations, governs policy for disciplinary and grievance procedures for all employees. Supervisory staff or appropriate higher-level officials use the results from investigations to help determine whether any disciplinary actions are warranted and, if so, the type and severity of each action. Other VA staff, such as human-resources and general-counsel staff may also provide guidance to management in determining appropriate disciplinary actions. After determining the facts in a case, VA may employ either disciplinary or adverse action. Adverse action involves a more- severe type of discipline (e.g., removal, suspension more than 14 days, or reduction in grade) as described in table 1. As a federal agency, VA is required to report department-wide information on certain disciplinary personnel actions to the Office of Personnel Management (OPM). OPM’s Enterprise Human Resources Integration (EHRI) system currently collects, integrates, and publishes data for executive-branch employees on a biweekly basis. This system provides federal workforce data to other government systems and the public. To adhere to this reporting requirement, VA provides information on certain disciplinary actions such as terminations and removals to OPM. The Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017 also requires the Secretary to provide a report on the disciplinary procedures and actions of the department to Congress. To understand the depth and breadth of misconduct and related issues in a large entity, such as VA, comprehensive and reliable information is needed. Standards for Internal Control in the Federal Government states that an information system represents the life cycle of information used for the entity’s operational processes that enables the entity to obtain, store, and process quality information. Therefore, management should design the entity’s information system to obtain and process information to meet each operational process’s information requirements and to respond to the entity’s objectives and risks, such as the ability to systematically analyze misconduct department-wide to identify trends and make management decisions regarding misconduct. A deficiency exists when (1) a control necessary to meet an objective is missing or (2) an existing control is not properly designed, so that even if the control operates as designed, the objective would not be met. We identified 12 fragmented information systems that VA has used, or continues to use, to collect employee misconduct and disciplinary actions. Although VA has made efforts to develop repositories to collect information pertaining to misconduct and disciplinary action, none of the 12 information systems contain complete information. Six of these systems collect partial misconduct and disciplinary action information and contain fields that could potentially be shared with other systems to obtain additional information, while the other six systems are intended for internal office use only, each containing their own unique fields and values tailored to the needs of that particular office, which are not shared. Therefore, the number of eligible fields for each information system was also limited to those not specifically designated for internal use. On the basis of our review, the 12 information systems are not currently able to communicate, or interoperate, with one another to provide a complete picture of misconduct and disciplinary actions across VA. Table 2 provides an overview of VA’s six information systems and associated data files that collect partial misconduct and disciplinary-action data that could potentially be shared with other systems. According to OHRM officials, VA’s information system for recording adverse disciplinary actions—the Personnel and Accounting Integrated Data (PAID) system—was not designed to track all misconduct cases. In addition, OHRM stated that the 53-year-old PAID system was developed primarily to track payroll actions for all employees and is the system of record that holds department-wide personnel information that is reported to OPM’s EHRI system. It contains information about adverse disciplinary actions that affect employee leave or salary, or result in a Notification of Personnel Action Form (Standard Form 50). However, PAID does not track comprehensive information on instances of misconduct such as the offense, or the date of occurrence, and it does not include instances of other types of disciplinary actions, such as admonishments or reprimands that would not affect leave or salary, or result in a Standard Form 50. OHRM officials stated VA implemented a system called HR Smart in June 2016 that is intended to replace PAID, but the agency does not plan to upgrade the functionality of the new system to enable reliable collection of misconduct information. According to OHRM, HR Smart includes the same personnel-processing functions as PAID but will allow for tracking data changes and transaction history over time. However, as with the PAID system, adverse disciplinary actions involving leave and salary will be tracked, but other actions, such as reprimands and admonishments, will not. It also will not track information related to the offense that prompted the disciplinary action. While the HR Smart system has the capability to include modules to enhance performance features, such as the ability to track misconduct, according to OHRM officials VA does not currently have plans to implement these modules. As a result, the HR Smart system will not have the capability to track all employee misconduct department-wide and will not improve VA management’s visibility over the depth and breadth of misconduct so that it can systematically understand misconduct department-wide. VA has five additional information systems for tracking complaints or allegations of misconduct and disciplinary actions, but, similar to the agency’s PAID information system, each of these information systems contains a subset of the information that would be needed to understand all misconduct department-wide. According to Standards for Internal Control in the Federal Government, systems should include relevant data from reliable internal sources that are reasonably free from error and faithfully represent what they purport to represent. Additionally, management is advised to process data into quality information that is appropriate, current, complete, accurate, accessible, and provided on a timely basis. Management should also evaluate processed information, make revisions when necessary so that the information is quality information, and use the information to make informed decisions. Additionally, according to Standards for Internal Control in the Federal Government, management should design the entity’s information system and related control activities to achieve objectives and respond to risks. The standards add that the information system design should consider defined information requirements for each of the entity’s operational processes. Defined information requirements allow management to obtain relevant data from reliable internal and external sources. In order to achieve complete and accurate data, internal controls are needed, among other things, to ensure that fields are not left blank, data elements are clearly defined and standardized, and common data elements are included across data systems to allow for interoperability and aggregation. Our analysis of VA’s 14 data files identified the following three categories that reduced the reliability of the data: lack of data standardization, and lack of identifiers. We found that 7 data files we reviewed contained a majority of data within fields, but 5 data files were missing a significant amount of data within certain fields. We were unable to analyze the remaining two files due to a number of data-quality issues. Among the fields that were missing data were several that would be useful for analyzing misconduct, including complainant name, proposed action, and person of interest, as shown in table 4. For example, we found that in the OAR Legacy Referral Tracking List, 97 percent of the entries for the Proposed Action field (1,210 of 1,245) and 96 percent for the Disciplinary Action field (1,190 of 1,245) were blank. If available, comparison of the proposed and disciplinary action-taken fields would allow VA to assess whether actions are consistently implemented department-wide. However, the high percentages of blank values in multiple fields impair VA’s ability to conduct a comprehensive analysis of misconduct to identify and address trends. See appendix II for a further listing of the five data files and the corresponding fields that were missing data. In addition, we found that several data files had options such as “not applicable” or “no” for certain fields so that the field would not be left blank, but these options were not consistently used. For example, the Complainant Name field within the Legacy Referral Tracking List was blank for some entries and not applicable (N/A) for others. Accordingly, we did not know whether data were intentionally omitted or not entered by mistake. In addition, the Offense Sustained field found within the VA-Wide Adverse Employment Action and Performance Improvement Plan Database was blank for some entries and either a yes or no for others. Eight of the 14 data files we reviewed did not have key data elements that were defined within and across information systems. In other words, the data files contained entries that described similar information in different ways. For example: The Complaints Automated Tracking System (CATS) Employment data were not mutually exclusive, or independent of one another. For example, this field includes two distinct categories of information: employment status, such as full time or part time; or hiring authority, such as Title 5 or Title 38. This method of storing information resulted in undercounting each of the separate values due to the system’s inability to account for expected overlap. For instance, an employee could be both a full-time and Title 5 employee and the field only tracks one or the other. ORM officials stated that this field has since been modified to capture more options to account for the overlap. The NCA data file’s Action Proposed/Decided/Taken data were tracked in a single field and updated with the most-recent action, rather than capturing proposed actions, decided actions, and actions taken in separate fields. We also identified standardization issues with the newly updated VA- Wide Adverse Employment Action and Performance Improvement Plan Database. For example, we found 15 different variations of Registered Nurse, such as “Registered Nurse,” “Staff RN,” and “RN” position names. In addition, we found 28 alternate values that identified Diagnostic Radiologic Technologists (e.g., Diagnostic Radiologic Technologist, Diagnostic Radiological Technologist, and Radiologic Technologist). See appendix III for a description of the fields that did not have standardization within the eight data files. We determined that 5 out of the 14 data files did not have identifiers that would allow comparisons of information across systems. Identifiers are important because they reference one unique individual or case, which makes it possible to analyze historical data pertaining to all records with the same identifier and analyze trends in employee misconduct over time. For example: The OAR VA-Wide Adverse Employment Action Database and the VBA data files had a combined total of 4,487 closed cases of misconduct that received adverse corrective action during the combined period of November 2013 through December 2016. We found that these two data files did not contain unique identifiers for complainants or accused individuals for a given case. OAR officials stated that this system does not contain Personal Identifying Information since its purpose is to track proposed and taken adverse actions. If more-specific information is needed, OAR staff coordinate with the human-resource point of contact. Although OAR may obtain additional information, this information is not entered into the OAR VA-Wide Adverse Employment Action Database, which would assist with conducting analysis. VAPS tracks misconduct in two separate subsystems, one of which tracks traffic violations and other administrative offenses, and one of which also tracks more-egregious offenses such as criminal violations. These subsystems also do not have unique identifiers that would allow data matching between the two subsystems, which could impede the analysis of this information. Even with both files, there is no ready way to capture the complete number of individuals with misconduct in both files due to the lack of a shared identifier. The newly updated VA-Wide Adverse Employment Action and Performance Improvement Plan Database does not contain unique identifiers, such as employee identification number, name of the complainant or accused, or other linking variables, to allow for the analysis of historical trends or comparison of information among other information systems. The data-quality issues described above are due in part to most of VA information systems not having data dictionaries, field definitions, or other documented guidance and procedures on data entry and automated edit checks to control for erroneous entries and blank fields. Absent guidance and procedures, VA lacks assurance that employees will enter complete and accurate information in the various data systems. Further, the lack of unique identifiers such as employee identification number, case number, or other linking variables for each of the records does not allow for analysis of historical trends or comparison of information among different information systems. Consequently, this precludes VA from determining the frequency and nature of allegations by specified category, or identifying trends, thus impeding senior officials’ ability to analyze misconduct department-wide and develop corrective actions. VA Directive 5021, Employee/Management Relations, governs policy for disciplinary procedures for all employees and outlines the provisions for the adjudication of each disciplinary action and associated file documentation requirements. Specifically, files must be established before a notice of proposed adverse action is issued to the employee to document that the adjudication procedures were followed. The file must contain all available evidence upon which the notice of proposed action is based and that supports the reasons in that notice. In addition, each file should contain specific documentation related to the adjudication of employee misconduct. VA Handbook 5021 states that disciplinary actions and associated adjudication procedures for all VA employees appointed under Title 5 are governed by three basic principles: (1) an employee shall be informed in writing honestly and specifically why the action is being brought against him or her; (2) an employee shall be given a reasonable opportunity to present his or her side of the case; and (3) the employee and representative shall have assurance of freedom from restraint, interference, coercion, discrimination, or reprisal in discussing, preparing, and presenting a defense. Our review of a generalizable sample of 544 misconduct case files (from a universe of 23,622 files) associated with disciplinary actions that affect pay from October 2009 through May 2015 revealed that VA officials did not consistently adhere to VA’s policy for retaining files containing evidence of misconduct. Specifically, VA was unable to provide the files for 10 percent (55 of 544) of the files we requested. We determined that administrations and program offices within VA have various record- retention schedules. Offices that have not established a record-retention schedule refer to the general records schedule developed by the National Archives and Records Administration (NARA). However, we found that some offices are misinterpreting OPM and NARA guidance and specify the record retention period for adverse action files as a range between 4 to 7 years rather than selecting a specific number of years in their record- retention schedules. All of the files were within VA’s record-retention range specified during the time of our review. The files that were unaccounted for were dispersed throughout most of the VISNs, but one VISN was not able to account for 19 of the missing files in our sample. On the basis of our weighted analysis of the generalizable sample, we estimate that VA would not be able to account for approximately 1,800 files in the full population that were within the record-retention period specified. In addition, VA officials did not consistently adhere to VA’s policy for documenting that procedures were followed in the adjudication of misconduct cases. We identified 22 out of 36 file requirements where VA was not able to consistently demonstrate compliance with VA policy due to the lack of documentation contained in files, based on our generalizable sample. Specific to both Title 5 and Title 38 permanent- employee misconduct case files, table 5 shows the estimated number and percentage that deviated from file documentation requirements. A list of the 22 identified requirements and the percentage of files not in compliance can be found in appendix IV. As table 5 indicates, Title 5 and Title 38 permanent employee files did not always contain documentation that employees were informed of the reason the action was brought against them. For example, on the basis of our generalizable sample, we estimate that the advance notice of proposed action, which includes a statement of the specific alleged misconduct upon which the proposed action is based, was not included in 16 percent of the files department-wide. A final decision letter, which contains a statement of the decision official’s determination regarding which charges, if any, in the advance notice were sustained, was not included for an estimated 15 percent of all files. Further, an estimated 35 percent of all files did not include a written acknowledgement from the employees that they received the final decision letter in person, and an estimated 23 percent of all files did not include the required return receipt for certified mail indicating that the decision letter was mailed to the employee. In addition, Title 5 and Title 38 permanent employee files did not always contain documentation that employees were provided a reasonable opportunity to present their side of the case. Our review found that permanent-employee disciplinary files did not adhere to basic principles outlined in VA Handbook 5021 and lacked evidence to demonstrate that employees were adequately informed regarding their rights during the adjudication procedure. Specifically, our generalizable sample found that an estimated 21 percent of all files did not include statements regarding the employee’s rights to due process, such as his or her entitlement to be represented by an attorney or other representative. In addition, an estimated 8 percent of all files did not mention that more information regarding appeal rights could be obtained by consulting Human Resources Management offices. For files where the employee provided an oral reply in response to proposed disciplinary action, an estimated 29 percent of files did not include the required written summary, which is to be signed by the official hearing the oral reply. Where a written reply was submitted, an estimated 11 percent of files did not include a copy of the employee’s written reply. Further, VA officials did not consistently adhere to VA’s best practices specific to Title 5 permanent employees only. We found that in a majority of these files (an estimated 72 percent) the proposal letters did not include a statement that assured the employee he or she had freedom from restraint, discrimination, or reprisal in discussing, preparing, and presenting a defense. VA Handbook 5021, Employee/Management Relations, also states that Title 5 employees should provide their written responses through supervisory channels to the decision official. We estimate that a total of 6,819 files (47 percent) of Title 5 permanent employee files did not provide their written reply through supervisory channels to the decision official. Although OHRM is responsible for assessing the effectiveness of department-wide human resource programs and policies of VA Handbook 5021, according to OHRM officials, each facility is responsible for oversight of implementing policies and guidelines pertaining to how disciplinary actions are processed. We found no evidence that OHRM has assessed whether documentation exists that demonstrates adherence to policy governing cases involving disciplinary actions or provided oversight of VA’s implementation of record-retention requirements, or that human- resource personnel adhere to basic principles outlined in policy to ensure employees are informed of their rights during the adjudication process. The resulting lack of oversight to HR policies increases the risk that employees will not be adequately informed of their rights during the adjudication process. Accordingly, employees may not (1) be provided with information on why an action is being brought against them, (2) be provided with a reasonable opportunity to present their case, and (3) be adequately protected from potential reprisal in preparing their defense. Regarding retention of records, according to NARA, disciplinary and adverse action case files should be destroyed no sooner than 4 years but no later than 7 years after the case is closed. According to OPM, to implement this authority, each agency must select one fixed retention period between 4 and 7 years and publish the retention in the agency’s records disposition manual. We determined that some offices are misinterpreting OPM and NARA guidance by not selecting a specific number of years in their record- retention schedules. For example, three of the six policy record-retention schedules we reviewed did not establish a specific number of years for record retention. Specifically, record-retention policies for the Office of Information and Technology, VACO staff offices, and VBA specified the record-retention period for adverse action files as a range between 4 to 7 years rather than selecting a fixed retention period. For example, we found that the Records Control Schedule pertinent to VACO was dated June 30, 1967, without references to new or revised items since 1969. Our results are consistent with an October 2016 inspection conducted by NARA. The inspection report contained 16 findings and 19 recommendations for improvement of the records-management program at VA. Among the findings and recommendations were the following. Finding: The VA records management program has not ensured that the VACO maintains a current Records Management Handbook and a current Records Control Schedule, which together establish program objectives, responsibilities, and authorities for the creation, maintenance, and disposition of agency records. Recommendation: The Department Records Office must update and maintain the VACO handbook and the Records Control Schedule for Central Office Staff Offices and the Offices of the Assistant Secretaries to include specific Records Management roles and responsibilities for all VACO staff and to include mandates for implementation of records management policies and procedures in accordance with Federal statutes and regulations. Finding: The VA Departmental Records Management program does not conduct regular records management evaluations within VACO and the Offices of the Secretary and Assistant Secretaries or monitor the oversight activities of the Administrations. Recommendation: The VA Departmental Records Management program, working with the Administrations, VACO, and Enterprise Risk Management, must establish effective Records Management evaluation programs to monitor VA compliance with Federal regulations. Recommendation: The VA Departmental Records Management program, working with the Senior Agency Official for Records Management, must establish effective Records Management evaluation programs to monitor the records management practices within the Office of the Secretary and Assistant Secretaries to ensure compliance with Federal regulations. Finding: VACO Staff Offices and the Offices of the Assistant Secretaries are not routinely conducting records inventories. Recommendation: VACO Staff Offices and the Offices of the Assistant Secretaries, with support from the Department Records Management program, must conduct inventories of existing electronic and non-electronic records to identify scheduled, unscheduled, and vital records. In response to NARA findings, VA is to submit a plan of corrective action that specifies how the agency will address each inspection report recommendation, including a timeline for completion and proposed progress reporting dates. VA does not have a method in place to evaluate the implementation of records-management practices outside of those being conducted by VHA and VBA. Accordingly, VA has not been conducting records-management oversight with any uniformity department-wide. Further, VA’s use of multiple retention periods for adverse action files, and in some cases the lack of adherence to OPM and NARA guidance in defining a specific retention period for these files, results in inconsistent retention of these files across VA. The OIG receives allegations of employee misconduct from VA employees, the OSC, members of Congress, the public, and other stakeholders. When the OIG receives allegations it can either take no further action, open an investigation, or refer the case to facility or program offices within VA for review and response. For cases referred to facility or program offices, the OIG has developed a policy for VA facilities and program offices to use when investigating allegations of misconduct. This policy includes six elements that VA facility and program officials are to incorporate in their investigations, as shown in table 6. According to OIG officials, if the reviewing employees have concerns about the adequacy of the response provided, the OIG can either ask for additional information to supplement the response or open an internal case. Departmental heads (Under Secretaries for Health, Benefits, and Memorial Affairs, Assistant Secretaries, and other key officials) are responsible for ensuring that referrals are properly reviewed, documented, and answered within specified time frames. Our review of the 23 OIG cases of alleged misconduct between calendar years 2011 and 2014 involving senior officials found that VA facility and program offices did not consistently follow policies and procedures established by the OIG for investigating such allegations. In several instances, VA facility and program offices did not include one or more of the six elements required in their investigative response to allegations of misconduct. In addition, our review of the 23 cases found instances in which VA facility and program offices did not include sufficient documentation for their findings, or provide a timely response to the OIG. The OIG was not able to produce the documentation provided by the facility or program office that was used to close 2 of the 23 cases in our review. All of the requested files were within the OIG’s 7-year record- retention period during the time of our review. As shown in table 7, we identified four cases that did not contain evidence of an independent review by an official separate from and at a higher pay grade than the accused. In three of the four cases that were not reviewed by an independent official at a higher grade, the review was performed by the medical center director, who was one of the accused named in the allegation. For example, in one case involving alleged time-and-attendance abuse by a physician, the medical center director, who was also named in the allegation as having received a similar complaint against the physician 2 years earlier, reviewed the allegations made against the physician and himself. The documentation provided showed that the medical center director conducted the investigation of allegations and found the allegations were not substantiated and no corrective actions were implemented. In all four cases, both the independence and higher-grade criteria were not followed when the accused senior officials investigated allegations against themselves. As shown in table 8, we generally found that VA facility and program offices reviewed each allegation contained in the original referrals, although in one case the reviewer did not respond directly to all allegations. As shown in table 9, VA facility and program offices clearly indicated their findings for each allegation in 14 of the 21 cases of misconduct involving senior officials for which files could be located, as well as their assessment of whether the allegations were substantiated or unsubstantiated. However, we identified seven cases in which VA discussed its findings but did not provide a clear indication of whether all allegations were substantiated or unsubstantiated. Responses lacking a clear statement of substantiation may be more difficult for subsequent reviewers, including OIG and OAR investigators, to track and perform follow-up where necessary. For example, in one case involving 11 allegations, no statement of substantiation was provided, but VA’s response included seven recommendations, three of which involved disciplinary action. We did not find evidence in the case file that follow-up was performed by the OIG personnel to clarify this discrepancy, and the case was closed. As shown in table 10, most allegations involving senior officials (16 of 21 cases for which files could be found) were not formally substantiated and did not require a recommendation for corrective action based on OIG case-referral criteria. Specifically, the criteria require a description of corrective actions taken or proposed as a result of substantiated allegations, but make no mention of allegations that were not substantiated as part of VA’s response. For one substantiated allegation, however, we found no evidence of a recommendation for corrective action. Table 11 shows that 17 cases from VA facility and program offices did not provide the supporting documentation they used to reach their conclusions about the OIG case referrals. In 17 cases, including one case reviewed by an AIB panel, VA referenced documents reviewed but did not attach any of the supporting evidence. OIG case-referral criteria state that VA facility or program offices must provide supporting documentation used in their review, such as copies of pertinent documents. However, the criteria do not specify whether copies of all documentation reviewed must be included in the file. Supporting documentation, which must be provided according to OIG policy, will vary depending on the circumstances of the case, but those used to support the findings and recommendations should be included. For example, we reviewed one case where pertinent documents were referenced to support the allegation, but documents supporting the findings and recommendation were not included. The case contained allegations involving false patient wait-time documentation and abuse of authority. Specifically, a medical center director instructed staff to review patient wait times between follow-up appointments in order to meet VA’s 14-day timeliness metric. The investigation revealed that VA staff had changed several hundred veteran appointment wait times. The investigation concluded that the false documentation allegation was substantiated, but attributed the cause to the staff not understanding how to enter a follow-up appointment date into the system. However, there was no documentation in the files to support (1) that the medical center director had not abused his authority by instructing staff to review wait times greater than 14 days to determine how they could be reduced, and (2) findings for the conclusion that the original wait times were entered in error. Absent supporting documentation, it is difficult for the OIG to determine whether enough evidence was gathered before closing alleged cases of misconduct that were found to be unsubstantiated or closing substantiated cases of misconduct that required further action. VA Directive 0701 states that copies of voluminous transcripts of interviews, the entire claims folder, and medical charts are not necessary. However, VA Directive 0701 further states that such materials should be available if the OIG subsequently requests them within the record-retention period. Case examples of allegations reviewed, and subsequently closed, by the VA OIG based on its evaluation of evidence provided by facility and program offices in response to allegations of misconduct can be found in appendix V. As shown in table 12, VA facilities’ or program offices’ response letters, which were sent to the OIG, included a point of contact for further questions in 15 of the 21 OIG case referrals involving senior officials, including the individual’s name and a means of contact (phone or e-mail). In 2 of the 15 cases where a point of contact was provided, the contact was also one of the accused in the allegation. Although that is not technically a violation of OIG criteria, it likely presents a conflict of interest in regard to independent reviewers obtaining objective case information. In six other cases, no contact was listed, although the letter was signed by the reviewer. If a specific point of contact is not identified, including position title, it may be assumed erroneously by employees involved in the case, or following up on the case, that the default contact is the reviewer, who may not be the appropriate point of contact, and may or may not be able to provide objective case information. OIG guidelines state that VA facilities and program offices assigned Hotline case referrals are responsible for reporting written findings to the Hotline Division within 60 days, unless an extension is requested. Our review of the 21 cases found instances in which VA facility or program offices did not always provide a timely response to the OIG. Table 13 shows five instances in which VA facility or program offices submitted a response after the deadline requested by the OIG. One response was not reported timely after an extension was provided by the OIG. In one of the five cases involving allegations of abuse of authority by a VA medical center director, the reviewer requested an extension, which is permitted by OIG policy, but still missed the revised deadline. The five case files did not contain any information regarding any follow-up actions taken in response to delays. According to OIG officials, when a case has been referred to a program office for investigation, the OIG reviews the program office’s response for completeness and sufficiency before closing the case. However, there is no requirement for the OIG to ensure that the responses contain the six elements listed in VA Directive 0701 and confirm that case referral allegations have been addressed. Consequently, the lack of verification could have contributed to insufficient evidence that does not meet the requirements outlined by the OIG. Additionally, VA facility and program offices have not consistently adhered to VA Directive 0701 policy and do not always provide supporting documentation for their findings and recommendations, or always provide a timely response when reporting findings to the OIG’s Hotline division. Inconsistent adherence to the reporting standards provided by the OIG to VA facilities and program offices for investigating and resolving misconduct case referrals from the OIG Hotline impedes VA’s ability to ensure that misconduct cases are being handled appropriately. According to OIG officials, the OIG has taken steps to enhance the review of case responses. Specifically, OIG officials stated that in April 2018 the OIG implemented a new Enterprise Management System to reduce reliance on certain manual processes. According to OIG officials, Hotline analysts will now have more time to review their work and perform other quality-assurance activities. In implementing this new system, it will be important for the OIG to consider how the system can assist in ensuring requirements are met and responses are received timely. Our review of VA’s information systems that track misconduct involving senior officials department-wide indicates that they may not always be held accountable for misconduct. Specifically, (1) misconduct was sometimes substantiated, but the proposed disciplinary action was not taken; (2) misconduct was sometimes substantiated, but no disciplinary action was recommended; (3) previous penalties did not have the corrective effect for officials found to have engaged in repeated acts of misconduct and who have remained in VA management positions; and (4) senior officials violated separation-of-duty policy when taking disciplinary action. VA Handbook 5021 allows the deciding official to determine the appropriate disciplinary action if one or more allegations are substantiated. However, the disciplinary action may not be more severe than what had been proposed. In several cases, misconduct was substantiated, but the proposed action was not always taken. Our review of the OAR Legacy Referral Tracking List identified 17 officials between calendar year 2011 through May 2015 with substantiated misconduct where action was proposed. However, in some of these cases, the officials were given a lesser penalty than the one proposed, while in other cases there is no evidence that action was taken. As shown in figure 3, we found that for 12 of the 17 officials with substantiated misconduct, an adverse disciplinary action (removal) was proposed. Of those 12 officials, 3 were removed, 2 received a suspension, 4 received a reprimand or admonishment, 2 were allowed to resign or retire before receiving disciplinary action, and we found no evidence of disciplinary action for the remaining individual. For the other 5 officials, actions such as counseling, admonishment, suspension, or reprimand were proposed. Of the 5 officials, 2 received the actions that were proposed, 1 received a lesser penalty than what had been proposed, 1 was allowed to retire before receiving action, and we found no evidence of the proposed action for the remaining individual. For the two officials for whom there was no evidence that disciplinary action was taken, we found no evidence within the PAID information system or personnel files that these officials received the action proposed in the OAR Legacy Referral Tracking List. Counseling was proposed for one official, and removal from the position for the other official. OAR did not provide us with evidence that the officials had received the action proposed. We also reviewed an additional 15 cases that involved a fact-finding or an AIB. Our review of these cases found that 11 out of 23 officials were associated with instances of substantiated misconduct and proposed action was recommended. For 4 of the 23 officials where the proposed action field was populated, the information within the OAR Legacy Referral Tracking List reflected the action recommended. The applicable data fields for the remaining 19 officials within the OAR Legacy Referral Tracking List were not in agreement with the action recommended, or blank. This review also identified two officials with substantiated misconduct where OAR did not provide evidence that the disciplinary action proposed was taken: Two officials were involved in a case concerning alleged whistle- blower retaliation at the Phoenix VA Health Care System. The investigative report documented that allegations were sustained. The retaliation included allegations of involuntary reassigning the whistle- blower to another position, placement of the whistle-blower on administrative leave, and lowered performance pay ratings following disclosures regarding poor patient care and nursing triage errors. Appropriate administrative action for persons identified as having engaged in retaliation was recommended. We did not find any evidence in the PAID system that these two officials involved in retaliation received disciplinary action. OAR provided documentation to show that no action was taken against one official, and was unable to provide documentation to show that the disciplinary action had been taken for the other. The official who received no action received approximately $11,500 in performance pay during a 2-year period following the allegations. OAR’s quality-review process for investigative reports does not ensure that reports with findings of substantiated misconduct include recommendations for action. Our review of OAR’s Legacy Referral Tracking List identified 70 out of 1,245 closed cases involving officials where misconduct was either substantiated, or partially substantiated, but no disciplinary action was recommended. One case involved three allegations of poor dental care provided to patients by three different senior officials. One physician cut underneath a patient’s tongue with the bur of a hand-piece drill (substantiated), another administered medication the patient was allergic to (partially substantiated), and the final senior official extracted the wrong tooth (substantiated). We did not find any evidence in the PAID system that these senior officials received disciplinary action. Further, OAR did not provide documentation to show that any disciplinary action had been proposed or taken. The physician that cut underneath a patient’s tongue received performance pay totaling $15,000 approximately 6 days after the investigation had concluded that misconduct was substantiated. As of March 2018, two of these senior officials received performance pay, and appear to still be employed at VA. While an investigation was conducted that substantiated (or partially substantiated) the allegations, there is an increased risk that some substantiated misconduct will go unaddressed if there is no recommendation for corrective action. Our review of OAR’s Legacy Referral Tracking List indicated that some officials who had been disciplined for misconduct remained in positions where they were responsible for proposing or deciding disciplinary action for other employees. We identified 15 officials in the OAR VA-Wide Adverse Employment Action Database who received disciplinary action between 14 days to 1 year prior to proposing disciplinary action for another employee. Most of the 15 officials (12 officials) had received a suspension. We also found that five officials in the OAR Legacy Referral Tracking List had received prior disciplinary actions for offenses unrelated to the new OAR allegations. A prior history of disciplinary actions indicates that some officials may be repeat offenders for whom the previous penalties did not have the desired corrective effect. For example, 4 out of 5 officials were suspended for a different offense prior to being the subject of a new allegation. One of the four officials was suspended less than 2 months prior to being the subject of a new allegation, while another received a suspension before, and again approximately 7 months following, the OAR allegation. According to VA Handbook 5021, the deciding official must use the “Douglas” factors, which include the employee’s past disciplinary record, to determine a reasonable penalty. One of the five VA officials was eventually removed approximately 6 months after the new OAR allegation. In analyzing cases involving senior management, we noted that the OAR Legacy Referral Tracking List often did not accurately reflect the disciplinary action that was decided based on the results of the investigation. In numerous instances for the OAR Legacy Referral Tracking List, the applicable data fields indicating the proposed and final disciplinary action were blank. In these cases where the disciplinary fields were populated, the data usually did not agree. Specifically, for 32 out of the 40 records we reviewed where misconduct was substantiated, the final disciplinary action taken did not reflect the information within the OAR Legacy Referral Tracking List. When disciplinary actions are taken in response to findings of misconduct but are not entered within an appropriate information system, or are inaccurately recorded, it is more difficult to (1) monitor whether disciplinary actions have been implemented, and (2) ensure information relevant to management for making decisions is available. Further, without a prior record of misconduct or disciplinary action, senior officials who are repeat offenders may not receive the appropriate penalty required. Pursuant to the Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017, OAWP will now be responsible for receiving, reviewing, and investigating allegations of misconduct, retaliation, or poor performance involving senior officials. According to OAWP officials, their office investigates allegations of misconduct at the senior level only. OAWP officials also stated that misconduct issues that occur below the senior level will be referred to each of the three major VA administrations for investigation and resolution. In addition to the VA- Wide Adverse Employment Action and Performance Improvement Plan Database, OAWP officials stated that it has implemented two additional information systems that are used concurrently to capture case information. OAWP officials stated that they are currently working with VA Information Technology to assess options for other case-management systems that could consolidate these three information systems into one comprehensive system. VA Handbook 5021, Employee/Management Relations, states that the decision on a proposed major adverse action will be made by an official who is in a higher position than the official who proposed the action, unless the action is proposed by the Secretary. Standards for Internal Control in the Federal Government states that management should divide or segregate duties among different people. Our review of the OAR VA-Wide Adverse Employment Action Database, OAWP VA-Wide Adverse Employment Action and Performance Improvement Plan Database, and VBA data file identified examples where VA officials did not follow separation-of-duty requirements. As shown in table 14, 73 (out of an estimated 7,886) VA officials acted as both the proposing and deciding official in cases involving removals for employees found to have engaged in misconduct. Fourteen VA officials acted as both the proposing and deciding official in two or more cases. One of these 14 officials acted as both the proposing and deciding official for seven different removal cases. Further, our review of 29 VA officials found that none received disciplinary action for violating separation-of-duty policy. The systemic lack of adherence to VA’s separation-of-duty policy is reflective of a lack of controls that would allow such activity to occur. Focusing on ensuring such controls are implemented would help ensure that VA decreases the risk of abuse when officials act as both proposing and deciding officials. VA has procedures in place to ensure that allegations of misconduct are investigated, but these procedures allow VA program offices or facilities where a whistle-blower has reported misconduct to conduct the investigation. According to VA officials, investigations that are deemed necessary are occasionally ordered directly from the head of the facility or VA leadership, which takes the lead on an investigation into the allegation. Alternatively, an OIG official stated if allegations of misconduct are received by the OIG, the OIG has the option of investigating the allegation or exercising a “right of first refusal” whereby it refers allegations of misconduct to VA facilities or program offices where the allegation originated to complete an independent review and provide a response to the OIG. As shown in figure 4, the majority of contacts the OIG received (127,265 out of 133,435) from calendar years 2010 through 2014 were not investigated due to several reasons, such as insufficient evidence or lack of jurisdiction. Of those contacts that were investigated, the majority (4,208 of 6,170 investigated contacts) were not investigated by the OIG but rather were referred to facility or program offices for investigation. Whistle-blowers also have the option of reporting alleged misconduct outside VA by filing a disclosure with the OSC, and may do so if they believe there has not been a resolution to their complaint internally. If the OSC determines that there is substantial likelihood of wrongdoing, it may refer the disclosure back to the Secretary of Veterans Affairs for further investigation. According to OSC officials, as a general policy, the OSC will not refer a disclosure to the Secretary if the OIG is already conducting an investigation of that particular complaint and defers to the OIG to finalize the investigation. According to OIG officials, the OIG may, in turn, exercise its “right of first refusal” when cases are referred from the OSC. Consequently, this process can result in a disclosure that was originally made to the OSC being referred back to the facility or program office where the allegation originated. As shown in figure 4, the OSC referred 172 of 942 disclosures (18 percent) filed by VA employees back to the Secretary of Veterans Affairs for further investigation from calendar years 2010 through 2014. Of the 172 disclosures referred, VA referred 53 back to the facility or program offices where the complaint originated and 119 to the OIG. The independence of officials conducting or reviewing the results is paramount to the integrity of the process both in deed and appearance. According to VA Directive 0700, the decision whether to conduct an investigation should not be made by an official who may be a subject of the investigation, or who appears to have a personal stake or bias in the matter to be investigated. Moreover, according to OIG policy, investigations referred to VA offices must be reviewed by an official independent of and at least one level above the individual involved in the allegation. VA does not have oversight measures to ensure that all referred allegations of misconduct are investigated by an entity outside the control of the facility or program office involved in the misconduct, to ensure independence. VA OIG officials acknowledged that there have been concerns about referring cases back to the chain of command because the OIG is unsure where cases go once they are referred. The investigation of allegations of misconduct by the program office or facility where the complaint originated may present the appearance of a conflict of interest in which managers and staff at facilities may investigate themselves or other allegations where they may have a personal stake or bias in the matter to be investigated. Consequently, there may be an increased risk that the results of the investigation are minimized, not handled adequately, or questioned by the OSC or the individual who made the original allegation. According to VA Directive 0700, significant incidents occurring, and issues arising, within VA facilities or offices shall be reported and investigated as necessary to meet the informational and decision-making needs of VA. Primary responsibility in this regard rests with the chief executives of the facility or staff office involved, and with their supervisors in VA and its administrations. According to an OIG official, VA (the Secretary or a delegate) sends disclosures received from the OSC to the OIG, which may then refer to VA facility or program offices for further review and investigation. According to OSC officials, for cases that are referred to a program office, the OSC requires that the Secretary or delegate provide a report that outlines its conclusions and findings. This reporting is not required for disclosures where an ongoing OIG investigation is already under way. According to OSC officials, for each disclosure, the OSC is to review the report for statutory sufficiency and determine whether the findings of the agency head appear reasonable. The OSC is to send its final determination, report, and any comments made by the whistle-blower to the President and responsible congressional oversight committees. The OSC has raised concerns in its reports to the President about investigations conducted by VA program offices and facilities. Of the 172 whistle-blower disclosures referred by the OSC between calendar years 2010 through 2014, the Secretary of Veterans Affairs referred 53 to facility and program offices. Our review of these 53 OSC reports found that the OSC had concerns about the conclusions VA reached in 21 (40 percent) of the 53 disclosure cases. For example, the OSC found that the conclusions in some VA reports were unreasonable because VA reached its conclusion without interviewing the witness, provided shifting explanations that strained credibility and did not provide evidence of an unbiased investigation, ignored whistle-blower concerns by refusing to investigate allegations, and refused to acknowledge the impact on the health and safety of veterans seeking care after confirming problems in these areas. For disclosure cases that were referred from the OIG to facility and program offices during the 2010–2014 time frame of our review, the OIG acknowledged that these concerns arose because of a lack of communication between the department and the OIG regarding the scope of the review. At the time of our review, VA did not have a procedure in place to ensure the conclusions reached for investigations involving OSC disclosure cases are reasonable and meet the informational and decision- making needs of VA whereby all allegations are addressed. More recently, the OIG has started to communicate the scope of its reviews that involve matters referred by the OSC to the Office of the Secretary. In implementing this new process, it will be important for the Office of the Secretary to ensure that any allegations outside the purview of the OIG’s investigation are fully addressed by a departmental entity in accordance with OSC requirements. As shown in figure 4, of the 172 disclosure cases referred to VA by the OSC, a total of 119 cases were referred to the OIG. The OIG had conducted, or was already conducting, an investigation of the particular allegations for all 119 disclosures. Since these 119 disclosure cases were already under investigation by the OIG, the OSC deferred to the OIG’s investigation for these cases. A total of 37 of these 119 disclosure cases that were referred to the VA OIG were submitted to the OSC anonymously. Therefore, we were unable to conduct a review of these investigations because there was no information available to identify the individuals involved. According to Standards for Internal Control in the Federal Government, management’s ability to make informed decisions is affected by the quality of information. Accordingly, the information should be appropriate, timely, current, accurate, and accessible. The oversight body oversees management’s design, implementation, and operation of the entity’s organizational structure so that the processes necessary to enable the oversight body to fulfill its responsibilities exist and are operating effectively. Our review of the remaining 82 disclosure cases determined that the OIG does not have procedures in place to track cases that were referred from the OSC for further investigation. According to OIG officials, the OIG’s information system did not have a method in place to ensure that OSC case numbers are linked to the OIG investigative case number and final report. Consequently, the OIG was unable to produce the investigative documentation for these 82 disclosures. According to OIG officials, OSC case numbers and associated Hotline numbers are currently tracked in a spreadsheet until the implementation of a new system. The inability to locate investigative documentation prevents a third party from verifying whether the OIG examined the disclosures, whether any recommendations were addressed, or whether appropriate disciplinary action was taken for these cases. In addition, because the OSC defers to the OIG’s investigation for allegations that were already conducted, or being conducted, the OSC and individuals that made the allegations do not have documentation to demonstrate that the allegations were addressed. This information, or lack of it, has direct influence on management’s ability to make sound decisions relating to investigative matters. Pursuant to the Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017, OAWP will be responsible for recording, tracking, reviewing, and confirming implementation of recommendations from audits and investigations involving whistle-blower disclosures, including the imposition of disciplinary actions and other corrective actions contained in such recommendations. According to OAWP officials, the whistle-blower disclosure process will be similar to the current process when cases are referred to facility and program offices for investigation. OAWP will follow up on any open points with the level of leadership that is most appropriate in each case, such as the medical center or VISN director. Case details will be tracked through the three active databases that are being used concurrently. OAWP is currently working to develop an internal process that will bring the investigative communities together. For instance, OAWP would like to monitor cases that are referred to VA facility and program offices, but it does not currently have documented criteria to guide the process. According to OAWP officials, OAWP is finalizing new policies in the form of a policy manual and handbook. However, these officials were unable to provide a time frame for completion of the published guidance. Our analysis of VA data shows that individuals who filed a disclosure of misconduct with the OSC received disciplinary action, and left the agency, at a higher rate than the peer average for the rest of VA. We identified 135 disclosure cases that were received by the OSC between calendar years 2010 and 2014 and were alleging misconduct. Of the 135 disclosures, a total of 129 employees made a total of 130 disclosures nonanonymously. We compared the 129 employees who made nonanonymous disclosures to the PAID information system using the complainants’ information. As shown in table 15, on average approximately 1 percent of all employees in the VA roster received an adverse action in any given fiscal year. For the 129 nonanonymous whistle-blowers, we found that approximately 2 percent received an adverse action in the fiscal year prior to their disclosure, while 10 percent had received an adverse action in the fiscal year of their disclosure, and 8 percent received an adverse action in the year subsequent to this disclosure. While the fact that nonanonymous whistle-blowers faced higher rates of adverse action subsequent to their disclosure than the VA population as a whole is consistent with a pattern of retaliation for nonanonymous whistle-blowers, it is only an indication that retaliation could be occurring. Our analysis also showed that among employees who could be matched to the PAID end-of-year roster, attrition rates were higher for those individuals who filed a nonanonymous disclosure with the OSC. On average, approximately 9 percent of all VA employees on the end-of-year roster in one fiscal year were not on the subsequent year’s roster. In contrast, 66 percent of the 129 nonanonymous whistle-blowers did not appear in the subsequent year’s roster. Attrition rates were higher among employees who had filed a disclosure than among their peers who had not filed disclosures, for all fiscal years in our review (see table 16). Our analysis did not confirm the reasons for disciplinary action or attrition involving any of the 129 employees who made nonanonymous disclosures to the OSC. According to VA officials, employees who have a history of poor performance or conduct may be more likely to file a disclosure with the OSC or allege misconduct, which could explain some of the disparities between whistle-blowers and other employees. However, we also could not rule out instances where retaliation by senior officials may have occurred after misconduct was disclosed. The Civil Service Reform Act of 1978, as amended, states, among other things, that federal personnel management should be free from prohibited personnel practices (PPP). The law also authorizes the OSC to investigate allegations involving PPP that include reprisals against employees for the lawful disclosure of certain information pertaining to individuals who engage in such conduct or other wrongdoing. According to Standards for Internal Control in the Federal Government, laws and regulations may require entities to establish separate lines of communication, such as whistle-blower and ethics hotlines, for communicating confidential information. Management informs employees of these separate reporting lines, how they operate, and how they are used, and how the information will remain confidential. Reporting lines are defined at all levels of the organization and provide methods of communication that can flow down, across, up, and around the structure. Our interviews with six VA whistle-blowers who claim to have been retaliated against provided anecdotal evidence that retaliation may be occurring. Whistle-blowers we spoke to alleged that managers in their chain of command took a number of actions that were not traceable to retaliate against the whistle-blowers after they reported misconduct. These alleged actions included being reassigned to other duty locations or denied access to computer equipment necessary to complete assignments, and socially isolating these individuals from their peers, among other things. Whistle-blowers we spoke to also expressed concerns regarding the lack of guidance available to employees about how to file a disclosure through VA and the OSC. Whistle-blowers stated that employees are not provided adequate information on how to document or file a claim of misconduct or retaliation. Employees can file disclosures regarding misconduct and complaints of retaliation through multiple reporting lines. As mentioned previously, however, the OSC will generally not refer to the Secretary under its statutory process a disclosure if the OIG has conducted or is already conducting an investigation of that particular complaint. Thus, whistle-blowers may limit their chance of having an independent, non-VA entity oversee their complaint if they file a complaint with the OIG first. The Department of Veterans Affairs Accountability and Whistleblower Protection Act of 2017 requires the Secretary, in coordination with the Whistleblower Protection Ombudsman, to provide training regarding whistle-blower disclosures to each employee of VA. This information shall include, among other items, an explanation of each method established by law in which an employee may file a whistle-blower disclosure, an explanation that the employee may not be prosecuted or reprisal taken against him or her for disclosing information, and language that is required to be included in all nondisclosure policies, forms, and agreements. The Secretary shall also publish a website and display the rights of an employee making a whistle-blower disclosure. In August 2017, VA began providing additional information on its website for potential whistle-blowers who wish to report criminal or other activity to the OIG. The information provided focuses on reporting misconduct to the OIG and provides other lines of reporting established by law in which an employee may file a whistle-blower disclosure, such as directly to an immediate supervisor or the OSC. In addition, the information provided explains the process after misconduct is reported through the OIG Hotline, but does not clarify the process for referred disclosure cases received from the OSC. As mentioned previously, OIG officials stated that a disclosure made to the OSC or the OIG can be referred back to the facility or program office where the allegation originated, which may compromise confidentiality. Consequently, employees may not be aware that their information may be shared among the OSC, the OIG, OAWP, or VA facility and program offices when a disclosure is made to the OSC. Adequately communicating the investigative process to employees may alter their decision to report wrongdoing. Without a clear understanding of the lines for reporting misconduct and how they operate, whistle-blowers may be uncertain as to their options for reporting misconduct, which increases the risk that they may not report workplace misconduct. According to OSC, it has learned through its cases that OAWP has a practice of allowing VA employees, who are the subject of the allegations brought forward by whistle-blowers to review or participate in investigations, or both, which could make the whistle-blower feel uncomfortable or intimidated. This practice has led to confusion regarding the role and responsibilities of OAWP personnel. OAWP’s use of VA employees that are employed at the facility under investigation in the review of allegations creates the possibility of a conflict of interest or an appearance of a conflict of interest. For example, in a case OSC described in its comments on a draft of our report, an OAWP representative who was also associated with the human-resource office at the VISN that oversees the whistle-blower’s facility, placed the whistle- blower under oath and questioned her about issues unrelated to the referred allegations. OSC has since sought clarification of OAWP’s role and the OAWP employee’s possible connection to the VISN. While VA collects data on some types of disciplinary actions, it is limited in its ability to use those data because it does not collect all misconduct and associated disciplinary-action data through a single information system, or multiple interoperable systems. Absent a process to collect such data department-wide, VA does not have the ability to analyze and report data systematically. In addition, the data currently collected are not always reliable or useful. The inclusion of appropriate documented guidance and standardized field definitions would help to ensure VA collects reliable misconduct and associated disciplinary-action data. With high-quality information that is accurate and comprehensive, VA management would be better positioned to make knowledgeable decisions regarding the extent of misconduct occurring and how it was addressed, department-wide. VA has not ensured that program and facility human-resources personnel adhere to policy governing documentation contained within evidence files to support conclusions reached. In addition, VA often had no record of the evidence involved with the adjudication of these actions and could not verify whether these individuals received reasonable and fair due process. The absence of documentation in some files also raises the possibility that VA may not always be in compliance with its procedures for governing the adjudication of alleged employee misconduct. Additionally, ensuring that human-resources personnel adequately inform employees of their rights during the adjudication process would provide them with a reasonable opportunity to present their case when preparing their defense. VA also does not consistently adhere to OPM and NARA guidance in defining a specific retention period for adverse action files. This results in an inconsistent retention of these files across VA which complicates department-wide analysis. VA’s inconsistent adherence to the standards provided by the OIG to facilities and program offices for investigating and resolving misconduct cases increases the risk that misconduct case are not being handled appropriately. Additionally, the lack of verification of responses received to ensure documentation supports findings and recommendations has contributed to evidence that does not always meet the requirements outlined by the OIG. Finally, timely responses are not consistently provided when facility and program offices report findings to the OIG’s Hotline Division. OAR did not monitor whether substantiated instances of misconduct involving senior officials received disciplinary action. OAR’s Legacy Referral Tracking List also did not accurately reflect the disciplinary action that was decided based on the results of the investigation. When disciplinary actions are taken, in response to findings of misconduct, but are not entered within an appropriate information system, or are inaccurately recorded, it is more difficult to monitor whether disciplinary actions have been implemented in substantiated instances of misconduct involving senior officials. As demonstrated, this may result in no action being taken for substantiated misconduct or the previous penalties not having the corrective effect for repeat offenders. There is also an increased risk that substantiated misconduct will go unaddressed if there is no recommendation for corrective action. Further, VA also does not have internal controls to ensure adherence to proper separation-of-duty standards involving the removal of an employee. Such controls would minimize the risk of abuse when officials act as both proposing and deciding officials. In addition, VA does not have oversight measures to ensure that all allegations of misconduct referred by the OIG to facility and program offices are investigated by an entity outside the control of the facility or program office involved in the misconduct. The investigation of allegations of misconduct by the program office or facility where the complaint originated may present the appearance of a conflict of interest in which managers and staff at facilities may investigate themselves or other allegations where they may have a personal stake or bias in the matter to be investigated. Therefore, the risk that the results of the investigation are minimized, or not handled adequately, is increased. VA’s newly developed process to communicate the scope of its reviews that involve matters referred by the OSC to the Office of the Secretary will be important to ensure any allegations outside the purview of the OIG’s investigation are fully addressed by a departmental entity in accordance with OSC requirements. Further, the OIG’s inability to locate investigative documentation prevents a third party from verifying whether the OIG examined the disclosures, whether any recommendations were addressed, or whether appropriate disciplinary action was taken for these cases. This lack of information has direct influence on management’s ability to make sound decisions relating to investigative matters. According to OIG officials, a spreadsheet is being used for tracking case numbers associated with disclosures, but plans to implement a process within the new system. Nonanonymous whistle-blowers faced higher rates of adverse action subsequent to their disclosure than the VA population as a whole. In addition, these individuals also had attrition rates higher than their peers who had not filed a disclosure. The disparities between whistle-blowers and other employees may be an indication that retaliation by senior officials may have occurred after misconduct was disclosed. Although VA has started to provide additional information for potential whistle-blowers who wish to report criminal or other activity to the OIG, VA does not have a process to inform employees of how their information may be shared between organizations when misconduct is reported. Without a clear understanding of how the lines for reporting misconduct operate, whistle- blowers may be uncertain as to their options for reporting misconduct, increasing the risk that they may not report workplace misconduct. We are making the following 16 recommendations to VA. The Secretary of Veterans Affairs should develop and implement guidance to collect complete and reliable misconduct and associated disciplinary-action data department-wide, whether through a single information system, or multiple interoperable systems. Such guidance should include direction and procedures on addressing blank data fields, lack of personnel identifiers, and standardization among fields, and on accessibility. (Recommendation 1) The Secretary of Veterans Affairs should direct applicable facility and program offices to adhere to VA’s policies regarding employee misconduct adjudication documentation. (Recommendation 2) The Secretary of Veterans Affairs should direct the Office of Human Resource Management (OHRM) to routinely assess the extent to which misconduct-related files and documents are retained consistently with VA’s applicable documentation requirements. (Recommendation 3) The Secretary of Veterans Affairs should direct OHRM to assess whether human-resources personnel adhere to basic principles outlined in VA Handbook 5021 when informing employees of their rights during the adjudication process for alleged misconduct. (Recommendation 4) The Secretary of Veterans Affairs should adhere to OPM and NARA guidance and establish a specific record-retention period for adverse action files. In doing so, the Secretary should direct applicable administration, facility, and program offices that have developed their own record-retention schedules to then adhere to the newly established record-retention period. (Recommendation 5) The Department of Veterans Affairs (VA) Inspector General should revise its policy to include a requirement to verify whether evidence produced in senior-official case referrals demonstrates that the six elements required in VA Directive 0701 have been addressed. (Recommendation 6) The Secretary of Veterans Affairs should direct the Office of Accountability and Whistleblower Protection (OAWP) to review responses submitted by facility or program offices to ensure evidence produced in senior-official case referrals demonstrates that the six elements required in VA Directive 0701 have been addressed. (Recommendation 7) The Secretary of Veterans Affairs should direct OAWP to issue written guidance on how OAWP will verify whether appropriate disciplinary action has been implemented for all substantiated misconduct by senior officials. (Recommendation 8) The Secretary of Veterans Affairs should direct OAWP to develop a process to ensure disciplinary actions proposed in response to findings of misconduct are recorded within appropriate information systems to maintain their relevance and value to management for making decisions and take steps to monitor whether the disciplinary actions are implemented. (Recommendation 9) The Secretary of Veterans Affairs should direct OAWP to issue written guidance on how OAWP will review the disposition of accountability actions for all substantiated misconduct cases involving senior officials resulting from investigations. (Recommendation 10) The Secretary of Veterans Affairs should implement internal controls to ensure that proper adherence to separation-of-duty standards involving the removal of an employee are consistent with policy. (Recommendation 11) The Secretary of Veterans Affairs should develop oversight measures to ensure all investigations referred to facility and program offices are consistent with policy and reviewed by an official independent of and at least one level above the individual involved in the allegation. To ensure independence, referred allegations of misconduct should be investigated by an entity outside the control of the facility or program office involved in the misconduct. (Recommendation 12) The VA Inspector General, in consultation with the Assistant Secretary of OAWP, should develop a process to ensure that OSC case numbers are linked to the investigative case number and final report. (Recommendation 13) The Secretary of Veterans Affairs should direct OAWP to develop a time frame for the completion of published guidance that would develop an internal process to monitor cases referred to facility and program offices. (Recommendation 14) The Secretary of Veterans Affairs should ensure that employees who report wrongdoing are treated fairly and protected against retaliation. (Recommendation 15) The Secretary of Veterans Affairs should direct OAWP to develop a process to inform employees of how reporting lines operate, how they are used, and how the information may be shared between the OSC, the OIG, OAWP, or VA facility and program offices when misconduct is reported. (Recommendation 16) We provided a draft of this report to the Department of Veterans Affairs (VA), VA Office of Inspector General (OIG), and the Office of Special Counsel (OSC) for review and comment. In its comments, VA concurred with nine of our recommendations and partially concurred with five (see app. VI for a copy of VA’s letter). Regarding our recommendations to the Inspector General, the OIG concurred with one recommendation and partially concurred with the other. The OIG also provided comments on our findings (see app. VII for a copy of the OIG’s letter). We received technical comments by e-mail from OSC’s Principal Deputy Special Counsel, which we incorporated in the report as appropriate. Regarding VA’s comments, in its response to our first recommendation that the Secretary develop and implement guidance to collect complete and reliable misconduct and associated disciplinary-action data department-wide, VA concurred and outlined steps it plans to take to address our recommendations. These steps include the creation of new policies to address blank data fields, lack of personnel identifiers, lack of standardization among fields, and accessibility issues related to misconduct and associated disciplinary-action data department-wide. The target date for system implementation, dependent on approved funding and acquisition-related requirements, is January 1, 2020. On our second recommendation, that the Secretary direct applicable facility and program offices to adhere to VA’s policies regarding employee-misconduct adjudication documentation, VA concurred. It stated that a memorandum will be distributed to reiterate facility and program-office requirements to adhere to VA Handbook 5021, Employee/Management Relations, no later than October 1, 2018. VA also concurred with our third recommendation, that the Secretary direct the Office of Human Resource Management (OHRM) to routinely assess the extent to which misconduct-related files and documents are retained. According to VA, OHRM will assess, during periodic Oversight and Effectiveness Service reviews, the extent to which misconduct- related files and documents are retained. The first assessment is to be incorporated into the fiscal year 2019 Oversight and Effectiveness Service schedule no later than November 1, 2018. VA concurred with our fourth recommendation, that the Secretary direct OHRM to assess whether human-resources personnel adhere to basic principles outlined in VA Handbook 5021. VA stated that OHRM will assess, during periodic Oversight and Effectiveness Service reviews, whether human-resources and administration personnel adhere to basic principles outlined in VA Handbook 5021. The first assessment is to be incorporated into the fiscal year 2019 Oversight and Effectiveness schedule no later than November 1, 2018. In its response to our fifth recommendation, that the Secretary adhere to Office of Personnel Management (OPM) and National Archives and Records Administration (NARA) guidance and establish a specific record- retention period for adverse-action files, VA concurred and indicated that the Human Resources and Administration Assistant Secretary will establish VA guidance regarding the retention period for adverse-action files. In addition, the Human Resources and Administration Assistant Secretary is to advise applicable administration, facility, and program offices that have developed their own record-retention schedules to adhere to the newly established directive. According to VA, the directive will be established no later than November 1, 2018. VA partially concurred with our seventh recommendation, that the Secretary direct departmental heads to review responses submitted by facility or program offices to ensure evidence produced in senior-official case referrals demonstrates that the six elements required in VA Directive 0701 have been addressed. VA stated that the process described in our report pertaining to OIG findings or results will be changed to require all such reports to be submitted to OAWP. VA also indicated that it expects to publish new guidance by October 1, 2018, that will require the Office of Accountability and Whistleblower Protection (OAWP) to review responses and recommendations from facilities or program offices. Given VA’s comments, we have revised our draft recommendation to have the Secretary direct OAWP, not the department heads, to ensure evidence demonstrates that the six elements have been addressed. VA also partially concurred with our eighth recommendation, that the Assistant Secretary of OAWP review all substantiated misconduct by senior officials to verify whether disciplinary action has been implemented. VA stated that all substantiated misconduct by senior leaders in VA is handled by OAWP from intake, through investigation, working with the proposing and deciding officials. VA also stated that it expects to publish written guidance by October 1, 2018, that will clarify how OAWP will work with the appropriate servicing personnel office to ensure that the recommended disciplinary actions decided are implemented for substantiated misconduct involving senior officials. Given VA’s comments, we have revised our draft recommendation to have the Secretary of Veterans Affairs direct OAWP to issue written guidance on how OAWP will verify that appropriate disciplinary action has been implemented for all substantiated misconduct by senior officials. VA partially concurred with our ninth recommendation, that the Assistant Secretary of OAWP develop a process to ensure disciplinary actions proposed are recorded within appropriate information systems. VA stated that the VA-wide discipline tracking system currently used by OAWP will eventually be phased out. It added that once the Human Resources Information System (HRSmart) is capable of capturing and recording similar data, it will be used for this purpose. Accordingly, we have not revised our draft recommendation. VA partially concurred with our 10th recommendation, that the Assistant Secretary of OAWP assess all misconduct cases involving senior officials to ensure investigative reports with findings of substantiated misconduct include recommendations for action. According to VA, OAWP has instituted several processes since our review. VA plans to issue written guidance that outlines the process for the review and disposition of appropriate accountability actions for allegations of misconduct by senior officials by October 1, 2018. Given VA’s comments, we have revised our draft recommendation to have the Secretary of Veterans Affairs direct OAWP to issue written guidance on how OAWP will review the disposition of accountability actions for all substantiated misconduct cases involving senior officials resulting from investigations. In its response to our 11th recommendation, that the Secretary implement internal controls to ensure that separation-of-duty standards involving the removal of an employee are consistent with policy, VA concurred. It stated that it will also establish and distribute internal controls to ensure that separation-of-duty standards involving the removal of an employee are consistent with policy no later than November 1, 2018. VA partially concurred with our 12th recommendation, that the Secretary take steps to ensure independence of referred allegations of misconduct by requiring that investigations be conducted outside the control of the facility or program office involved in the misconduct. VA stated that OAWP is responsible for recording, tracking, reviewing, and confirming the implementation of recommendations from audits and investigations. However, VA did not address how it will ensure the independence of the entity responsible for conducting an investigation. As we discuss in our report, during the review OAWP officials stated that the process of referring cases of misconduct back to facilities and program offices where the misconduct occurred will continue. Accordingly, we have not revised our draft recommendation and believe implementation of it will help ensure independence. VA concurred with our 14th recommendation, that the Assistant Secretary of OAWP develop a time frame for the completion of published guidance for the development of an internal process to monitor cases referred to facility and program offices. VA provided an expected date of October 1, 2018, for publishing the internal VA guidance, with the subsequent Directive and Handbook to be published as rapidly as staff coordination permits. In its response to our 15th recommendation, that the Secretary ensure that employees who report wrongdoing are treated fairly and protected against retaliation, VA concurred. It stated that OAWP and OSC have developed a functional process to ensure whistle-blower protections are implemented, but did not indicate what the process entails. The VA Secretary has also delegated authority to the Executive Director, OAWP, to put individual personnel actions on hold if the actions appear motivated by whistle-blower retaliation. VA added that OAWP has also hired two whistle-blower program specialists specifically to increase awareness of whistle-blower protections and work with individuals that disclose employee wrongdoing to ensure individuals are treated fairly and protected from retaliation for their disclosures. VA concurred with our 16th recommendation, that the Assistant Secretary of OAWP develop a process to inform employees of how reporting lines operate. VA stated that it will provide whistle-blower training to all employees on a biennial basis, which will include the reporting lines for disclosures of wrongdoing, the manner in which disclosures flow once they are made, how information is shared among the whistle-blower entities, and what protections exists for those who disclose wrongdoing. Regarding our recommendations to the Inspector General, the OIG partially concurred with our sixth recommendation, to revise its policy to include a requirement to verify whether evidence produced in senior- official case referrals demonstrates that the six elements required in VA Directive 0701 have been addressed. The OIG indicated that VA Directive 0701 is currently being updated to require a written or electronic signature from the person preparing the responses as an attestation that the specific requirements of the directive were met. The OIG also indicated in its letter that the OIG’s Hotline staff carefully review the case response but Hotline staff are not required to request an updated response from VA to address matters not necessary to the resolution to the referral. The OIG asserted that requesting an update would detract from the resources for other important VA activities. On page 4 of the OIG’s letter, the OIG states that Hotline analysts are allowed to exercise some discretion in accepting responses that may include minor departures from the six elements. We continue to believe that, in order to have a complete response to a referral, all six elements required by the directive should be addressed. In addition, Directive 0701 does not allow for the use of professional judgement to decide which elements to include or not to include in a response. While we agree that requiring a written or electronic signature from the person preparing the responses as an attestation will help ensure that the specific requirements of the directive were met, we maintain that not requiring Hotline analysts to review responses to ensure that all elements of the directive are addressed is inconsistent with the intent of the directive. In its response to our 13th recommendation, that the OIG develop a process to ensure that an OSC case number is linked to the investigative case number and the final report, the OIG concurred. It stated that it will engage with the Executive Director of OAWP to develop a process to ensure that OSC case numbers are linked to OIG and OAWP investigative case numbers, as appropriate, and linked to any final report of investigation. In addition to its response to recommendations, the VA OIG also raised a number of concerns with our findings. Page 1 of its letter summarizes some of these concerns and then provides more detail on each concern raised, starting on page 2. Our responses to each of these detailed concerns are provided below. The OIG stated that our report does not focus on the most important cases, but focuses primarily on case referrals regarding senior officials that were not handled by the OIG because the allegations were lower risk or because of resource constraints. In addition, the OIG stated that GAO risks presenting a skewed picture of the OIG’s oversight work. We disagree with this characterization of our findings. We requested that the OIG provide us with data from the OIG’s Master Case Index (MCI) information system that would allow us to select a sample of cases, in accordance with the scope of our review. The OIG was unable to provide the requested information due to several reasons. Instead, the OIG provided data from the OIG Hotline and Office of Investigations case- management systems (subsystems within MCI) that contained a limited number of fields for analysis and 23 cases pertaining to SES misconduct that were referred to VA for investigation during GAO’s period of review. Therefore, as we discuss in the report, we were only able to review the 23 senior-official misconduct cases included in our report because the OIG was only able to provide related documentation for these cases. The OIG stated that we only reviewed a sample of just 23 case referrals from fiscal years 2011 through 2014. As described, we reviewed all 23 senior-official misconduct cases that were referred to VA for investigation that the OIG was able to provide us, not a sample. The OIG stated that our report inaccurately states that the extracts received from the MCI information system contained missing information. We disagree with this characterization of our findings. Our review included a comprehensive assessment of the reliability of the OIG’s data. To conduct this assessment, we requested an explanation of each data field to clarify when fields are normally populated and how they are used. Our findings are consistent with the information provided in response to this request. For example, the OIG’s response to our data-reliability assessment stated that the data field used to identify the type of allegations being investigated should never be blank. However, we found that field to be blank in some cases in the data that were provided to us, though the OIG asserted that the MCI information system is a relational database where each case may be associated with multiple allegations and codes. In response to the OIG’s comments on our report, we requested supporting documentation to demonstrate that the fields analyzed during our period of review did not contain missing data. The OIG provided the MCI information system user’s manual that contains detailed procedures for accessing and entering data into the MCI information system, and a compilation of various internal documents. However, the documentation did not provide evidence of the completeness of data entered into the MCI information system as part of quality-assurance reviews performed by the OIG or other designated entity. Absent evidence of data-quality reviews aimed at assessing the accuracy and completeness of data contained in the MCI information system, we did not change the conclusions based on our previous analysis. The OIG stated that our report provides incomplete information regarding sampled cases and mischaracterized one of the OIG’s case referrals in the body of the report. We disagree with this characterization of our findings. Specifically, the OIG said that we inaccurately stated that a medical center director conducted the investigation into his own alleged misconduct and found no allegations were substantiated. The synopsis included in our report clearly articulates that the medical center director was named in the allegation for having received a similar complaint involving time and attendance abuse by a physician. The medical center director, who provided the response to the OIG, was implicated in the allegation as having not addressed a similar time and attendance complaint regarding the same physician 2 years earlier. The OIG did not provide any supporting documentation to demonstrate that the alleged time and attendance abuse allegations against the physician were not substantiated. The OIG stated that our report inaccurately stated that the medical center director conducted his own investigation of himself and found no allegations were substantiated. We disagree. In response to the OIG’s comments on our report, we requested that the OIG provide additional support used to determine that the medical center director did not investigate the allegation in which he was named. The additional case documentation provided by the OIG further reaffirmed our assessment that the medical center director performed his own investigation and found no allegations were substantiated. Additional documentation provided by the OIG indicated that the OIG referred the case to the Veterans Integrated Service Network (VISN) for a response. However, documentation we examined during the course of our audit, and the documentation provided in response to our draft report, indicates that the medical center director performed the investigation of the allegations and then the results were routed through the VISN back to the OIG. The OIG stated that routing the response through the VISN should address our concerns of independence. This process does not address our concerns regarding independence because VA Directive 0701 states that all responses to Hotline case referrals must contain evidence of an independent review by an official separate from and at a higher grade than the subject / alleged wrongdoer. In this case, the name of the medical center director who signed the facility response provided to the OIG was the same individual named in the allegations. The OIG stated that the report does not provide a balanced presentation of the rigor with which the OIG reviews all incoming Hotline contacts and case responses. We disagree with this characterization of our findings. As described above, the OIG was unable to provide comprehensive data to select a sample of OIG audits, evaluations, and inspections for review due to the limitations cited. We focused on misconduct involving senior officials consistently with the scope of our review and thoroughly reviewed all 23 senior-official misconduct cases that were referred to VA for investigation, which were the only cases that the OIG was able to provide. The OIG stated that the description for one of the cases included in appendix V of the draft report was incomplete because we misunderstood the OIG’s process. We disagree with this characterization. In response to the OIG’s comments on our report, we requested additional supporting documentation. The documentation provided reaffirmed our assessment that another medical center director performed his own investigation and found no allegations were substantiated. Similar to the case described above, the medical center director completed his own investigation and then routed the response through the VISN back to the OIG. In contrast to the previous case, however, the Hotline Workgroup reviewed the response to the OIG and found it to be insufficient. Specifically, the OIG noted that the medical center director who provided the response was the subject of the complaint, despite the response being directed to the VISN, and requested clarification. The VISN informed the OIG that it is not its policy for the complainant to have any involvement in the review and data submission on a case in which the complainant is involved. The VISN stated that while this did obviously occur in this instance, it has taken steps to ensure it does not occur in the future. The supporting evidence provided for the case included in appendix V also contradicts the OIG’s previous assertion that the routing of a response through the entity with oversight (VISN) over the medical center director should have addressed GAO’s concerns of independence. The OIG stated our report provides a misrepresentation of the OIG’s failure to follow internal policies for department responses. We disagree. According to OIG statements on page 4 of the OIG’s letter, Hotline analysts are allowed to exercise some discretion in accepting responses that may include minor departures from the six elements required in VA Directive 0701. We continue to believe that in order to have a complete response to a referral, all six elements required by the directive should be addressed. On the basis of our review, the OIG does not have an effective method to ensure that cases referred to VA are reviewed in accordance with VA Directive 0701. Out of the 23 cases we reviewed, only 4 included sufficient documentation needed to support VA’s findings, and we could not identify a case that contained all six elements required in VA Directive 0701. This suggests that the current OIG review process is not adequately resolving case referrals, as asserted by the OIG’s response. In addition, VA Directive 0701 does not currently include a provision that would allow Hotline analysts to deviate from the six required elements. As stated in our report, the OSC also raised concerns regarding 40 percent of disclosure cases that were referred to VA facility and program offices. The OIG stated that much of the information in the draft report is dated and ignores system updates, specifically several key Hotline-related process improvements since 2014. Although our review began in 2015, we disagree with this characterization of our findings. In our report, we included relevant improvements to demonstrate where the OIG was able to provide support for those improvements. For example, our report discusses: (1) a new process for communicating the scope of reviews that involve matters referred by the OSC to the Office of the Secretary, (2) a description on the VA website of the process for employees who wish to report criminal or other activity to the OIG, (3) a new Enterprise Management System, and (4) a new process for receiving whistle-blower disclosures by the Secretary. In response to the OIG’s comments on our report, we requested additional documentation for any systems, practices, or personnel changes that have been implemented since 2011, including improvements to Hotline-related processes since 2014 that were not included in our report. In response, the OIG provided a copy of the OIG’s organizational chart (current as of Apr. 23, 2018), described the oversight responsibilities of each OIG component, and summarized the pertinent staff positions within each component. On the basis of this documentation, we identified a new office (the Office of Special Reviews), a promotion, staff reassignments, and numerous vacancies during our review period. However, the OIG did not provide evidence of any measures to improve the MCI information system, case-referral processes, or relevant staff roles that were not already included in our report. As described above, the OIG was unable to provide comprehensive data to select a sample of OIG audits, evaluations, and inspections for our initial review due to the limitations cited. In response to the OIG’s comments on our report, we requested documentation related to any significant changes that have been made to the MCI information system that allows the OIG to identify all allegations of misconduct for export and analysis. The OIG provided additional information regarding overall departmental achievements that are highlighted in the OIG’s Semiannual Report to Congress, and other products from its website published between fiscal years 2011 through 2018. We recognize the OIG’s broader administrative and oversight work described in the published reports. However, this information does not address changes specifically made to the MCI information system that would enable the OIG to analyze cases pertaining to alleged misconduct by senior officials that we requested. We are sending copies of this report to the appropriate congressional committees, the Secretary of Veterans Affairs, and other interested parties. In addition, the report will be available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-5045 or larink@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Our objectives were to determine the extent to which the Department of Veterans Affairs (VA) (1) collects reliable information associated with employee misconduct and disciplinary actions that is accessible and could be used to analyze misconduct department-wide; (2) retains documentation that demonstrates VA adheres to its policies when adjudicating cases of employee misconduct; (3) ensures allegations of misconduct involving senior officials are reviewed in accordance with VA investigative standards, and these officials are held accountable; (4) has procedures to investigate whistle-blower allegations of misconduct; and the extent to which (5) data and whistle-blower testimony indicate whether retaliation for disclosing misconduct occurs at VA. For the first objective, we obtained VA employee misconduct data from 12 information systems operated by various VA components covering October 2009 through July 2017, where available. To determine the reliability of VA’s misconduct data, we analyzed the contents of the 12 information systems operated by various offices across VA. These data encompass each of the three major administrations that constitute VA— the National Cemetery Administration (NCA), Veterans Benefits Administration (VBA), and Veterans Health Administration (VHA). We selected the information systems based on our discussions with VA officials and staff that oversee the data and, hence, identified databases capable of collecting information pertaining to either employee misconduct or disciplinary actions. Data fields were selected based on whether they would provide beneficial information to better understand the disciplinary process. VA’s Personnel and Accounting Integrated Data (PAID) system, which was developed to track payroll actions, contains information about adverse disciplinary actions that affect employee salary department-wide. We obtained an extract of all adverse disciplinary actions from the PAID system. We assessed the reliability of each system for the purposes of identifying and tracking misconduct cases. To do this, we performed electronic tests on 12 information systems to determine the completeness and accuracy of the fields contained in the data files. We also submitted to the overseeing offices for all 12 information systems general data-quality questions regarding the purpose of the data, their structure, definitions and values for certain fields, automated and manual data-quality checks to ensure the accuracy of the data, and limitations. As discussed further, the data were generally not reliable for a department-wide assessment of all misconduct and disciplinary actions due to the lack of completeness and compatibility of the data across all information systems. VA staff could not confirm whether some of the missing data we identified were artifacts of the database extraction process VA used to assemble the data files we used in our review. Despite challenges with aspects of the data, we found the data sufficiently reliable for conducting analysis where fields were populated and field definition concurrence was obtained by program offices. For the second objective, we selected a generalizable stratified random sample of 544 misconduct cases from October 2009 through May 2015. Where available, we reviewed the employees’ disciplinary-action files and Electronic Official Personnel Folders to determine the extent to which VA’s actions were consistent with disciplinary policy outlined in VA Handbook 5021, Employee/Management Relations. These data encompass each of the three major administrations that constitute VA— NCA, VBA, and VHA. We determined the data to be sufficiently reliable for analysis of disciplinary actions affecting salary that resulted from misconduct that was not reported to supervisors directly from employees. Accordingly, our sample only includes misconduct cases that resulted in a change in salary or were reported to departmental organizations within the 12 information systems selected. We developed a data-collection instrument to document the results of our case reviews. We revised our data-collection instrument to address issues found during the course of our analysis, and developed a companion document that outlined the decision rules for reviewing cases. We also designated two primary reviewers to ensure the decision rules were consistently applied across all cases. Our review of laws and regulations revealed that disciplinary rules sometimes vary depending on whether employees fall under Title 5, Title 38, or hybrid Title 5 and Title 38 hiring authority. To minimize confusion associated with these differences, we incorporated criteria into our data- collection instrument. In addition, we were unable to obtain complete case information for 25 percent of the cases. For these cases, we obtained direct access to the Office of Personnel Management’s (OPM) Electronic Official Personnel Folders system to attempt to recover some of the missing information. Ultimately, we were unable to complete our review for 10 percent of cases in our sample because of missing files. In addition to reporting missing case information, we used our generalizable analysis results to project VA-wide figures for several data elements that were not in compliance with VA policy. Unless otherwise noted, estimates in this report have a margin of error of +/-7.4 percentage points or less for a 95 percent confidence interval. For the third objective, we analyzed data from the Office of Accountability Review (OAR) Legacy Referral Tracking List and VA Office of Inspector General (OIG) case-referral and investigative case-management systems, and we selected cases for in-depth review. We selected these two systems based on discussions with VA officials who were knowledgeable with databases that have the capacity to track misconduct information pertaining to senior officials. The OAR Legacy Referral Tracking List comprises referrals from January 2011 through May 2015. The OIG provided 23 case-referral files involving senior officials from calendar years 2011 through 2014. As part of our review of the OIG case files, we evaluated specific data elements contained in VA’s response documents using VA policy for referring and reviewing misconduct cases. We assessed the reliability of the OAR Legacy Referral Tracking List and OIG case-management systems for the purposes of identifying and tracking misconduct cases. To do this, we performed electronic tests on each database to determine the completeness and accuracy of the fields contained in the data files, including senior-official indicators. Where feasible, we opted to match individual datasets to PAID to determine whether disciplinary actions were administered as prescribed. We also submitted to OAR and the OIG general data-quality questions regarding the purpose of the data, their structure, definitions and values for certain fields, automated and manual data-quality checks to ensure the accuracy of the data, and limitations. On the basis of this information, we found the OAR data to be sufficiently reliable for conducting analysis where fields were sufficiently populated. For the OAR data, we matched the persons of interest to adverse-action files from PAID to determine whether adverse disciplinary actions were administered as prescribed during the available time frame (January 2011 through May 2015). We also obtained VA’s response documents for the 23 case-referral files provided by the OIG to evaluate whether VA was adhering to its own policy for referring and reviewing misconduct cases. Through our OAR Legacy Referral Tracking List analysis, we identified illustrative case examples of misconduct involving senior officials. Further, based on our evaluation of the 23 OIG case referrals using VA’s referral policy, we developed several illustrative case examples. For the fourth objective, we interviewed senior officials from VA and the OSC responsible for investigating whistle-blower complaints. We obtained the OSC’s procedures for referring disclosure complaints and VA’s policy for investigating these complaints once received at the agency. In addition, we obtained whistle-blower disclosure data from the Office of Special Counsel (OSC) covering calendar years 2010 through 2014. To determine the reliability of the data, we conducted electronic testing and traced data elements to source documentation. We determined the data to be sufficiently reliable to identify the total number of cases that were investigated by the OIG, or referred to facility and program offices. We also observed a course to assess VA’s training provided to VA employees conducting investigations. We identified 135 OSC disclosure cases for analysis based on two criteria: (1) they contained at least partial complainant information (i.e., the allegations were not anonymously reported or could be identified with supplemental information) and (2) they contained an indicator that the case had been closed by the OSC pending an ongoing investigation by VA or the OIG. These cases represent the universe of VA disclosures accepted by the OSC. Of the 135 disclosure cases referred to VA, 53 cases were referred to VA facility and program offices for further investigation. The remaining 82 disclosure cases indicated that they were investigated by the OIG. We reviewed the results of OSC’s assessment of investigative documentation developed by VA for these whistle-blower disclosure cases. For the fifth objective, we analyzed the 135 whistle-blower disclosure cases obtained from the OSC. These cases represent the universe of VA disclosures accepted by the OSC from calendar years 2010 through 2014, which were investigated by VA. We obtained an extract of year-end rosters from the PAID system as of September for fiscal years 2010 through 2014, with a final extract through May 30, 2015. Finally, we interviewed representatives from whistle-blower advocacy groups, as well as established whistle-blowers who disclosed wrongdoing or retaliation at VA and who were referred to us by one advocacy group. Of the 135 disclosures received by the OSC, a total of 129 employees made a total of 130 disclosures nonanonymously. For these 130 disclosure cases, we reviewed OSC and OIG investigative reports, as well as PAID roster files, to gather additional information to perform analysis of potential retaliation. We also interviewed six individual whistle- blowers with formal disclosure cases accepted by the OSC, indicating that the OSC had previously reviewed the case and determined that it contained sufficient evidence and merit to warrant further investigation. Our analysis of potential retaliation comprised two parts. First, we compared the 129 employees associated with the selected OSC cases to the PAID rosters using the complainants’ information to determine whether employees associated with the selected OSC cases were more likely to leave the agency. We identified the overall count and proportion (across years) of roster-matched employees who made a disclosure between fiscal years 2010 through 2014 but were not employed at VA the following fiscal year. Second, to determine whether employees associated with the selected OSC cases were more likely to receive disciplinary action, we also calculated the yearly totals and proportion of roster-matched employees identified above for whom a record existed in the PAID disciplinary action information system. We did this by comparing the proportion of employees who received one or more disciplinary actions in the year prior to the appearance in the roster, in the same fiscal year as the roster, and in the subsequent fiscal year. We also completed this analysis utilizing the PAID roster file to determine the yearly proportion of all VA employees who left the agency. On the basis of the results of our analysis, we reported by fiscal year the percentage of whistle-blowers that received disciplinary action or left VA at a higher rate than the overall VA population following a disclosure. To address all objectives, we interviewed senior officials from VA’s major components responsible for investigating and adjudicating cases of employee misconduct. We also reviewed standard operating procedures, policy statements, and guidance for staff charged with investigating and adjudicating allegations of employee misconduct. We conducted this performance audit from January 2015 to May 2018 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. This data file is designed to track referrals made to OAR, including allegations of misconduct related to senior officials. Through our analysis of this spreadsheet, we identified 11 fields out of 92 that were missing information that could be used to analyze misconduct. Complainant #1 (First Name) (20 percent of 1,245 blank)— According to OAR, this field is populated when there is a known complainant for a matter. Some matters referred to OAR may be anonymously disclosed and not contain complainant information. This file also contains a case-origin field that specifies whether a case was anonymous. Our review of both the complainant and case-origin field indicated that only 11 percent of the complaints were generated from an anonymous source, and the remaining records should have included a complainant name. Disciplinary Action (96 percent of 1,245 blank)—This field should be populated to indicate whether a disciplinary action was taken after the completion of an investigation. Grade (97 percent of 1,245 blank)—According to OAR, this field should be populated with the grade of the Person of Interest (POI), if known. Our review of this field indicated that 97 percent were blank, therefore we were unable to analyze the variation in grade level for officials who were the subject of complaints. OAR Action (77 percent of 1,245 blank)—According to OAR, this field should be populated as an internal reference to describe what stage in the administrative process the matter was in when received. The lack of information did not allow for analysis of the types of actions taken for each case. Person of Interest (POI) (47 percent of 1,245 blank)—This field specifies the first and last name of the Department of Veterans Affairs (VA) employee who is the subject of an allegation. POI (Person of Interest) Last Name 1–5 (51 to 99 percent of 1,245 blank)—This field specifies the last name of VA employee who is the subject of an allegation. There are a total of five person-of-interest (POI) fields for each matter. According to OAR, blank POI fields occur when the case has fewer than five POIs or the POI was not specified in the matter referred. Our review of the five POI fields indicated that more than half of the records did not contain at least one POI because no individual was specified. The lack of information did not allow for further investigation of senior-level officials involved in misconduct. Proposed Action (97 percent of 1,245 blank)—According to OAR, this field should be populated to notify OAR staff if any disciplinary action was proposed. Our review of this field indicated that 97 percent were blank, suggesting that very few high-level officials received corrective action, or the field was not consistently completed for each record. Due to the large share of blank values, the data posed limitations when analyzing how many senior officials received corrective action as a result of a complaint. This data file is designed to track misconduct and disciplinary actions taken against VA employees. Through our analysis of this spreadsheet, we identified 9 fields out of 21 that were missing information that could be used to analyze misconduct. Action Taken (3 percent of 9,851 blank)—According to OAR, this field should be populated with the action that the deciding official takes, with the exception of pending actions. If there is a pending action, this field will remain blank. Our review of the action-taken field found three records that were annotated as a “pending decision” within this field, which indicates that there is an option for entering information into this field when there is an action pending and the field should never be blank. Admin Leave (30 percent of 9,851 blank)—According to OAR, this field should be populated if an employee is placed on administrative leave while an adverse action is pending. If an employee is not placed on administrative leave, the field may be left blank. Our review of the admin-leave field found that about 66 percent of the records were annotated as “no” within this field, which indicates that there is an option for entering information into this field when an employee was not placed on administrative leave. Date Proposed (11 percent of 9,851 blank)—According to OAR, this field is used when an adverse action is proposed for an employee. There are some actions that are not proposed, such as probationary terminations or admonishments that may be taken without being proposed, and therefore result in this field being blank. Our analysis found that about 95 percent of these records containing blank proposed date fields also had an entry in the proposed adverse-action field, which contained such entries as removals, suspensions, and demotions that require a proposed date. Deciding Official (14 percent of 9,851 blank)—According to OAR, this field should be populated with the name of the official who issued the action taken. Effective Date (5 percent of 9,851 blank)—According to OAR, this field should be populated with the date of the action taken. Some entries will not have an effective date if an entry is pending decision. Also, if no action is taken, the decision was counseling, or the proposed action was rescinded, this field may not have an effective date. Our review found that about 14 percent of the cases that included adverse actions, such as a suspension, removal, reassignment, or demotion, and that should have included a date of action, were blank. Offense 2 and 3 (79 and 95 percent of 9,851 blank)—According to OAR, this field tracks the second- and third-most-significant charge against the employee when applicable. Proposing Official (16 percent of 9,851 blank)—According to OAR, this field should be populated with the name of the official who makes the proposed adverse action. Instances where a proposing official has left the agency at the time of entry and could not be found in the lookup feature that relies on the e-mail global address list may produce blank fields. Also, disciplinary actions that were taken without proposal would not have a proposing official. In these instances, the human-resources specialists who enter the actions are instructed to include the name in the other-comments box. Our review of these records indicated that a majority of records lacking an entry in the proposing official field also lacked an annotation in the other- comments field to accurately identify the proposing official. Settlement (14 percent of 9,851 blank)—According to OAR, this field tracks whether a settlement agreement occurred. This data file is designed to collect allegations of criminal activity, waste, abuse, and mismanagement received by the OIG Hotline Division. Through our analysis of this information system, we identified one field out of seven that was missing information that could be used to analyze misconduct. Nature of Complaint (54 percent of 896 blank)—According to the OIG, this field should contain a brief description of the issue that most closely matches the allegation. Each case can have more than one nature of complaint and corresponding administrative action, if any. OIG officials stated that this field identifies the type of allegations being investigated and should never be blank. Our review of these cases found that over half of the cases involving the OIG contained entries for administrative action taken, but the nature-of-complaint fields corresponding to these actions were blank. This data file is designed to track misconduct and disciplinary action taken against VBA employees. Through our analysis of this spreadsheet, we identified 3 fields out of 20 that were missing information that could be used to analyze misconduct. Alleged Offense 2 and 3 (92 and 99 percent of 1,375 blank)— According to VBA officials, this field should be populated if an individual is charged with multiple offenses, or has additional offenses in the same reporting period. In most instances, there is typically only one offense at the time of reporting. Sustained (52 percent of 1,375 blank)—According to VBA, this field should be populated if an offense is sustained at the time of reporting. This data file is designed to track all allegations of misconduct and associated disciplinary actions taken against VA employees. Through our analysis of this spreadsheet, we identified 8 fields out of 34 that were missing information that could be used to analyze misconduct. Deciding Official (3 percent of 5,571 blank)—According to OAWP, this field should be populated with the name of the official who makes the decision for adverse action. Detail Position (89 percent of 5,571 blank)—According to OAWP, this field should be populated with the position an employee was detailed to if removed from official position. Offense 2 and 3 (69 and 91 percent of 5,571 blank)—According to OAWP, this field tracks the most-significant charges against the employee. If there are fewer than three charges, these fields are left blank. Offense 1 Sustained (14 percent of 5,571 blank)—According to OAWP, this field should be populated if an individual’s first offense has been sustained. Offense 2 and 3 Sustained (73 and 91 percent of 5,571 blank)— According to OAWP, these fields should be populated if an individual’s second and third offenses have been sustained. The majority of cases only involve one offense. Proposing Official (9 percent of 5,571 blank)—According to OAWP, this field should be populated with the name of the official who makes the proposed adverse action. This data file tracks Equal Employment Opportunity (EEO) discrimination complaints. Through our analysis of this information system, we identified 1 field out of 66 that did not have standardization that could be useful to analyze misconduct. Employment—We found that the values for this field were not mutually exclusive, or independent of one another. For example, this field includes two distinct categories of information: employment status, such as full time or part time; and hiring authority, such as Title 5 or Title 38. This method of storing information resulted in undercounting each of the separate values due to the system’s failure to account for expected overlap. For instance, an employee could be both a full-time and Title 5 employee and the field only tracks one or the other. ORM officials stated that this field has since been modified to capture more options to account for the overlap. This data file is designed to track misconduct and disciplinary actions taken against Department of Veterans Affairs (VA) employees. Through our analysis of this spreadsheet, we identified 1 field out of 21 that did not have standardization that could be useful to analyze misconduct. Position—We found the VA-Wide Adverse Employment Action Database contained variations within this field, such as multiple values for the “Cemetery Caretaker” position name. According to OAR, this field is a free-text field, and the office conducts manual searches to review and analyze position titles when needed. Our review found that the different variations in position titles made it difficult to successfully determine the frequency and nature of allegations by position. This is an information system designed to collect allegations of criminal activity, waste, abuse, and mismanagement received by the OIG Hotline Division. Through our analysis of this data file, we identified 1 field out of 7 that did not have standardization that could be useful to analyze misconduct. Nature of Complaint—Our review of the Master Case Index file found variations of similar values in this field. For example, this field contained 21 different claim types pertaining to similar types of fraud, which made it difficult to assess the frequency and nature of claims entered into the system. OIG officials stated that they do not attempt to account for these variations or assess the frequency of use because they are assigned based on a “best match” to the allegations of the case. This data file is designed to track misconduct and disciplinary action taken against VBA employees. Through our analysis of this spreadsheet, we identified 1 field out of 20 that did not have standardization that could be useful to analyze misconduct. Position—Our review found some duplication and overlapping values among this field. For example, the position title for “service representative” contained 21 similar categories with numerous variations in spelling (i.e., Veteran Service Representative vs. Veterans Service Representative, and Rating Veteran Service Representative vs. Rating Veterans Service Representative). We were unable to verify the number of distinct positions due to the lack of standardization within this field. This data file is a tracking spreadsheet for monitoring misconduct and disciplinary action workload. Through our analysis of this spreadsheet, we identified 5 fields out of 12 that did not have standardization that could be useful to analyze misconduct. Action Proposed/Decided/Taken—We were unable to analyze this data field because the action taken was tracked in one single field and updated with the most-recent action, rather than each distinct action being entered in a separate field. Consequently, we were not able to distinguish those cases where corrective action may have been taken, to verify whether the corrective action had been implemented. Current Status—We were unable to analyze this data field because it was not a standardized field. For example, we were unable to determine the total number of cases that were closed, open, or pending due to the variations in the data field (e.g., Open, open, open – pending, open-pending). Full Name of Employee, Grievant, Appellant, Complainant, Non- Employee—We were unable to distinguish whether the individual filing a complaint was an employee, grievant, appellant, complainant, or nonemployee because the information entered into this single field only provided the employee’s full name and did not provide a distinction as to which category the record was assigned, as indicated by the field name. NCA Facility—We were unable to analyze this data field because it was not a standardized field. For example, we were unable to run demographic information on the different facilities involved because this field contained erroneous information. Examples of erroneous information included the name of the Memorial Service Network in one case, and the region, rather than the facility name, in another. Supervisor Name—We were unable to analyze this data field because it was not a standardized field. For example, we were unable to determine the total number of supervisors that were associated with each case due to the variations in the names entered within this field, which included misspelled first or last names, addition/omission of middle initials, or no first name. This data file is a tracking spreadsheet for all allegations received by the VA Secretary regarding misconduct, patient care, or other wrongdoing. Through our analysis of this spreadsheet, we identified 1 field out of 9 that did not have standardization that could be useful to analyze misconduct. Subject—Our review of this tracking spreadsheet found over 380 different possible categories that could be assigned to one record. These categories contained a significant number of variations. For example, we found 38 different categories that contained possible EEO-related issues such as “EEO/Whistleblower,” “Potential EEO,” and “EEO Violations.” We were unable to distinguish the different subject categories for this field due to the lack of standardization. CSRT officials stated that ExecVA reports contain only data corresponding to specific search criteria. This is an information system for tracking allegations of misconduct at all VA facilities that include violation of law and misdemeanors. Through our analysis of this data file, we identified 3 fields out of 29 that did not have standardization that could be useful to analyze misconduct. Classification—We found that this field contained at least three different variations of assault categories (i.e., assault, assault-other, and assault-aggravated). VAPS officials stated that this field is determined and entered by the user. Crime Type—We found this field contained at least five different variations of alcohol-consumption categories, such as “entering premises under the influence” and “alcohol – under the influence.” VAPS officials stated that this field is determined and entered by the user. Final Disposition—We found this field contained at least two different variations of charge type (i.e., charged, charged – Issued Ticket), six different variations of open type (for example, open/referred to Court, open/cvb), and two different variations of closed type (i.e., closed, case closed). VAPS officials stated that this field is determined and entered by the user. This data file is designed to track all allegations of misconduct and associated disciplinary actions taken against VA employees. Through our analysis of this spreadsheet, we identified 1 field out of 34 that did not have standardization that could be useful to analyze misconduct. Position Title—We found this field contained at least 15 different variations of Registered Nurse, such as “Registered Nurse,” “Staff RN,” and “RN.” Allegations surrounding inadequate staffing, patient care, and safety at a Department of Veterans Affairs (VA) emergency room were investigated by the medical center director of the facility. The medical center director found that the inadequate patient care and safety issue was unsubstantiated based on a review of patient safety incidents for the last 6 months. The medical center director did not provide a copy of her report review to support this conclusion. She also indicated that an external consultant was hired to assess staffing issues, and found generally that improvements could be made for staffing to address surge capacity. The director stated the medical center was in the process of implementing the recommendations made by the consultant, but her response did not discuss the specific improvements planned or include the external consultant’s report. A fact-finding was performed by a panel comprised of VA Connecticut Healthcare System officials in response to alleged violations of law, gross mismanagement, and waste of funds that included the improper billing of services for a Las Vegas conference and paying contracts through a VA nonprofit corporation to handle such expenditures. The allegations specifically requested a cost-benefit analysis for the conference location. The response received from the program office stated that an outside accounting firm performs an annual financial audit of the VA nonprofit corporation and found no material issues. Neither a copy of the annual financial audit nor a cost-benefit analysis was provided in the response as support. Additionally, the response did not address allegations regarding the status of several essential positions vacated over the prior 3 years. Allegations involved time-and-attendance abuse by a physician who was accused of not responding to calls from peers or coming into the clinic, in favor of his private practice. According to the complainant, physician assistants (PA) examine the physician’s patients at the clinic for him. The medical center director, who was also named in the allegation as having received a similar complaint against the physician 2 years earlier, reviewed the case against the physician and himself. The medical center director’s response claimed that the location indicated in the allegation was not a private practice, but rather a location where the physician reviews medical records and sometimes serves as an expert witness. He did not provide evidence to support his claim. The medical center director also stated that he had not received any reports against the physician for missed calls or clinics and that PAs are expected to participate in these activities. However, he did not provide the physician’s work log, or the PA position descriptions showing that they are allowed to perform these functions autonomously. Finally, the medical center director claimed he did not recall the allegation made against the physician 2 years prior and neither formally substantiated nor disproved the current allegations against the physician. No recommendations were made. The medical center director was accused of hiring an unqualified individual to a Quality Manager position due to their romantic relationship. The response received from the human-resources consultant noted that it was unusual to find a Nurse II manager with only an associate’s degree, but was not illegal, and the employee was qualified based on prior experience. Concerns were also raised concerning the medical center director’s use of over $400 in government funds to “soundproof” the Quality Manager’s office, including having panels attached to one wall and the hollow office door replaced with a solid door. The Chief of Engineering Services was interviewed regarding the request and stated it was an odd request, and the first time he was asked to soundproof an administrative employee’s office. The response provided by the program office did not address why the director used government funds to soundproof the Quality Manager’s office. The response provided also did not address whether recommendations that the Quality Manager’s retention allowance be reviewed for compliance and that she be counseled for appropriate office dress code were implemented. The medical center director was alleged to have misrepresented a plan to track and provide mental-health services to veterans in non-VA hospitals and created a hostile work environment against African-American veterans and employees. The medical center director investigated the allegations against himself and provided a response that was eventually submitted late to the OIG. His response indicated that a review was completed and all allegations were unsubstantiated. Several documents provided with his response showed that only 12 contacts were made to veterans with mental-health care needs during the requested 24-month period, the percentage of patients experiencing wait times greater than 14 days before receiving mental-health services averaged 18 percent, and two veteran suicides occurred. The medical center director did not address allegations of creating a hostile work environment for African American veterans and employees. The medical center director improperly reannounced a vacancy in order to hire an individual with whom he allegedly had a close personal relationship to an Assistant Director position. He also requested the master key to the facility be issued to her against regulations. The allegation involving the master key was substantiated, but the Deputy Under Secretary who conducted the investigation stated that while there was no record of the key being returned, the key was returned and the general engineer brought the facility into compliance with VA regulations. Nonetheless, the Deputy Under Secretary found that a master key was issued in violation of policy, but no recommendations were made to the medical center director for corrective action. Allegations involved false patient wait-time documentation and abuse of authority. Specifically, a medical center director instructed staff to falsify patient wait times between follow-up appointments in order to meet VA’s 14-day timeliness metric. The investigation concluded that the false documentation allegation was substantiated, but attributed the cause to staff not understanding how to enter a follow-up appointment date into the system. It was also concluded that the correction of several hundred dates in the system improved the performance of the department for the national wait-time metric. However, no documentation was provided to (1) prove the medical center director had not abused his authority by instructing staff to review wait times greater than 14 days to determine how they could be reduced, and (2) support the conclusion that the original wait times were entered in error. In addition to the contact above, Dave Bruno (Assistant Director), Erica Varner (Analyst in Charge), Hiwotte Amare, Chris Cronin, Carrie Davidson, Ranya Elias, Colin Fallon, Mitch Karpman, Grant Mallie, Anna Maria Ortiz, Sabrina Streagle, Reed Van Beveren, and April Van Cleef made key contributions to this report.	[ "VA provides services and benefits to veterans through hospitals and other facilities nationwide. Misconduct by VA employees can have serious consequences for some veterans, including poor quality of care. GAO was asked to review employee misconduct across VA. This report reviews the extent to which VA (1) collects reliable information associated with employee misconduct and disciplinary actions, (2) adheres to documentation-retention procedures when adjudicating cases of employee misconduct, (3) ensures allegations of misconduct involving senior officials are reviewed according to VA investigative standards and these officials are held accountable, and (4) has procedures to investigate whistle-blower allegations of misconduct; and the extent to which (5) data and whistle-blower testimony indicate whether retaliation for disclosing misconduct occurs at VA. GAO analyzed 12 information systems across VA to assess the reliability of misconduct data, examined a stratified random sample of 544 misconduct cases from 2009 through 2015, analyzed data and reviewed cases pertaining to senior officials involved in misconduct, reviewed procedures pertaining to whistle-blower investigations, and examined a nongeneralizable sample of whistle-blower disclosures from 2010 to 2014. The Department of Veterans Affairs (VA) collects data related to employee misconduct and disciplinary actions, but fragmentation and data-reliability issues impede department-wide analysis of those data. VA maintains six information systems that include partial data related to employee misconduct. For example, VA's Personnel and Accounting Integrated Data system collects information on disciplinary actions that affect employee leave and pay, but the system does not collect information on other types of disciplinary actions. The system also does not collect information such as the offense or date of occurrence. GAO also identified six other information systems that various VA administrations and program offices use to collect specific information regarding their respective employees' misconduct and disciplinary actions. GAO's analysis of all 12 information systems found data-reliability issues—such as missing data, lack of identifiers, and lack of standardization among fields. Without collecting reliable misconduct and disciplinary action data on all cases department-wide, VA's reporting and decision making on misconduct are impaired. VA inconsistently adhered to its guidance for documentation retention when adjudicating misconduct allegations, based on GAO's review of a generalizable sample of 544 out of 23,622 misconduct case files associated with employee disciplinary actions affecting employee pay. GAO estimates that VA would not be able to account for approximately 1,800 case files. Further, GAO estimates that approximately 3,600 of the files did not contain required documentation that employees were adequately informed of their rights during adjudication procedures—such as their entitlement to be represented by an attorney. The absence of files and associated documentation suggests that individuals may not have always received fair and reasonable due process as allegations of misconduct were adjudicated. Nevertheless, VA's Office of Human Resource Management does not regularly assess the extent to which files and documentation are retained consistently with applicable requirements. VA did not consistently ensure that allegations of misconduct involving senior officials were reviewed according to investigative standards and these officials were held accountable. For example, based on a review of 23 cases of alleged misconduct by senior officials that the VA Office of Inspector General (OIG) referred to VA facility and program offices for additional investigation, GAO found VA frequently did not include sufficient documentation for its findings, or provide a timely response to the OIG. In addition, VA was unable to produce any documentation used to close 2 cases. Further, OIG policy does not require the OIG to verify the completeness of investigations, which would help ensure that facility and program offices had met the requirements for investigating allegations of misconduct. Regarding senior officials, VA did not always take necessary measures to ensure they were held accountable for substantiated misconduct. As the figure below shows, GAO found that the disciplinary action proposed was not taken for 5 of 17 senior officials with substantiated misconduct. As a result of June 2017 legislation, a new office within VA—the Office of Accountability and Whistleblower Protection—will be responsible for receiving and investigating allegations of misconduct involving senior officials. VA has procedures for investigating whistle-blower complaints, but the procedures allow the program office or facility where a whistle-blower has reported misconduct to conduct the investigation. According to the OIG, it has the option of investigating allegations of misconduct, or exercising a “right of first refusal” whereby it refers allegations of misconduct to the VA facility or program office where the allegation originated. VA does not have oversight measures to ensure that all referred allegations of misconduct are investigated by an entity outside the control of the facility or program office involved in the misconduct, to ensure independence. As a result, GAO found instances where managers investigated themselves for misconduct, presenting a conflict of interest. Data and whistle-blower testimony indicate that retaliation may have occurred at VA. As the table below shows, individuals who filed a disclosure of misconduct with the Office of Special Counsel (OSC) received disciplinary action at a much higher rate than the peer average for the rest of VA in fiscal years 2010–2014. Additionally, GAO's interviews with six VA whistle-blowers who claim to have been retaliated against provided anecdotal evidence that retaliation may be occurring. These whistle-blowers alleged that managers in their chain of command took several untraceable actions to retaliate against the whistle-blowers, such as being denied access to computer equipment necessary to complete assignments. GAO makes numerous recommendations to VA to help enhance its ability to address misconduct issues (several of the recommendations are detailed on the following page). GAO recommends, among other things, that the Secretary of Veterans Affairs develop and implement guidance to collect complete and reliable misconduct and disciplinary-action data department-wide; such guidance should include direction and procedures on addressing blank fields, lack of personnel identifiers, and standardization among fields; direct applicable facility and program offices to adhere to VA's policies regarding misconduct adjudication documentation; direct the Office of Human Resource Management to routinely assess the extent to which misconduct-related files and documents are retained consistently with applicable requirements; direct the Office of Accountability and Whistleblower Protection (OAWP) to review responses submitted by facility or program offices to ensure evidence produced in senior-official case referrals demonstrates that the required elements have been addressed; direct OAWP to issue written guidance on how OAWP will verify whether appropriate disciplinary action has been implemented; and develop procedures to ensure (1) whistle-blower investigations are reviewed by an official independent of and at least one level above the individual involved in the allegation, and (2) VA employees who report wrongdoing are treated fairly and protected against retaliation. GAO also recommends, among other things, that the VA OIG revise its policy and require verification of evidence produced in senior-official case referrals. VA concurred with nine recommendations and partially concurred with five. In response, GAO modified three of the recommendations. The VA OIG concurred with one recommendation and partially concurred with the other. GAO continues to believe that both are warranted." ]	22,296	gov_report	en	null	8b518fb560a869de24be330b84a60e48e977392f6f9877b5
The Federal Communications Commission (FCC) is an independent federal agency, with its five members appointed by the President, subject to confirmation by the Senate. It was established by the Communications Act of 1934 (1934 Act, or "Communications Act") and is charged with regulating interstate and international communications by radio, television, wire, satellite, and cable. The mission of the FCC is to ensure that the American people have available, "without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges." The 1934 Act is divided into titles and sections that describe various powers and concerns of the commission. Title I—FCC Administration and Powers. The 1934 Act originally called for a commission consisting of seven members, but that number was reduced to five in 1983. Commissioners are appointed by the President and approved by the Senate to serve five-year terms; the President designates one member to serve as chairman. Title II—Common carrier regulation, primarily telephone regulation, including circuit-switched telephone services offered by cable companies. Common carriers are communication companies that provide facilities for transmission but do not originate messages, such as telephone and microwave providers. The 1934 Act limits FCC regulation to interstate and international common carriers, although a joint federal-state board coordinates regulation between the FCC and state regulatory commissions. Title III—Broadcast station requirements. Much existing broadcast regulation was established prior to 1934 by the Federal Radio Commission, and most provisions of the Radio Act of 1927 were subsumed into Title III of the 1934 Act. Title IV—Procedural and administrative provisions, such as hearings, joint boards, judicial review of the FCC's orders, petitions, and inquiries. Title V—Penal provisions and forfeitures, such as violations of rules and regulations. Title VI—Cable communications, such as the use of cable channels and cable ownership restrictions, franchising, and video programming services provided by telephone companies. Title VII—Miscellaneous provisions and powers, such as war powers of the President, closed captioning of public service announcements, and telecommunications development fund. The FCC is directed by five commissioners appointed by the President and confirmed by the Senate for five-year terms (except when filling an unexpired term). The President designates one of the commissioners to serve as chairperson. Three commissioners may be members of the same political party as the President and none can have a financial interest in any commission-related business. Ajit Pai, Chair (originally sworn in on May 14, 2012; designated chairman by President Trump in January 2017 and confirmed by the Senate for a second term on October 2, 2017); Michael O'Rielly (sworn in for a second term on January 29, 2015); Brendan Carr (sworn in on August 11, 2017); Jessica Rosenworcel (sworn in on August 11, 2017); and Geoffrey Starks (sworn in on January 30, 2019). The day-to-day functions of the FCC are carried out by 7 bureaus and 10 offices. The current basic structure of the FCC was established in 2002 as part of the agency's effort to better reflect the industries it regulates. The seventh bureau, the Public Safety and Homeland Security Bureau, was established in 2006, largely in response to Hurricane Katrina. The bureaus process applications for licenses and other filings, analyze complaints, conduct investigations, develop and implement regulatory programs, and participate in hearings, among other things. The offices provide support services. Bureaus and offices often collaborate when addressing FCC issues. The bureaus hold the following responsibilities: Consumer and Governmental Affairs Bureau—Develops and implements consumer policies, including disability access and policies affecting Tribal nations. The Bureau serves as the public face of the Commission through outreach and education, as well as responding to consumer inquiries and informal complaints. The Bureau also maintains collaborative partnerships with state, local, and tribal governments in such critical areas as emergency preparedness and implementation of new technologies. In addition, the Bureau's Disability Rights Office provides expert policy and compliance advice on accessibility with respect to various forms of communications for persons with disabilities. Enforcement Bureau—Enforces the Communications Act and the FCC's rules. It protects consumers, ensures efficient use of spectrum, furthers public safety, promotes competition, resolves intercarrier disputes, and protects the integrity of FCC programs and activities from fraud, waste, and abuse. International Bureau—Administers the FCC's international telecommunications and satellite programs and policies, including licensing and regulatory functions. The Bureau promotes pro-competitive policies abroad, coordinating the FCC's global spectrum activities and advocating U.S. interests in international communications and competition. The Bureau works to promote high-quality, reliable, interconnected, and interoperable communications infrastructure on a global scale. Media Bureau—Recommends, develops, and administers the policy and licensing programs relating to electronic media, including broadcast, cable, and satellite television in the United States and its territories. Public Safety and Homeland Security Bureau—Develops and implements policies and programs to strengthen public safety communications, homeland security, national security, emergency management and preparedness, disaster management, and network reliability. These efforts include rulemaking proceedings that promote more efficient use of public safety spectrum, improve public alerting mechanisms, enhance the nation's 911 emergency calling system, and establish frameworks for communications prioritization during crisis. The Bureau also maintains 24/7 operations capability and promotes Commission preparedness to assist the public, first responders, the communications industry, and all levels of government in responding to emergencies and major disasters where reliable public safety communications are essential. Wireless Telecommunications Bureau—Responsible for wireless telecommunications programs and policies in the United States and its territories, including licensing and regulatory functions. Wireless communications services include cellular, paging, personal communications, mobile broadband, and other radio services used by businesses and private citizens. Wireline Competition Bureau—Develops, recommends, and implements policies and programs for wireline telecommunications, including fixed (as opposed to mobile) broadband and telephone landlines, striving to promote the widespread development and availability of these services. The Bureau has primary responsibility for the Universal Service Fund which helps connect all Americans to communications networks. The offices hold the following responsibilities: Administrative Law Judges—Composed of one judge (and associated staff) who presides over hearings and issues decisions on matters referred by the FCC. Communications Business Opportunities—Promotes competition and innovation in the provision and ownership of telecommunications services by supporting opportunities for small businesses as well as women and minority-owned communications businesses. Economics and Analytics—Responsible for expanding and deepening the use of economic analysis into Commission policymaking, for enhancing the development and use of auctions, and for implementing consistent and effective agency-wide data practices and policies. The Office also manages the FCC's auctions in support of and in coordination with the FCC's Bureaus and Offices. In January 2019, the FCC voted along party lines to eliminate the Office of Strategic Planning and Policy Analysis and replace it with the Office of Economics and Analytics. Engineering and Technology—Advises the FCC on technical and engineering matters. This Office develops and administers FCC decisions regarding spectrum allocations and grants equipment authorizations and experimental licenses. General Counsel—Serves as the FCC's chief legal advisor and representative. Inspector General—Conducts and supervises audits and investigations relating to FCC programs and operations. Legislative Affairs—Serves as the liaison between the FCC and Congress, as well as other federal agencies. Managing Director—Administers and manages the FCC. Media Relations—Informs the media of FCC decisions and serves as the FCC's main point of contact with the media. Workplace Diversity—Ensures that FCC provides employment opportunities for all persons regardless of race, color, sex, national origin, religion, age, disability, or sexual orientation. Additionally, an FCC Secretary serves to preserve the integrity of the FCC's records, oversee the receipt and distribution of documents filed by the public through electronic and paper filing systems, and give effective legal notice of FCC decisions by publishing them in the Federal Register and the FCC Record . The current FCC Strategic Plan covers the five-year period FY2018-FY2022. The plan outlines four goals: Closing the Digital Divide—Broadband is acknowledged as being critical to economic opportunity, but broadband is unavailable or unaffordable in many parts of the country. The FCC is to seek to help close the digital divide, bring down the cost of broadband deployment, and create incentives for providers to connect consumers in hard-to-serve areas. Promoting Innovation—Fostering a competitive, dynamic, and innovative market for communications services is a key priority for the FCC. The FCC plans to promote entrepreneurship, expand economic opportunity, and remove barriers to entry and investment. Protecting Consumers and Public Safety—Serving the broader public interest is the FCC's core mission. The FCC plans to work to combat unwanted and unlawful robocalls, make communications accessible for people with disabilities, and protect public safety (e.g., ensuring delivery of 9-1-1 calls, restoring communications after disasters). Reforming the FCC's Processes—One of the chairman's top priorities has been to implement process reforms to make the work of the FCC more transparent, open, and accountable to the public. The FCC plans to modernize and streamline its operations and programs to improve decisionmaking, build consensus, and reduce regulatory burdens. The FCC has identified performance objectives associated with each strategic goal. Commission management annually develops targets and measures related to each performance goal to provide direction toward accomplishing those goals. Targets and measures are published in the FCC's Performance Plan, and submitted with the commission's annual budget request to Congress. Results of the commission's efforts to meet its goals, targets, and measures are found in the FCC's Annual Performance Report published each February. The FCC also issues a Summary of Performance and Financial Results every February, providing a concise, citizen-focused review of the agency's accomplishments. Since the 110 th Congress, the FCC has been funded through the House and Senate Financial Services and General Government (FSGG) appropriations bill as a single line item. Previously, it was funded through what is now the Commerce, Justice, Science appropriations bill, also as a single line item. The FCC annually collects and retains regulatory fees to offset costs incurred by the agency and to carry out its functions. Since 2009 the FCC's budget has been derived from regulatory fees collected by the agency rather than through a direct appropriation. The fees, often referred to as "Section (9) fees," are collected from license holders and certain other entities (e.g., cable television systems). The regulatory fees do not apply to governmental entities, amateur radio operator licensees, nonprofit entities, and certain other non-commercial entities. The FCC is authorized to review the regulatory fees each year and adjust them to reflect changes in its appropriation from year to year. The Commission originally implemented the Regulatory Fee Collection Program by rulemaking on July 18, 1994. The most recent regulatory fee order was released by the Commission on August 29, 2018. The FCC's budgets from FY2010 to FY2020 are in Figure 1 . On March 23, 2018, the Repack Airwaves Yielding Better Access for Users of Modern Services Act of 2018 (the "RAY BAUM'S Act" or "2018 Act") became law as part of the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ). The 2018 Act requires the FCC to transfer all excess collections for FY2018 and prior years to the General Fund of the U.S. Treasury for the sole purpose of deficit reduction. The 2018 Act also requires the Commission to transfer any excess collections in FY2019 and in subsequent years to the General Fund of the U.S. Treasury for the sole purpose of deficit reduction. On October 1, 2018, the Commission transferred over $9 million in excess collections from FY2018 as well as approximately $112 million in excess collections from FY2017 and prior years to the General Fund of the U.S. Treasury. For FY2020, the FCC has requested $335,660,000 in budget authority from regulatory fee offsetting collections. This is $3,950,000 less than the authorization level of $339,610,000 included in the 2018 FCC Reauthorization in the Consolidated Appropriations Act, 2018. The FY2020 FCC request also represents a decrease of $3,340,000, or about 1.0%, from the FY2019 appropriated level of $339,000,000. The FCC requested $132,538,680 in budget authority for the spectrum auctions program. For FY2019, Congress appropriated a cap of $130,284,000 for the spectrum auctions program, which included additional funds to implement the requirements of the 2018 Act that mandated significant additional work for the FCC related to the TV Broadcaster Relocation Fund. The Commission's FY2020 budget request of $132,538,680 for this program would be an increase of $2,254,680, or 1.7%, over the FY2019 appropriation. This level of funding is intended to enable the Commission to continue its efforts to: reimburse full power and Class A stations, multichannel video programming distributors, Low Power TV, TV translator, and FM stations for reasonable costs incurred as a result of the Commission's incentive auction; make more spectrum available for 5G; and educate consumers affected by the reorganization of broadcast television spectrum. To date, the Commission's spectrum auctions program has generated over $114.6 billion for government use; at the same time, the total cost of the auctions program has been less than $2.0 billion, or less than 1.7% of the total auctions' revenue. Through the Consolidated Appropriations Act, 2018 ( P.L. 115-141 ), the FCC was reauthorized for the first time since 1990 (FCC Authorization Act of 1990, P.L. 101-396 ). The FCC publishes four periodic reports for Congress. Strategic Plan. The Strategic Plan is the framework around which the FCC develops its yearly Performance Plan and Performance Budget. The FCC submitted its current four-year Strategic Plan for 2018-2022 in February 2018, in accordance with the Government Performance and Results Modernization Act of 2010, P.L. 111-352 . Performance Budget. The annual Performance Budget includes performance targets based on the FCC's strategic goals and objectives, and serves as the guide for implementing the Strategic Plan. The Performance Budget becomes part of the President's annual budget request. Agency Financial Report. The annual Agency Financial Report contains financial and other information, such as a financial discussion and analysis of the agency's status, financial statements, and audit reports. Annual Performance Report. At the end of the fiscal year, the FCC publishes an Annual Performance Report that compares the agency's actual performance with its targets. All of these reports are available on the FCC website, https://www.fcc.gov/about/strategic-plans-budget . One FCC-related hearing has been held in the 116 th Congress. On April 3, 2019, the House Committee on Appropriations Subcommittee on Financial Services and General Government held a hearing on the FY2020 FCC budget. The hearing addressed issues including 5G deployment, federal preemption of state and local tower siting requirements, merger reviews, robocalls, and net neutrality. No bills that would affect the operation of the FCC have been introduced in the 116 th Congress. The FCC operates under a public interest mandate first laid out in the 1927 Radio Act (P.L. 632, 69 th Congress), but how this mandate is applied depends on which of two regulatory philosophies is relied upon to interpret it. The first seeks to protect and benefit the public at large through regulation, while the second seeks to achieve the same goals through the promotion of market efficiency. Additionally, Congress granted the FCC wide latitude and flexibility to revise its interpretation of the public interest standard to reflect changing circumstances, and the agency has not defined it in more concrete terms. These circumstances, paired with changes in FCC leadership, have led to significant changes over time in how the FCC regulates the broadcast and telecommunications industries. This evolution can be illustrated in changes to the agency's strategic goals under former Chairman Tom Wheeler to current Chairman Ajit Pai, which, in turn, led to the repeal in 2017 of the FCC's 2015 net neutrality rules and to changes in the agency's structure in 2019. The FCC's strategic goals are set forth in its quadrennial Strategic Plan. How these goals change from one plan to the next can illustrate how the priorities of the commission change over time, especially when there is a change in the political majority of the commission and therefore, the political party of the chairman. Table 1 outlines the strategic goals of Chairman Wheeler in the FY2015-FY2018 Strategic Plan compared to those of Chairman Pai in the FY2018-FY2022 Strategic Plan. Chairman Wheeler was a proponent of protecting and benefitting the public through regulation. His support of this regulatory philosophy can be seen in the language used in the strategic goals, such as the "rights of users" and the "responsibilities of network providers." Another example can be seen in the following language: "The FCC has a responsibility to promote the expansion of these networks and to ensure they have the incentive and the ability to compete fairly with one another in providing broadband services." On the other hand, Chairman Pai speaks about protecting and benefitting the public through the promotion of market incentives and efficiency. His support of this regulatory philosophy can be seen in the language used in the strategic goals, such as "reducing regulatory burdens" and ensuring that "regulations reflect the realities of the current marketplace, promote entrepreneurship, expand economic opportunity, and remove barriers to entry and investment." The use of this particular language may seem somewhat vague, but within the context of the net neutrality debate, discussed below, and the replacement of the Office of Strategic Planning and Policy Analysis with the Office of Economics and Analytics, those words take on more specific meaning, each intending to support the policy agenda of the Chairman. Net neutrality is arguably the highest profile issue illustrating the two regulatory philosophies described above. Chairman Pai had long maintained that the FCC under Chairman Wheeler had overstepped its bounds, expressing confidence that the 2015 Wheeler-era net neutrality rules would be undone, calling them "unnecessary regulations that hold back investment and innovation." Although the net neutrality debate originated in 2005, the 2015 Open Internet Order, implemented under the leadership of Chairman Wheeler, and the 2017 Order overturning those rules, promulgated under Chairman Pai, are the most recent. These two orders can be used to illustrate the contrast between the regulatory philosophies of the two chairmen: Some policymakers contend that more proscriptive regulations, such as those contained in the FCC's 2015 Open Internet Order (2015 Order), are necessary to protect the marketplace from potential abuses which could threaten the net neutrality concept. Others contend that existing laws and the current, less restrictive approach, contained in the FCC's 2017 Restoring Internet Freedom Order (2017 Order), provide a more suitable framework. Net neutrality continues to be a highly politicized issue, with most FCC action being approved along party lines. In January 2019, the FCC voted along party lines to eliminate the Office of Strategic Planning and Policy Analysis and replace it with a new Office of Economics and Analytics. The Office of Strategic Planning and Policy Analysis (OSP) was created in 2005, replacing the Office of Plans and Policy. OSP had been charged with "providing advice to the chairman, commissioners, bureaus, and offices; developing strategic plans; identifying the agency's policy objectives; and providing research, advice, and analysis of advanced, novel, and nontraditional communications issues." It had also been the home of the Chief Economist and Chief Technologist. The new Office of Economics and Analytics is "responsible for expanding and deepening the use of economic analysis into FCC policy making, for enhancing the development and use of auctions, and for implementing consistent and effective agency-wide data practices and policies." This new office reflects the goals in the current strategic plan: We will modernize and streamline the FCC's operations and programs to … reduce regulatory burdens…. A key priority [is to] … ensure that the FCC's actions and regulations reflect the realities of the current marketplace … and remove barriers to entry and investment. As the FCC continues to conduct its business into the future, the changing regulatory philosophies of the FCC chairmen may continue to drive how the FCC defines its long-term, strategic goals. This, in turn, may affect how the agency structures (and restructures) itself and how it decides regulatory questions, including a continued review of net neutrality. Congress may determine that the public interest standard should remain more static, rather than fluctuating dramatically depending on the regulatory philosophy of the chairman. No legislation on this topic has been introduced in Congress, signaling to some observers that it intends to continue allowing the FCC to define it. Table A-1 . Senate and House hearings in the 115 th Congress regarding the operation of the FCC are detailed in Table A-2 and Table A-3 , respectively. Links to individual hearing pages are included in these tables.	[ "The Federal Communications Commission (FCC) is an independent federal agency established by the Communications Act of 1934 (1934 Act, or \"Communications Act\"). The agency is charged with regulating interstate and international communications by radio, television, wire, satellite, and cable. The mission of the FCC is to make available for all people of the United States, \"without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, Nationwide, and worldwide wire and radio communication service with adequate facilities at reasonable charges.\" The FCC operates under a public interest mandate first laid out in the 1927 Radio Act (P.L. 632, 69th Congress), but how this mandate is applied depends on how \"the public interest\" is interpreted. Some regulators seek to protect and benefit the public at large through regulation, while others seek to achieve the same goals through the promotion of market efficiency. Additionally, Congress granted the FCC wide latitude and flexibility to revise its interpretation of the public interest standard to reflect changing circumstances and the agency has not defined it in more concrete terms. These circumstances, paired with changes in FCC leadership, have led to significant changes over time in how the FCC regulates the broadcast and telecommunications industries. The FCC is directed by five commissioners appointed by the President and confirmed by the Senate for five-year terms. The President designates one of the commissioners as chairperson. Three commissioners may be members of the same political party of the President and none can have a financial interest in any commission-related business. The current commissioners are Ajit Pai (Chair), Michael O'Rielly, Brendan Carr, Jessica Rosenworcel, and Geoffrey Starks. The day-to-day functions of the FCC are carried out by 7 bureaus and 10 offices. The current basic structure of the FCC was established in 2002 as part of the agency's effort to better reflect the industries it regulates. The seventh bureau, the Public Safety and Homeland Security Bureau, was established in 2006. The bureaus process applications for licenses and other filings, manage non-federal spectrum, analyze complaints, conduct investigations, develop and implement regulatory programs, and participate in hearings, among other things. The offices provide support services. Bureaus and offices often collaborate when addressing FCC issues. Beginning in the 110th Congress, the FCC has been funded through the House and Senate Financial Services and General Government (FSGG) appropriations bill as a single line item. Previously, it was funded through what is now the Commerce, Justice, Science appropriations bill, also as a single line item. Since 2009 the FCC's budget has been derived from regulatory fees collected by the agency rather than through a direct appropriation. The fees, often referred to as \"Section (9) fees,\" are collected from license holders and certain other entities. The FCC is authorized to review the regulatory fees each year and adjust them to reflect changes in its appropriation from year to year. Most years, appropriations language prohibits the use by the commission of any excess collections received in the current fiscal year or any prior years. For FY2020, the FCC has requested $335,660,000 in budget authority from regulatory fee offsetting collections. The FCC also requested $132,538,680 in budget authority for the spectrum auctions program." ]	3,388	gov_report	en	null	494cc4ce8a3c65fd0c1284427d08e9305acb10313708e4e9

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